##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003              Commission File No.: 0-27740

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

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

2101 North Veterans Parkway, Bloomington, Illinois 61704
(Address of principal executive offices)

Registrants telephone number: (309) 661-8700

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for past 90 days.

(1)                    Yes x  No

(2)                    Yes x  No

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes   No X

The Registrant had 1,494,258 shares of Common Stock outstanding as of July 31,
2003.





---

TABLE OF CONTENTS



|                                                  |                                                                                               |                                                                                      |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ |  |  |  |  |  | 
|                                                  | PART I.  FINANCIAL INFORMATION                                                              
|                                                  |                                                                                               | Condensed Consolidated Balance Sheets                                               
|                                                  | Condensed Consolidated Statements of Income for the six months ended June 30, 2003           
|                                                  |                                                                                               | Condensed Consolidated Statements of Income for the three months ended June 30, 2002
|                                                  |                                                                                               | Condensed Consolidated Statements of Cash Flows                                     
|                                                  |                                                                                               | Notes to Condensed Consolidated Financial Statements                                
|                                                  | ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
|                                                  | ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                         
|                                                  | ITEM 4.   CONTROLS AND PROCEDURES                                                            
|PART II.  OTHER INFORMATION                     
|                                                  | Item 1.   Legal Proceedings                                                                  
|                                                  | Item 2.   Changes in Securities and Use of Proceeds                                          
|                                                  | Item 3.   Defaults Upon Senior Securities                                                    
|                                                  | Item 4.   Submission of Matters to a Vote of Security Holders                                
|                                                  | Item 5.   Other Information                                                                  
|                                                  | Item 6.   Exhibits and Reports on Form 8-K                                                   
|                                                  | SIGNATURES                                                                                   
|Statement re: Computation of Per Share Earnings  
|Section 302 Certification of C. William Landefeld
|Section 302 Certification of Dallas G. Smiley    
|Section 906 Certification of C. William Landefeld
|Section 906 Certification of Dallas G. Smiley    



---



##### Table of Contents



TABLE OF CONTENTS

|                               |  |  |  |            |  |                                                            |  |    |  | 
|------------------------------ |  |  |  | ---------- |  | ---------------------------------------------------------- |  | -- |  | 
|PART I  FINANCIAL INFORMATION
|                               |  |  |  |            |  |                                                            |  |    |  | 
|PAGE                          
|                               |  |  |  |            |  |                                                            |  |    |  | 
|                               |  |  |  | Item 1.    |  | Financial Statements                                       |  |    |  | 
|                               |  |  |  |            |  | Condensed Consolidated Balance Sheets as of                |  |    |  | 
|                               |  |  |  |            |  | June 30, 2003 and December 31, 2002                        |  | 1  |  | 
|                               |  |  |  |            |  |                                                            |  |    |  | 
|                               |  |  |  |            |  | Condensed Consolidated Statements of Income for the        |  |    |  | 
|                               |  |  |  |            |  | Six Months Ended June 30, 2003 and 2002                    |  | 2  |  | 
|                               |  |  |  |            |  |                                                            |  |    |  | 
|                               |  |  |  |            |  | Condensed Consolidated Statements of Income for the        |  |    |  | 
|                               |  |  |  |            |  | Three Months Ended June 30, 2003 and 2002                  |  | 3  |  | 
|                               |  |  |  |            |  |                                                            |  |    |  | 
|                               |  |  |  |            |  | Condensed Consolidated Statements of Cash Flows for the    |  |    |  | 
|                               |  |  |  |            |  | Six Months Ended June 30, 2003 and 2002                    |  | 4  |  | 
|                               |  |  |  |            |  |                                                            |  |    |  | 
|                               |  |  |  |            |  | Notes to Condensed Consolidated Financial Statements       |  | 6  |  | 
|                               |  |  |  |            |  |                                                            |  |    |  | 
|                               |  |  |  | Item 2.    |  | Managements Discussion and Analysis of Financial          |  |    |  | 
|                               |  |  |  |            |  | Condition and Results of Operation                         |  | 8  |  | 
|                               |  |  |  |            |  |                                                            |  |    |  | 
|                               |  |  |  | Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk |  | 15 |  | 
|                               |  |  |  |            |  |                                                            |  |    |  | 
|                               |  |  |  | Item 4.    |  | Controls and Procedures                                    |  | 15 |  | 
|                               |  |  |  |            |  |                                                            |  |    |  | 
|PART II  OTHER INFORMATION   
|                               |  |  |  |            |  |                                                            |  |    |  | 
|                               |  |  |  | Item 1.    |  | Legal Proceedings                                          |  | 16 |  | 
|                               |  |  |  | Item 2.    |  | Changes in Securities and Use of Proceeds                  |  | 16 |  | 
|                               |  |  |  | Item 3.    |  | Defaults Upon Senior Securities                            |  | 16 |  | 
|                               |  |  |  | Item 4.    |  | Submission of Matters to a Vote of Security Holders        |  | 16 |  | 
|                               |  |  |  | Item 5.    |  | Other Information                                          |  | 16 |  | 
|                               |  |  |  | Item 6.    |  | Exhibits and Reports on Form 8-K                           |  | 16 |  | 
|                               |  |  |  | Signatures |  |                                                            |  | 17 |  | 

Statements contained in this Form 10-Q which are not historical facts are
forward-looking statements, as that term is described in the Private Securities
Litigation Reform Act of 1995. The forward-looking statements are generally
identifiable by the use of such words as believes, expects, anticipates,
estimates, projects, intends or similar expressions. Such
forward-looking statements are subject to risk and uncertainties which could
cause actual results to differ materially from those projected. Such risks and
uncertainties include potential change in interest rates, competitive factors
in the financial services industry, general and local economic conditions, the
effect of new legislation and other risks detailed in documents filed by the
Company with the Securities and Exchange Commission from time to time.





---



##### Table of Contents






PART I.  FINANCIAL INFORMATION




Citizens First Financial Corp. and Subsidiary
Condensed Consolidated Balance Sheets
As of June 30, 2003 and December 31, 2002
(in thousands)

|                                               |                                                                                                          |                                                        |           |                                            |         |          |         |         |              |         |         | 
|---------------------------------------------- | -------------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | --------- | ------------------------------------------ | ------- | -------- | ------- | ------- | ------------ | ------- | ------- | 
|                                               |                                                                                                          |                                                        |           |                                            |         | June 30, |         |         | December 31, |        
|                                               |                                                                                                          |                                                        |           |                                            |         | 2003     |         |         | 2002         |        
|                                               |                                                                                                          |                                                        |           |                                            |         |          |         |         |              |        
|ASSETS                                         |                                                                                                          | (Unaudited)                                            |           |                                            |         |          |        
|                                               |                                                                                                          |                                                        |           |                                            |         |          |        
|                                               | Cash and due from banks                                                                                  |                                                        | $         | 6,566                                      |         |          | $       | 10,730  |             
|                                               | Interest-bearing deposits and federal funds sold                                                         |                                                        |           | 28,644                                     |         |          |         | 22,853  |             
|                                               |                                                                                                          |                                                        |           |                                            |         |         
|                                               |                                                                                                          | Cash and cash equivalents                              |           |                                            | 35,210  |          |         |         | 33,583       |        
|                                               |                                                                                                          |                                                        |           |                                            |         |         
|                                               | Available for sale securities                                                                            |                                                        |           | 23,495                                     |         |          |         | 20,712  |             
|                                               | Mortgage loans held for sale                                                                             |                                                        |           | 5,471                                      |         |          |         | 6,098   |             
|                                               | Loans                                                                                                    |                                                        |           | 260,346                                    |         |          |         | 282,591 |             
|                                               |                                                                                                          | Allowance for loan losses                              |           |                                            | (1,624  | )        |         |         | (3,753       | )      
|                                               |                                                                                                          |                                                        |           |                                            |         |         
|                                               |                                                                                                          |                                                        | Net loans |                                            |         | 258,722  |         |         |              | 278,838 |        
|                                               | Land in real estate joint venture                                                                        |                                                        |           | 547                                        |         |          |         | 888     |             
|                                               | Premises and equipment                                                                                   |                                                        |           | 6,454                                      |         |          |         | 6,792   |             
|                                               | Federal Home Loan Bank stock                                                                             |                                                        |           | 4,904                                      |         |          |         | 4,697   |             
|                                               | Foreclosed real estate                                                                                   |                                                        |           | 4,438                                      |         |          |         | 1,500   |             
|                                               | Mortgage servicing rights, net of valuation allowance of $123,000
at June 30, 2003 and December 31, 2002 |                                                        |           | 391                                        |         |          |         | 407     |             
|                                               | Other assets                                                                                             |                                                        |           | 7,262                                      |         |          |         | 3,541   |             
|                                               |                                                                                                          |                                                        |           |                                            |         |         
|                                               |                                                                                                          |                                                        |           | Total assets                               |         | $        | 346,894 |         |              | $       | 357,056 | 
|                                               |                                                                                                          |                                                        |           |                                            |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY           |                                                                                                          |                                                        |           |                                            |         |          |         |        
|Liabilities                                    |                                                                                                          |                                                        |           |                                            |         |          |         |        
|                                               | Deposits                                                                                                 |                                                        | $         | 239,988                                    |         |          | $       | 249,163 |             
|                                               | Long-term debt                                                                                           |                                                        |           | 70,675                                     |         |          |         | 72,825  |             
|                                               | Other liabilities                                                                                        |                                                        |           | 3,289                                      |         |          |         | 2,730   |             
|                                               |                                                                                                          |                                                        |           |                                            |         |         
|                                               |                                                                                                          |                                                        |           | Total liabilities                          |         |          | 313,952 |         |              |         | 324,718 | 
|Minority interest in real estate joint venture |                                                                                                          |                                                        | 280       |                                            |         |          | 444     |        
|Commitments and Contingent Liabilities         |                                                                                                          |                                                        |           |                                            |         |          |         |        
|Stockholders Equity                           |                                                                                                          |                                                        |           |                                            |         |          |         |        
|                                               | Preferred stock, $.01 par value                                                                          |                                                        |           |                                            |         |          |         |         |             
|                                               |                                                                                                          | Authorized and unissued  1,000,000 shares             |           |                                            |        |          |         |         |             |        
|                                               | Common stock, $.01 par value; authorized 8,000,000
shares; 2,817,500 shares issued and outstanding       |                                                        |           | 28                                         |         |          |         | 28      |             
|                                               | Additional paid-in-capital                                                                               |                                                        |           | 26,766                                     |         |          |         | 27,934  |             
|                                               | Retained earnings                                                                                        |                                                        |           | 28,137                                     |         |          |         | 25,837  |             
|                                               | Accumulated other comprehensive income                                                                   |                                                        |           | 168                                        |         |          |         | 197     |             
|                                               | Less:                                                                                                    |                                                        |           |                                            |         |          |         |         |             
|                                               |                                                                                                          | Treasury shares, 1,347,022 and 1,361,996, respectively |           |                                            | (22,437 | )        |         |         | (22,102      | )      
|                                               |                                                                                                          |                                                        |           |                                            |         |         
|                                               |                                                                                                          |                                                        |           | Total stockholders equity                 |         |          | 32,662  |         |              |         | 31,894  | 
|                                               |                                                                                                          |                                                        |           |                                            |         |         
|                                               |                                                                                                          |                                                        |           | Total liabilities and stockholders equity |         | $        | 346,894 |         |              | $       | 357,056 | 
|                                               |                                                                                                          |                                                        |           |                                            |         |         

See notes to condensed consolidated financial statements

1



---



##### Table of Contents






Citizens First Financial Corp. and Subsidiary
Condensed Consolidated Statements of Income

|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                                |       |           |                     |        |       | 
|------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------- | ------------------------------------------------------------- | ------------------------------------------------------------------- | --------------------------------------------------- | --- | ---------------------------------------------- | ----- | --------- | ------------------- | ------ | ----- | 
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     | For the six months                             |       |           | For the six months  |       
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     | ended June 30, 2003                            |       |           | ended June 30, 2002 |       
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                                |       |           |                     |       
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     | (Unaudited and in thousands except share data) |      
|Interest income                                                                                  |                                                                             |                                                               |                                                                     |                                                     |     |                                                |       |          
|                                                                                                 | Interest on loans                                                           |                                                               | $                                                                   | 9,032                                               |     |                                                | $     | 10,607    |                    
|                                                                                                 | Interest on investments, deposits with banks, 
federal funds sold and other |                                                               |                                                                     | 790                                                 |     |                                                |       | 716       |                    
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|                                                                                                 |                                                                             |                                                               | Total interest income                                               |                                                     |     | 9,822                                          |       |           |                     | 11,323 |      
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|Interest expense                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                                |       |          
|                                                                                                 | Interest on deposits                                                        |                                                               |                                                                     | 3,016                                               |     |                                                |       | 4,092     |                    
|                                                                                                 | Interest on borrowings                                                      |                                                               |                                                                     | 1,571                                               |     |                                                |       | 1,791     |                    
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|                                                                                                 |                                                                             |                                                               | Total interest expense                                              |                                                     |     | 4,587                                          |       |           |                     | 5,883  |      
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|                                                                                                 |                                                                             |                                                               |                                                                     | Net interest income                                 |     |                                                | 5,235 |           |                     |        | 5,440 | 
|Provision for loan losses                                                                        |                                                                             |                                                               | 391                                                                 |                                                     |     |                                                | 230   |          
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|                                                                                                 |                                                                             |                                                               |                                                                     | Net interest income after provision for loan losses |     |                                                | 4,844 |           |                     |        | 5,210 | 
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|Noninterest income                                                                               |                                                                             |                                                               |                                                                     |                                                     |     |                                                |       |          
|                                                                                                 |                                                                             | Service charges on deposit accounts                           |                                                                     |                                                     | 451 |                                                |       |           | 462                 |       
|                                                                                                 |                                                                             | Net realized losses on sales of available for sale securities |                                                                     |                                                     |    |                                                |       |           | (71                 | )     
|                                                                                                 |                                                                             | Net gains on loan sales                                       |                                                                     |                                                     | 819 |                                                |       |           | 341                 |       
|                                                                                                 |                                                                             | Gains on sales of land in joint venture                       |                                                                     |                                                     | 194 |                                                |       |           | 0                   |       
|                                                                                                 |                                                                             | Other                                                         |                                                                     |                                                     | 119 |                                                |       |           | 177                 |       
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|                                                                                                 |                                                                             |                                                               | Total noninterest income                                            |                                                     |     | 1,583                                          |       |           |                     | 909    |      
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|Noninterest expense                                                                              |                                                                             |                                                               |                                                                     |                                                     |     |                                                |       |          
|                                                                                                 | Salaries and employee benefits                                              |                                                               |                                                                     | 2,044                                               |     |                                                |       | 2,209     |                    
|                                                                                                 | Net occupancy and equipment expenses                                        |                                                               |                                                                     | 629                                                 |     |                                                |       | 637       |                    
|                                                                                                 | Deposit insurance expense                                                   |                                                               |                                                                     | 47                                                  |     |                                                |       | 39        |                    
|                                                                                                 | Data processing expense                                                     |                                                               |                                                                     | 175                                                 |     |                                                |       | 164       |                    
|                                                                                                 | Minority interest in net income of real estate joint venture                |                                                               |                                                                     | 97                                                  |     |                                                |       |          |                    
|                                                                                                 | Other                                                                       |                                                               |                                                                     | 1,054                                               |     |                                                |       | 787       |                    
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|                                                                                                 |                                                                             |                                                               |                                                                     | Total noninterest expense                           |     |                                                | 4,046 |           |                     |        | 3,836 | 
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|Income before income tax                                                                         |                                                                             |                                                               | 2,381                                                               |                                                     |     |                                                | 2,283 |          
|Income tax expense                                                                               |                                                                             |                                                               | 918                                                                 |                                                     |     |                                                | 886   |          
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|Net income                                                                                       |                                                                             |                                                               | 1,463                                                               |                                                     |     |                                                | 1,397 |          
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|Other comprehensive income, net of tax:
Unrealized depreciation on available for sale securities |                                                                             |                                                               | (29                                                                 | )                                                   |     |                                                | (103  | )        
|                                                                                                 |                                                                             |                                                               | Less: Reclassification adjustment for losses included in net income |                                                     |     |                                                |       |           |                     | (43    | )    
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|Comprehensive income                                                                             |                                                                             | $                                                             | 1,434                                                               |                                                     |     | $                                              | 1,337 |          
|                                                                                                 |                                                                             |                                                               |                                                                     |                                                     |     |                                               
|Basic earnings per share                                                                         |                                                                             | $                                                             | 1.00                                                                |                                                     |     | $                                              | 0.95  |          
|                                                                                                 | Weighted average shares outstanding                                         |                                                               |                                                                     | 1,461,537                                           |     |                                                |       | 1,470,907 |                    
|Diluted earnings per share                                                                       |                                                                             | $                                                             | 0.91                                                                |                                                     |     | $                                              | 0.88  |          
|                                                                                                 | Weighted average shares outstanding                                         |                                                               |                                                                     | 1,603,021                                           |     |                                                |       | 1,589,630 |                    

See notes to condensed consolidated financial statements

2



---



##### Table of Contents






Citizens First Financial Corp. and Subsidiary
Condensed Consolidated Statements of Income

|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                                |       |           |                      |       |       |  
|-------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------ | ------------------------------------------------------------------- | --- | ---------------------------------------------- | ----- | --------- | -------------------- | ----- | ----- | -
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     | For the three months                           |       |           | For the three months |      
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     | ended June 30, 2003                            |       |           | ended June 30, 2002  |      
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                                |       |           |                      |      
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     | (Unaudited and in thousands except share data) |      
|Interest income                                                                                                |                                                                            |                                                      |                          |                                                                     |     |                                                |       |          
|                                                                                                               | Interest on loans                                                          |                                                      | $                        | 4,455                                                               |     |                                                | $     | 5,173     |                     
|                                                                                                               | Interest on investments, deposits with banks,
federal funds sold and other |                                                      |                          | 385                                                                 |     |                                                |       | 398       |                     
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|                                                                                                               |                                                                            |                                                      | Total interest income    |                                                                     |     | 4,840                                          |       |           |                      | 5,571 |      
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|Interest expense                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                                |       |          
|                                                                                                               | Interest on deposits                                                       |                                                      |                          | 1,411                                                               |     |                                                |       | 1,985     |                     
|                                                                                                               | Interest on borrowings                                                     |                                                      |                          | 781                                                                 |     |                                                |       | 898       |                     
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|                                                                                                               |                                                                            |                                                      | Total interest expense   |                                                                     |     | 2,192                                          |       |           |                      | 2,883 |      
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|                                                                                                               |                                                                            |                                                      |                          | Net interest income                                                 |     |                                                | 2,648 |           |                      |       | 2,688 |  
|Provision for loan losses                                                                                      |                                                                            |                                                      | 306                      |                                                                     |     |                                                | 132   |          
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|                                                                                                               |                                                                            |                                                      |                          | Net interest income after provision for loan losses                 |     |                                                | 2,342 |           |                      |       | 2,556 |  
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|Noninterest income                                                                                             |                                                                            |                                                      |                          |                                                                     |     |                                                |       |          
|                                                                                                               |                                                                            | Service charges on deposit accounts                  |                          |                                                                     | 234 |                                                |       |           | 237                  |      
|                                                                                                               |                                                                            | Net losses on sales of available for sale securities |                          |                                                                     |    |                                                |       |           | (71                  | )    
|                                                                                                               |                                                                            | Net gains on loan sales                              |                          |                                                                     | 475 |                                                |       |           | 168                  |      
|                                                                                                               |                                                                            | Other                                                |                          |                                                                     | 81  |                                                |       |           | 81                   |      
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|                                                                                                               |                                                                            |                                                      | Total noninterest income |                                                                     |     | 790                                            |       |           |                      | 415   |      
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|Noninterest expense                                                                                            |                                                                            |                                                      |                          |                                                                     |     |                                                |       |          
|                                                                                                               | Salaries and employee benefits                                             |                                                      |                          | 1,002                                                               |     |                                                |       | 1,092     |                     
|                                                                                                               | Net occupancy and equipment expenses                                       |                                                      |                          | 314                                                                 |     |                                                |       | 315       |                     
|                                                                                                               | Deposit insurance expense                                                  |                                                      |                          | 28                                                                  |     |                                                |       | 20        |                     
|                                                                                                               | Data processing expense                                                    |                                                      |                          | 86                                                                  |     |                                                |       | 70        |                     
|                                                                                                               | Other                                                                      |                                                      |                          | 534                                                                 |     |                                                |       | 343       |                     
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|                                                                                                               |                                                                            |                                                      |                          | Total noninterest expense                                           |     |                                                | 1,964 |           |                      |       | 1,840 |  
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|Income before income tax                                                                                       |                                                                            |                                                      | 1,168                    |                                                                     |     |                                                | 1,131 |          
|Income tax expense                                                                                             |                                                                            |                                                      | 447                      |                                                                     |     |                                                | 439   |          
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|Net income                                                                                                     |                                                                            |                                                      | 721                      |                                                                     |     |                                                | 692   |          
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|Other comprehensive income, net of tax
Unrealized appreciation (depreciation) on available for
sale securities |                                                                            |                                                      | 31                       |                                                                     |     |                                                | (65   | )        
|                                                                                                               |                                                                            |                                                      |                          | Less: Reclassification adjustment for losses included in net income |     |                                                |      |           |                      |       | (43   | )
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|Comprehensive income                                                                                           |                                                                            | $                                                    | 752                      |                                                                     |     | $                                              | 670   |          
|                                                                                                               |                                                                            |                                                      |                          |                                                                     |     |                                               
|Basic earnings per share                                                                                       |                                                                            | $                                                    | 0.49                     |                                                                     |     | $                                              | 0.47  |          
|                                                                                                               | Weighted average shares outstanding                                        |                                                      |                          | 1,466,422                                                           |     |                                                |       | 1,476,678 |                     
|Diluted earnings per share                                                                                     |                                                                            | $                                                    | 0.45                     |                                                                     |     | $                                              | 0.43  |          
|                                                                                                               | Weighted average shares outstanding                                        |                                                      |                          | 1,606,125                                                           |     |                                                |       | 1,597,931 |                     

See notes to condensed consolidated financial statements

3



---



##### Table of Contents






CITIZENS FIRST FINANCIAL CORP. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows

|                     |                                                                                          |  |                                                                                  |                                                                                         |   |                              |     |       |               |         |      |  
|-------------------- | ---------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | - | ---------------------------- | --- | ----- | ------------- | ------- | ---- | -
|                     |                                                                                          |  |                                                                                  |                                                                                         |   | For the six                  |     |       | For the six   |        
|                     |                                                                                          |  |                                                                                  |                                                                                         |   | months ended                 |     |       | months ended  |        
|                     |                                                                                          |  |                                                                                  |                                                                                         |   | June 30, 2003                |     |       | June 30, 2002 |        
|                     |                                                                                          |  |                                                                                  |                                                                                         |   |                              |     |       |               |        
|                     |                                                                                          |  |                                                                                  |                                                                                         |   | (Unaudited and in thousands) |    
|Operating activities |                                                                                          |  |                                                                                  |                                                                                         |   |                              |     |      
|                     | Net income                                                                               |  | $                                                                                | 1,463                                                                                   |   |                              | $   | 1,397 |              
|                     | Adjustments to reconcile net income to net cash
Provided (used) by operating activities: |  |                                                                                  |                                                                                         |   |                              |     |       |              
|                     |                                                                                          |  | Provision for loan losses                                                        |                                                                                         |   | 391                          |     |       |               | 230     |     
|                     |                                                                                          |  | ESOP compensation expense                                                        |                                                                                         |   |                             |     |       |               | 254     |     
|                     |                                                                                          |  | Losses on sale of available for sale securities                                  |                                                                                         |   |                             |     |       |               | 71      |     
|                     |                                                                                          |  | Investment securities amortization, net                                          |                                                                                         |   | 110                          |     |       |               | 61      |     
|                     |                                                                                          |  | Minority interest in net income (loss) of real estate joint venture              |                                                                                         |   | 97                           |     |       |               | (3      | )   
|                     |                                                                                          |  | Gain on sale of land in real estate joint venture                                |                                                                                         |   | (194                         | )   |       |               |        |     
|                     |                                                                                          |  | Net (gain) loss on sale of foreclosed property                                   |                                                                                         |   | (2                           | )   |       |               | 19      |     
|                     |                                                                                          |  | Net gains on sale of mortgage loans                                              |                                                                                         |   | (819                         | )   |       |               | (341    | )   
|                     |                                                                                          |  | Net gains from sale of premises & equipment                                      |                                                                                         |   |                             |     |       |               | (26     | )   
|                     |                                                                                          |  | Amortization of mortgage servicing rights                                        |                                                                                         |   | 147                          |     |       |               | 45      |     
|                     |                                                                                          |  | Depreciation                                                                     |                                                                                         |   | 364                          |     |       |               | 372     |     
|                     |                                                                                          |  | Mortgage loans originated for sale                                               |                                                                                         |   | (42,992                      | )   |       |               | (18,390 | )   
|                     |                                                                                          |  | Proceeds from sale of mortgage loans                                             |                                                                                         |   | 44,307                       |     |       |               | 22,456  |     
|                     |                                                                                          |  | Federal Home Loan Bank dividends                                                 |                                                                                         |   | (207                         | )   |       |               | (120    | )   
|                     |                                                                                          |  | Change in:                                                                       |                                                                                         |   |                              |     |       |               |        
|                     |                                                                                          |  |                                                                                  | Prepaid expenses & other assets                                                         |   |                              | 279 |       |               |         | (408 | )
|                     |                                                                                          |  |                                                                                  | Other liabilities                                                                       |   |                              | 481 |       |               |         | 168  |  
|                     |                                                                                          |  |                                                                                  |                                                                                         |   |                             
|                     |                                                                                          |  | Net cash provided by operating activities                                        |                                                                                         |   | 3,425                        |     |       |               | 5,785   |     
|                     |                                                                                          |  |                                                                                  |                                                                                         |   |                             
|Investing Activities |                                                                                          |  |                                                                                  |                                                                                         |   |                              |     |      
|                     |                                                                                          |  | Purchase of available for sale securities                                        |                                                                                         |   | (9,705                       | )   |       |               | (13,500 | )   
|                     |                                                                                          |  | Proceeds from maturities and principal paydowns
on available for sale securities |                                                                                         |   | 6,765                        |     |       |               | 2,388   |     
|                     |                                                                                          |  | Proceeds from sales of available for sale securities                             |                                                                                         |   |                             |     |       |               | 5,120   |     
|                     |                                                                                          |  | Net changes in loans                                                             |                                                                                         |   | 15,111                       |     |       |               | 1,813   |     
|                     |                                                                                          |  | Proceeds from sales of foreclosed property                                       |                                                                                         |   | 1,678                        |     |       |               | 978     |     
|                     |                                                                                          |  | Purchases of premises and equipment                                              |                                                                                         |   | (26                          | )   |       |               | (24     | )   
|                     |                                                                                          |  | Proceeds from sales of premises & equipment                                      |                                                                                         |   |                              |     |       |               | 150     |     
|                     |                                                                                          |  | (Investment) reimbursement in land in real estate joint venture                  |                                                                                         |   | 108                          |     |       |               | (74     | )   
|                     |                                                                                          |  | Proceeds from sales of land real estate joint venture                            |                                                                                         |   | 427                          |     |       |               |        |     
|                     |                                                                                          |  |                                                                                  | Net investment (distribution) of minority interest portion of real
estate joint venture |   | (261                         | )   |       |               | 0       |     
|                     |                                                                                          |  | Proceeds from the minority interest portion of real estate joint
venture         |                                                                                         |  |                              |     |       | 41            |        
|                     |                                                                                          |  | Investment in bank owned life insurance                                          |                                                                                         |   | (4,000                       | )   |       |               |        |     
|                     |                                                                                          |  |                                                                                  |                                                                                         |   |                             
|                     |                                                                                          |  | Net cash provided (used) by investing activities                                 |                                                                                         |   | 10,097                       |     |       |               | (3,108  | )   
|                     |                                                                                          |  |                                                                                  |                                                                                         |   |                             

4



---



##### Table of Contents



|                                               |                                                  |                                                              |        |         |        |   |        |       |        |  
|---------------------------------------------- | ------------------------------------------------ | ------------------------------------------------------------ | ------ | ------- | ------ | - | ------ | ----- | ------ | -
|Financing Activities                           |                                                  |                                                              |        |         |        |   |        |      
|                                               |                                                  | Net change in deposits                                       |        | $       | (9,175 | ) |        | $     | 5,292  |  
|                                               |                                                  | Proceeds from borrowings                                     |        |         |       |   |        |       | 11,800 |  
|                                               |                                                  | Repayment of borrowings                                      |        |         | (2,150 | ) |        |       | (7,968 | )
|                                               |                                                  | Purchase of treasury stock shares                            |        |         | (1,155 | ) |        |       | (540   | )
|                                               |                                                  | Cash dividends paid on common stock                          |        |         | (301   | ) |        |       | (210   | )
|                                               |                                                  | Exercise of stock options                                    |        |         | 790    |   |        |       | 162    |  
|                                               |                                                  | Net changes in advances by borrowers for taxes and insurance |        |         | 96     |   |        |       | (70    | )
|                                               |                                                  |                                                              |        |         |        |  
|                                               | Net cash provided (used) by financing activities |                                                              |        | (11,895 | )      |   |        | 8,466 |       
|                                               |                                                  |                                                              |        |         |        |  
|Net change in cash and cash equivalents        |                                                  |                                                              | 1,627  |         |        |   | 11,143 |      
|Cash and cash equivalents, beginning of period |                                                  |                                                              | 33,583 |         |        |   | 12,931 |      
|                                               |                                                  |                                                              |        |         |        |  
|Cash and cash equivalents, end of period       |                                                  | $                                                            | 35,210 |         |        | $ | 24,074 |      
|                                               |                                                  |                                                              |        |         |        |  
|Additional cash flows information:             |                                                  |                                                              |        |         |        |   |        |      
|                                               | Interest paid                                    |                                                              | $      | 4,554   |        |   | $      | 5,803 |       
|                                               | Income tax paid                                  |                                                              | $      | 1,115   |        |   | $      | 710   |       
|                                               | Loans transferred to foreclosed property         |                                                              | $      | 4,614   |        |   | $      | 1,667 |       

See notes to condensed consolidated financial statements

5



---



##### Table of Contents



Citizens First Financial Corp.




Notes to Condensed Consolidated Financial Statements

1.          Background Information

Citizens First Financial Corp. (the Company) was incorporated in January 1996
and on May 1, 1996 acquired all of the outstanding shares of common stock of
Citizens Savings Bank (the Bank) upon the Banks conversion from a federally
chartered mutual savings bank to a federally chartered stock savings bank. The
Company purchased 100% of the outstanding capital stock of the Bank using 50%
of the net proceeds from the Companys initial stock offering which was
completed on May 1, 1996. In April 1999, the Bank was converted from a
federally chartered savings bank to an Illinois state savings bank.

The Company sold 2,817,500 shares of common stock in the initial offering at
$10.00 per share, including 225,400 shares purchased by the Banks Employee
Stock Ownership Plan (the ESOP). The ESOP shares were acquired by the Bank
with proceeds from a Company loan totaling $2,254,000. The net proceeds of the
offering totaled $27,012,000; $28,175,000 less $1,163,000 in underwriting
commissions and other expenses. The Companys stock is traded on the NASDAQ
National Market under the symbol CFSB.

2.          Statement of Information Furnished

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with Form 10-Q instructions and Rule 10-01 of
Regulation S-X, and in the opinion of management reflect all adjustments
necessary to present a fair statement of the consolidated financial position as
of June 30, 2003 and December 31, 2002, and the consolidated statements of
income for the six and three months ended June 30, 2003 and 2002 and cash flows
for the six months ended June 30, 2003 and 2002. All adjustments to the
financial statements were of a normal recurring nature. These results have
been determined on the basis of accounting principles generally accepted in the
United States of America. The results of operations for the three and six
months ended June 30, 2003 are not necessarily indicative of the results to be
expected for the entire fiscal year.

The condensed consolidated financial statements are those of the Company and
the Bank. These condensed consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto, dated
January 17, 2003, included in the Companys 2002 Annual Report to Stockholders.

3.          Earnings Per Share

Basic earnings per share have been computed based upon the weighted average
common shares outstanding for the six and three months ended June 30, 2003 and
2002. Diluted earnings per share for the six and three months ended June 30,
2003 reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings of
the Company.

4.          Stock Options

The Company has a stock-based employee compensation plan, which is described
more fully in Notes to Financial Statements included in the December 31, 2002
Annual Report to shareholders. The Company accounts for this plan under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. No stock-based
employee compensation cost is reflected in net income, as all options granted
under the plan had an exercise price equal to the market value of the
underlying common stock on the grant date. The following table illustrates the
effect on net income and earnings per share if the Company had applied the fair
value provisions of Statement of

6



---



##### Table of Contents



Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.

|                                                                                                                         |                       |   |               |      |  |               |     |      |               |   |       |               |  |   |       |      | 
|------------------------------------------------------------------------------------------------------------------------ | --------------------- | - | ------------- | ---- |  | ------------- | --- | ---- | ------------- | - | ----- | ------------- |  | - | ----- | ---- | 
|                                                                                                                         |                       |   | Three Months  |      |  | Three Months  |     |      | Six Months    |   |       | Six Months    | 
|                                                                                                                         |                       |   | Ended         |      |  | Ended         |     |      | Ended         |   |       | Ended         | 
|                                                                                                                         |                       |   | June 30, 2003 |      |  | June 30, 2002 |     |      | June 30, 2003 |   |       | June 30, 2002 | 
|                                                                                                                         |                       |   |               |      |  |               |     |      |               |   |       |               | 
|Net income, as
reported                                                                                                  |                       | $ | 721           |      |  | $             | 692 |      |               | $ | 1,463 |               |  | $ | 1,397 |     
|Less: Total stock-based
employee 
compensation cost 
determined under 
the fair value based
method, net of 
income taxes |                       |   | (24           | )    |  |               | (24 | )    |               |   | (48   | )             |  |   | (48   | )   
|                                                                                                                         |                       |   |               |      |  |               |     |      |               |   |       |              
|Pro forma net income                                                                                                     |                       | $ | 697           |      |  | $             | 661 |      |               | $ | 1,415 |               |  | $ | 1,349 |     
|                                                                                                                         |                       |   |               |      |  |               |     |      |               |   |       |              
|Earnings per share:                                                                                                      |                       |   |               |      |  |               |     |      |               |   |       |               |  |   |       |     
|                                                                                                                         | Basic  as
reported   |   | $             | 0.49 |  |               | $   | 0.47 |               |   | $     | 1.00          |  |   | $     | 0.95 | 
|                                                                                                                         | Basic  pro forma     |   | $             | 0.48 |  |               | $   | 0.45 |               |   | $     | 0.97          |  |   | $     | 0.92 | 
|                                                                                                                         | Diluted  as
reported |   | $             | 0.45 |  |               | $   | 0.43 |               |   | $     | 0.91          |  |   | $     | 0.88 | 
|                                                                                                                         | Diluted  pro
forma   |   | $             | 0.43 |  |               | $   | 0.41 |               |   | $     | 0.88          |  |   | $     | 0.85 | 

5.          Recent Accounting Pronouncement

In November 2002, the FASB issued Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others(FIN 45). FIN 45 will change current practice in the
accounting for and disclosure of guarantees. Guarantees meeting the
characteristics described in FIN 45 are required to be initially recorded at
fair value, which is different from the general current practice of recording a
liability only when a loss is probable and reasonably estimable, as those terms
are defined in FASB Statement No. 5, Accounting for Contingencies. FIN 45 also
requires a guarantor to make new disclosures for virtually all guarantees even
if the likelihood of the guarantors having to make payments under the
guarantee is remote.

In general, FIN 45 applies to contracts or indemnification agreements that
contingently require the guarantor to make payments to the guaranteed party
based on changes in an underlying asset, liability, or an equity security of
the guaranteed party such as financial standby letters of credit.

Disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 31, 2002. The initial
recognition and measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantors fiscal year-end. The guarantors previous accounting for
guarantees issued prior to the date of FIN 45 initial applications should not
be revised or restated to reflect the provisions of FIN 45.

The Company adopted FIN 45 on January 1, 2003. The adoption of FIN 45 does not
currently have a material impact on the Companys consolidated financial
statements.

7



---



##### Table of Contents






ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

GENERAL

Citizens First Financial Corp. (the Company) is the holding company for
Citizens Savings Bank (the Bank). The Bank was originally chartered in 1888
by the State of Illinois and in 1989 became a federally chartered savings bank.
The Banks principal business consists of the acceptance of retail deposits
from the general public in the area surrounding its main and branch offices and
the investment of these deposits, together with funds generated from operations
and borrowings into loans and investment securities. The Bank originates
one-to-four family residential mortgages, commercial, multi-family,
construction and land, commercial real estate, agricultural, consumer and other
loans. The Bank has a wholly-owned service corporation, CSL Service
Corporation (CSL), which is an Illinois-chartered corporation that has
invested in Williamsburg LLC (Williamsburg), a real estate development joint
venture. CSL is a 50% owner of Williamsburg, which has two other investors. The
accounts of Williamsburg are consolidated into the Companys financial
statements. The 50% of Williamsburg not owned by CSL is recorded as a minority
interest.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2003 and DECEMBER 31, 2002

Total assets decreased from $357.1 million at December 31, 2002 to $346.9
million at June 30, 2003. The $10.2 million or 2.9% decrease was primarily due
to the decrease in loans and loans held for sale, offset somewhat by increases
in cash and cash equivalents, available for sale securities, foreclosed assets
and other assets.

Cash and cash equivalents increased from $33.6 million at December 31, 2002 to
$35.2 million at June 30, 2003 an increase of $1.6 million or 4.8%.

Available for sale securities increased from $20.7 million at December 31, 2002
to $23.5 million at June 30, 2003, an increase of $2.8 million or 13.5%. The
increase was primarily due to the purchase of investment securities during the
first six months of 2003.

Loans, net of allowance for loan losses and including loans held for sale,
decreased from $284.9 million at December 31, 2002 to $264.2 million at June
30, 2003, a decrease of $20.7 million or 7.3%. The decrease was primarily due
to decreases of $11.4 million in residential real estate loans and $11.0
million in construction and land development loans. The Company sells primarily
fixed rate residential loans in the secondary market (primarily to the Federal
Home Loan Mortgage Corporation) as a source of income from gains on sale and
servicing fees and as a means of controlling interest rate risk. The Company
experienced a continuing high volume in refinanced residential loans during the
first six months of 2003 due to lower interest rates. Many of these loans (the
majority of which were originated as fixed rate loans) were sold in the
secondary market. The Company serviced $105.2 million and $103.7 million at
June 30, 2003 and December 31, 2002, respectively.

The Company has a significant concentration in construction and commercial real
estate loans related to the real estate market in Bloomington-Normal.
Management believes that due to the continued strength of this market, this
concentration does not pose a significant risk to the Company.

The allowance for loan losses is established through a provision for loan
losses based on managements evaluation of the risks inherent in the loan
portfolio and the general economy. The allowance for loan losses is maintained
at an amount management considers adequate to cover estimated loses in loans
receivable which are deemed probable and can be estimated based on information
available to management at such time. While management believes the allowance
for loan losses is sufficient to cover future loan losses inherent in its loan
portfolio at this time, no assurances can be given that the level of the
allowance for loan losses will be sufficient to cover future loan losses
incurred or that future adjustments to the allowance for loan losses will not
be necessary if economic and other conditions differ substantially from the
economic and other conditions used by management to determine the current level
of the allowance for loan losses. The allowance is based upon a number of
factors, including asset classification, economic trends, industry

8



---



##### Table of Contents



experience and trends, industry and geographic concentrations, estimated
collateral value, managements assessments of the credit risk inherent in the
portfolio, historical loan loss experience, and the Companys underwriting
policies. Management will continue to monitor and modify the allowance for loan
losses as conditions dictate. Various regulatory agencies, as an integral part
of their examination process, periodically review the allowance for loan
losses. These agencies may require additional valuation allowances, based on
their judgments of the information available at the time of the examination.

It is the policy of the Company to charge off loans when it is determined that
they are no longer collectible. The policy for loans secured by real estate,
which comprises the bulk of the loan portfolio, is to establish loss reserves
in accordance with the loan classification process, based on generally accepted
accounting practices. It is the Companys policy to obtain an appraisal or
evaluation on all real estate acquired through foreclosure at the time of
foreclosure.

The allowance for loan losses decreased from $3,753,000 at December 31, 2002 to
$1,624,000 at June 30, 2003, a decrease of $2,129,000 or 56.7%. The decrease
was primarily due to the $2.2 million write-off of amounts that had been
specifically reserved for as of December 31, 2002 on loans which were
transferred into foreclosed assets in the first half of 2003. The $6.8 million
in loans transferred to foreclosed assets in 2003 included a $3.3 million loan
for a retail development, which was classified as non-accrual and had a
specific reserve of $1.4 million at December 31, 2002. Additional loans
transferred to foreclosed assets during the first half of 2003 totaled $3.5
million and had specific reserves of approximately $800,000. No additional
provision for loan losses was recorded in the first half of 2003 for the loans
transferred into foreclosed assets during 2003.

The Companys non-performing and potential problem loans decreased from
$11,264,000 at December 31, 2002 to $4,285,000 at June 30, 2003, a decrease of
$6,979,000 or 62.0%. The decrease was primarily attributable to the foreclosure
of $6.8 million in loans during the first half of 2003, including the $3.3
million loan noted above for a retail development that was classified as
non-accrual at December 31, 2002. The non-performing and potential problem
loans were considered impaired as of June 30, 2003 and December 31, 2002.

Non-performing loans, which are loans past due 90 days or more and non-accruing
loans, decreased from $6,163,000 at December 31, 2002 to $1,523,000 at June 30,
2003. The ratio of the Companys allowance for loan losses to total
non-performing loans was 106.6% and 60.9% at June 30, 2003 and December 31,
2002, respectively. Management believes that the problems with these borrowers
are identified and not indicative of the loan portfolio in total.

Loans delinquent greater than 90 days decreased from $1,753,000 at December 31,
2002 to $232,000 at June 30, 2003, a decrease of $1,521,000 or 86.8%. Loans
delinquent greater than 90 days at June 30, 2003 consist of six loans that are
substantially collateralized and for which the Company believes that it has
adequately reserved for any potential loss. The total is comprised principally
of five residential mortgages with a balance of $228,000. The largest loan
delinquent greater than 90 days has a balance of $166,000.

Nonaccruing loans decreased from $4,410,000 at December 31, 2002 to $1,291,000
at June 30, 2003, a decrease of $3,119,000 or 70.7%. The decrease is primarily
due to the foreclosure and transfer to foreclosed assets of $6.8 million in
loans during the first six months of 2003. As of June 30, 2003, the total of
nonaccruing loans is comprised principally of nine residential loans with a
balance of $825,000, two construction and land development loans with a
balance of $225,000 and one commercial & industrial loan with a balance of
$96,000. The Company has established a loss reserve of $405,000 for these
loans. For all of the non-accruing loans, the Company believes that it has
adequately reserved for any potential loss.

Potential problem loans are loans that are not classified as nonaccrual or 90
days or more delinquent, but due to factors regarding the borrower, the loan or
the economy may represent a possible loss to the Company. Potential problem
loans decreased from $5,102,000 at December 31, 2002 to $2,763,000 at June 30,
2003, a decrease of $2,339,000 or 45.8%. The Company has established loan loss
reserves of $244,000 at June 30, 2003 for potential problem loans. As of June
30, 2003, $1,746,000 of the total potential problem loans relates to one
borrower. The borrower is a commercial developer who is a concern to the
Company because of the concentration of loans to one borrower and the delays in
the completion and sale of certain

9



---



##### Table of Contents



of his developments. Subsequent to June 30, 2003, $825,000 of these loans
were re-written with an improved collateral position for the Company. The
remaining potential problem loans have a balance of $1,017,000 and consist of
three residential loans with a balance of $588,000, one nonresidential real
estate loan of $279,000, one commercial and industrial loan of $133,000 and
five consumer loans of $17,000. For all of the potential problem loans, the
Company believes that it has adequately reserved for any potential loss.

Other assets especially mentioned (OAEM) loans increased from $12,590,000 at
December 31, 2002 to $13,554,000 at June 30, 2003, an increase of $964,000 or
7.7%. OAEM loans are loans that are not classified as nonaccrual, delinquent or
potential problem, but still require monitoring by the Company due to factors
regarding the borrower, the loan or the economy. At June 30, 2003, $11,944,000
of this balance relates to loans to one borrower. It is the same commercial
developer discussed above whom because of the concentration of loans to one
borrower and delays in completion and sale of certain of his developments has
caused certain of his loans to be classified as OAEM loans. The remaining
$1,610,000 of OAEM loans consist primarily of one commercial & industrial loan
with a balance of $756,000 and fifteen residential real estate loans with a
balance of $524,000. For all of the OAEM loans, the Company believes that it
has adequately reserved for any potential loss.

Foreclosed assets held for sale increased from $1,500,000 at December 31, 2002
to $4,438,000 at June 30, 2003, an increase of $2,938,000 or 195.9%. The
increase was due to the foreclosure of $6.8 million in loans, or $4.6 million
net of charge-offs taken at the time of transfer, during the first six months
of 2003. The Bank charged-off $2.2 million through the allowance for loan
losses when the properties were transferred from loans to foreclosed assets
held for sale. The $2.2 million charge-off had been specifically reserved on
the related loans as of December 31, 2002. Foreclosed assets, totaling $1.7
million, net of reserves, were sold during the first six months of 2003.
Included in foreclosed assets is a $1.9 million retail development property.
The repossessed building is substantially leased. Another financial
institution, which had a loan on the same development, foreclosed on their
portion in 2002. The remaining foreclosed assets held for sale at June 30, 2003
consist primarily of $1.2 million in residential properties and $1.1 million of
undeveloped commercial land. Properties being transferred to foreclosed assets
are appraised or evaluated and, if required, loss reserves are established by
management.

Mortgage servicing rights decreased from $407,000 at December 31, 2002 to
$391,000 at June 30, 2003, a decrease of $16,000 or 3.9%. The decrease was due
to the amortization of $147,000 of mortgage servicing rights, offset by newly
capitalized assets of $131,000. Loans serviced for others totaled $105.2
million and $103.7 million at June 30, 2003 and December 31, 2002,
respectively.

Other assets increased from $3.5 million at December 31, 2002 to $7.3 million
at June 30, 2003, an increase of $3.8 million or 108.6%. The increase was
primarily due to the purchase of $4.0 million in bank owned life insurance in
the second quarter of 2003.

Deposits decreased from $249.2 million at December 31, 2002 to $240.0 million
at June 30, 2003, a decrease of $9.2 million or 3.7%. The decrease was
primarily due to a decrease of $7.7 million in certificates of deposit. Because
of its higher level of cash and cash equivalents, the Company did not
aggressively compete for deposits and as a result there was a decrease in
certificates of deposit.

Long-term debt decreased from $72.8 million at December 31, 2002 to $70.7
million at June 30, 2003, a decrease of $2.1 million or 2.9%, due to maturities
during the first half of 2003.

Other liabilities increased from $2.7 million at December 31, 2002 to $3.3
million at June 30, 2003, an increase of $600,000 or 22.2%. The increase was
primarily due to a $392,000 increase in principal and interest payments due to
investors.

Total stockholders equity increased by $768,000, from $31,894,000 at December
31, 2002 to $32,662,000 at June 30, 2003. The increase resulted from the
earnings of the Company of $1,463,000 for the six months ended June 30, 2003
and exercised stock options of $790,000, offset by the purchase of treasury
shares of $1,155,000, payment of $301,000 in dividends to stockholders, and a
decrease in unrealized appreciation on available-for securities of $29,000.

10



---



##### Table of Contents



COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2003 and JUNE 30, 2002

GENERAL
Net income for the six months ended June 30, 2003 increased by $66,000 from
$1,397,000 for the six months ended June 30, 2002 to $1,463,000 for the six
months ended June 30, 2003. The increase was due primarily to an increase in
the net gains on loan sales and the gain on sale of land in joint venture,
offset by a decrease in net interest income.

INTEREST INCOME
Interest on loans decreased by $1,575,000 or 14.8%, from $10,607,000 for the
six months ended June 30, 2002 to $9,032,000 for the six months ended June 30,
2003. Interest on loans decreased due to a decrease in the average yield on
loans outstanding of 68 basis points and a $12.7 million decrease in the
average balance of outstanding loans.

Interest on investments increased from $716,000 for the six months ended June
30, 2002 to $790,000 for the six months ended June 30, 2003, an increase of
$74,000 or 9.4%. The increase was primarily due to a $11.4 million increase in
the average balance of investment securities, FHLB stock and interest-bearing
deposits, offset by a 70 basis point decrease in the average yield of these
assets in 2003.

INTEREST EXPENSE
Interest on deposits decreased by $1,076,000 or 26.3%, from $4,092,000 for the
six months ended June 30, 2002 to $3,016,000 for the six months ended June 30,
2003. The decrease was primarily due to a 92 basis point decrease in the
average cost of deposits, offset by a $1.0 million increase in the average
balance of deposits.

The interest on long-term debt decreased by $220,000 or 12.3%, from $1,791,000
for the six months ended June 30, 2002 to $1,571,000 for the six months ended
June 30, 2003 as a result of a 52 basis point decrease in the average cost of
borrowings and a $1.4 million decrease in the average balance of borrowings.

PROVISION FOR LOAN LOSSES
The provision for loan losses was $391,000 for the six months ended June 30,
2003 and $230,000 for the six months ended June 30, 2002, an increase of
$161,000 or 70.0%.

NONINTEREST INCOME
Total noninterest income increased by $674,000 or 74.1%, from $909,000 for the
six months ended June 30, 2002 to $1,583,000 for the six months ended June 30,
2003. The increase was due primarily to increases in gains on loan sales and
gains on sales of land in the real estate joint venture. Net gains on loan
sales increased by $478,000. The increase was due to the increase in loan sales
in the first half of 2003 resulting from the lower interest rate environment.
The $194,000 increase in net gains on sales of land in joint venture resulted
from lot sales in the first quarter of 2003. There were no lot sales in the
first half of 2002.

NONINTEREST EXPENSE
Total noninterest expense increased from $3,836,000 for the six moths ended
June 30, 2002 to $4,046,000 for the six months ended June 30, 2003, an increase
of $210,000 or 5.5%. Other noninterest expense increased $267,000 primarily
because of increases of $84,000 in other professional fees, $66,000 in loan
origination related expenses and $51,000 in legal fees. There was an increase
of $97,000 in the minority income of a real estate joint venture because of
lot sales in 2003. There were no lot sales in the first half of 2002. Salaries
and benefits expense decreased by $165,000 because of the $254,000 decrease in
ESOP expense resulting from the allocation of the remaining plan shares in
2002, offset by a $89,000 increase in other employee compensation.

INCOME TAX EXPENSE
Total income tax expense was $918,000 for the six months ended June 30, 2003,
compared to $886,000 for the six months ended June 30, 2002, an increase of
$32,000 or 3.6%. The increase was attributable to the increased taxable income
for the six months ended June 30, 2003. The effective tax rates were 38.6% and
38.8% for the six months ended June 30, 2003 and 2002, respectively.

11



---



##### Table of Contents



COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2003 and JUNE 30, 2002

GENERAL
Net income for the three months ended June 30, 2003 increased from $692,000
for the three months ended June 30, 2002 to $721,000 for the three months ended
June 30, 2003, an increase of $29,000 or 4.2%. The increase was due primarily
to an increase in the net gains on loan sales.

INTEREST INCOME
Interest on loans decreased from $5,173,000 for the three months ended June 30,
2002 to $4,455,000 for the three months ended June 30, 2003, a decrease of
$718,000 or 13.9%. Interest on loans decreased due to a decrease in the average
yield on loans outstanding of 68 basis points and a $14.4 million decrease in
the average balance of outstanding loans.

Interest on investments decreased from $398,000 for the three months ended June
30, 2002 to $385,000 for the three months ended June 30, 2003, a decrease of
$13,000 or 3.3%. The increase was primarily due to a 28 basis point decrease in
the average yield of investment securities, FHLB stock and interest-bearing
deposits, offset by a $3.4 million increase in the average balance of these
assets in 2003.

INTEREST EXPENSE
Interest on deposits decreased from $1,985,000 for the three months ended June
30, 2002 to $1,411,000 for the three months ended June 30, 2003. The decrease
was primarily due to an 89 basis point decrease in the average cost of deposits
and a $4.6 million decrease in the average balance of deposits.

The interest on long-term debt decreased from $898,000 for the three months
ended June 30, 2002 to $781,000 for the three months ended June 30, 2003, a
decrease of $117,000 or 13.0% as a result of a 47 basis point decrease in the
average cost of borrowings and a $2.9 million decrease in the average balance
of borrowings.

PROVISION FOR LOAN LOSSES
The provision for loan losses increased to $306,000 for the three months ended
June 30, 2003 from $132,000 for the three months ended June 30, 2002, an
increase of $174,000 or 131.8%.

NONINTEREST INCOME
Total noninterest income increased by $375,000 or 90.4%, from $415,000 for the
three months ended June 30, 2002 to $790,000 for the three months ended June
30, 2003. The increase was due primarily to an increase of $307,000 in net
gains on loan sales in 2003. The increase was due to the increase in loan sales
in the second quarter of 2003 and a $71,000 loss on sale of available-for sale
securities in 2002.

NONINTEREST EXPENSE
Total noninterest expense increased from $1,840,000 for the three moths ended
June 30, 2002 to $1,964,000 for the three months ended June 30, 2003, an
increase of $124,000 or 6.7%. Other noninterest expense increased by $191,000
primarily because of increases of $61,000 in net real estate owned expenses,
$47,000 in loan origination related expenses, $38,000 in other professional
fees and $25,000 in legal fees.

INCOME TAX EXPENSE
Total income tax expense was $447,000 for the three months ended June 30, 2003,
compared to $439,000 for the three months ended June 30, 2002, an increase of
$8,000 or 1.8%. The increase was attributable to the increased taxable income
for the three months ended June 30, 2003. The effective tax rates were 38.3%
and 38.8% for the three months ended June 30, 2003 and 2002, respectively.

12



---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting standards
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and the related disclosure of contingent
assets and liabilities. Actual results could differ from those estimates under
different assumptions and conditions. Management believes that its critical
accounting policies and significant estimates include determining the allowance
for loan losses, the valuation of loan servicing rights and the valuation of
foreclosed real estate.

Allowance for Loan Losses
The allowance for loan losses is a significant estimate that can and does
change based on managements assumptions about specific borrowers and current
general and economic and business conditions, among other factors. Management
reviews the adequacy of the allowance for loan losses on at least a quarterly
basis. The evaluation by management includes consideration of past loss
experience, changes in the composition of the loan portfolio, the current
economic condition and amount of loans outstanding, identified problem loans
and the probability of collecting all amounts due.

The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. A worsening or protracted economic
decline would increase the likelihood of additional losses due to credit and
market risk and could create the need for additional loss reserves.

Mortgage Servicing Rights
The Company recognizes the rights to service loans as a separate asset on its
consolidated balance sheet. The total cost of loans when sold is allocated
between loans and loan servicing rights based on the relative fair value of
each. Mortgage servicing rights are subsequently carried at the lower of the
initial carrying value, adjusted for amortization or fair value. Mortgage
servicing rights are evaluated for impairment based on the fair value of those
rights. Factors included in the calculation of fair value of the loan servicing
rights include estimating the present value of future net cash flows, market
loan prepayment speeds for similar loans, discount rates, servicing costs, and
other economic factors. Servicing rights are amortized over the estimated
period of net servicing revenue. It is likely that these economic factors will
change over the life of the mortgage servicing rights, resulting in different
valuations of the mortgage servicing rights. The differing valuations will
affect the carrying value of the mortgage servicing rights on the consolidated
balance sheet as well as the income recorded from mortgage servicing on the
income statement. As of June 30, 2003 and December 31, 2002, mortgage servicing
rights had carrying values of $391,000 and $407,000, respectively, net of
valuation allowances of $123,000 at each date.

Foreclosed Real Estate
Foreclosed real estate is carried at the lower of cost or fair value less
estimated selling costs. Management estimates the fair value of the properties
based on current appraisal information. Fair value estimates are particularly
susceptible to significant changes in the economic environment, market
conditions, and the real estate market. A worsening or protracted economic
decline would increase the likelihood of a decline in property values and could
create the need to write down the properties through current operations.

13



---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES

The Companys primary sources of funds are deposits, principal and interest
payments on loans and securities, sales of loans and securities and FHLB
advances. While maturing and scheduled amortization of loans are predictable
sources of funds, deposit outflows and mortgage prepayments are greatly
influenced by general interest rates, economic conditions and competition. The
Banks liquidity requirement, which may be varied at the direction of the
Banks regulators depending on economic conditions and deposit flows, is based
upon a percentage of the Banks deposits and short-term borrowings.

At June 30, 2003, the Bank exceeded all of its regulatory capital requirements
with Tier 1 capital of $30.9 million, or 9.0% of average total assets, which is
above the required level of $13.7 million or 4.0%; and risk-based capital of
$32.5 million or 13.9% of risk-weighted assets, which is above the required
level of $18.7 million or 8.0%.

The Companys most liquid assets are cash and interest-bearing demand accounts.
The level of these accounts is dependent on the operating, financing, lending
and investing activities during any given period. At June 30, 2003, cash and
interest-bearing deposits totaled $35.2 million.

The Company has other sources of liquidity if a need for additional funds
arises, including FHLB advances, loan sales, brokered deposits and Fed funds.
At June 30, 2003, the Bank had outstanding advances with the FHLB of $66.9
million. The FHLB maintains two limitations on borrowing availability based on
(1) FHLB stock ownership and (2) total assets. The Bank currently meets the
stock limitation; however, this limit may be raised by the purchase of
additional FHLB stock. Based on the total assets limitations, the Bank may
increase its borrowings with the FHLB by approximately $53.0 million. The
ability to borrow this amount would require meeting regulatory mandated loan
and collateral limits. Depending upon market conditions and the pricing of
deposit products and FHLB borrowings, the Bank may utilize FHLB advances to
fund loan originations.

At June 30, 2003 the Bank had commitments to originate loans and unused lines
of credit totaling $21.0 million. Certificate accounts which are scheduled to
mature in one year or less from June 30, 2003 totaled $94.8 million. The Bank
anticipates that it will have sufficient funds to meet its current commitments
and maturing deposits.

CURRENT ACCOUNTING ISSUES

In May 2003, the financial Accounting Standards Board (FASB) issued Statement
No. 150, Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity. This Statement establishes standards for
classifying and measuring as liabilities certain financial instruments that
embody obligations of the issuer and have characteristics of both liabilities
and equity. Statement No. 150 must be applied immediately to instruments
entered into or modified after May 31, 2003 and to all other instruments that
exist as of the beginning of the third quarter of 2003. The Statement does not
currently have a material impact on the Companys consolidated financial
statements.

14



---



##### Table of Contents






ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Sources of market risk include interest rate risk, foreign currency exchange
rate risk, commodity price risk and equity price risk. The Company is only
subject to interest rate risk. The Company purchased no financial instruments
for trading purposes during the six months ended June 30, 2003 and 2002.

The principal objective of the Companys interest rate risk management function
is to evaluate the interest rate risk included in balance sheet accounts,
determine the level of risk appropriate given the Companys business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with Board of Director approved
guidelines. Through such management, the Company seeks to reduce the
vulnerability of its operations to changes in interest rates. The Company
monitors its interest rate risk as such risk relates to its operating
strategies. The Companys Board of Directors reviews the Companys interest
rate risk position on a quarterly basis. The Companys Asset/Liability
Committee is comprised of the Companys senior management under the direction
of the Board of Directors, with the Committee responsible for reviewing with
the Board of Directors its activities and strategies, the effect of those
strategies on the Companys net interest margin, the market value of the
portfolio and the effect that changes in the interest rates will have on the
Companys portfolio and its exposure limits. The extent of the movement of
interest rates is an uncertainty that could have a negative impact on the
earnings of the Company.

In recent years, the Company has utilized the following strategies to manage
interest rate risk: (1) originating for investment adjustable-rate residential
mortgage and fixed-rate one-to-four family loans with maturities of 10 years or
less; (2) generally selling fixed-rate one-to-four family loans with maturities
exceeding 10 years in the secondary market without recourse and on a servicing
retained basis; (3) increasing its origination of shorter term and/or
adjustable rate commercial loans; and (4) investing in shorter term investment
securities which may generally bear lower yields as compared to longer term
investments, but which may better position the Company for increases in market
interest rates.

The Companys interest rate and market risk profile has not materially changed
from the year ended December 31, 2002. Please refer to the Companys 2002 Form
10-K for further discussion of the Companys market and interest rate risk.




ITEM 4.  CONTROLS AND PROCEDURES

(a) Disclosure controls and procedures. We evaluated the effectiveness
of the design and operation of our disclosure controls and procedures as of
June 30, 2003. Our disclosure controls and procedures are the controls and
other procedures that we designed to ensure that we record, process, summarize
and report in a timely manner the information we must disclose in reports that
we file with or submit to the SEC. C. William Landefeld, our President and
Chief Executive Officer, and Dallas G. Smiley, our Senior Vice President and
Chief Financial Officer, reviewed and participated in this evaluation. Based
on this evaluation, Messrs. Landefeld and Smiley concluded that, as of the date
of their evaluation, our disclosure controls were effective.

(b) Internal controls. There have not been any significant changes in
our internal accounting controls or in other factors that could significantly
affect those controls during the quarter ended June 30, 2003.

15



---



##### Table of Contents






PART II.  OTHER INFORMATION






| |  |  | Item 1. Legal Proceedings
| |  |  | -------------------------



| |  | The Company is not involved in any legal proceedings of a material nature
at this time other than those occurring in the ordinary course of
business, which in the aggregate involve amounts which are believed by
management to be immaterial to the financial condition of the Company.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------






| |  |  | Item 2. Changes in Securities and Use of Proceeds
| |  |  | -------------------------------------------------
|
| |  |  | Not applicable.                                  






| |  |  | Item 3. Defaults Upon Senior Securities
| |  |  | ---------------------------------------
|
| |  |  | Not applicable.                        






| |  |  | Item 4. Submission of Matters to a Vote of Security Holders                          
| |  |  | -------------------------------------------------------------------------------------
|
| |  |  | a.           The Companys Annual Meeting of shareholders was held on April 21, 2003.
|
| |  |  | b.           See Item 4-c below.                                                     
|
| |  |  | c.           At such meeting the shareholders approved the following matters:        
|
| |  |  | 1. The election of the following individuals as Directors:                           

|                   |  |           |           |  |                |  |        |      |  |            
|------------------ |  | --------- | --------- |  | -------------- |  | ------ | ---- |  | -----------
|                   |  | Votes For |           |  | Votes Withheld |  |        | Term
|                   |  |           |           |  |                |  |        |     
|Arthur W. Mier     |  |           | 1,366,622 |  |                |  | 9,378  |      |  | Three years
|L. Carl Borngasser |  |           | 1,297,249 |  |                |  | 78,751 |      |  | Three years



| |  | Additionally, the following individuals are the other Directors whose
terms of office as Directors continued after the meeting:
| |  | -------------------------------------------------------------------------------------------------------------------------------
|
| |  | Dr. Lowell M. Thompson                                                                                                         
|
| |  | C. William Landefeld                                                                                                           
|
| |  | Ronald C. Wells                                                                                                                
|
| |  | Harold L. Hoeferle                                                                                                             
|
| |  | Martin L. Hogan                                                                                                                



| |  |  | 2. The ratification of BKD, LLP as independent auditor of the
Company for the fiscal year ending December 31, 2003 as
reflected by 1,284,752 votes for, 90,459 votes against and
788 abstain.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------






| |  |  | Item 5. Other Information
| |  |  | -------------------------
|
| |  |  | Not applicable.          






| |  |  | Item 6. Exhibits and Reports on Form 8-K                                                                                                      
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a. Exhibits                                                                                                                                   
|
| |  |  | See Exhibit Index.                                                                                                                            
|
| |  |  | b. Reports on Form 8-K                                                                                                                        
|
| |  |  | Citizens First Financial Corp. filed the following Form 8-K
during the quarter ended June 30, 2003:                                           
|
| |  |  | Citizens First financial Corp. filed a Form 8-K on May 1,
2003 related to the announcement of financial results for the
first quarter of 2003.

16



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements 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.

|                      |  |                               
|--------------------- |  | ------------------------------
|                      |  | Citizens First Financial Corp.
|                      |  |                               
|Date: August 14, 2003 |  | /s/  C. William Landefeld     
|                      |  | C. William Landefeld          
|                      |  | President                     
|                      |  |                               
|Date: August 14, 2003 |  | /s/  Dallas G. Smiley         
|                      |  | Dallas G. Smiley              
|                      |  | Chief Financial Officer       

17



---



##### Table of Contents



Exhibit Index

|     |  |                                                                       |  |  |    | 
|---- |  | --------------------------------------------------------------------- |  |  | -- | 
|11.0 |  | Statement re: Computation of Per Share Earnings                       |  |  | 19 | 
|31.1 |  | Certification of C. William Landefeld Required by Rule 13a-14(a)      |  |  | 21 | 
|31.2 |  | Certification of Dallas G. Smiley Required by Rule 13a-14(a)          |  |  | 22 | 
|32.1 |  | Certification of C. William Landefeld required by Rule 13a-14(b) and  |  |  |    | 
|     |  | Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 |  |  | 23 | 
|32.2 |  | Certification of Dallas G. Smiley required by Rule 13a-14(b) and      |  |  |    | 
|     |  | Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 |  |  | 24 | 

18