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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, 2002 |  | Commission File No.: |  | 0-27740
|                                             |  |                      | 

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

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

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

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

The Registrant had 1,485,198 shares of Common Stock outstanding as of July 31, 2002.





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TABLE OF CONTENTS



|                                   |                                                                                              |                                                                                                 |  |  |  |  |  | 
|---------------------------------- | -------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I.  FINANCIAL INFORMATION   
|                                   | Item 1. Financial Statements                                                                
|                                   |                                                                                              | Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001                
|                                   |                                                                                              | Condensed Consolidated Statements of Income for the Six Months Ended June 30, 2002 and 2001    
|                                   |                                                                                              | Condensed Consolidated Statements of Income for the Three Months Ended June 30, 2002 and 2001  
|                                   |                                                                                              | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001
|                                   |                                                                                              | 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                          
|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                                                                                  
|Computation of Per Share Earnings 
|Certification of William Landefeld
|Certification of Dallas G. Smiley 



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##### Table of Contents



TABLE OF CONTENTS

|                               |                                                                                              |                                                                                                 |  |  |  |      |  |    |   | 
|------------------------------ | -------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- |  |  |  | ---- |  | -- | - | 
|PART I
 FINANCIAL INFORMATION |                                                                                              |                                                                                                 |  |  |  | PAGE | 
|                               | Item 1. Financial Statements                                                                 |                                                                                                 |  |  |  |      |  |    |  
|                               |                                                                                              | Condensed Consolidated Balance Sheets as of
June 30, 2002 and December 31, 2001                 |  |  |  |      |  |    | 1 | 
|                               |                                                                                              | Condensed Consolidated Statements of Income for the
Six Months Ended June 30, 2002 and 2001     |  |  |  |      |  |    | 2 | 
|                               |                                                                                              | Condensed Consolidated Statements of Income for the
Three Months Ended June 30, 2002 and 2001   |  |  |  |      |  |    | 3 | 
|                               |                                                                                              | Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2002 and 2001 |  |  |  |      |  |    | 4 | 
|                               |                                                                                              | Notes to Condensed Consolidated Financial Statements                                            |  |  |  |      |  |    | 6 | 
|                               | Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operation |                                                                                                 |  |  |  |      |  | 7  |  
|                               | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           |                                                                                                 |  |  |  |      |  | 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                                                                    |                                                                                                 |  |  |  |      |  | 17 |  
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     |                                                                                                 |  |  |  |      |  | 17 |  
|                               | Signatures                                                                                   |                                                                                                 |  |  |  |      |  | 19 |  

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.





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PART I.  FINANCIAL INFORMATION

Citizens First Financial Corp. and Subsidiary
Condensed Consolidated Balance Sheets
As of June 30, 2002 and December 31, 2001
(in thousands)

|                                               |                                                                                                    |                                                                            |           |                                            |         |          |         |         |              |         |         | 
|---------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | --------- | ------------------------------------------ | ------- | -------- | ------- | ------- | ------------ | ------- | ------- | 
|                                               |                                                                                                    |                                                                            |           |                                            |         | June 30, |         |         | December 31, |        
|                                               |                                                                                                    |                                                                            |           |                                            |         | 2002     |         |         | 2001         |        
|                                               |                                                                                                    |                                                                            |           |                                            |         |          |         |         |              |        
|ASSETS                                         |                                                                                                    | (Unaudited)                                                                |           |                                            |         |          |        
|                                               | Cash and due from banks                                                                            |                                                                            | $         | 4,148                                      |         |          | $       | 5,743   |             
|                                               | Interest-bearing deposits and federal funds sold                                                   |                                                                            |           | 19,926                                     |         |          |         | 7,188   |             
|                                               |                                                                                                    |                                                                            |           |                                            |         |         
|                                               |                                                                                                    | Cash and cash equivalents                                                  |           |                                            | 24,074  |          |         |         | 12,931       |        
|                                               | Available for sale securities                                                                      |                                                                            |           | 21,448                                     |         |          |         | 15,686  |             
|                                               | Mortgage loans held for sale                                                                       |                                                                            |           | 3,185                                      |         |          |         | 6,910   |             
|                                               | Loans                                                                                              |                                                                            |           | 285,458                                    |         |          |         | 289,264 |             
|                                               |                                                                                                    | Allowance for loan losses                                                  |           |                                            | (2,325  | )        |         |         | (2,421       | )      
|                                               |                                                                                                    |                                                                            |           |                                            |         |         
|                                               |                                                                                                    |                                                                            | Net loans |                                            |         | 283,133  |         |         |              | 286,843 |        
|                                               | Land in real estate joint venture                                                                  |                                                                            |           | 1,155                                      |         |          |         | 1,081   |             
|                                               | Premises and equipment                                                                             |                                                                            |           | 7,041                                      |         |          |         | 7,513   |             
|                                               | Federal Home Loan Bank of Chicago stock                                                            |                                                                            |           | 4,581                                      |         |          |         | 4,461   |             
|                                               | Foreclosed real estate                                                                             |                                                                            |           | 1,288                                      |         |          |         | 618     |             
|                                               | Other assets                                                                                       |                                                                            |           | 4,928                                      |         |          |         | 4,527   |             
|                                               |                                                                                                    |                                                                            |           |                                            |         |         
|                                               |                                                                                                    |                                                                            |           | Total assets                               |         | $        | 350,833 |         |              | $       | 340,570 | 
|                                               |                                                                                                    |                                                                            |           |                                            |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY           |                                                                                                    |                                                                            |           |                                            |         |          |         |        
|Liabilities                                    |                                                                                                    |                                                                            |           |                                            |         |          |         |        
|                                               | Deposits                                                                                           |                                                                            | $         | 241,935                                    |         |          | $       | 236,643 |             
|                                               | Long-term debt                                                                                     |                                                                            |           | 73,475                                     |         |          |         | 69,643  |             
|                                               | Other liabilities                                                                                  |                                                                            |           | 2,929                                      |         |          |         | 2,831   |             
|                                               |                                                                                                    |                                                                            |           |                                            |         |         
|                                               |                                                                                                    |                                                                            |           | Total liabilities                          |         |          | 318,339 |         |              |         | 309,117 | 
|                                               |                                                                                                    |                                                                            |           |                                            |         |         
|Minority interest in real estate joint venture |                                                                                                    |                                                                            | 579       |                                            |         |          | 541     |        
|                                              
|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                                                                         |                                                                            |           | 27,771                                     |         |          |         | 27,686  |             
|                                               | Retained earnings                                                                                  |                                                                            |           | 25,558                                     |         |          |         | 24,371  |             
|                                               | Accumulated other comprehensive income (loss)                                                      |                                                                            |           | (8                                         | )       |          |         | 52      |             
|                                               | Less:                                                                                              |                                                                            |           |                                            |         |          |         |         |             
|                                               |                                                                                                    | Treasury shares, 1,319,702 and 1,302,862, respectively                     |           |                                            | (21,281 | )        |         |         | (20,903      | )      
|                                               |                                                                                                    | Unallocated employee stock ownership plan
shares, 16,100 and 32,200 shares |           |                                            | (153    | )        |         |         | (322         | )      
|                                               |                                                                                                    |                                                                            |           |                                            |         |         
|                                               |                                                                                                    |                                                                            |           | Total stockholders equity                 |         |          | 31,915  |         |              |         | 30,912  | 
|                                               |                                                                                                    |                                                                            |           |                                            |         |         
|                                               |                                                                                                    |                                                                            |           | Total liabilities and stockholders equity |         | $        | 350,833 |         |              | $       | 340,570 | 
|                                               |                                                                                                    |                                                                            |           |                                            |         |         

See notes to condensed consolidated financial statements

1



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

|                                               |                                                                         |                                                                            |                          |                                                     |           |                             |       |    |               |        |       | 
|---------------------------------------------- | ----------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------ | --------------------------------------------------- | --------- | --------------------------- | ----- | -- | ------------- | ------ | ----- | 
|                                               |                                                                         |                                                                            |                          |                                                     |           | For the six                 |       |    | For the six  
|                                               |                                                                         |                                                                            |                          |                                                     |           | months ended                |       |    | months ended 
|                                               |                                                                         |                                                                            |                          |                                                     |           | June 30, 2002               |       |    | June 30, 2001 |       
|                                               |                                                                         |                                                                            |                          |                                                     |           |                             |       |    |               |       
|                                               |                                                                         |                                                                            |                          |                                                     |           | (Unaudited and in thousands |      
|                                               |                                                                         |                                                                            |                          |                                                     |           | except share data)          |      
|Interest income:                               |                                                                         |                                                                            |                          |                                                     |           |                             |       |   
|                                               |                                                                         | Interest on loans                                                          |                          | $                                                   | 10,607    |                             |       | $  | 11,786        |       
|                                               |                                                                         | Interest on investments, deposits with banks,
federal funds sold and other |                          |                                                     | 716       |                             |       |    | 808           |       
|                                               |                                                                         |                                                                            |                          |                                                     |           |                            
|                                               |                                                                         |                                                                            | Total interest income    |                                                     |           | 11,323                      |       |    |               | 12,594 |      
|Interest expense:                              |                                                                         |                                                                            |                          |                                                     |           |                             |       |   
|                                               |                                                                         | Interest on deposits                                                       |                          |                                                     | 4,092     |                             |       |    | 5,825         |       
|                                               |                                                                         | Interest on borrowings                                                     |                          |                                                     | 1,791     |                             |       |    | 1,800         |       
|                                               |                                                                         |                                                                            |                          |                                                     |           |                            
|                                               |                                                                         |                                                                            | Total interest expense   |                                                     |           | 5,883                       |       |    |               | 7,625  |      
|                                               |                                                                         |                                                                            |                          |                                                     |           |                            
|                                               |                                                                         |                                                                            |                          | Net interest income                                 |           |                             | 5,440 |    |               |        | 4,969 | 
|                                               |                                                                         | Provision for loan losses                                                  |                          |                                                     | 230       |                             |       |    | 360           |       
|                                               |                                                                         |                                                                            |                          |                                                     |           |                            
|                                               |                                                                         |                                                                            |                          | Net interest income after provision for loan losses |           |                             | 5,210 |    |               |        | 4,609 | 
|                                               |                                                                         | Noninterest income:                                                        |                          |                                                     |           |                             |       |    |               |       
|                                               |                                                                         | Service charges on deposit accounts                                        |                          |                                                     | 462       |                             |       |    | 459           |       
|                                               |                                                                         | Net realized losses on sale of available for sale securities               |                          |                                                     | (71       | )                           |       |    | 0             |       
|                                               |                                                                         | Net gains on loan sales                                                    |                          |                                                     | 341       |                             |       |    | 323           |       
|                                               |                                                                         | Gain on sale of land in joint venture                                      |                          |                                                     | 0         |                             |       |    | 233           |       
|                                               |                                                                         | Other                                                                      |                          |                                                     | 219       |                             |       |    | 187           |       
|                                               |                                                                         |                                                                            |                          |                                                     |           |                            
|                                               |                                                                         |                                                                            | Total noninterest income |                                                     |           | 951                         |       |    |               | 1,202  |      
|                                               |                                                                         |                                                                            |                          |                                                     |           |                            
|Noninterest expense:                           |                                                                         |                                                                            |                          |                                                     |           |                             |       |   
|                                               |                                                                         | Salaries and employee benefits                                             |                          |                                                     | 2,209     |                             |       |    | 2,172         |       
|                                               |                                                                         | Net occupancy and equipment expenses                                       |                          |                                                     | 637       |                             |       |    | 620           |       
|                                               |                                                                         | Deposit insurance expense                                                  |                          |                                                     | 39        |                             |       |    | 39            |       
|                                               |                                                                         | Data processing expense                                                    |                          |                                                     | 164       |                             |       |    | 140           |       
|                                               |                                                                         | Other                                                                      |                          |                                                     | 829       |                             |       |    | 964           |       
|                                               |                                                                         |                                                                            |                          |                                                     |           |                            
|                                               |                                                                         |                                                                            |                          | Total noninterest expense                           |           |                             | 3,878 |    |               |        | 3,935 | 
|                                               |                                                                         |                                                                            |                          |                                                     |           |                             |      
|Income before income tax                       |                                                                         |                                                                            | 2,283                    |                                                     |           |                             | 1,876 |   
|                                               |                                                                         | Income tax expense                                                         |                          |                                                     | 886       |                             |       |    | 728           |       
|                                               |                                                                         |                                                                            |                          |                                                     |           |                            
|Net income                                     |                                                                         | $                                                                          | 1,397                    |                                                     |           | $                           | 1,148 |   
|Other comprehensive income (loss), net of tax: |                                                                         |                                                                            |                          |                                                     |           |                             |       |   
|                                               | Unrealized appreciation (depreciation) on available for
sale securities |                                                                            |                          | (103                                                | )         |                             |       | 25 |              
|                                               | Less: Reclassification adjustment for losses included
in net income     |                                                                            |                          | (43                                                 | )         |                             |       | 0  |              
|                                               |                                                                         |                                                                            |                          |                                                     |           |                            
|Comprehensive income                           |                                                                         | $                                                                          | 1,337                    |                                                     |           | $                           | 1,173 |   
|                                               |                                                                         |                                                                            |                          |                                                     |           |                            
|Basic earnings per share                       |                                                                         | $                                                                          | 0.95                     |                                                     |           | $                           | 0.77  |   
|                                               |                                                                         | Weighted average shares outstanding                                        |                          |                                                     | 1,470,907 |                             |       |    | 1,499,236     |       
|Diluted earnings per share                     |                                                                         | $                                                                          | 0.88                     |                                                     |           | $                           | 0.74  |   
|                                               |                                                                         | Weighted average shares outstanding                                        |                          |                                                     | 1,589,630 |                             |       |    | 1,551,704     |       

See notes to condensed consolidated financial statements

2



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##### Table of Contents






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

|                                               |                                                                     |                                                                            |                                                            |                                                     |           |                             |       |     |               |     |       | 
|---------------------------------------------- | ------------------------------------------------------------------- | -------------------------------------------------------------------------- | ---------------------------------------------------------- | --------------------------------------------------- | --------- | --------------------------- | ----- | --- | ------------- | --- | ----- | 
|                                               |                                                                     |                                                                            |                                                            |                                                     |           | For the three               |       |     | For the three |    
|                                               |                                                                     |                                                                            |                                                            |                                                     |           | months ended                |       |     | months ended  |    
|                                               |                                                                     |                                                                            |                                                            |                                                     |           | June 30, 2002               |       |     | June 30, 2001 |    
|                                               |                                                                     |                                                                            |                                                            |                                                     |           |                             |       |     |               |    
|                                               |                                                                     |                                                                            |                                                            |                                                     |           | (Unaudited and in thousands |      
|                                               |                                                                     |                                                                            |                                                            |                                                     |           | except share data)          |      
|Interest income:                               |                                                                     |                                                                            |                                                            |                                                     |           |                             |       |    
|                                               |                                                                     | Interest on loans                                                          |                                                            | $                                                   | 5,173     |                             |       | $   | 5,752         |    
|                                               |                                                                     | Interest on investments, deposits with banks,
federal funds sold and other |                                                            |                                                     | 398       |                             |       |     | 412           |    
|                                               |                                                                     |                                                                            |                                                            |                                                     |           |                            
|                                               |                                                                     |                                                                            |                                                            | Total interest income                               |           |                             | 5,571 |     |               |     | 6,164 | 
|Interest expense:                              |                                                                     |                                                                            |                                                            |                                                     |           |                             |       |    
|                                               |                                                                     | Interest on deposits                                                       |                                                            |                                                     | 1,985     |                             |       |     | 2,904         |    
|                                               |                                                                     | Interest on borrowings                                                     |                                                            |                                                     | 898       |                             |       |     | 852           |    
|                                               |                                                                     |                                                                            |                                                            |                                                     |           |                            
|                                               |                                                                     |                                                                            |                                                            | Total interest expense                              |           |                             | 2,883 |     |               |     | 3,756 | 
|                                               |                                                                     |                                                                            |                                                            |                                                     |           |                            
|                                               |                                                                     |                                                                            |                                                            | Net interest income                                 |           |                             | 2,688 |     |               |     | 2,408 | 
|                                               |                                                                     | Provision for loan losses                                                  |                                                            |                                                     | 132       |                             |       |     | 180           |    
|                                               |                                                                     |                                                                            |                                                            |                                                     |           |                            
|                                               |                                                                     |                                                                            |                                                            | Net interest income after provision for loan losses |           |                             | 2,556 |     |               |     | 2,228 | 
|                                               |                                                                     | Noninterest income:                                                        |                                                            |                                                     |           |                             |       |     |               |    
|                                               |                                                                     |                                                                            | Service charges on deposit accounts                        |                                                     |           | 237                         |       |     |               | 250 |      
|                                               |                                                                     |                                                                            | Net realized loss on sale of available for sale securities |                                                     |           | (71                         | )     |     |               | 0   |      
|                                               |                                                                     |                                                                            | Net gains on loan sales                                    |                                                     |           | 168                         |       |     |               | 218 |      
|                                               |                                                                     |                                                                            | Gain on sale of land in joint venture                      |                                                     |           | -0-                         |       |     |               | 233 |      
|                                               |                                                                     |                                                                            | Other                                                      |                                                     |           | 123                         |       |     |               | 111 |      
|                                               |                                                                     |                                                                            |                                                            |                                                     |           |                            
|                                               |                                                                     |                                                                            |                                                            | Total noninterest income                            |           |                             | 457   |     |               |     | 812   | 
|                                               |                                                                     |                                                                            |                                                            |                                                     |           |                            
|Noninterest expense:                           |                                                                     |                                                                            |                                                            |                                                     |           |                             |       |    
|                                               |                                                                     | Salaries and employee benefits                                             |                                                            |                                                     | 1,092     |                             |       |     | 998           |    
|                                               |                                                                     | Net occupancy and equipment expenses                                       |                                                            |                                                     | 315       |                             |       |     | 312           |    
|                                               |                                                                     | Deposit insurance expense                                                  |                                                            |                                                     | 20        |                             |       |     | 20            |    
|                                               |                                                                     | Data processing expense                                                    |                                                            |                                                     | 87        |                             |       |     | 70            |    
|                                               |                                                                     | Other                                                                      |                                                            |                                                     | 368       |                             |       |     | 689           |    
|                                               |                                                                     |                                                                            |                                                            |                                                     |           |                            
|                                               |                                                                     |                                                                            |                                                            | Total noninterest expense                           |           |                             | 1,882 |     |               |     | 2,089 | 
|                                               |                                                                     |                                                                            |                                                            |                                                     |           |                            
|Income before income tax                       |                                                                     |                                                                            | 1,131                                                      |                                                     |           |                             | 951   |    
|                                               |                                                                     | Income tax expense                                                         |                                                            |                                                     | 439       |                             |       |     | 369           |    
|                                               |                                                                     |                                                                            |                                                            |                                                     |           |                            
|Net income                                     |                                                                     | $                                                                          | 692                                                        |                                                     |           | $                           | 582   |    
|Other comprehensive income (loss), net of tax: |                                                                     |                                                                            |                                                            |                                                     |           |                             |       |    
|                                               | Unrealized depreciation on available for sale securities            |                                                                            |                                                            | (65                                                 | )         |                             |       | (51 | )            
|                                               | Less: Reclassification adjustment for losses included in
net income |                                                                            |                                                            | (43                                                 | )         |                             |       | 0   |              
|                                               |                                                                     |                                                                            |                                                            |                                                     |           |                             |      
|Comprehensive income                           |                                                                     | $                                                                          | 670                                                        |                                                     |           | $                           | 531   |    
|                                               |                                                                     |                                                                            |                                                            |                                                     |           |                            
|Basic earnings per share                       |                                                                     | $                                                                          | 0.47                                                       |                                                     |           | $                           | 0.39  |    
|                                               |                                                                     | Weighted average shares outstanding                                        |                                                            |                                                     | 1,476,678 |                             |       |     | 1,505,681     |    
|Diluted earnings per share                     |                                                                     | $                                                                          | 0.43                                                       |                                                     |           | $                           | 0.37  |    
|                                               |                                                                     | Weighted average shares outstanding                                        |                                                            |                                                     | 1,597,931 |                             |       |     | 1,580,421     |    

See notes to condensed consolidated financial statements

3



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##### 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, 2002                |       |       | June 30, 2001 |        
|                     |                                                                                          |            |                                                                            |                                   |  |                              |       |       |               |        
|                     |                                                                                          |            |                                                                            |                                   |  | (Unaudited and in thousands) |      
|Operating activities |                                                                                          |            |                                                                            |                                   |  |                              |       |      
|                     | Net income                                                                               |            | $                                                                          | 1,397                             |  |                              | $     | 1,148 |              
|                     | Adjustments to reconcile net income to net cash
provided (used) by operating activities: |            |                                                                            |                                   |  |                              |       |       |              
|                     |                                                                                          |            | Provision for loan losses                                                  |                                   |  | 230                          |       |       |               | 360     |      
|                     |                                                                                          |            | ESOP compensation expense                                                  |                                   |  | 254                          |       |       |               | 216     |      
|                     |                                                                                          |            | Incentive plan compensation expense                                        |                                   |  | 0                            |       |       |               | 119     |      
|                     |                                                                                          |            | Losses on sale of available for sale securities                            |                                   |  | 71                           |       |       |               | 0       |      
|                     |                                                                                          |            | Investment securities amortization, net                                    |                                   |  | 61                           |       |       |               | 45      |      
|                     |                                                                                          |            | Minority interest in net income (loss) of real estate joint
venture        |                                   |  | (3                           | )     |       |               | 116     |      
|                     |                                                                                          |            | Gain on sale of land in real estate joint venture                          |                                   |  | 0                            |       |       |               | (233    | )    
|                     |                                                                                          |            | Net loss on sale of foreclosed property                                    |                                   |  | 19                           |       |       |               | 0       |      
|                     |                                                                                          |            | Net gains on sale of mortgage loans                                        |                                   |  | (341                         | )     |       |               | (323    | )    
|                     |                                                                                          |            | Net gains from sale of premises and equipment                              |                                   |  | (26                          | )     |       |               | 0       |      
|                     |                                                                                          |            | Depreciation                                                               |                                   |  | 372                          |       |       |               | 377     |      
|                     |                                                                                          |            | Mortgage loans originated for sale                                         |                                   |  | (18,390                      | )     |       |               | (14,451 | )    
|                     |                                                                                          |            | Proceeds from sale of mortgage loans                                       |                                   |  | 22,456                       |       |       |               | 12,106  |      
|                     |                                                                                          |            | Federal Home Loan Bank dividends                                           |                                   |  | (120                         | )     |       |               | (157    | )    
|                     |                                                                                          | Change in: |                                                                            |                                   |  |                              |       |       |               |        
|                     |                                                                                          |            |                                                                            | Other liabilities                 |  |                              | 168   |       |               |         | 227   | 
|                     |                                                                                          |            |                                                                            | Prepaid expenses and other assets |  |                              | (363  | )     |               |         | 5     | 
|                     |                                                                                          |            |                                                                            |                                   |  |                             
|                     |                                                                                          |            | Net cash provided (used) by operating activities                           |                                   |  | 5,785                        |       |       |               | (445    | )    
|                     |                                                                                          |            |                                                                            |                                   |  |                             
|Investing Activities |                                                                                          |            |                                                                            |                                   |  |                              |       |      
|                     |                                                                                          |            | Purchase of securities available for sale                                  |                                   |  | (13,500                      | )     |       |               | (4,355  | )    
|                     |                                                                                          |            | Proceeds from maturities and principal paydowns                            |                                   |  |                              |       |       |               |         |      
|                     |                                                                                          |            |                                                                            | on securities available for sale  |  |                              | 2,388 |       |               |         | 5,700 | 
|                     |                                                                                          |            | Proceeds from sales of securities available for sale                       |                                   |  | 5,120                        |       |       |               | 0       |      
|                     |                                                                                          |            | Net
originations of loans                                                  |                                   |  | 1,813                        |       |       |               | 452     |      
|                     |                                                                                          |            | Proceeds from sale of foreclosed property                                  |                                   |  | 978                          |       |       |               | 63      |      
|                     |                                                                                          |            | Purchases of premises and equipment                                        |                                   |  | (24                          | )     |       |               | (102    | )    
|                     |                                                                                          |            | Proceeds from sale of premises and equipment                               |                                   |  | 150                          |       |       |               | 0       |      
|                     |                                                                                          |            | Investment in land in real estate joint venture                            |                                   |  | (74                          | )     |       |               | 0       |      
|                     |                                                                                          |            | Proceeds from sale of land real estate joint venture                       |                                   |  | 0                            |       |       |               | 548     |      
|                     |                                                                                          |            | Proceeds from the minority interest portion of real
estate joint venture   |                                   |  | 41                           |       |       |               | 0       |      
|                     |                                                                                          |            | Net distribution to minority interest portion of real estate
joint venture |                                   |  | 0                            |       |       |               | (227    | )    
|                     |                                                                                          |            |                                                                            |                                   |  |                             
|                     |                                                                                          |            | Net cash provided (used) by investing activities                           |                                   |  | (3,108                       | )     |       |               | 2,079   |      
|                     |                                                                                          |            |                                                                            |                                   |  |                             

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|                                               |                                           |                                                              |        |       |        |   |        |       |         |  
|---------------------------------------------- | ----------------------------------------- | ------------------------------------------------------------ | ------ | ----- | ------ | - | ------ | ----- | ------- | -
|Financing Activities                           |                                           |                                                              |        |       |        |   |        |      
|                                               |                                           | Net change in deposits                                       |        | $     | 5,292  |   |        | $     | 12,889  |  
|                                               |                                           | Proceeds from borrowings                                     |        |       | 11,800 |   |        |       | 26,000  |  
|                                               |                                           | Repayment of borrowings                                      |        |       | (7,968 | ) |        |       | (34,170 | )
|                                               |                                           | Purchase of treasury stock shares                            |        |       | (540   | ) |        |       | (2      | )
|                                               |                                           | Cash dividends paid on common stock                          |        |       | (210   | ) |        |       | (173    | )
|                                               |                                           | Exercise of stock options                                    |        |       | 162    |   |        |       | 0       |  
|                                               |                                           | Net changes in advances by borrowers for taxes and insurance |        |       | (70    | ) |        |       | (65     | )
|                                               | Net cash provided by financing activities |                                                              |        | 8,466 |        |   |        | 4,479 |        
|                                               |                                           |                                                              |        |       |        |  
|Net change in cash and cash equivalents        |                                           |                                                              | 11,143 |       |        |   | 6,113  |      
|Cash and cash equivalents, beginning of period |                                           |                                                              | 12,931 |       |        |   | 11,015 |      
|                                               |                                           |                                                              |        |       |        |  
|Cash and cash equivalents, end of period       |                                           | $                                                            | 24,074 |       |        | $ | 17,128 |      
|                                               |                                           |                                                              |        |       |        |  
|Additional cash flows information:             |                                           |                                                              |        |       |        |   |        |      
|                                               | Interest paid                             |                                                              | $      | 5,803 |        |   | $      | 7,336 |        
|                                               | Income tax paid                           |                                                              | $      | 710   |        |   | $      | 625   |        
|                                               | Loans transferred to foreclosed property  |                                                              | $      | 1,667 |        |   | $      | 215   |        

See notes to condensed consolidated financial statements

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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 financial position as of June 30, 2002 and
December 31, 2001, and the results of operations and cash flows for the six and
three months ended June 30, 2002 and 2001. 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, 2002 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 30, 2002, included in the Companys 2001 Annual Report to Shareholders.

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, 2002 and
2001. Diluted earnings per share 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.

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|        |  |                                                                                     
|------- |  | ------------------------------------------------------------------------------------
|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, 2002 and DECEMBER 31, 2001

Total assets increased from $340.6 million at December 31, 2001 to $350.8
million at June 30, 2002. The $10.2 million or 3.0% increase was primarily due
to the increase in interest-bearing demand deposits, which is included in cash
and cash equivalents, and available for sale securities, offset by a decrease in
loans and mortgage loans held for sale.

Cash and cash equivalents increased from $12.9 million at December 31, 2001 to
$24.1 million at June 30, 2002, an increase of $11.2 million or 86.8%. This
increase resulted from an increase in deposits and borrowings, and a decrease in
loans and mortgage loans held for sale.

Available for sale securities increased from $15.7 million at December 31, 2001
to $21.4 million at June 30, 2002, an increase of $5.7 million or 36.3%. The
increase was primarily due to the purchase of investment securities during the
first six months of 2002.

Loans, net of allowance for loan losses and including loans held for sale,
decreased from $293.8 million at December 31, 2001 to $286.3 million at June 30,
2002, a decrease of $7.5 million or 2.6%.

The Company maintains an allowance for loan losses to absorb losses inherent in
the loan portfolio. The allowance for losses decreased from $2,421,000 at
December 31, 2001 to $2,325,000 at June 30, 2002, a decrease of $96,000 or 4.0%.
An allowance for possible loan losses is established based on managements best
judgment, which involves a continuing review of prevailing national and local
economic conditions, changes in the size and composition of the portfolio and
review of individual problem credits. Growth of the loan portfolio, loss
experience, economic conditions, delinquency levels, credit mix, and selected
credits are factors that affect judgments concerning the adequacy of the
allowance. Actual losses on loans are charged against the allowance.

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Non-performing loans, which are loans which are past due 90 days or more, and
non-accruing loans, decreased from $5,790,000 at December 31, 2001 to $5,683,000
at June 30, 2002. The ratio of the Companys allowance for loan losses to total
non-performing loans was 40.9% and 41.8% at June 30, 2002 and December 31, 2001,
respectively.

Loans delinquent greater than 90 days and
still accruing interest increased from $2,613,000 at December 31,
2001 to $3,190,000 at June 30, 2002, an increase of $577,000. As of June 30,
2002, $1,823,000 of this balance was for loans to three borrowers. The first
borrower is an aviation firm that has declared bankruptcy and has loans for
$1,002,000 that were delinquent greater than 90 days at June 30, 2002. The
borrower is attempting to sell the business. Based on the value of the
collateral for the loans, the Company does not believe that a loss will be
incurred relating to these loans. A second borrower had approximately $532,000
in loans that were delinquent greater than 90 days at June 30, 2002. The
collateral for the loans to this borrower are single-family homes and
residential lots. The Company believes that the loans have adequate collateral
and no material loss is expected to be incurred. The third borrower has a single
loan for $289,000. The collateral for this loan is a commercial building. The
Company believes that this loan has adequate collateral and no material loss is
expected to be incurred. The other $1,367,000 of loans delinquent greater than
90 days at June 30, 2002 are primarily individual residential and consumer loans
for which the Company believes that it has adequately reserved for any potential
loss.

Non-accruing loans decreased from $3,177,000 at December 31, 2001 to $2,493,000
at June 30, 2002, a decrease of $684,000. As of June 30, 2002, $1,876,000 of the
total non-accruing loans pertains to two borrowers. The first borrower, with
loans for $1,024,000, is a developer, which had $4.2 million in loans with the
Company for the development of 27 residential properties. In August 2000, the
developer filed for bankruptcy protection. A bankruptcy trustee is handling the
disposition of the developers assets. During 2000, the Company charged off $2.8
million of the loans outstanding to the developer. Based on the cash and real
estate held by the trustee and the Companys expected portion of these assets,
management believes that there will be no additional losses relative to the
developer. The Company is waiting for the bankruptcy trustee to complete the
distribution of the proceeds to creditors. The second borrower is a developer
with $852,000 in loans. The collateral for these loans are single-family homes
and residential lots. The Bank has established a loss reserve of $50,000 for
these loans. Based on the value of the collateral, management believes that an
adequate loss reserve has been established for these loans. The remaining
non-accrual loans, with a balance of $617,000, consist primarily of $356,000 of
real estate construction loans and $227,000 of 1-4 family real estate loans. For
all of the non-accrual loans, the Company believes that it has adequately
reserve for any potential loss. The decrease in non-accrual loans was primarily
due to the foreclosure and disposition of approximately $700,000 of loans to a
contractor that had been classified as non-accrual at December 31, 2001 and the
receipt from the bankruptcy trustee of approximately $590,000 in partial payment
on the loans to the first borrower discussed above.

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Potential problem loans decreased from $4,941,000 at December 31, 2001 to
$4,271,000 at June 30, 2002, a decrease of $670,000. As of June 30, 2002, the
total relates to two borrowers. A borrower with a commercial mortgage for a
retail development and a residential contractor have potential problem loans of
$3,334,000 and $937,000, respectively. At June 30, 2002, the loan for the retail
development is not delinquent. The building that serves as the Companys
collateral is leased and, in addition, the borrower has personally guaranteed
the loan. Another financial institution has initiated foreclosure proceedings on
loans related to the same retail development. The Bank has established a loss
reserve of $500,000 for this loan. Based on the value of the collateral,
management believes that an adequate loss reserve has been established for this
loan. The loans to the residential contractor are current, however due to
previous payment problems with this borrower these loans have been classified as
potential problem loans. Based on the value of the collateral and the borrowers
income, management does not anticipate a loss on these loans.

Land in real estate joint venture increased from $1,081,000 at December 31, 2001
to $1,155,000 at June 30, 2002, an increase of $74,000 or 6.9%. The increase
was due to capital improvements to the real estate development.

Foreclosed assets increased from $618,000 at December 31, 2001 to $1,288,000 at
June 30, 2002, an increase of $670,000 or 108.4%. The balance is comprised of
primarily 1-4 family residences. Properties being transferred to foreclosed
assets are appraised or evaluated and, if required, loss reserves are established
by management.

Other assets increased from $4.5 million at December 31, 2001 to $4.9 million at
June 30, 2002, an increase of $400,000 or 8.9%. The increase was primarily due
to a $251,000 increase in prepaid Federal income tax and a $143,000 increase in
mortgage servicing rights.

Deposits increased from $236.6 million at December 31, 2001 to $241.9 million at
June 30, 2002, an increase of $5.3 million or 2.2%. The increase was primarily
due to an increase of $7.0 million in money market deposits. During the period
of low interest rates and stock market volatility in 2002, customers preferred
the liquidity and stability of the money market account.

Long-term debt increased from $69.6 million at December 31, 2001 to $73.5
million at June 30, 2002, an increase of $3.9 million or 5.6%.

Other liabilities increased from $2,831,000 at December 31, 2001 to $2,929,000
at June 30, 2002 an increase of $98,000 or 3.5%.

Total stockholders equity capital increased by $1.0 million or 3.2%, from $30.9
million at December 31, 2001 to $31.9 million at June 30, 2002. The increase
resulted from the earnings of the Company of $1,397,000 for the six months ended
June 30, 2002, the recognition of ESOP shares of $254,000, exercised stock
options of $162,000, offset by the purchase of treasury shares of $540,000 and
the payment of $210,000 in dividends to shareholders.

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COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND JUNE 30, 2001

GENERAL
Net income for the six months ended June 30, 2002 increased by $249,000 from
$1,148,000 for the six months ended June 30, 2001 to $1,397,000 for the six
months ended June 30, 2002. The increase was primarily due to an increase in net
interest income and a decrease in the provision for loan losses offset by a
decrease in noninterest income for the first six months of 2002.

INTEREST INCOME
Interest on loans decreased by $1,179,000 or 10.0%, from $11,786,000 for the six
months ended June 30, 2001 to $10,607,000 for the six months ended June 30,
2002. Interest on loans decreased due to a 93 basis point decrease in the
average yield on loans offset by a $6.4 million increase in the average balance
of loans.

Interest on investments decreased from $808,000 for the six months ended June
30, 2001 to $716,000 for the six months ended June 30, 2002, a decrease of
$92,000 or 11.4%. The decrease was due to a 266 basis point decrease in the
average yield of interest-bearing demand deposits, FHLB stock and investment
securities in 2002 offset by a $13.8 million increase in the average balance of
these investments.

INTEREST EXPENSE
Interest on deposits decreased by $1,733,000 or 29.8%, from $5,825,000 for the
six months ended June 30, 2001 to $4,092,000 for the six months ended June 30,
2002. The decrease was due to a 158 basis point decrease in the average cost of
deposits offset by a $10.6 million increase in the average balance of deposits.

Interest on long-term debt decreased by $9,000 or 0.5%, from $1,800,000 for the
six months ended June 30, 2001 to $1,791,000 for the six months ended June 30,
2002. There was a 79 basis point decrease in the average cost of borrowing
offset by a $10.3 million increase in the average balance of long-term debt.

PROVISION FOR LOAN LOSSES
The provision for loan losses was $230,000 for the six months ended June 30,
2002 and $360,000 for the six months ended June 30, 2001. The provision for both
periods reflects managements analysis of the Companys loan portfolio based on
information which is currently available to it at such time. In particular,
management considers the level of non-performing loans and potential problem
loans. While management believes that the allowance for loan losses is
sufficient based on information currently available, no assurances can be made
that future events or conditions or regulatory directives will not result in
increased provisions for loan losses or additions to the Banks allowance for
losses which may adversely affect net income.

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NONINTEREST INCOME
Total noninterest income decreased by $251,000 or 20.8%, from $1,202,000 for the
six months ended June 30, 2001 to $951,000 for the six months ended June 30,
2002. The decrease was primarily due to a decrease of $233,000 in gains on sale
of land in joint venture during 2001and a $71,000 net realized loss on the sale
of available for sale securities in 2002.

NONINTEREST EXPENSE
Total noninterest expense decreased by $57,000 or 1.4%, from $3,935,000 for the
six months ended June 30, 2001 to $3,878,000 for the six months ended June 30,
2002. The decrease was due primarily to a $119,000 decrease in the minority
interest in net income of real estate joint venture.

INCOME TAX EXPENSE
Total income tax expense was $886,000 for the six months ended June 30, 2002,
compared to $728,000 for the six months ended June 30, 2001. The increase is
attributable to an increase in taxable income for the six months ended June 30,
2002. The effective tax rate was 38.8% for the six months ended June 30, 2002
and 2001.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2002 and JUNE 30, 2001

GENERAL
Net income for the three months ended June 30, 2002 increased by $110,000 from
$582,000 for the three months ended June 30, 2001 to $692,000 for the three
months ended June 30, 2002. The increase was due primarily to an increase in net
interest income and a decrease in noninterest expense, offset by a decrease in
noninterest income.

INTEREST INCOME
Interest on loans decreased by $579,000 or 10.1%, from $5,752,000 for the three
months ended June 30, 2001 to $5,173,000 for the three months ended June 30,
2002. Interest on loans decreased due to a decrease in the average yield on
loans outstanding of 91 basis points offset by $3.5 million increase in the
average balance of outstanding loans.

Interest on investments decreased from $412,000 for the three months ended June
30, 2001 to $398,000 for the three months ended June 30, 2002, a decrease of
$14,000 or 3.4%. The decrease was due to a 266 basis point decrease in the
average yield of interest-bearing demand deposits, FHLB stock and investment
securities in 2002. There was a $20.4 million increase in the average balance of
investments and interest-bearing deposits.

INTEREST EXPENSE
Interest on deposits decreased by $919,000 or 31.6%, from $2,904,000 for the
three months ended June 30, 2001 to $1,985,000 for the three months ended June
30, 2002. The decrease was primarily due to a 169 basis point decrease in the
average cost of deposits, offset by a $10.9 million increase in the average
balance of deposits.

The interest on long-term debt increased by $46,000 or 5.4%, from $852,000 for
the three months ended June 30, 2001 to $898,000 for the three months ended June
30, 2002 as a result of a $12.9 million increase in average borrowings, offset
by a 74 basis point decrease in the average cost of borrowings.

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PROVISION FOR LOAN LOSSES
The provision for loan losses was $132,000 for the three months ended June 30,
2002 and $180,000 for the three months ended June 30, 2001, a decrease of
$48,000 or 26.7%.

NONINTEREST INCOME
Total noninterest income decreased by $355,000 or 43.7%, from $812,000 for the
three months ended June 30, 2001 to $457,000 for the three months ended June 30,
2002. The gain on sale of land in real estate joint venture decreased by
$233,000 due to no lot sales in 2002. Net gains on loan sales decreased from
$218,000 for the three months ended June 30, 2001 to $168,000 for the three
months ended June 30, 2002, a decrease of $50,000 or 22.9%. There was a $71,000
net loss on the sale of available for sale securities in 2002.

NONINTEREST EXPENSES
Salaries and employee benefits expense increased by $94,000 or 9.4%, from
$998,000 in 2001 to $1,092,000 in 2002. There was a $119,000 decrease in
minority interest in net income of real estate joint venture due to no lot sales
in 2002.

INCOME TAX EXPENSE
Total income tax expense was $439,000 for the three months ended June 30, 2002,
compared to $369,000 for the three months ended June 30, 2001, an increase of
$70,000 or 19.0%. The increase was attributable to the increased taxable income
for the three months ended June 30, 2002. The effective tax rate was 38.8% for
the three months ended June 30, 2002 and 2001.

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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, 2002, the Bank exceeded all of its regulatory capital requirements
with Tier 1 capital of $29.8 million, or 8.6% of average total assets, which is
above the required level of $13.9 million or 4.0%; and risk-based capital of
$32.1 million or 13.1% of risk-weighted assets, which is above the required
level of $19.6 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, 2002 cash and
interest-bearing deposits totaled $24.1 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, 2002, the Bank had outstanding advances with the FHLB of $69.2 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 $51.3 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, 2002 the Bank had commitments to originate loans and unused lines of
credit totaling $25.4 million. Certificate accounts which are scheduled to
mature in one year or less from June 30, 2002 totaled $108.7 million. The Bank
anticipates that it will have sufficient funds to meet its current commitments
and maturing deposits.

Current Accounting Issues

In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations and SFAS No. 142 Goodwill and Other Intangible Assets.
SFAS No. 141 requires that all business combinations be accounted for using the
purchase method of accounting and requires separate recognition of intangible
assets that meet certain criteria. This statement applies to all business
combinations after June 30, 2001. SFAS No. 142 requires that an intangible asset
that is acquired shall be initially recognized and measured based on its fair
value. This statement also provides that goodwill should not be amortized, but
shall be tested for impairment annually, or more frequently if circumstances
indicate potential impairment, through a comparison of fair value to its
carrying amount. The Company has no goodwill or intangible assets and therefore
the adoption of these statements had no impact on the Companys financial
condition or results of operation.

In July, 2001, SFAS No. 143, Accounting for Asset Retirement Obligations was issued. SFAS No. 143 establishes
standards for accounting and reporting of obligations associated with the retirement


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of tangible long-lived
assets and associated asset retirement costs. SFAS No. 143 is effective June 15, 2002. The adoption of this
standard did not have an impact on the Company.

In October, 2001, SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets was issued. Under
SFAS No. 144, long-lived assets to be sold within one year must be separately identified and carried at the lower
of carrying value or fair value less costs to sell.

Long-lived assets expected to be held longer than one year are subject to
depreciation and must be written down to fair value upon impairment. Long-lived
assets no longer expected to be sold within one year, such as foreclosed real
estate, must be written down to the lower of current fair value or fair value at
the date of foreclosure adjusted to reflect depreciation since acquisition. SFAS
No. 144 was implemented by the Company in January 2002. The adoption of this
statement did not have an impact on the Company.

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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 three and six months ended June 30, 2002 and
2001.

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, 2001. Please refer to the Companys 2001 Form
10-K for further discussion of the Companys market and interest rate risk.

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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 22, 2002.
|                                                                                                                                                                                                                                                                                          | 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 | 
|                     |  |           |           |  |                |  |        |      | 
|C. William Landefeld |  |           | 1,358,293 |  |                |  | 33,048 |      |  | 3 years
|Harold L. Hoeferle   |  |           | 1,374,782 |  |                |  | 16,559 |      |  | 3 years
|Martin L. Hogan      |  |           | 1,374,432 |  |                |  | 16,909 |      |  | 3 years



| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Additionally, the following individuals are the other Directors whose
terms of office as Directors continued after the meeting:



| |                                                                         
| | ------------------------------------------------------------------------
| | Dr. Lowell M. Thompson
Ronald C. Wells
L. Carl Borngasser
Arthur W. Mier

| |  |  |    |  |                                                                                                                                                                                                 | 
| |  |  | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |  |  | 2. |  | The ratification of BKD, LLP as independent
auditor of the Company for the fiscal year
ending December 31, 2002 as reflected by
1,381,064 votes for, 8,699 votes against and
1,578 abstentions.

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|                                            |                         |                                                                                                          |  | 
|------------------------------------------- | ----------------------- | -------------------------------------------------------------------------------------------------------- |  | 
|Item 5.    Other Information               
|                                            | Not applicable.        
|                                           
|Item 6.    Exhibits and Reports on Form 8-K
|                                            | a.  Exhibits           
|                                            |                         | 11.0      Statement re: Computation of Per Share Earnings
(filed herewith)                              
|                                            |                         | 99.1      Certification of C. William Landefeld                                                         
|                                            |                         | 99.2      Certification of Dallas G. Smiley                                                             
|                                           
|                                            | b.  Reports on Form 8-K
|                                            |                         | Citizens First Financial Corp. filed the following Form 8-K during the quarter ended
June 30, 2002: None

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Exhibit Index

|     |  |                                                  |  |  |    |  |  | 
|---- |  | ------------------------------------------------ |  |  | -- |  |  | 
|11.0 |  | Statement re:  Computation of Per Share Earnings |  |  | 20 | 
|99.1 |  | Certification of C. William Landefeld            |  |  | 22 | 
|99.2 |  | Certification of Dallas G. Smiley                |  |  | 23 | 

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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, 2002 |  | /s/ C. William LandefeldC. William Landefeld
          President      
|     
|Date: |  | August 14, 2002 |  | /s/ Dallas G. SmileyDallas G. Smiley
          Chief Financial Officer

19