SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

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

      For the Fiscal Year Ended June 30, 2004

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

      For the transition period from ________________ to ________________

                         Commission File Number 1-16763

                           ALLIED FIRST BANCORP, INC.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

            Maryland                                            36-4482786
--------------------------------------------------------------------------------
(State or Other Jurisdiction of                              (I.R.S. Employer
 Incorporation or Organization)                           Identification Number)

387 Shuman Blvd., Suite 290E, Naperville, Illinois                  60563
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                          Zip Code

       Registrant's telephone number, including area code: (630) 778-7700

                             ---------------------

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None
                                      ----

           Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of Class)

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be  contained,  to the best of  Registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [X]

      The  Registrant had revenue of $7.6 million for the fiscal year ended June
30, 2004.

      As of September 7, 2004, the Registrant had 527,688 shares of Common Stock
issued and outstanding.

      The aggregate market value of the voting stock held by  non-affiliates  of
the Registrant,  computed by reference to the average of the bid and asked price
of such stock as of September 7, 2004 was $9.4 million. (The exclusion from such
amount of the market value of the shares owned by any person shall not be deemed
an  admission  by  the  Registrant  that  such  person  is an  affiliate  of the
Registrant.)

                      DOCUMENTS INCORPORATED BY REFERENCE
PART II of Form 10-KSB - Annual Report to Stockholders for the fiscal year ended
June 30, 2004. PART III of Form 10-KSB - Proxy Statement for 2004 Annual Meeting
                                of Stockholders.

<PAGE>

                                     PART I

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

                                    BUSINESS

General.

      "Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995.  A number of the  matters and subject  areas  discussed  in this annual
report  that  are  historical  or  current  facts  deal  with  potential  future
circumstances  and  developments.  The  discussion  of these matters and subject
areas is qualified by the inherent risks and  uncertainties  surrounding  future
expectations  generally,  and also may materially  differ from the actual future
experience  of Allied First  Bancorp,  Inc.  involving  any one or more of these
matters and subject areas. Allied First Bancorp, Inc. has attempted to identify,
in context,  certain of the factors that it currently  believes may cause actual
future  experience  and  results to differ  from Allied  First  Bancorp,  Inc.'s
current expectations  regarding the relevant matter or subject area. These risks
and  uncertainties  include,  but  are  not  limited  to,  changes  in  economic
conditions in Allied First Bancorp,  Inc.'s market area,  changes in policies by
regulatory  agencies,  fluctuations in interest  rates,  and demand for loans in
Allied First Bancorp,  Inc.'s market area and competition,  all or some of which
could cause actual results to differ  materially  from  historical  earnings and
those  presently  anticipated  or projected,  or described  from time to time in
Allied First Bancorp, Inc.'s reports filed with the U.S. Securities and Exchange
Commission and  disseminated  by Allied First Bancorp,  Inc. in press  releases.
This annual report speaks only as of its date,  and Allied First  Bancorp,  Inc.
disclaims any duty to update the information herein.

      The  following  discussion  is  intended  to assist in  understanding  the
financial  condition and results of operations  of Allied First  Bancorp,  Inc.,
Allied First Bank, and Eagle's Nest Marketing Solutions, Inc. The discussion and
analysis does not include any comments  relating to Allied First Bancorp,  Inc.,
since Allied First Bancorp, Inc. has no significant operations.

      Allied  First Bank's  results of  operations  depend  primarily on its net
interest   income,   which  is  the  difference   between   interest  income  on
interest-earning  assets,  which  principally  consist  of loans and  investment
securities,  and  interest  expense  on  interest-bearing   liabilities,   which
principally  consist of deposits and borrowings.  Allied First Bank's results of
operation  also  are  affected  by the  level  of  its  noninterest  income  and
noninterest expenses and income tax expense.

      Allied  First  Bancorp,  Inc.  Allied  First  Bancorp,  Inc. was formed in
September,  2001, by Allied First Bank. The  acquisition of Allied First Bank by
Allied First Bancorp,  Inc. was  consummated on December 27, 2001, in connection
with Allied First Bank's conversion from the mutual to stock form.

      The  executive  offices of Allied First  Bancorp,  Inc. are located at 387
Shuman  Boulevard,  Suite 290E,  Naperville,  Illinois 60563,  and its telephone
number at that address is (630) 778-7700.

      The activities of Allied First  Bancorp,  Inc. have generally been limited
to  investment  in the stock of Allied First Bank,  and Eagle's  Nest  Marketing
Solutions,  Inc. Unless otherwise indicated,  all activities discussed below are
of Allied First Bank or Eagle's Nest Marketing Solutions, Inc.

      Allied  First Bank.  Allied First Bank's  predecessor,  the Allied  Pilots
Association  Federal Credit Union, was established in 1994. The Credit Union was
formed to serve the current and former members of the Allied Pilots  Association
(which consists of pilots of American  Airlines) and their family members.  As a
credit  union,  Allied  Pilots  Association  Federal  Credit  Union was  legally
restricted  to serve only members who shared a "common  bond" such as the pilots
and their family members. Unless the context otherwise


                                        2

<PAGE>

requires,  references  to Allied First Bank for the period  before  September 1,
2001 shall include Allied Pilots Association Federal Credit Union.

      In 1998, the Credit Union Membership  Access Act was enacted by the United
States  Congress.  This  legislation  imposed  new capital  requirements  on all
federally  insured credit unions by requiring all credit unions to maintain a 7%
net worth  capital  ratio.  Any credit union not meeting  this well  capitalized
standard  is required to allocate a  percentage  of its  earnings to  restricted
capital in each calendar quarter in order to meet the requirement.  In addition,
any credit union with less than 6% is not considered adequately  capitalized and
is required to submit a net worth restoration plan.

      Allied  Pilots  Association  Federal  Credit  Union  did not  meet the new
capital  requirements  due to its recent  organization in 1994,  although it had
continued  to increase its capital  every year since its founding in  accordance
with the approval conditions imposed by the National Credit Union Administration
when its charter was granted. As a credit union, however, it could only increase
its  capital  ratio  through  retained   earnings  or  by  reducing  assets.  In
management's  opinion,  neither of these  options  would  provide a capital base
sufficient to support the long term growth of the  institution.  After reviewing
its  strategic  options,  including  remaining  a  credit  union,  the  board of
directors determined that converting to a mutual savings bank would be the first
step to addressing the problem of capital inadequacy since a mutual savings bank
could raise capital by converting to stock form. Therefore,  after receiving the
necessary  membership and  regulatory  approvals,  on September 1, 2001,  Allied
Pilots Association Federal Credit Union converted to Allied First Bank, sb.

      Our historical  principal  business consists of attracting retail deposits
from the members of the credit  union and  investing  those funds  primarily  in
mortgages and consumer loans. Our revenues are derived principally from interest
on loans and  investments.  We also generate revenue from fees and other income.
Allied  First Bank now serves the general  public  rather than being  limited to
serving only the pilots of American Airlines and their family members.  However,
the current  customer base is  principally  the pilots of American  Airlines and
their family members.

      We offer a variety of  deposit  accounts  having a wide range of  interest
rates  and  terms,  which  generally  include  savings  accounts,  money  market
accounts,  interest and  non-interest  bearing demand deposit  accounts and time
deposit  accounts with varied terms  ranging from three months to 60 months.  We
have   historically   solicited   deposits  from  our  customers,   the  largest
concentration  of which reside in the States of California,  Florida,  Illinois,
and Texas, through direct mailings and over the Internet.

Lending Activities.

      Market Area.  As a credit union with a membership  base not located in any
one geographic area, we did not service any one market area,  although about 10%
of our  members  reside in  Illinois.  We intend to  continue  to  increase  our
community  presence,  as well as to serve the former  members  of Allied  Pilots
Association Federal Credit Union, by offering a variety of financial services to
meet the needs of our customers.  We are headquartered in Naperville,  Illinois,
and have one banking office.

      Historically,  due to the  geographic  dispersion of our customer base, we
have offered our products and services through such delivery  channels as direct
payroll  deposit,  debit cards,  credit cards,  24 hour telephone  access,  home
banking and access through automated teller machines located  worldwide.  Due to
the nature of our historical customer base, we have very limited walk-in traffic
and would  expect  that to  continue  in the near  future  until we  establish a
presence in the community.

      General. Our loans carry either a fixed or an adjustable rate of interest.
We originate a variety of consumer loans including  automobile and  recreational
vehicle loans, unsecured lines of credit, signature loans, home equity loans and
mortgage loans. When we originate a mortgage, we typically sell the loans


                                        3

<PAGE>

immediately  after  funding  with  servicing   released  and  without  recourse.
Currently, these loans are sold to one investor and underwritten by the investor
pursuant  to Freddie Mac or Fannie Mae  guidelines.  However,  more  recently we
started  to retain a  portion  of the loans in our  portfolio.  We retain  loans
within our DuPage County market area for Community  Reinvestment Act purposes as
well as outside our market area where  retention  is needed for  asset/liability
management purposes.  In determining whether to retain loans we consider,  among
other things, the interest rate environment,  our liquidity levels, geographical
diversity and balance sheet  management.  The maximum loan to value ratio of any
retained loan does not exceed 95% and loans with a loan to value ratio in excess
of 80% require  private  mortgage  insurance.  In  addition  to the  retaining a
portion of the mortgage loans that we originate, we also purchase first mortgage
loans from other  financial  institutions.  In 2004, we purchased  approximately
$50.2 million in first mortgage loans from other financial  institutions.  We do
originate  home equity lines of credit for our portfolio and such loans carry an
adjustable  rate of  interest.  We also  originate  home  equity  loans  for our
portfolio  and such loans carry a fixed rate of  interest.  We do not  originate
commercial  loans  or  commercial  real  estate  loans.   However,  we  do  have
participations in commercial loans that are secured by aircraft and real estate.
Mortgage  loans  generally have a longer term  amortization,  with principal and
interest due each month,  than other types of loans.  At June 30, 2004,  our net
loan portfolio  totaled $113.3  million,  which  constituted  85.3% of our total
assets.

      As an Illinois savings bank we are generally entitled to lend up to 25% of
our  unimpaired  capital and surplus to any one borrower at a time.  The maximum
amount which we could have loaned to any one borrower and the borrower's related
entities at June 30, 2004 was $2.7 million. At June 30, 2004, we had no loans or
group of loans to related borrowers with outstanding  balances in excess of this
amount. Our five largest lending relationships at June 30, 2004 were as follows:
(i) a $967,000 variable rate loan secured by a first mortgage, (ii) a fixed rate
first mortgage with a $862,000  outstanding  balance;  (iii) a $823,000 variable
rate loan  secured  by a first  mortgage;  (iv) a  $818,000  variable  rate loan
secured  by a first  mortgage;  and (v) a fixed  rate  loan  secured  by a first
mortgage with a $713,000  outstanding  balance.  At June 30, 2004,  all of these
loans totaling $4.2 million in the aggregate were  performing in accordance with
their terms.

                                        4

<PAGE>

      The following  table presents  information  concerning the  composition of
Allied First Bank's loan  portfolio in dollar  amounts and in  percentages as of
the dates indicated.

<TABLE>
<CAPTION>
                                                               June 30,
                                             ---------------------------------------------
                                                     2004                    2003
                                             ---------------------   ---------------------
                                              Amount      Percent     Amount      Percent
                                              ------      -------     ------      -------
                                                        (Dollars in Thousands)
<S>                                          <C>           <C>       <C>           <C>
Loans:
------
   Vehicle ...............................   $  9,366        8.26%   $ 11,465       13.14%
   Airplane ..............................      3,030        2.67       3,312        3.80
   Boat ..................................      4,122        3.63       3,042        3.49
   Signature .............................      3,520        3.10       4,176        4.79
   Lines of credit .......................      4,102        3.62       7,170        8.22
   Deposit secured .......................         41        0.04          87         .10
   Home equity ...........................     25,719       22.67      19,374       22.21
   Commercial real estate (first mortgage)      4,271        3.76       1,221        1.40
   First mortgages .......................     57,747       50.90      32,627       37.40
   Real estate construction ..............      1,527        1.35          --          --
   Credit card ...........................         --          --       4,770        5.47
                                             --------      ------    --------      ------
           Total Loans ...................    113,445      100.00%     87,244      100.00%
                                                           ======                  ======
Less allowance for loan losses ...........       (598)                   (592)
Net deferred loan costs ..................        126                     141
Unamortized premiums .....................        322                     457
                                             --------                --------

           Net Loans .....................   $113,295                $ 87,250
                                             ========                ========
</TABLE>

      The  following  table shows the  composition  of Allied  First Bank's loan
portfolio by fixed- and adjustable-rate at the dates indicated.

<TABLE>
<CAPTION>
                                                                  June 30,
                                                --------------------------------------------
                                                        2004                    2003
                                                --------------------    ----------- --------
                                                 Amount      Percent     Amount      Percent
                                                 ------      -------     ------      -------
                                                           (Dollars in Thousands)
<S>                                             <C>           <C>       <C>           <C>
Fixed-rate loans:
-----------------
Vehicle .....................................   $  9,366        8.26%   $ 11,465       13.14%
Airplane ....................................      1,863        1.64       1,013        1.16
Boat ........................................      3,356        2.96       1,793        2.06
Signature ...................................      3,520        3.10       4,176        4.79
Lines of credit .............................      2,473        2.18       4,719        5.41
Deposit secured .............................         41         .04          87        0.10
Home equity .................................      3,936        3.47       3,124        3.58
Commercial participation loans (aircraft) ...        924         .81       1,923        2.20
Commercial real estate loans (first mortgage)      4,271        3.76       1,221        1.40
First mortgages .............................     17,868       15.75       7,694        8.82
Real estate construction ....................      1,527        1.35          --          --
Credit card .................................         --          --       4,770        5.47
                                                --------    --------    --------    --------
  Total fixed-rate loans ....................     49,145       43.32%     41,985       48.12%

Adjustable-rate loans:
----------------------
Airplane ....................................        243         .21%        376         .43%
Boat ........................................        766         .68       1,249        1.43
First mortgages .............................     39,879       35.15      24,933       28.58
Lines of credit .............................      1,629        1.44       2,451        2.81
Home equity .................................     21,783       19.20      16,250       18.63
                                                --------    --------    --------    --------

   Total adjustable-rate loans ..............     64,300       56.68%     45,259       51.88%
                                                --------    --------    --------    --------
   Total gross  loans .......................    113,445      100.00%     87,244      100.00%
                                                            ========                ========

Net deferred loan costs .....................        126                     141
Unamortized premiums ........................        322                     457
Allowance for loan losses ...................       (598)                   (592)
                                                --------                --------
   Total loans receivable, net ..............   $113,295                $ 87,250
                                                ========                ========
</TABLE>


                                        5

<PAGE>

      The following  schedule  illustrates  the  contractual  maturity of Allied
First Bank's loan  portfolio at June 30, 2004. The schedule does not reflect the
effects of possible prepayments or enforcement of due-on-sale clauses.

<TABLE>
<CAPTION>
                                                                                Lines      Deposit      Home        First
                                 Vehicle    Airplane     Boat     Signature   of Credit    Secured    Equity(1)   Mortgages
                                 -------    --------     ----     ---------   ---------    -------    ---------   ---------
                                                                       (In Thousands)
<S>                              <C>        <C>        <C>        <C>         <C>         <C>         <C>         <C>
Amounts due:

One year or less .............   $  3,403   $    428   $    784   $   1,302   $   1,340   $      18   $     511   $   3,785
Over one year to five years ..      5,954      2,549      3,016       1,988       2,722          23       3,163      15,138
Over five years ..............          9         53        322         230          40          --      22,045      38,824
                                 --------   --------   --------   ---------   ---------   ---------   ---------   ---------
Total amount due .............   $  9,366   $  3,030   $  4,122   $   3,520   $   4,102   $      41   $  25,719   $  57,747
                                 ========   ========   ========   =========   =========   =========   =========   =========

Unamortized premiums .........

Net deferred loan costs ......

Allowance for loan losses ....


Loans receivable, net ........

Due after one year:
Adjustable rate ..............   $     --   $    188   $    615   $      --   $   1,131   $      --   $  21,783   $  37,360
Fixed rate ...................      5,963      2,414      2,723       2,218       1,631          23       3,425      16,602
                                 --------   --------   --------   ---------   ---------   ---------   ---------   ---------

Total ........................   $  5,963   $  2,602   $  3,338   $   2,218   $   2,762   $      23   $  25,208   $  53,962
                                 ========   ========   ========   =========   =========   =========   =========   =========

<CAPTION>

                                  Commercial
                                  Real Estate    Construction     Total
                                  -----------    ------------     -----
                                                (In Thousands)
<S>                                 <C>             <C>          <C>
Amounts due:
One year or less .............      $   927           1,527      $ 14,025
Over one year to five years ..        3,344              --        37,897
Over five years ..............           --              --        61,523
                                    -------         -------      --------
Total amount due .............      $ 4,271         $ 1,527      $113,445
                                    =======         =======      ========

Unamortized premiums .........                                   $    322
                                                                 --------
Net deferred loan costs ......                                   $    126
                                                                 --------
Allowance for loan losses ....                                   $   (598)
                                                                 --------

Loans receivable, net ........                                   $113,295
                                                                 ========

Due after one year:
Adjustable rate ..............      $    --         $    --      $ 61,077
Fixed rate ...................        3,344              --      $ 38,343
                                    -------         -------      --------

Total ........................      $ 3,344         $    --      $ 99,420
                                    =======         =======      ========
</TABLE>

---------------
(1)   Includes home equity loans of $21.8  million  which require  interest only
      payments  for  fifteen   years  and  then   converts  to  a  fifteen  year
      amortization schedule.


                                        6

<PAGE>

      Of our total gross loans of $113.4 million at June 30, 2004, approximately
$49.1 million have fixed rates of interest and approximately  $64.3 million have
adjustable rates of interest.

      Consumer Lending. Consumer loans generally have shorter terms to maturity,
which reduces our exposure to changes in interest rates,  and carry higher rates
of interest than do one- to four-family  residential mortgage loans. At June 30,
2004,  our total loan  portfolio was composed of consumer  loans  totaling $23.3
million.  We offer a variety of secured and unsecured consumer loans,  including
automobile and  recreational  vehicles,  recreational  boat and airplane  loans,
lines of credit and signature loans, and loans secured by savings deposits.

      Consumer  loans  may  entail  greater  risk  than do  one- to  four-family
residential mortgage loans, particularly in the case of consumer loans which are
secured by rapidly  depreciable  assets,  such as  automobile  and  recreational
vehicles, boats and airplanes. In these cases, any repossessed collateral from a
defaulted  loan  may  not  provide  an  adequate  source  of  repayment  of  the
outstanding loan balance.  As a result,  consumer loan collections are dependent
on the borrower's  continuing  financial stability and, thus, are more likely to
be adversely affected by job loss, divorce, illness or personal bankruptcy.

      A  significant  component  of our  consumer  lending are loans  secured by
vehicles (automobiles and recreational  vehicles),  boats and airplanes. At June
30,  2004,  our vehicle  loans  totaled  $9.4  million or 8.3% of our gross loan
portfolio,  our boat  loans  totaled  $4.1  million  or 3.6% of our  gross  loan
portfolio,  and our consumer  airplane loans totaled $2.1 million or 1.9% of our
gross loan  portfolio.  Boat and airplane loans have a maximum term of six years
for fixed rate loans and 15 years for variable rate loans.  Loan to value ratios
for boats and airplanes  are up to 90% of the sales price.  Vehicle loans may be
written for up to six years and usually  have fixed rates of  interest.  Loan to
value  ratios  for  vehicle  loans  are up to 100% of the  sales  price  for new
vehicles and up to 100% of the value on used  vehicles,  based on valuation from
official  guides.  We originate such loans only on a direct basis,  where Allied
First Bank extends  credit  directly to the borrower.  We require the collateral
for these  loans to be insured  and  Allied  First Bank to be listed as the loss
payee on the insurance policy.

      We also  originate  unsecured  revolving  lines of  credit  and  signature
(personal) loans.  Unsecured signature loans are made to borrowers for a variety
of personal  needs.  During  2004,  Allied First Bank  discontinued  originating
unsecured  revolving  lines of credit to  customer's  other  than  those for the
purpose of overdraft  protection.  Existing  unsecured lines of credit remain in
the loan portfolio,  however advances on these lines are not allowed.  Overdraft
protection  revolving lines are limited to $15,000 based on credit score.  These
loans have fixed rates but permit the  institution  to increase or decrease  the
interest rate upon 30 days advance  notice.  Any increase or decrease will apply
only  if  there  is  a  subsequent  draw.   Management  reviews  the  loan  file
periodically to determine whether the line should remain active. Signature loans
are also  unsecured and are usually  limited to a maximum of $50,000.  Signature
loans may be  written  for up to five  years and  usually  have  fixed  rates of
interest.  At June 30, 2004,  unsecured  revolving lines of credit and signature
loans totaled $4.1 million or 3.6% of our gross loan  portfolio and $3.5 million
or 3.1% of our gross loan  portfolio,  respectively.  At June 30, 2004, we had a
commitment to fund an aggregate of $2.3 million in overdraft protection lines of
credit.

      Allied First Bank sold it's credit card loan portfolio in May, 2004 and no
longer  originates  credit card loans through its  participation  as a Visa Card
issuer.

      Consumer  loans  may  entail  greater  risk  than  do   one-to-four-family
residential mortgage loans, particularly in the case of consumer loans which are
secured by rapidly  depreciable  assets,  such as  automobile  and  recreational
vehicles, boats and airplanes. In these cases, any repossessed collateral from a
defaulted  loan  may  not  provide  an  adequate  source  of  repayment  of  the
outstanding loan balance.  As a result,  consumer loan collections are dependent
on the borrower's  continuing  financial stability and, thus, are more likely to
be adversely affected by job loss, divorce, illness or personal bankruptcy.


                                        7

<PAGE>

      Real Estate  Lending.  Real estate  loans  generally  have longer terms to
maturity,  lower  rates of default,  and carry  lower rates of interest  than do
consumer  loans.  At June 30,  2004,  our total loan  portfolio  was composed of
residential 1-4 family first mortgage loans and home equity loans totaling $83.5
million.  We offer first  mortgages  loans,  home equity loans,  and home equity
lines of  credit.  At June  30,  2004,  our  total  portfolio  was  composed  of
residential  one-to-four  family  first  mortgage  loans and home  equity  loans
totaling $83.5 million.

      A  significant  component  of  our  real  estate  lending  is  residential
one-to-four  family first  mortgage  loans.  At June 30, 2004,  our  residential
one-to-four family first mortgage loans totaled $57.7 or 50.9% of our gross loan
portfolio. These loans are underwritten to Freddie Mac or Fannie Mae guidelines.
The  maximum  loan to value ratio of any  retained  loan does not exceed 95% and
loans  with a loan to value  ratio in excess  of 80%  require  private  mortgage
insurance.  We typically  do not retain  loans that have a principal  balance in
excess of $1.0 million.

      At June 30, 2004, we had  commitments  to purchase  first  mortgage  loans
secured by residential  properties  totaling $5.6 million.  The weighted average
interest rate was 4.51% and the loan terms were 30 year variable.

      Another  significant  component  of our real  estate  lending are our home
equity  loans and home  equity  lines of credit.  Home equity  loans  secured by
second mortgages,  together with all prior liens, may have a loan-to-value ratio
of up to 125% of the appraised value. These loans are limited in amounts by both
credit  score  as  well as  loan-to-value  ratios.  Home  equity  loans  have an
amortization  period of 30 years with a balloon  term of 5 years and fixed rates
of interest  which are tiered  based on credit  score.  Our home equity lines of
credit  may have a  loan-to-value  ratio of up to 125% of the  appraised  value.
Generally,  home  equity  lines  of  credit  have a 15 year  draw  period  and a
repayment period of 15 years. Home equity lines have a variable-rate of interest
equal to the prime rate of interest as reported in the Wall Street  Journal plus
a margin of 0.00% to 6.00% based on credit score and loan-to-value. Allied First
Bank does not require a borrower to obtain  private  mortgage  insurance on home
equity loans or home equity  lines of credit.  These loans  generally  contain a
"due on sale" clause allowing us to declare the unpaid principal due and payable
upon sale of the  security  property.  At June 30,  2004,  home equity loans and
lines of credit totaled $25.7 million or 22.7% of our gross loan  portfolio.  At
June 30, 2004, we had a commitment to fund an aggregate of $18.1 million in home
equity lines of credit.

      Loan  Originations,  Purchases,  Sales and Repayments.  We originate loans
through  employees  located at our office.  Referrals from our current  customer
base and advertisements are also an important source of loan originations. We do
not currently use real estate brokers,  mortgage loan brokers and builders,  but
may do so in the future.  While we originate both adjustable-rate and fixed-rate
loans,  our ability to originate  loans is dependent  upon  customer  demand for
loans.  Demand is affected by competition and the interest rate environment.  We
occasionally  purchase  participation  interests in commercial  loans with other
financial institutions. During 2003, we began purchasing residential one-to-four
family first mortgage loans from other financial  institutions.  These loans are
typically   serviced  by  the  other   financial   institution.   We   purchased
approximately  $50.2 million in  residential  one-to-four  family first mortgage
loans during fiscal 2004.

      Asset  Quality.  When a  borrower  fails to make a payment on a loan on or
before the default date,  we mail a delinquency  notice to the borrower when the
loan is 10  days  past  due.  When  the  loan is 20  days  past  due,  we mail a
subsequent  delinquent  notice to the  borrower.  All  delinquent  accounts  are
reviewed by loan  personnel,  who attempt to cure the  delinquency by contacting
the borrower once the loan is 30 days past due. If the loan becomes more than 30
days  delinquent,  the  collector  will  generally  contact  by  phone or send a
personal  letter  to the  borrower  in  order to  identify  the  reason  for the
delinquency.  Once the loan becomes more than 30 days  delinquent,  contact with
the borrower is made typically by requesting payment of the delinquent amount in
full, or the  establishment  of an acceptable  repayment  plan to bring the loan
current.  If an  acceptable  repayment  plan  has not  been  agreed  upon,  loan
personnel will generally refer the account to a collection agency


                                        8

<PAGE>

or in the  case  of a loan  secured  by  real  estate  to  legal  counsel,  with
instructions to prepare a notice of intent to foreclose. The notice of intent to
foreclose allows the borrower a period of time to bring the account current.


                                       9
<PAGE>

      Delinquent Loans. The following table sets forth our loans delinquent 60 -
89 days  past due and 90 days and over  past  due by type,  number,  amount  and
percentage of type at June 30, 2004.

<TABLE>
<CAPTION>

                                                    60 to 89 days past due             90 days and over past due
                                               ---------------------------------    ---------------------------------
                                                                        Percent                              Percent
                                                                        of Loan                              of Loan
                                                Number      Amount     Category      Number      Amount     Category
                                                ------      ------     --------      ------      ------     --------
                                                                      (Dollars in Thousands)
<S>                                                <C>       <C>         <C>            <C>       <C>         <C>
Vehicle .................................          --        $ --          --%           1        $  7        0.07%
Airplane ................................          --          --          --           --          --          --
Boat ....................................          --          --          --           --          --          --
Signature ...............................           1           4        0.11            3          23        0.66
Lines of credit .........................          --          --          --           --          --          --
Share secured ...........................           1           4        9.87           --          --          --
Home equity .............................           1          43        0.17           --          --          --
Commercial participation loans (aircraft)          --          --          --           --          --          --
First Mortgages .........................          --          --          --           --          --          --
Construction ............................          --          --          --           --          --          --
                                                 ----        ----        ----         ----        ----        ----
Total ...................................           3        $ 51        0.05%           4        $ 30        0.02%
                                                 ====        ====        ====         ====        ====        ====

<CAPTION>

                                                   Total Loans Delinquent
                                                       60 Days and Over
                                               ----------------------------------
                                                                         Percent
                                                                         of Loan
                                                 Number      Amount     Category
                                                 ------      ------     --------
                                                     (Dollars in Thousands)
<S>                                                <C>       <C>           <C>
Vehicle .................................           1        $ 7           0.07%
Airplane ................................          --         --            --
Boat ....................................          --         --            --
Signature ...............................           4         27           0.77
Lines of credit .........................          --         --            --
Share secured ...........................           1          4           9.87
Home equity .............................           1         43           0.17
Commercial participation loans (aircraft)          --         --            --
First Mortgages .........................          --         --            --
Construction ............................          --         --            --
                                                 ----        ---          ----
Total ...................................           7        $81           0.07%
                                                 ====        ===          ====
</TABLE>


                                        10

<PAGE>

      Non-Performing  Assets.  The  table  below  sets  forth  the  amounts  and
categories of non-performing assets in our loan portfolio. Non-performing assets
consist of  non-accrual  loans,  accruing  loans past due 90 days and more,  and
foreclosed   assets.   Loans  to  a  customer  whose  financial   condition  has
deteriorated are considered for non-accrual status whether or not the loan is 90
days and more  past  due.  Generally,  all  loans  past due 90 days and more are
classified  as  non-accrual.  On  non-accrual  loans,  interest  income  is  not
recognized  until  actually  collected.  At the  time  the  loan  is  placed  on
non-accrual  status,  interest  previously accrued but not collected is reversed
and charged against current income.

      Foreclosed  assets consist of real estate and other assets which have been
acquired  through  foreclosure on loans. At the time of foreclosure,  assets are
recorded at the lower of their  estimated  fair value less selling  costs or the
loan balance, with any write-down charged against the allowance for loan losses.
At all dates  presented,  we had no troubled debt  restructurings  which involve
forgiving a portion of interest or  principal  on any loans or making loans at a
rate materially less than that of market rates.

                                                             At June 30,
                                                        -----------------------
                                                           2004         2003
                                                        ----------   ----------
                                                         (Dollars in Thousands)
Non-accruing loans:
   Vehicle ..........................................      $  7         $ --
   Airplane .........................................        --           --
   Boat .............................................        --           --
   Signature ........................................        23           16
   Lines of credit ..................................        --           --
   Deposit secured ..................................        --           --
   Home equity ......................................        --           --
   Commercial participation loans (aircraft) ........        --           --
   First mortgages ..................................        --           --
     Total ..........................................      $ 30         $ 16
                                                           ====         ====

Accruing loans past due 90 days and over:
   Vehicle ..........................................      $ --         $ --
   Airplane .........................................        --           --
   Boat .............................................        --           --
   Signature ........................................        --           --
   Lines of credit ..................................        --           --
   Deposit secured ..................................        --           --
   Home equity ......................................        --           --
   Commercial participation loans (aircraft) ........        --           --
   First mortgages ..................................        --           --
     Total ..........................................      $ --         $ --
                                                           ====         ====

Total non-performing loans ..........................      $ 30         $ 16

Foreclosed assets ...................................        --           --

Total non-performing assets .........................      $ 30         $ 16
                                                           ====         ====

Allowance for loan losses ...........................      $598         $592
                                                           ====         ====

Coverage of non-performing loans ....................   1993.33%     3700.00%
                                                        =======      =======

Non-performing assets as a percentage of total assets      0.03%        0.02%
                                                           ====         ====


                                       11

<PAGE>

      Other Loans of Concern. In addition to the non-performing assets set forth
in the  table  above,  as of June  30,  2004,  there  was also an  aggregate  of
approximately $31,000 in signature loans, $43,000 in home equity, $4,000 deposit
secured,  and $4,000 in vehicle  loans with  respect to which known  information
about the possible  credit  problems of the borrowers have caused  management to
have  doubts as to the ability of the  borrowers  to comply  with  present  loan
repayment  terms and which may result in the future  inclusion  of such items in
the  non-performing  asset  categories.  These  loans  have been  considered  in
management's determination of our allowance for loan losses.

      Classified Assets. Regulations provide for the classification of loans and
other assets, such as debt and equity securities  considered by regulators to be
of  lesser  quality,  as  "substandard,"  "doubtful"  or  "loss."  An  asset  is
considered  "substandard"  if it is  inadequately  protected  by the current net
worth and paying capacity of the obligor or of the collateral  pledged,  if any.
"Substandard"  assets include those characterized by the "distinct  possibility"
that the insured  institution  will sustain "some loss" if the  deficiencies are
not  corrected.  Assets  classified  as  "doubtful"  have all of the  weaknesses
inherent in those classified  "substandard," with the added  characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently  existing facts,  conditions,  and values,  "highly  questionable  and
improbable."  Assets  classified as "loss" are those considered  "uncollectible"
and  of  such  little  value  that  their  continuance  as  assets  without  the
establishment of a specific loss reserve is not warranted.

      When  an  insured   institution   classifies   problem  assets  as  either
substandard or doubtful,  it may establish general allowances for loan losses in
an amount deemed  prudent by management  and approved by the board of directors.
General  allowances  represent loss  allowances  which have been  established to
recognize  the inherent  risk  associated  with lending  activities,  but which,
unlike  specific  allowances,  have not been  allocated  to  particular  problem
assets. When an insured  institution  classifies problem assets as "loss," it is
required  either to establish a specific  allowance  for losses equal to 100% of
that portion of the asset so  classified  or to charge off such  amount.  Allied
First Bank's determination as to the classification of its assets and the amount
of its valuation allowances is subject to review by the Illinois Office of Banks
and Real Estate and the FDIC,  which may order the  establishment  of additional
general or specific loss allowances.

      In  connection  with the filing of our periodic  reports with the Illinois
Office  of  Banks  and Real  Estate  and the  FDIC  and in  accordance  with our
classification  of assets policy,  we regularly review the problem assets in our
portfolio to determine  whether any assets require  classification in accordance
with applicable regulations.  On the basis of management's review of our assets,
at June 30, 2004, we had five loans totaling $65,985  classified as substandard;
and seven  loans  totaling  $46,904  classified  as loss.  The  total  amount of
classified assets represented 1.04% of our equity capital and 0.09% of our total
assets at June 30, 2004.

      Allowance  for Loan Losses.  We maintain an  allowance  for loan losses to
absorb probable losses incurred in the loan portfolio. The allowance is based on
ongoing,  quarterly  assessments of the estimated  losses in the loan portfolio.
Our methodology for assessing the  appropriateness  of the allowance consists of
several key elements,  which include the ratio analysis and specific  allowances
for  identified  problem  loans.  In addition,  the allowance  incorporates  the
results of measuring impaired loans as provided in SFAS No. 114,  "Accounting by
Creditors for  Impairment of a Loan" and SFAS No. 118,  "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures." These accounting
standards prescribe the measurement methods,  income recognition and disclosures
related to impaired loans.

      The allowance is calculated by applying loss factors to outstanding  loans
based on the internal risk evaluation of the loans or pools of loans. Loans past
due 60 days or more are evaluated  individually and loans less than 60 days past
due are evaluated in pools.  Changes in risk  evaluations of both performing and
nonperforming loans affect the amount of the formula allowance. Loss factors are
based  both on our  historical  loss  experience  as well as  factors  that,  in
management's  judgment,  affect the  collectibility  of the  portfolio as of the
evaluation date.


                                       12

<PAGE>

      The allowance is  established  and reviewed by  management  based upon its
evaluation of then- existing economic and business conditions  affecting our key
lending areas and other  conditions,  such as credit quality  trends  (including
trends in  nonperforming  loans  expected to result from  existing  conditions),
collateral values, loan volumes and concentrations, specific industry conditions
within portfolio  segments and recent loss experience in particular  segments of
the portfolio that existed as of the balance sheet date and the impact that such
conditions  were  believed  to  have  had on  the  collectibility  of the  loan.
Management  reviews these  conditions  monthly.  To the extent that any of these
conditions  is  evidenced  by a  specifically  identifiable  problem  credit  or
portfolio segment as of the evaluation date, management's estimate of the effect
of such  condition may be reflected as a specific  allowance  applicable to such
credit or portfolio segment.

      Management  also evaluates the allowance for loan losses based on a review
of individual loans, historical loan loss experience,  the value and adequacy of
collateral, and economic conditions. This evaluation is inherently subjective as
it requires material estimates,  including the amounts and timing of future cash
flows  expected  to be received on  impaired  loans that may be  susceptible  to
significant change. For all specifically reviewed loans for which it is probable
that Allied  First Bank will be unable to collect all amounts due  according  to
the terms of the loan  agreement,  Allied First Bank  determines  impairment  by
computing a fair value  either based on  discounted  cash flows using the loan's
initial  interest  rate or the  fair  value  of the  collateral  if the  loan is
collateral dependent. Large groups of smaller balance homogeneous loans that are
collectively evaluated for impairment, and are excluded from specific impairment
evaluation,  are  addressed in  accordance  with the  allowance  for loan losses
policy described above.

      Because  the  allowance  for loan losses is based on  estimates  of losses
incurred in the loan portfolio,  actual losses can vary  significantly  from the
estimated amounts.  Our methodology as described permits adjustments to any loss
factor  used  in  the  computation  of  the  allowance  in the  event  that,  in
management's  judgment,  significant  factors which affect the collectibility of
the portfolio as of the  evaluation  date are not reflected in the loss factors.
By assessing the estimated  losses  incurred in the loan  portfolio on a monthly
basis, we are able to adjust specific loss estimates based up on any more recent
information that has become available. In addition,  management's  determination
as to the amount of our  allowance  for loan  losses is subject to review by the
Illinois  Office of Banks and Real  Estate and the FDIC,  which may  require the
establishment  of  additional  allowances  based  upon  their  judgment  of  the
information  available to them at the time of their  examination of Allied First
Bank.

      At June 30, 2004,  our  allowance  for loan losses was $598,000 or .53% of
the total loan  portfolio and  approximately  1,993.33% of total  non-performing
loans.  Assessing the  allowance for loan losses is inherently  subjective as it
requires  making material  estimates,  including the amount and timing of future
cash flows expected to be received on impaired loans, that may be susceptible to
significant change. In the opinion of management, the allowance, when taken as a
whole,  is  adequate  to  absorb  probable  incurred  loan  losses  in our  loan
portfolio.

      As shown in the following table,  management believes the decrease of .14%
in the  allowance  for loan  losses to gross loans which was at .67% at June 30,
2003 compared to .53% at June 30, 2004,  correlates to a significant  shift to a
more  secured loan  portfolio.  The Company has a much higher  concentration  of
loans in real estate  including  home equity loans,  than in prior years,  which
typically  have  lower  loan  losses  and  lower  allowance  account  allocation
percentages.  At June 30, 2004,  first  mortgage and home equity loans  comprise
nearly 75% of the loan  portfolio  compared to 62% at June 30,  2003.  Unsecured
loans dropped from 18% of the loan portfolio in 2003 to 7% of the loan portfolio
at June 30, 2004.


                                       13

<PAGE>

      The  following  table sets forth an  analysis  of our  allowance  for loan
losses.

                                                          Years Ended June 30,
                                                        ----------------------
                                                           2004         2003
                                                        ---------    ---------
                                                        (Dollars in Thousands)

Total gross loans outstanding (at end of period) ....   $ 113,445    $  87,244
                                                        =========    =========

Average total loans outstanding .....................   $ 107,077    $  72,256
                                                        =========    =========

Allowance for loan losses, beginning of period ......   $     592    $     656

Loan charge-offs:
   Vehicle ..........................................          --           --
   Airplane .........................................          --           --
   Boat .............................................          --           --
   Signature ........................................         213          172
   Lines of credit ..................................          30          104
   Credit cards .....................................         131           80
   Home equity ......................................          --           --
   Home extra equity ................................          --           --
   First mortgage ...................................          --           --
   Deposit secured ..................................          --           --
                                                        ---------    ---------
        Total loan charge-offs ......................         374          356
                                                        ---------    ---------

Loan recoveries:
   Vehicle ..........................................          --           --
   Airplane .........................................          --           --
   Boat .............................................          --           --
   Signature ........................................          74            6
   Lines of credit ..................................           3            2
   Credit cards .....................................          --            3
   Home equity ......................................          --           --
   Home extra equity ................................          --           --
   First mortgage ...................................          --           --
   Deposit secured ..................................          --           --
                                                        ---------    ---------
        Total loan recoveries .......................          77           11
                                                        ---------    ---------

Net loan charge-offs ................................         297          345
Provision charged to operations .....................         302          281
                                                        ---------    ---------

Allowance for loan losses, end of period ............   $     598    $     592
                                                        =========    =========

Ratio of net loan charge-offs during the period
   to average loans outstanding .....................        0.28%        0.48%
                                                             ====         ====

Provision as a percentage of average loans ..........        0.28%        0.39%
                                                             ====         ====

Allowance as a percentage of total gross loans ......        0.53%        0.67%
                                                             ====         ====


                                       14

<PAGE>

      The  distribution  of the  allowance  for  losses  on loans  at the  dates
indicated is summarized as follows.

<TABLE>
<CAPTION>
                                                   At June 30,
                                ---------------------------------------------------

                                          2004                      2003
                                -----------------------   -------------------------
                                             Percent of                 Percent of
                                              Loans in                   Loans in
                                                Each                       Each
                                              Category                   Category
                                              to Total                   to Total
                                               Gross                      Gross
                                 Amount        Loans        Amount        Loans
                                 ------        -----        ------        -----
                                             (Dollars in Thousands)
<S>                               <C>         <C>            <C>        <C>
Vehicle ..................        $  9          8.26%        $ 11         13.04%

Airplane .................          32          1.86           21          1.58

Boat .....................           4          3.64            3          3.46

Signature ................         149          3.06          163          4.70

Lines of credit ..........          51          3.62           89          8.15

Credit cards .............          --            --          111          5.42

Home equity ..............         198         22.65           69         22.03

First mortgage ...........          72         50.96           42         37.94

Deposit secured ..........          --           .04           --          0.10

Participation loans ......          52          4.58           79          3.58

Construction .............          31          1.33           --            --

Unallocated ..............          --           n/a            4           n/a
                                  ----        ------         ----        ------

   TOTAL .................        $598        100.00%        $592        100.00%
                                  ====        ======         ====        ======
</TABLE>



                                       15
<PAGE>

Investment Activities.

      Allied  First  Bank is  authorized  to invest in  various  types of liquid
assets,  including  obligations  of, or  guaranteed  by the United States or the
State of Illinois,  securities of various federal agencies, certain certificates
of  deposit  of  insured  banks  and  savings  institutions,   certain  bankers'
acceptances,  repurchase  agreements  and  federal  funds.  Subject  to  various
restrictions,  Illinois savings banks may also invest their assets in investment
grade  commercial  paper and corporate  debt  securities  and mutual funds whose
assets conform to the  investments  that a federally  chartered  savings bank is
otherwise authorized to make directly.

      The  President of Allied First Bank has the basic  responsibility  for the
management of our investment portfolio, subject to the direction and guidance of
the executive  committee.  The President  considers  various factors when making
decisions,  including the  marketability,  maturity and tax  consequences of the
proposed  investment.  The maturity structure of investments will be affected by
various market  conditions,  including the current and anticipated  slope of the
yield curve, the level of interest rates, the trend of new deposit inflows,  and
the anticipated  demand for funds via deposit  withdrawals and loan originations
and purchases.

      The current  objectives  of any future  investment  portfolio  would be to
provide  liquidity when loan demand is high, to assist in  maintaining  earnings
when loan demand is low and to maximize earnings while  satisfactorily  managing
risk, including credit risk, reinvestment risk, liquidity risk and interest rate
risk.

      At June 30, 2004,  we had $2.0 million in Federal Home Loan Bank stock and
$7.1  million in  mortgage-backed  securities  insured by Fannie Mae and Freddie
Mac.


                                       16
<PAGE>

      The following table sets forth the contractual  maturities of Allied First
Bancorp, Inc.'s mortgage-backed securities based on fair value at June 30, 2004.
Not  considered  in the  preparation  of the  table  below  are the  effects  of
prepayments, periodic principal repayments and the adjustable-rate nature of the
instruments.

<TABLE>
<CAPTION>
                                                                     At June 30, 2004
                                      ------------------------------------------------------------------------------

                                          One Year or Less            One to Five Years          Five to 10 Years
                                          ----------------            -----------------          ----------------

                                                                   (Dollars in Thousands)

                                                   Annualized                  Annualized                  Annualized
                                                    Weighted                    Weighted                    Weighted
                                      Carrying      Average       Carrying      Average       Carrying      Average
                                        Value        Yield         Value         Yield          Value        Yield
                                        -----        -----         -----         -----          -----        -----
<S>                                   <C>                <C>      <C>                <C>      <C>                <C>
Securities available for sale:
Mortgage-backed securities .....      $     --           --%      $     --           --%      $     --           --%
                                      ========      ========       ========      ========      ========    ========

<CAPTION>

                                                               At June 30, 2004
                                      ------------------------------------------------------------------

                                          Beyond 10 Years              Total Investment Securities
                                          ---------------              ---------------------------

                                                           (Dollars in Thousands)

                                                   Annualized                                Annualized
                                                    Weighted                   Approximate    Weighted
                                      Carrying      Average       Carrying        Market       Average
                                        Value        Yield          Value         Value         Yield
                                        -----        -----          -----         -----         -----
<S>                                   <C>               <C>        <C>           <C>               <C>
Securities available for sale:
Mortgage-backed securities .....      $  7,073          4.39%      $  7,073      $  7,073          4.39%
                                      ========      ========       ========      ========      ========

</TABLE>


                                       17
<PAGE>

      Statement of  Financial  Accounting  Standards  No. 115,  "Accounting  for
Certain Investments in Debt and Equity Securities," requires that investments be
categorized as "held to maturity," "trading securities" or "available for sale,"
based on  management's  intent as to the ultimate  disposition of each security.
Statement of Financial Accounting Standards No. 115 allows debt securities to be
classified  as "held to  maturity"  and  reported  in  financial  statements  at
amortized cost only if the reporting  entity has the positive intent and ability
to hold those securities to maturity.  Securities that might be sold in response
to changes in market interest rates, changes in the security's  prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity  securities held for current resale are classified
as "trading  securities."  These  securities  are  reported  at fair value,  and
unrealized  gains and losses on the  securities  would be included in  earnings.
Allied First Bank does not currently use or maintain a trading account. Debt and
equity  securities  not  classified  as either  "held to  maturity"  or "trading
securities"  are  classified  as  "available  for sale."  These  securities  are
reported at fair value,  and  unrealized  gains and losses on the securities are
excluded  from  earnings  and  reported,  net of deferred  taxes,  as a separate
component of equity.

Sources of Funds.

      General.  Our  sources  of funds  are  deposits,  borrowings,  payment  of
principal  and  interest on loans,  interest  earned on or  maturation  of other
investments and funds provided from operations.

      Deposits.  We offer a variety of deposit  accounts to both  consumers  and
businesses having a wide range of interest rates and terms. Our deposits consist
of time deposit accounts,  savings, money market and demand deposit accounts. We
primarily rely on competitive  pricing policies,  marketing and customer service
to attract and retain these deposits. We solicit deposits in our market area and
among our member pilots.

      The flow of  deposits  is  influenced  significantly  by general  economic
conditions,   changes  in  money  market  and  prevailing   interest  rates  and
competition.  The  variety of  deposit  accounts  we offer has  allowed us to be
competitive  in obtaining  funds and to respond with  flexibility  to changes in
consumer demand.  We have become more susceptible to short-term  fluctuations in
deposit flows as customers have become more interest rate  conscious.  We try to
manage  the  pricing  of  our  deposits  in  keeping  with  our  asset/liability
management,  liquidity  and  profitability  objectives,  subject to  competitive
factors.  Based on our  experience,  we believe that our deposits are relatively
stable  sources of funds.  Despite  this  stability,  our ability to attract and
maintain these deposits and the rates paid on them has been and will continue to
be significantly affected by market conditions.


                                       18
<PAGE>

      The  following  table  sets  forth the dollar  amount of  deposits  in the
various types of deposit programs we offered at the dates indicated.

                                                 June 30,
                              -----------------------------------------------
                                      2004                       2003
                              --------------------       --------------------
                               Amount      Percent        Amount      Percent
                               ------      -------        ------      -------
                                          (Dollars in Thousands)

Checking accounts ......      $ 8,526        10.07%      $ 8,386         9.19%
Interest checking ......        2,733         3.23         4,338         4.75
Savings accounts .......       13,301        15.71        14,824        16.25
Money market accounts ..       37,963        44.84        44,854        49.16

Time deposits:

    0.00 to 2.49% ......        7,899         9.33         6,273         6.89
    2.50 to 4.84% ......        8,838        10.44         5,351         5.86
    4.85 to 5.60% ......        1,844         2.18         2,028         2.22
    5.61 to 6.34% ......          854         1.01         1,382         1.51
    6.35 to 7.09% ......        1,245         1.47         1,260         1.38
    7.10 to 7.80% ......        1,459         1.72         2,547         2.79
                              -------      -------       -------      -------
Total time deposits ....       22,139        26.15        18,841        20.65
                              -------      -------       -------      -------
    Total deposits .....      $84,662       100.00%      $91,243       100.00%
                              =======      =======       =======      =======

      The following  table shows  maturity  information  for Allied First Bank's
time deposits as of June 30, 2004.

<TABLE>
<CAPTION>
                                  Amount Due For 12 Month Period Ended June 30,
                       --------------------------------------------------------------------
                         2005        2006        2007        2008        2009        Total
                         ----        ----        ----        ----        ----        -----
                                                 (In Thousands)
<S>    <C>             <C>          <C>         <C>         <C>         <C>         <C>
Interest Rate

0.00 - 2.49% ....      $ 7,501      $  357      $   41      $   --      $   --      $ 7,899
2.50 - 4.84% ....        1,808       1,759       2,229         408       2,634        8,838
4.85 - 5.60% ....          163           3         790         888          --        1,844
5.61 - 6.34% ....          185         619          50          --          --          854
6.35 - 7.09% ....          622         623          --          --          --        1,245
7.10 - 7.80% ....          713         746          --          --          --        1,459
                       -------      ------      ------      ------      ------      -------
  Total .........      $12,997      $6,113      $5,117      $3,304      $4,643      $22,139
                       =======      ======      ======      ======      ======      =======
</TABLE>


                                       19
<PAGE>

      The  following  table  indicates  the amount of Allied  First  Bank's time
deposits by time remaining until maturity as of June 30, 2004.

<TABLE>
<CAPTION>
                                                                       Maturity
                                               ----------------------------------------------------------
                                               3 Months    Over 3 to   Over 6 to    Over 12
                                                or Less     6 Months   12 Months     months        Total
                                               --------    ---------   ---------    --------      -------
                                                                    (In Thousands)
<S>                                              <C>         <C>         <C>         <C>          <C>
Certificates of deposit less than $100,000       $1,613      $1,492      $5,051      $ 7,801      $15,957

Certificates of deposit of $100,000 or more         462       1,314         963        3,443        6,182
                                                 ------      ------      ------      -------      -------

Total certificates of deposit .............      $2,075      $2,806      $6,014      $11,244      $22,139
                                                 ======      ======      ======      =======      =======
</TABLE>

      Borrowings.  Although deposits are our primary source of funds, we utilize
borrowings when they are a less costly source of funds, and can be invested at a
positive interest rate spread,  when we desire additional  capacity to fund loan
demand or when they meet our asset/liability management goals.

We may obtain  advances  from the  Federal  Home Loan Bank of  Chicago  upon the
security of our  mortgage  loans as well as mortgage  backed  securities.  These
advances may be made  pursuant to several  different  credit  programs,  each of
which has its own interest rate, range of maturities and call features.  We also
have a $9.0 million line of credit with LaSalle National Bank. At June 30, 2004,
we had $733,000 advanced on LaSalle National Bank line of credit,  $34.5 million
in advances with the Federal Home Loan Bank of Chicago, and $400,000 outstanding
on an open line with the Federal Home Loan Bank of Chicago.

The  following  table  shows  maturity   information  for  Allied  First  Bank's
borrowings as of June 30, 2004.

<TABLE>
<CAPTION>
                              Amount Due For 12 Month Period Ended June 30,
                      -----------------------------------------------------------
                         2005        2006         2007        2008        Total
                         ----        ----         ----        ----        -----
                                             (In Thousands)
<S>                    <C>          <C>         <C>          <C>         <C>
Interest Rate

0.00 - 1.50% ....      $13,900      $   --      $    --      $   --      $13,900
1.51 - 2.00% ....           --       5,000           --          --        5,000
2.01 - 2.50% ....           --       4,000        5,000          --        9,000
2.51 - 3.00% ....           --          --        4,000          --        4,000
3.01 - 3.50% ....           --          --        1,500          --        1,500
3.51 - 4.00% ....          733          --           --       1,500        2,233
                       -------      ------      -------      ------      -------
  Total .........      $14,633      $9,000      $10,500      $1,500      $35,633
                       =======      ======      =======      ======      =======
</TABLE>

Subsidiary and Other Activities.

      At June 30, 2004, Allied First Bancorp, Inc. had two subsidiaries,  Allied
First Bank and Eagle's Nest  Marketing  Solutions,  Inc.  Eagles Nest  Marketing
Solutions,  Inc.  provides  financial  institutions  with loan  origination call
center support on a nationwide basis.

Competition.

      We face strong  competition in originating  real estate and consumer loans
and in attracting  deposits.  Competition in originating real estate loans comes
primarily from other savings  institutions,  commercial banks, credit unions and
mortgage bankers.  Other savings  institutions,  commercial banks, credit unions
and finance companies provide vigorous competition in consumer lending.


                                       20
<PAGE>

      We attract all of our deposits  through our single  location.  Competition
for those deposits is principally  from other savings  institutions,  commercial
banks and  credit  unions  located  in the same  community  as well as where our
customers  reside in other parts of the United  States,  as well as mutual funds
and other  alternative  investments.  We compete for these  deposits by offering
superior  service and a variety of deposit  accounts at  competitive  rates.  We
offer  products and services  through a variety of delivery  channels  including
direct payroll  deposit,  debit cards,  credit cards, 24 hour telephone  access,
home banking and access through automated teller machines located worldwide.  As
of June 30,  2004,  we held less than 2% of the  deposits in our primary  market
area.

Employees.

      At June 30, 2004, we had a total of 26 employees, including four part-time
employees. Our employees are not represented by any collective bargaining group.
Management considers its employee relations to be good.

                                   REGULATION

General.

      Allied First Bank,  as an Illinois  chartered  savings bank, is subject to
extensive  regulation  and  oversight by the  Illinois  Office of Banks and Real
Estate and the FDIC as its primary Federal  regulator,  extending to all aspects
of its operations.  Allied First Bank also is subject to examination by the FDIC
which insures the deposits of Allied First Bank to the maximum extent  permitted
by law. It is also subject to  requirements  established by the Federal  Reserve
Board.  State chartered savings banks are required to file periodic reports with
the  Illinois  Office of Banks and Real  Estate and the FDIC and are  subject to
periodic  examinations  by the Illinois  Office of Banks and Real Estate and the
FDIC. The  investment  and lending  authority of savings banks are prescribed by
state and federal laws and  regulations,  and such  institutions  are prohibited
from engaging in any activities not permitted by such laws and regulations. Such
regulation  and  supervision   primarily  is  intended  for  the  protection  of
depositors and not for the purpose of protecting shareholders.

Allied First Bancorp, Inc.

      Allied First Bancorp,  Inc, is a bank holding company with the powers of a
financial  holding  company.  A bank holding company must obtain Federal Reserve
Board  approval  before;  (i) acquiring,  directly or  indirectly,  ownership of
control of any voting  shares of another bank or bank holding  company if, after
such acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such  shares);  (ii)  acquiring  all or
substantially  all of the assets of another  bank or bank  holding  company;  or
(iii) merging or consolidating with another bank holding company.

      Additionally,  a bank holding  company may not,  with certain  exceptions,
acquire  direct or indirect  ownership  or control of more than 5% of the voting
shares of any company which is not a bank or a bank holding  company,  or engage
directly or indirectly in  activities  other than those of banking,  managing or
controlling  banks, or providing  services for its  subsidiaries.  The principal
exceptions to these prohibitions  involve certain non-bank  activities which, by
statute  or by  Federal  Reserve  Board  regulation,  have  been  identified  as
activities closely related to the business of banking or managing or controlling
banks.  The list of activities  permitted by the Federal Reserve Board includes,
among other things,  operating a savings institution,  mortgage company, finance
company,  credit card  company or  factoring  company,  performing  certain data
processing  operations;  providing certain  investment and financial advice, and
leasing property on a full-payout,  non-operating  basis. As a financial holding
company, Allied First Bancorp may also


                                       21
<PAGE>

engage in insurance  and  securities  underwriting.  Allied First Bancorp has no
current plans to engage in these activities, but may do so in the future.

      Further,  under Federal Reserve Board policy,  a bank holding company must
serve as a source of strength for its subsidiary banks.  Under this policy,  the
Federal Reserve Board may require,  and has required in the past, a bank holding
company to contribute additional capital to an undercapitalized subsidiary bank.

      The Federal Reserve Board has established  capital  requirements  for bank
holding  companies that  generally  parallel the capital  requirements  for FDIC
insured  depository   institutions   banks.  For  bank  holding  companies  with
consolidated  assets of less that $150  million,  such as Allied First  Bancorp,
Inc., compliance is measured on a bank-only basis.

Allied First Bank.

      The Illinois Office of Banks and Real Estate has extensive  authority over
the operations of Illinois  savings  banks.  As part of this  authority,  Allied
First Bank is required to file  periodic  reports  with the  Illinois  Office of
Banks and Real Estate and is subject to  periodic  examination  by the  Illinois
Office of Banks and Real  Estate and the FDIC,  as its Federal  regulator.  When
these examinations are conducted by the Illinois Office of Banks and Real Estate
and the FDIC,  the examiners may require Allied First Bank to provide for higher
general or specific loan loss reserves.  All savings institutions are subject to
an annual  assessment,  based upon the savings bank's total assets,  to fund the
operations of the Illinois Office of Banks and Real Estate.

      The  Illinois  Office  of Banks  and Real  Estate  and the FDIC  also have
extensive  enforcement  authority  over all Illinois  savings  banks,  including
Allied First Bank. This enforcement authority includes,  among other things, the
ability to assess civil money penalties,  to issue  cease-and-desist  or removal
orders and to initiate injunctive actions. In general, these enforcement actions
may be initiated for  violations of laws and  regulations  and unsafe or unsound
practices.  Other  actions or  inactions  may provide the basis for  enforcement
action, including misleading or untimely reports filed with the agencies. Except
under certain  circumstances,  public disclosure of final enforcement actions by
the FDIC is required.

      In addition,  the  investment,  lending and branching  authority of Allied
First Bank is prescribed by Illinois and federal laws and it is prohibited  from
engaging in any activities  not permitted by such laws.  Allied First Bank is in
compliance with the noted restrictions.

      Allied   First   Bank's    general    permissible    lending   limit   for
loans-to-one-borrower  is equal to 25% of unimpaired capital and surplus (except
for loans fully secured by certain readily marketable collateral,  in which case
this limit is increased to 30% of unimpaired  capital and surplus).  At June 30,
2004, Allied First Bank's lending limit under this restriction was $2.7 million.
Allied First Bank is in compliance with the loans- to-one-borrower limitation.

      The FDIC,  as well as the other  federal  banking  agencies,  has  adopted
guidelines  establishing  safety and soundness standards on such matters as loan
underwriting and  documentation,  asset quality,  earnings  standards,  internal
controls and audit  systems,  interest rate risk exposure and  compensation  and
other  employee  benefits.  Any  institution  which  fails to comply  with these
standards must submit a compliance plan.

Insurance of Accounts and Regulation by the FDIC.

      Allied  First  Bank is a  member  of the  Bank  Insurance  Fund,  which is
administered  by the FDIC.  Deposits are insured up to the applicable  limits by
the FDIC and such insurance is backed by the full faith


                                       22
<PAGE>

and credit of the United States Government. As insurer, the FDIC imposes deposit
insurance  premiums and is authorized to conduct  examinations of and to require
reporting by FDIC-insured  institutions.  It also may prohibit any  FDIC-insured
institution  from engaging in any activity the FDIC  determines by regulation or
order to pose a serious risk to the Savings  Association  Insurance  Fund or the
Bank Insurance Fund.

      The FDIC's deposit  insurance  premiums are assessed  through a risk-based
system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums  based upon their  level of
capital and supervisory evaluation. Under the system, institutions classified as
well  capitalized  (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to  risk-weighted  assets  ("Tier 1  risk-based  capital") of at
least 6% and a risk-based  capital ratio of at least 10%) and considered healthy
pay the  lowest  premium  while  institutions  that  are  less  than  adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based  capital  ratio  of less  than  8%)  and  considered  of  substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.

      The FDIC is  authorized  to increase  assessment  rates,  on a semi-annual
basis,  if it determines  that the reserve ratio of the Bank Insurance Fund will
be less  than the  designated  reserve  ratio of  1.25% of Bank  Insurance  Fund
insured deposits. In setting these increased assessments,  the FDIC must seek to
restore the  reserve  ratio to that  designated  reserve  level,  or such higher
reserve ratio as established by the FDIC.

      Since January 1, 1997,  the premium  schedule for Bank  Insurance Fund and
Savings Association  Insurance Fund insured institutions has ranged from 0 to 27
basis points.  However,  Savings  Association  Insurance Fund and Bank Insurance
Fund  insured   institutions  are  required  to  pay  a  Financing   Corporation
assessment,  in order to fund the  interest  on bonds  issued to resolve  thrift
failures in the 1980s,  equal to  approximately  2 basis points for each $100 in
domestic deposits. These assessments,  which may be revised based upon the level
of Bank Insurance  Fund and Savings  Association  Insurance Fund deposits,  will
continue until the bonds mature in the year 2017.

Regulatory Capital Requirements.

      Federally  insured savings banks,  such as Allied First Bank, are required
to maintain a minimum  level of  regulatory  capital under Federal law. The FDIC
has established capital standards,  including a leverage ratio or Tier 1 capital
requirement,  a Tier 1 risked-based capital requirement and a risk-based capital
requirement  applicable to its regulated  banks.  The FDIC is also authorized to
impose  capital   requirements  in  excess  of  these  standards  on  individual
institutions on a case-by-case basis.

      The capital  standards  require  Tier 1 capital  equal to at least 4.0% of
adjusted  total assets unless its  supervisory  condition is such to allow it to
maintain a 3.0% ratio.  Tier 1 capital generally  includes common  stockholders'
equity and retained income, and certain noncumulative  perpetual preferred stock
and related income.  In addition,  all intangible  assets,  other than a limited
amount  of  purchased  mortgage  servicing  rights  and  purchased  credit  card
relationships,  must be deducted from Tier 1 capital for calculating  compliance
with the  requirement.  At June 30, 2004,  Allied  First Bank had no  intangible
assets.

      At June 30,  2004,  Allied  First  Bank had Tier 1 capital  equal to $10.6
million,  or 8.3% of adjusted  total  assets,  which is $5.5  million  above the
minimum requirement of 4.0% in effect on that date.

      The FDIC also requires its regulated banks to maintain a Tier 1 risk-based
capital ratio of 4.0%.  At June 30, 2004,  Allied First Bank had a Tier 1 risked
based capital ratio of 11.5%,  which was $6.9 million above the 4.0% requirement
in effect on that date.


                                       23
<PAGE>

      The FDIC also requires its regulated banks to maintain total capital of at
least 8.0% of risk-weighted  assets.  Total capital consists of core capital, as
defined above,  and  supplementary  capital.  Supplementary  capital consists of
certain  permanent and maturing capital  instruments that do not qualify as core
capital and general  valuation loan and lease loss allowances up to a maximum of
1.25% of risk-weighted assets.  Supplementary capital may be used to satisfy the
risk-based  requirement  only to the  extent of core  capital.  The FDIC is also
authorized to require a savings  institution to maintain an additional amount of
total  capital  to  account  for  concentration  of credit  risk and the risk of
non-traditional activities.

      In determining the amount of risk-weighted  assets, all assets,  including
certain  off-balance sheet items,  will be multiplied by a risk weight,  ranging
from 0% to 100%, based on the risk inherent in the type of asset. For example, a
50% risk  weight has been  assigned  prudently  underwritten  permanent  one- to
four-family  first  lien  mortgage  loans not more than 90 days  delinquent  and
having a loan-to-value  ratio of not more than 80% at origination unless insured
to such ratio by an insurer approved by Fannie Mae or Freddie Mac.

      On June 30, 2004, Allied First Bank had total risk-based  capital of $11.2
million and risk-weighted  assets of $92.6 million; or total capital of 12.1% of
risk-weighted assets. This amount was $3.8 million above the 8.0% requirement in
effect on that date.

      The FDIC is authorized and, under certain circumstances,  required to take
certain   actions  against  savings  banks  that  fail  to  meet  their  capital
requirements.  The FDIC is  generally  required to take  action to restrict  the
activities of an  "undercapitalized  institution,"  which is an institution with
less than either a 4.0% core capital ratio,  a 4.0% Tier 1 risked-based  capital
ratio or an 8.0% risk-based  capital ratio.  Any such  institution must submit a
capital  restoration  plan and until such plan is  approved  by the FDIC may not
increase its assets,  acquire another institution,  establish a branch or engage
in any new  activities,  and generally may not make capital  distributions.  The
FDIC is authorized to impose the additional  restrictions that are applicable to
significantly undercapitalized institutions.

      As a  condition  to the  approval  of the capital  restoration  plan,  any
company  controlling  an  undercapitalized  institution  must agree that it will
enter  into  a  limited  capital  maintenance  guarantee  with  respect  to  the
institution's achievement of its capital requirements.

      Any savings  bank that fails to comply with its capital plan or has Tier 1
risk-based  or core  capital  ratios of less than 3.0% or a  risk-based  capital
ratio of less than 6.0% and is considered "significantly  undercapitalized" must
be made  subject  to one or more  additional  specified  actions  and  operating
restrictions  which may cover all  aspects of its  operations  and may include a
forced merger or acquisition  of the  institution.  An institution  that becomes
"critically undercapitalized" because it has a tangible capital ratio of 2.0% or
less is subject to further mandatory  restrictions on its activities in addition
to those applicable to significantly undercapitalized institutions. In addition,
the FDIC must be appointed as a receiver,  or  conservator,  for a savings bank,
with  certain  limited  exceptions,  within 90 days after it becomes  critically
undercapitalized.

      The FDIC is also generally  authorized to reclassify an institution into a
lower capital category and impose the  restrictions  applicable to such category
if the institution is engaged in unsafe or unsound  practices or is in an unsafe
or unsound condition.

      The imposition by the Illinois Office of Banks and Real Estate or the FDIC
of any of these  measures on Allied  First Bank may have a  substantial  adverse
effect on its operations and profitability.


                                       24
<PAGE>

Limitations on Dividends and Other Capital Distributions.

      Under  Illinois  law,  a  savings  bank may pay  dividends  without  prior
regulatory  approval  in an amount  not  exceeding  its net  profits  in any one
calendar  year.  Dividends  in excess of such  amount  require  approval  of the
Illinois Office of Banks and Real Estate. The savings bank may not pay dividends
if it is under capitalized.

Community Reinvestment Act.

      Under the Community Reinvestment Act, every FDIC-insured institution has a
continuing and  affirmative  obligation  consistent  with safe and sound banking
practices to help meet the credit needs of its entire  community,  including low
and moderate  income  neighborhoods.  The  Community  Reinvestment  Act does not
establish specific lending  requirements or programs for financial  institutions
nor does it limit an  institution's  discretion to develop the types of products
and  services  that it  believes  are best suited to its  particular  community,
consistent with the Community  Reinvestment Act. The Community  Reinvestment Act
requires the FDIC, in connection  with the  examination of Allied First Bank, to
assess the institution's record of meeting the credit needs of its community and
to take such record into account in its evaluation of certain applications, such
as a  merger  or the  establishment  of a  branch,  by  Allied  First  Bank.  An
unsatisfactory  rating may be used as the basis for the denial of an application
by the  FDIC.  Allied  First  Bank  has  not yet  been  examined  for  Community
Reinvestment  Act  compliance.  Allied First Bank has  submitted a strategic CRA
plan with the FDIC and has not yet acted on the submission as of June 30, 2004.

Transactions with Affiliates.

      Generally, transactions between a savings bank or its subsidiaries and its
affiliates  are  required  to be on terms as  favorable  to the  institution  as
transactions with  non-affiliates.  In addition,  certain of these transactions,
such  as  loans  to  an  affiliate,  are  restricted  to  a  percentage  of  the
institution's  capital.  Affiliates  of Allied First Bank  include  Allied First
Bancorp,  Inc. and any company  which is under common  control with Allied First
Bank.

      Certain  transactions with directors,  officers or controlling persons are
also  subject to conflict of interest  regulations  enforced by the FDIC.  These
conflict of interest  regulations and other statutes also impose restrictions on
loans to such persons and their  related  interests.  Among other  things,  such
loans must  generally  be made on terms  substantially  the same as for loans to
unaffiliated individuals.

Federal Securities Law.

      The stock of Allied First Bancorp,  Inc. is registered  with the SEC under
the Securities Exchange Act of 1934, as amended. Allied First Bancorp, Inc. will
be subject to the information, proxy solicitation,  insider trading restrictions
and other requirements of the SEC under the Securities Exchange Act of 1934.

      Allied First  Bancorp,  Inc.  stock held by persons who are  affiliates of
Allied First Bancorp, Inc. may not be resold without registration unless sold in
accordance with certain resale restrictions. Affiliates are generally considered
to be officers,  directors and principal stockholders.  If Allied First Bancorp,
Inc. meets


                                       25
<PAGE>

specified  current  public  information  requirements,  each affiliate of Allied
First  Bancorp,  Inc.  will  be  able to  sell  in the  public  market,  without
registration, a limited number of shares in any three-month period.

Federal Reserve System.

      The Federal Reserve Board requires all depository institutions to maintain
non-interest  bearing  reserves at specified  levels  against their  transaction
accounts,  primarily checking,  NOW and Super NOW checking accounts. At June 30,
2004,  Allied  First Bank was in  compliance  with these  reserve  requirements.
Savings  institutions  are  authorized  to borrow from the Federal  Reserve Bank
"discount window," but Federal Reserve Board regulations require institutions to
exhaust other reasonable  alternative  sources of funds,  including Federal Home
Loan Bank borrowings, before borrowing from the Federal Reserve Bank.

Federal Home Loan Bank System.

      Allied First Bank is a member of the Federal Home Loan Bank of Chicago. It
is one of 12  regional  Federal  Home  Loan  Banks  that  administers  the  home
financing credit function of savings  institutions.  Each Federal Home Loan Bank
serves as a reserve or central bank for its members within its assigned  region.
It is funded  primarily  from  proceeds  derived  from the sale of  consolidated
obligations of the Federal Home Loan Bank System.  It makes loans or advances to
members in accordance with policies and procedures,  established by the board of
directors of the Federal Home Loan Bank,  which are subject to the  oversight of
the Federal Housing Finance Board.  All advances from the Federal Home Loan Bank
are required to be fully secured by  sufficient  collateral as determined by the
Federal Home Loan Bank.  In  addition,  all  long-term  advances are required to
provide funds for residential home financing.

      As a member,  Allied First Bank is required to purchase and maintain stock
in the Federal Home Loan Bank of Chicago.  At June 30,  2004,  Allied First Bank
had $2.0 million in Federal Home Loan Bank stock,  which was in compliance  with
this  requirement.  For the fiscal year ended June 30, 2004, such dividends have
averaged 6.27%.

      Under  federal  law the  Federal  Home Loan Banks are  required to provide
funds for the resolution of troubled  savings  institutions and to contribute to
low- and  moderately  priced housing  programs  through direct loans or interest
subsidies  on  advances   targeted  for  community   investment   and  low-  and
moderate-income  housing projects.  These  contributions have adversely affected
the level of Federal Home Loan Bank  dividends  paid and could continue to do so
in the  future.  These  contributions  could also have an adverse  effect on the
value of Federal  Home Loan Bank stock in the future.  A  reduction  in value of
Allied First Bank's  Federal Home Loan Bank stock may result in a  corresponding
reduction in Allied First Bank's capital.

      For the fiscal  year  ended  June 30,  2004,  Allied  First Bank  recorded
$111,000 in dividends paid by the Federal Home Loan Bank of Chicago.

Federal Taxation.

      General.  Allied First Bancorp,  Inc.,  Eagle's Nest Marketing  Solutions,
Inc., and Allied First Bank are subject to federal  income  taxation in the same
general manner as other corporations,  with some exceptions discussed below. The
following discussion of federal taxation is intended only to summarize pertinent
federal  income tax matters and is not a  comprehensive  description  of the tax
rules  applicable  to Allied  First  Bancorp,  Inc.  or Allied  First  Bank.  On
September 1, 2001, Allied Pilots Association  Federal


                                       26
<PAGE>

Credit Union converted its credit union charter to a state savings bank charter.
Prior to the conversion,  the institution was described in Internal Revenue Code
Section  501(c)(14) and was not generally  subject to corporate income taxation.
Subsequent to the charter conversion,  the institution is considered a financial
institution  described  in Internal  Revenue  Code Section 581 and is subject to
federal  (generally 34%) corporate  income taxes.  The institution  will compute
certain items  differently  in  calculating  its taxable income than it will for
computing  income for financial  statement  purposes.  Common  differences for a
financial  institution  include  but are not limited to the  computation  of bad
debts, depreciation,  accretion income and loan fees. Allied First Bank may also
be subject to the corporate  alternative  minimum tax which is assessed at a 20%
rate. For federal income tax purposes,  Allied First Bank will report its income
and expenses on the accrual method of accounting and use a fiscal year ending on
June 30 for purposes of filing its federal income tax return.

      Minimum Tax. The Internal Revenue Code imposes an alternative  minimum tax
at a  rate  of  20% on a  base  of  regular  taxable  income  plus  certain  tax
preferences,  called alternative minimum taxable income. The alternative minimum
tax is payable to the  extent  such  alternative  minimum  taxable  income is in
excess of an exemption amount.  Net operating losses can offset no more than 90%
of alternative  minimum taxable income.  Certain payments of alternative minimum
tax may be used as credits  against  regular tax  liabilities  in future  years.
Allied First Bank has not been subject to the alternative minimum tax, nor do we
have any such amounts available as credits for carryover.

      Corporate  Dividends-Received  Deduction.  Allied First Bancorp,  Inc. may
eliminate from its income dividends  received from Allied First Bank as a wholly
owned  subsidiary  of  Allied  First  Bancorp,  Inc.  if it  elects  to  file  a
consolidated  return with Allied First Bank.  The  corporate  dividends-received
deduction is 100% or 80%, in the case of dividends  received  from  corporations
with  which a  corporate  recipient  does not file a  consolidated  tax  return,
depending  on the  level  of  stock  ownership  of the  payor  of the  dividend.
Corporations which own less than 20% of the stock of a corporation  distributing
a dividend may deduct 70% of dividends received or accrued on their behalf.

State Taxation.

      For Illinois  income tax purposes,  the Bank is taxed at an effective rate
equal to 7.18% of Illinois taxable income. For these purposes, "Illinois Taxable
Income" generally means federal taxable income,  subject to certain  adjustments
(including  the addition of interest  income on state and municipal  obligations
and the exclusion of interest income on United States Treasury obligations).

Item 2. Description of Properties

      At June 30, 2004, Allied First Bancorp,  Inc. had one office, 7,800 square
feet,  which it  leases.  The net book  value of Allied  First  Bancorp,  Inc.'s
investment in equipment and fixtures,  excluding computer equipment, was $17,000
at June 30, 2004.

      Allied First  Bancorp,  Inc.  utilizes a third party  service  provider to
maintain its data base of depositor and borrower customer  information.  The net
book value of the data  processing  and  computer  equipment  utilized by Allied
First Bancorp, Inc. at June 30, 2004 was approximately $246,000.

      On September  27, 2004,  the Company  entered into an agreement to acquire
approximately five acres of land located in Oswego,  Illinois,  for $2.7 million
with  the  intent  of  building  a  new  main  headquarters  with  full  banking
facilities.


                                       27
<PAGE>

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

      From time to time Allied First  Bancorp,  Inc. is involved as plaintiff or
defendant in various  legal  actions  arising in the normal  course of business.
Allied First Bancorp,  Inc. does not anticipate incurring any material liability
as a result of such litigation.

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

      No  matter  was  submitted  to a vote of  security  holders,  through  the
solicitation of proxies or otherwise, during the quarter ended June 30, 2004.

                                     PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
        and Small Business Issuer Purchases of Equity Securities
        ------------------------------------------------------------------

      Page 40 of the Annual Report to  Stockholders  is herein  incorporated  by
reference.

Item 6. Management's  Discussion and Analysis of Financial
        Condition and Results of Operation
        ---------------------------------------------------

      Pages 4  through  15 of the  Annual  Report  to  Stockholders  are  herein
incorporated by reference.

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

      The following information appearing in Allied First Bancorp, Inc.'s Annual
Report to Stockholders is incorporated by reference.

<TABLE>
<CAPTION>
                                                                                    Pages in
                                                                                     Annual
Annual Report Section                                                                Report
---------------------                                                               --------
<S>                                                                                   <C>
Report of Independent Registered Public Accounting Firm .......................        16
Consolidated Balance Sheets as of June 30, 2004 and 2003 ......................        17
Consolidated Statements of Income for the Years Ended June 30, 2004 and 2003 ..        18
Consolidated Statements of Changes in Stockholders' Equity for the
   Years Ended June 30, 2004 and 2003 .........................................        19
Consolidated Statements of Cash Flows for the Years Ended June 30, 2004
   and 2003 ...................................................................        20
Notes to Consolidated Financial Statements ....................................       21-39
</TABLE>

      With  the  exception  of  the  aforementioned  information,  Allied  First
Bancorp,  Inc.'s Annual Report to Stockholders for the year ended June 30, 2004,
is not deemed filed as part of this Annual Report on Form 10-KSB.


                                       28
<PAGE>

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

      There have been no changes in or disagreements  with Allied First Bancorp,
Inc.'s accountants on accounting or financial disclosure matters

Item 8A. Controls and Procedures
         -----------------------

      The Company has adopted  disclosure  controls and  procedures  designed to
facilitate Allied First Bancorp's financial reporting. These disclosure controls
currently consist of communication  between the Chief Executive Officer and each
department  head to identify  any new  transactions,  events,  trends,  risks or
contingencies which may be material to Allied First Bancorp,  Inc.'s operations.
Allied First Bancorp,  Inc. has evaluated the  effectiveness of these disclosure
controls  within the 90 days prior to the filing of this  report.  Allied  First
Bancorp,  Inc. maintains internal controls and has evaluated such controls as of
June 30,  2004.  There have not been any  significant  changes in such  internal
controls subsequent to the date of their evaluation.

                                    PART III

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

Directors.

      Information   concerning  Directors  of  Allied  First  Bancorp,  Inc.  is
incorporated herein by reference from the Proxy Statement for the Annual Meeting
of  Stockholders  to be held on October 21,  2004, a copy of which will be filed
not later than 120 days after the close of the fiscal year.

Executive Officers.

      Information concerning Executive Officers of Allied First Bancorp, Inc. is
incorporated herein by reference from the Proxy Statement for the Annual Meeting
of  Stockholders  to be held on October 21,  2004, a copy of which will be filed
not later than 120 days after the close of the fiscal year.

Compliance with Section 16(a).

      Section 16(a) of the Securities Exchange Act of 1934 requires Allied First
Bancorp,  Inc.'s directors and executive officers, and persons who own more than
10% of a registered class of the Allied First Bancorp, Inc.'s equity securities,
to file with the SEC  initial  reports of  ownership  and  reports of changes in
ownership of Common Stock and other equity  securities of Allied First  Bancorp,
Inc.  Officers,  directors and greater than 10% stockholders are required by SEC
regulation  to furnish  Allied First  Bancorp,  Inc.  with copies of all Section
16(a) forms they file.


                                       29
<PAGE>

      To Allied First Bancorp, Inc.'s knowledge, based solely on a review of the
copies of such  reports  furnished  to Allied  First  Bancorp,  Inc. and written
representations  that no other  reports  were  required,  during the fiscal year
ended June 30, 2004,  all Section  16(a) filing  requirements  applicable to its
officers,  directors and greater than 10 percent beneficial owners were complied
with.

Code if Ethics.

      Information  concerning  Allied  First  Bancorp,  Inc.'s Code of Ethics is
incorporated by reference from the 2004 Annual Report to Stockholders.

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

      Information  concerning  executive  compensation is incorporated herein by
reference from the Proxy  Statement for the Annual Meeting of Stockholders to be
held on October 21,  2004, a copy of which will be filed not later than 120 days
after the close of the fiscal year.

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

      Information concerning security ownership of certain beneficial owners and
management is incorporated  herein by reference from the Proxy Statement for the
Annual Meeting of  Stockholders  to be held on October 21, 2004, a copy of which
will be filed not later than 120 days after the close of the fiscal year.

      During the fiscal year ended June 30, 2004, Allied First Bancorp, Inc. did
not have any compensation  plans or individual  compensation  arrangements under
which equity  securities  of Allied First  Bancorp,  Inc.  were  authorized  for
issuance to employees or non-employees.

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

      Information  concerning certain  relationships and related transactions is
incorporated herein by reference from the Proxy Statement for the Annual Meeting
of  Stockholders  to be held on October 21,  2004, a copy of which will be filed
not later than 120 days after the close of the fiscal year.

Item 13. Exhibits and Reports on Form 8-K
         --------------------------------

      (a) Exhibits
      ------------


                                       30
<PAGE>

<TABLE>
<CAPTION>
Regulation                                                                Reference to
    S-B                                                                 Prior Filing or
  Exhibit                                                                Exhibit Number
  Number                            Document                            Attached Hereto
----------   -------------------------------------------------------    ---------------
<S>          <C>                                                              <C>
   3(i)      Articles of Incorporation                                          *

   3(ii)     Bylaws                                                             *

     4       Instruments defining the rights of security holders,               *
             including debentures

    10       Material Contracts
             (a)   Employment Contract between Kenneth L.
                   Bertrand and Allied First Bank                              **
             (b)   Amendment to executive employment                           ***
                   agreement

    13       Annual Report to Stockholders                                     13

    14       Code of Ethics                                                    ****

    21       Subsidiaries of Registrant                                        21

    23       Consent of Crowe Chizek and Company LLC                           23

   31.1      Rule 13a-14 under the Securities Exchange Act of 1934            31.1
             certification for Chief Executive Officer

   31.2      Rule 13a-14 under the Securities Exchange Act of 1934            31.2
             certification for Chief Financial Officer

   32.1      Section 906 Certification Under the Sarbanes-Oxley Act           32.1
             of 2002 for the Chief Executive Officer
   32.2      Section 906 Certification Under the Sarbanes-Oxley Act           32.2
             of 2002 for the Chief Financial Officer
</TABLE>

---------------
*     Filed as exhibits to the Company's Form SB-2 registration  statement filed
      on September 18, 2001 (File No.  333-69570) of the Securities Act of 1933.
      All of such previously filed documents are hereby  incorporated  herein by
      reference in accordance with Item 601 of Regulation S-B.
**    Attached as an exhibit to the Company's Form 10-KSB filed on September 30,
      2002.
***   Attached as an exhibit to the  Company's  Form 10-KSB  filed on  September
      29,2003.

****  Incorporated   by  reference  to  Exhibit  13  -  2004  Annual  Report  to
      Stockholders.

      (b) Reports on Form 8-K

      On April 7, 2004, Allied First Bancorp,  Inc. filed a form 8-K attaching a
press release regarding it's acquisition of Eagle's Nest Marketing Solutions.

      On August 23, 2004, Allied First Bancorp,  Inc. filed a form 8-K attaching
a press release regarding it's common stock repurchase program.


                                       31
<PAGE>

                                   SIGNATURES

      In  accordance  with Section 13 of 15(d) of the  Exchange  Act, the Issuer
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Date:  September 27, 2004                  ALLIED FIRST BANCORP, INC.
       -----------------

                                           By:  /s/ Kenneth L. Bertrand
                                                -----------------------
                                                Kenneth L. Bertrand
                                                (Duly Authorized Representative)

      In accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the Issuer and in the  capacities and on the
dates indicated.


By:    /s/Kenneth L. Bertrand                   By:     /s/Brian K. Weiss
       ----------------------                           -----------------
       Kenneth L. Bertrand, President                   Brian K. Weiss
       and Chief Executive Officer                      Vice President and Chief
       (Principal Executive and Operating               Financial Officer
       Officer)                                         (Chief Financial Officer
                                                        and Accounting Officer)

Date:  September 27, 2004                       Date:   September 27, 2004
       ------------------                               ------------------


By:    /s/John G. Maxwell, Jr.                  By:     /s/William G. McKeown
       -----------------------                          ---------------------
       John G. Maxwell, Jr.                             William G. McKeown
       Chairman of the Board                            Director

Date:  September 27, 2004                       Date:   September 27, 2004
       ------------------                               ------------------


By:    /s/Frank K. Voris                        By:     /s/Brien J. Nagle
       -----------------                                -----------------
       Frank K. Voris                                   Brien J. Nagle
       Director                                         Director

Date:  September 27, 2004                       Date:   September 27, 2004
       ------------------                               ------------------


By:    /s/Paul F. Renneisen                     By:     /s/Dr. John R. Brick
       --------------------                             ---------------------
       Paul F. Renneisen                                Dr. John R. Brick
       Director                                         Director

Date:  September 27, 2004
       ------------------