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                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                             ----------------------

                                    FORM 10-K

                     ANNUAL REPORT PURSUANT TO SECTION 13 OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2005
                         Commission File Number: 0-28846

                               UNIONBANCORP, INC.
             ------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

          Delaware                                          36-3145350
(State or other jurisdiction of                  (I.R.S. Employer Identification
 incorporation or organization)                               Number)

                 122 West Madison Street, Ottawa, Illinois 61350
          (Address of principal executive offices, including zip code)

                                 (815) 431-2720
              (Registrant's telephone number, including area code)

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

                                                           Name of Each Exchange
Title of Exchange Class                                       which Registered
--------------------------------------------------------------------------------
       None                                                        None

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

                         Common Stock ($1.00 par value)
                                (Title of Class)

                            Preferred Purchase Rights
                                (Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer as
defined in Rule 403 of the Securities Act. Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15 (d) of the Exchange Act. Yes [ ] No [X]

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<PAGE>

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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-K or any amendment to this
Form 10-K. [ ].

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]   Accelerated filer [ ]   Non-accelerated filer [X].

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b of the Exchange Act). Yes [ ] No [X].

As of March 1, 2006, the Registrant had issued and outstanding 3,762,876 shares
of the Registrant's Common Stock. The aggregate market value of the voting stock
held by non-affiliates of the Registrant as of June 30, 2005, the last business
day of the Registrant's most recently completed second quarter, was
$35,812,304.*

*      Based on the last reported price of $22.00 of an actual transaction in
       the Registrant's Common Stock on June 30, 2005, and reports of beneficial
       ownership filed by directors and executive officers of the Registrant and
       by beneficial owners of more than 5% of the outstanding shares of Common
       Stock of the Registrant. Shares of Common Stock held by any executive
       officer or director of the Registrant and any person who beneficially
       owns 5% or more of the outstanding Common Stock have been excluded from
       the foregoing computation because such persons may be deemed to be
       affiliates; provided, however, such determination of shares owned by
       affiliates does not constitute an admission of affiliate status or
       beneficial interest in shares of the Registrant's Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Proxy Statement for the 2006 Annual Meeting of
Stockholders (the "2006 Proxy Statement") are incorporated by reference into
Part III of this Form 10-K.

As used in this report, the terms "we," "us," "our," "UnionBancorp" and the
"Company" mean UnionBancorp, Inc. and its subsidiary, unless the context
indicates another meaning, and the term "Common Stock" means our common stock,
par value $1.00 per share.
<PAGE>

                               UNIONBANCORP, INC.

                                 Form 10-K Index

                                                                            Page
                                                                            ----

PART I

Item 1.     Business ......................................................... 1
Item 1A.    Risk Factors......................................................12
Item 1B.    Unresolved Staff Comments.........................................15
Item 2.     Properties........................................................15
Item 3.     Legal Proceedings.................................................16
Item 4.     Submission of Matters to a Vote of Security Holders...............16

PART II

Item 5.     Market for Registrant's Common Equity, Related Stockholder
                  Matters and Issuer Purchases of Equity Securities.......... 16
Item 6.     Selected Consolidated Financial Data............................. 19
Item 7.     Management's Discussion and Analysis of Results of Operations
                  and Financial Condition.................................... 20
Item 7A.    Quantitative and Qualitative Disclosures about Market Risk....... 43
Item 8.     Financial Statements and Supplementary Data...................... 43
Item 9.     Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosure .................................. 84
Item 9A.    Controls and Procedures...........................................84
Item 9B.    Other Information.................................................84

PART III

Item 10.    Directors and Executive Officers of the Registrant............... 84
Item 11.    Executive Compensation........................................... 84
Item 12.    Security Ownership of Certain Beneficial Owners and Management
                  and Related Stockholder Matters............................ 84
Item 13.    Certain Relationships and Related Transactions................... 85
Item 14.    Principal Accountant Fees and Services............................85
Item 15.    Exhibits and Financial Statement Schedules........................85
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                                     PART I

Item 1.       Business

                                   THE COMPANY

General

The Company, a Delaware corporation, is a regional financial services
organization based in Ottawa, Illinois, encompassing one bank subsidiary.
Together, the Company's sales and service centers serve customers at twenty
locations from the far western suburbs of the Chicago metropolitan area across
central and northern Illinois, and offer banking, trust, insurance, investment
and electronic services and products.

Historical

The Company was originally formed in 1982 as the bank holding company for
UnionBank, an Illinois state bank with its main office located in Streator,
Illinois ("UnionBank"). In 1984, UnionBank/Sandwich, an Illinois state bank with
its main office located in Sandwich, Illinois ("Sandwich"), became a subsidiary
of the Company. In 1991, the Ottawa National Bank, Ottawa, Illinois, was
acquired and merged into UnionBank.

During 1996, the Company acquired all of the issued and outstanding capital
stock of Prairie Bancorp, Inc. ("Prairie"), a multi-bank holding company with
six bank subsidiaries located in the Illinois communities of Carthage, Hanover,
Ladd, Manlius, Tampico and Tiskilwa, and also acquired Country Bancshares, Inc.
("Country"), a one-bank holding company with a bank subsidiary located in
Macomb, Illinois.

In 1997, the Company acquired the remaining minority stock ownership interests
in and consolidated the operations of certain of its subsidiary banks. Also in
1997, Sandwich was merged with and into UnionBank; Tampico National Bank and The
First National Bank of Manlius were merged with and into Tiskilwa State Bank
under the name "UnionBank/Central"; and the Farmers State Bank of Ferris was
merged with and into Omni Bank under the name "UnionBank/West." The Company's
other banking subsidiary was UnionBank/Northwest, an Illinois state bank with
its main office located in Hanover, Illinois ("UnionBank/Northwest").

During 1998, the Company, through its wholly-owned subsidiary UnionFinancial
Services, Inc., acquired the Mercier Insurance Agency, an insurance/brokerage
firm. Also, during the first quarter of 1998, UnionData Corp, Inc., a
wholly-owned electronic data processing subsidiary of the Company, acquired
Sainet, an Internet Service Provider (ISP). Both of these endeavors were part of
a transformation of the Company's internal structure and were intended to create
a means for sustained revenue and earnings growth. In addition, during 1998, the
Company sold its 81.7% ownership interest in the outstanding stock of the Bank
of Ladd, an Illinois state bank with its main office located in Ladd, Illinois.

During the fourth quarter of 2001, the Company completed the integration between
UnionFinancial Services, Inc. and UnionTrust Corporation. Also during 2001, in
order to create a flatter, more efficient organizational structure, UnionData
Corp, Inc. collapsed its charter and was, subsequently, absorbed by UnionBancorp
as its Information Technology division.

In March of 2003, the Company completed phase one of a three-phase bank charter
consolidation initiative. UnionBank/Central was successfully merged into the
existing UnionBank in an effort to streamline backroom processes, enhance
efficiencies and achieve greater economies of scales. Seamless to our customers,

                                       1.
<PAGE>

the process has alleviated many intra-company transactions, financial reporting
functions and loan participations, while creating a flatter organizational
structure.

The sale of the Company's Merchant Point of Sale (POS) product was completed in
May of 2003. Under the agreement, the Company will still be able to offer the
product and will share in revenues via referral fees and a revenue sharing
agreement based on the activity that merchants experience.

In June of 2003, the Company entered into an arrangement to sell its book of ISP
customers to a local ISP. This action came as a result of the Company's decision
to focus its Information Technology division more heavily on core business
initiatives, while continuing to ensure that customers are receiving the highest
level of service possible.

The Company's newest branch facility in Yorkville, Illinois, one of the fastest
growing Chicago suburbs, officially opened for business in December of 2003. The
facility is located in the Yorkville Marketplace development at the intersection
of Routes 34 and 47, the most highly trafficked intersection in Kendall County.
The 6,500 square foot branch is a full-service bank that offers retail banking
services, mortgage lending, asset management and business banking with extended
hours for customer convenience.

The Company completed phase two of the charter consolidation initiative during
the first quarter of 2004 when UnionBank/Northwest and UnionBank/West were
successfully merged into UnionBank, and Prairie and Country were dissolved.

In the third quarter of 2004, the Company completed the sale of five western
Illinois sales and service centers, which included Carthage, Macomb, Paloma,
Quincy and Rushville, selling $40.2 million in net loans and $88.6 million in
deposits to First Bankers Trust Company of Quincy. The transaction, which
effectively exited the Company from the western Illinois market, yielded a net
gain on sale (after impairment of intangible assets, taxes and applicable
expenses) of approximately $1.7 million and reduced the Company's net footings
by $40.9 million.

During the fourth quarter of 2004, the Company completed the final phase of its
charter consolidation initiative when UnionFinancial Services & Trust Company
was merged into UnionBank, thus successfully creating a one-bank holding
company.

During the second quarter of 2005, the Company closed its Tiskilwa branch, due
to declining transaction activity. The majority of customers have been retained
and continue to bank at the nearby Princeton location.

Operations

The Company's operating strategy is to provide customers with the business
sophistication and breadth of products of a regional financial services company,
while retaining the special attention to personal service and the local appeal
of a community establishment. In each of the Company's twenty locations,
customers have access to a wide range of products and services aimed at meeting
the demands of a diverse market base. Committed to the concept of one stop
financial shopping, customers can obtain assistance on their banking, trust,
insurance and investment needs from the Company's experienced staff or enjoy the
convenience of online services from the comfort of their own homes. With its
continued growth and evolution, the Company also remains rooted in its strong
presence in the communities it serves. The participation of the Company's
directors, officers and employees in area civic and service organizations
demonstrates this ongoing commitment. Management believes that, together, these

                                       2.
<PAGE>

qualities distinguish the Company from its competitors and will enhance the
Company's ability to compete successfully in its market area against other
regional and interstate institutions.

Geographically, the Company serves the financial needs of contiguous counties
located in north central Illinois. In recent years, the Company has expanded its
activities from north central Illinois into markets surrounding the Chicago
metropolitan area, as well as into additional areas of northern Illinois.

UnionBank offers a wide range of commercial and retail lending services to
businesses and individuals, including, but not limited to, commercial business
loans, commercial and residential real estate construction and mortgage loans,
loan participations, consumer loans, revolving lines of credit and letters of
credit. UnionBank makes direct and indirect installment loans to consumers and
commercial customers, originates and services residential mortgages and handles
the secondary marketing of those mortgages. Agricultural loans also play a role
in the Company's overall lending portfolio, although most of this lending
activity is based in the north central portion of the Company's market area.
UnionBank also offers a full range of depository services including traditional
savings, checking and money market accounts. Credit and debit cards, as well as
home banking and bill pay options, target those customers who seek the
convenience of electronic services.

UnionBank's financial services division provides a variety of additional
financial solutions, namely trust and asset management alternatives, a full line
of personal and commercial insurance products and personalized investment
options. The Company continues to devote special attention to these financial
services areas, as the demands of customers steadily move towards
non-traditional financial offerings.

Competition

Spanning nine Illinois counties, the Company's market area is highly competitive
with numerous commercial banks, savings and loan associations and credit unions.
In addition, financial institutions, based in surrounding communities and in
Chicago, actively compete for customers within the Company's market area. The
Company also faces competition from finance companies, insurance companies,
mortgage companies, securities brokerage firms, money market funds, loan
production offices and other providers of financial services.

The Company competes for loans principally through the range and quality of the
services it provides and through competitive interest rates and loan fees. The
Company believes that its long-standing presence in the communities it serves
and personal service philosophy enhance its ability to compete favorably in
attracting and retaining individual and business customers. The Company actively
solicits deposit-related customers and competes for deposits by offering
customers personal attention, professional service and competitive interest
rates.

Under the Gramm-Leach-Bliley Act of 1999, effective March 2000, securities firms
and insurance companies that elect to become financial holding companies may
acquire banks and other financial institutions. The Gramm-Leach-Bliley Act, and
future action stemming from the Act, is expected to continue to significantly
change the competitive environment in which the Company and UnionBank conduct
business. The financial services industry is also likely to become more
competitive as further technological advances enable more companies to provide
financial services. These technological advances may diminish the importance of
depository institutions and other financial intermediaries in the transfer of
funds between parties.

                                       3.
<PAGE>

Employees

At December 31, 2005, the Company employed 266 full-time equivalent employees.
The Company places high priority on staff development, which involves extensive
training on product offerings, customer service, management practices and
leadership skills. New employees are selected on the basis of both technical
skills and customer service capabilities. None of the Company's employees are
covered by a collective bargaining agreement with the Company. The Company
offers a variety of employee programs and benefits, and management considers its
employee relations to be excellent.

                           SUPERVISION AND REGULATION

General

Financial institutions and their holding companies are extensively regulated
under federal and state law. As a result, the growth and earnings performance of
the Company can be affected not only by management decisions and general
economic conditions, but also by the requirements of applicable state and
federal statutes and regulations and the policies of various governmental
regulatory authorities, including the Illinois Department of Financial and
Professional Regulation (the "DFPR"), the Board of Governors of the Federal
Reserve System (the "Federal Reserve"), the Federal Deposit Insurance
Corporation (the "FDIC"), the Internal Revenue Service and state taxing
authorities and the Securities and Exchange Commission (the "SEC"). The effect
of applicable statutes, regulations and regulatory policies can be significant,
and cannot be predicted with a high degree of certainty.

Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and its subsidiary, regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral for loans,
the establishment of branches, mergers, consolidations and dividends. The system
of supervision and regulation applicable to the Company and its subsidiary
establishes a comprehensive framework for their respective operations and is
intended primarily for the protection of the FDIC's deposit insurance funds and
the depositors, rather than the shareholders, of financial institutions.

The following is a summary of the material elements of the regulatory framework
that applies to the Company and its subsidiaries. It does not describe all of
the statutes, regulations and regulatory policies that apply to the Company and
its subsidiaries, nor does it restate all of the requirements of the statutes,
regulations and regulatory policies that are described. As such, the following
is qualified in its entirety by reference to the applicable statutes,
regulations and regulatory policies. Any change in applicable law, regulations
or regulatory policies may have a material effect on the business of the Company
and its subsidiaries.

The Company

General. The Company, as the sole stockholder of UnionBank, is a bank holding
company. As a bank holding company, the Company is registered with, and is
subject to regulation by, the Federal Reserve under the Bank Holding Company
Act, as amended (the "BHCA"). In accordance with Federal Reserve policy, the
Company is expected to act as a source of financial strength to UnionBank and to
commit resources to support UnionBank in circumstances where the Company might
not do so absent such policy. Under the BHCA, the Company is subject to periodic
examination by the Federal Reserve and is required to file with the Federal
Reserve periodic reports of operations and such additional information as the
Federal Reserve may require. The Company is also subject to regulation by the
DFPR under the Illinois Bank Holding Company Act, as amended.

                                       4.
<PAGE>

Investments and Activities. Under the BHCA, a bank holding company must obtain
Federal Reserve approval before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank holding
company if, after the acquisition, it would own or control more than 5% of the
shares of the other bank or bank holding company (unless it already owns or
controls the majority of such shares); (ii) acquiring all or substantially all
of the assets of another bank; or (iii) merging or consolidating with another
bank holding company. Subject to certain conditions (including certain deposit
concentration limits established by the BHCA), the Federal Reserve may allow a
bank holding company to acquire banks located in any state of the United States
without regard to whether the acquisition is prohibited by the law of the state
in which the target bank is located. In approving interstate acquisitions,
however, the Federal Reserve is required to give effect to applicable state law
limitations on the aggregate amount of deposits that may be held by the
acquiring bank holding company and its insured depository institution affiliates
in the state in which the target bank is located (provided that those limits do
not discriminate against out-of-state depository institutions or their holding
companies) and state laws which require that the target bank have been in
existence for a minimum period of time (not to exceed five years) before being
acquired by an out-of-state bank holding company.

The BHCA also generally prohibits the Company from acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any company which
is not a bank and from engaging in any business other than that of banking,
managing and controlling banks or furnishing services to banks and their
subsidiaries. This general prohibition is subject to a number of exceptions. The
principal exception allows bank holding companies to engage in, and to own
shares of companies engaged in, certain businesses found by the Federal Reserve
to be "so closely related to banking ... as to be a proper incident thereto."
Under current regulations of the Federal Reserve, the Company is permitted to
engage in a variety of banking-related businesses, including the operation of a
thrift, consumer finance or equipment leasing business, the operation of a
computer service bureau (including software development), and the operation of
mortgage banking and brokerage businesses. The BHCA generally does not place
territorial restrictions on the domestic activities of non-bank subsidiaries of
bank holding companies.

In November, 1999, the Gramm-Leach-Bliley Act ("GLB Act") was signed into law.
Under the GLB Act, bank holding companies that meet certain standards and elect
to become "financial holding companies" are permitted to engage in a wider range
of activities than those permitted for bank holding companies, including
securities and insurance activities. Specifically, a bank holding company that
elects to become a financial holding company may engage in any activity that the
Federal Reserve Board, in consultation with the Secretary of the Treasury,
determines is (i) financial in nature or incidental thereto, or (ii)
complementary to any such financial-in-nature activity, provided that such
complementary activity does not pose a substantial risk to the safety and
soundness of depository institutions or the financial system generally. A bank
holding company may elect to become a financial holding company only if each of
its depository institution subsidiaries is well-capitalized, well-managed, and
has a Community Reinvestment Act rating of "satisfactory" or better at their
most recent examination.

The GLB Act specifies many activities that are financial in nature, including
lending, exchanging, transferring, investing for others, or safeguarding money
or securities; underwriting and selling insurance; providing financial,
investment or economic advisory services; underwriting, dealing in, or making a
market in securities; and those activities currently permitted for bank holding
companies that are so closely related to banking or managing or controlling
banks, as to be a proper incident thereto.

The GLB Act changed federal laws to facilitate affiliation between banks and
entities engaged in securities and insurance activities. The law also
established a system of functional regulation under which banking activities,
securities activities, and insurance activities conducted by financial holding

                                       5.
<PAGE>

companies and their subsidiaries and affiliates will be separately regulated by
banking, securities, and insurance regulators, respectively.

Federal law also prohibits any person or company from acquiring "control" of a
bank or bank holding company without prior notice to the appropriate federal
bank regulator. "Control" is defined in certain cases as the acquisition of 10%
or more of the outstanding shares of a bank or bank holding company.

Capital Requirements. Bank holding companies are required to maintain minimum
levels of capital in accordance with Federal Reserve capital adequacy
guidelines. If capital falls below minimum guideline levels, a bank holding
company, among other things, may be denied approval to acquire or establish
additional banks or non-bank businesses.

The Federal Reserve's capital guidelines establish the following minimum
regulatory capital requirements for bank holding companies: a risk-based
requirement expressed as a percentage of total risk-weighted assets, and a
leverage requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, at least one-half of which must be Tier 1 capital. The leverage
requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%
for the most highly rated companies, with a minimum requirement of 4% for all
others. For purposes of these capital standards, Tier 1 capital consists
primarily of permanent stockholders' equity less intangible assets (other than
certain mortgage servicing rights and purchased credit card relationships).
Total capital consists primarily of Tier 1 capital plus certain other debt and
equity instruments which do not qualify as Tier 1 capital and a portion of the
company's allowance for loan and lease losses.

The risk-based and leverage standards described above are minimum requirements.
Higher capital levels will be required if warranted by the particular
circumstances or by the risk profiles of individual banking organizations. For
example, the Federal Reserve's capital guidelines contemplate that additional
capital may be required to take adequate account of, among other things,
interest rate risk, or the risks posed by concentrations of credit,
nontraditional activities or securities trading activities. Further, any banking
organization experiencing or anticipating significant growth would be expected
to maintain capital ratios, including tangible capital positions (i.e., Tier 1
capital less all intangible assets), well above the minimum levels.

As of December 31, 2005, the Company had regulatory capital in excess of the
Federal Reserve's minimum requirements, as follows:

                                       Risk-Based               Leverage
                                      Capital Ratio          Capital Ratio
                                      -------------          -------------

         Company                           5.3%                   5.0%

Dividends. The Company is organized under the Delaware General Corporation Law
(the "DGCL"). The DGCL allows the Company to pay dividends only out of its
surplus (as defined and computed in accordance with the provisions of the DGCL)
or if the Company has no such surplus, out of its net profits for the fiscal
year in which the dividend is declared and/or the preceding fiscal year.

Additionally, the Federal Reserve has issued a policy statement with regard to
the payment of cash dividends by bank holding companies. The policy statement
provides that a bank holding company should not pay cash dividends which exceed
its net income or which can only be funded in ways that weaken the bank holding
company's financial health, such as by borrowing. The Federal Reserve also

                                       6.
<PAGE>

possesses enforcement powers over bank holding companies and their non-bank
subsidiaries to prevent or remedy actions that represent unsafe or unsound
practices or violations of applicable statutes and regulations. Among these
powers is the ability to proscribe the payment of dividends by banks and bank
holding companies.

Federal Securities Regulation. The Company's common stock is registered with the
SEC under the Securities Act of 1933, as amended, and the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Consequently, the Company is
subject to the information, proxy solicitation, insider trading and other
restrictions and requirements of the SEC under the Exchange Act.

UnionBank

UnionBank is an Illinois-chartered bank, the deposit accounts of which are
insured by the FDIC. UnionBank is also a member of the Federal Reserve System
("member banks"). As an Illinois-chartered, FDIC-insured member bank, UnionBank
is subject to the examination, supervision, reporting and enforcement
requirements of the DFPR, as the chartering authority for Illinois banks, the
Federal Reserve, as the primary federal regulator of member banks, and the FDIC,
as administrator of deposit insurance.

Deposit Insurance. As an FDIC-insured institution, UnionBank is required to pay
deposit insurance premium assessments to the FDIC. Currently, UnionBank's
deposit accounts are insured by the Bank Insurance Fund ("BIF"), but under the
recently adopted Federal Deposit Insurance Reform Act of 2005 (the "FDIRA"), the
BIF will be merged with the Savings Association Insurance Fund during 2006.

The FDIC currently has a risk-based assessment system under which all insured
depository institutions are placed into one of nine categories and assessed
insurance premiums based upon their respective levels of capital and results of
supervisory evaluations. Institutions classified as well-capitalized (as defined
by the FDIC) and considered healthy pay the lowest premium while institutions
that are less than adequately capitalized (as defined by the FDIC) 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. Pursuant to the FDIRA, a new system for assessing
insurance premiums based on risk will be adopted.

During the year ended December 31, 2005, BIF assessments ranged from 0% of
deposits to 0.27% of deposits. For the semi-annual assessment period beginning
January 1, 2006, the Company expects that BIF assessment rates will continue to
range from 0% of deposits to 0.27% of deposits. Assessments for subsequent
periods will depend on the timetable for implementation of the FDIRA and the
regulations adopted by the FDIC to implement the FDIRA. In addition to a new
system for assessing insurance premiums based on risk, a number of other
provisions of the FDIRA and the implementing regulations will impact future
assessments. The FDIC will have flexibility to determine the level of reserves
it will hold. Currently, the FDIC must hold reserves equal to 1.25 percent of
insured deposits, but under the FDIRA, the FDIC will be able to set the reserve
ratio annually between 1.15 percent and 1.50 percent. In addition, the FDIC will
be required to pay dividends awarded on an historical basis to insured
depository institutions whenever the reserve ratio exceeds 1.35 percent,
although dividends may be suspended or limited if the FDIC determines there is a
significant risk to the deposit insurance fund. Insured depository institutions
also will receive a one-time credit which can be applied against the payment of
future premiums.

                                       7.
<PAGE>

Until FDIRA is fully implemented, it is not possible for UnionBank to determine
how these changes will impact the amount of deposit premiums it will pay in the
future.

The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution (i)
has engaged or is engaging in unsafe or unsound practices, (ii) is in an unsafe
or unsound condition to continue operations or (iii) has violated any applicable
law, regulation, order, or any condition imposed in writing by, or written
agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of insurance,
if the institution has no tangible capital. Management of the Company is not
aware of any activity or condition that could result in termination of the
deposit insurance of UnionBank.

FICO Assessments. Since 1987, a portion of the deposit insurance assessments
paid by members of the FDIC's Savings Association Insurance Fund ("SAIF") has
been used to cover interest payments due on the outstanding obligations of the
Financing Corporation ("FICO"). FICO was created in 1987 to finance the
recapitalization of the Federal Savings and Loan Insurance Corporation, the
SAIF's predecessor insurance fund. As a result of federal legislation enacted in
1996, beginning as of January 1, 1997, both SAIF members and BIF members became
subject to assessments to cover the interest payments on outstanding FICO
obligations. These FICO assessments are in addition to amounts assessed by the
FDIC for deposit insurance. Between January 1, 2000 and the final maturity of
the outstanding FICO obligations in 2019, BIF members and SAIF members will
share the cost of the interest on the FICO bonds on a pro rata basis. During the
year ended December 31, 2005, the FICO assessment rate for both SAIF and BIF
members ranged between approximately 0.0134% of deposits and approximately
0.0144% of deposits. During the year ended December 31, 2005, UnionBank paid
FICO assessments totaling $69,404.

Supervisory Assessments. All Illinois banks are required to pay supervisory
assessments to the DFPR to fund the operations of the DFPR. The amount of the
assessment is calculated based on the institution's total assets, including
consolidated subsidiaries, as reported to the DFPR. During the year ended
December 31, 2005, UnionBank paid supervisory assessments to the DFPR totaling
$85,805.

Capital Requirements. The Federal Reserve has established the following minimum
capital standards for state-chartered Federal Reserve System member banks, such
as UnionBank: a leverage requirement consisting of a minimum ratio of Tier 1
capital to total assets of 3% for the most highly-rated banks with a minimum
requirement of at least 4% for all others, and a risk-based capital requirement
consisting of a minimum ratio of total capital to total risk-weighted assets of
8%, at least one-half of which must be Tier 1 capital. For purposes of these
capital standards, Tier 1 capital and total capital consist of substantially the
same components as Tier 1 capital and total capital under the Federal Reserve's
capital guidelines for bank holding companies (see "--The Company--Capital
Requirements").

The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, the regulations of the
Federal Reserve provide that additional capital may be required to take adequate
account of, among other things, interest rate risk or the risks posed by
concentrations of credit, nontraditional activities or securities trading
activities.

During the year ended December 31, 2005, UnionBank was not required by the
Federal Reserve to increase its capital to an amount in excess of the minimum
regulatory requirement. As of December 31, 2005, UnionBank exceeded its minimum
regulatory capital requirements, as follows:

                                       8.
<PAGE>

                                       Risk-Based              Leverage
                                      Capital Ratio          Capital Ratio
                                      -------------          -------------

         UnionBank                        7.5%                   6.6%

Federal law provides the federal banking regulators with broad power to take
prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized," in each case as defined by regulation. Depending upon the
capital category to which an institution is assigned, the regulators' corrective
powers include: requiring the institution to submit a capital restoration plan;
limiting the institution's asset growth and restricting its activities;
requiring the institution to issue additional capital stock (including
additional voting stock) or to be acquired; restricting transactions between the
institution and its affiliates; restricting the interest rate the institution
may pay on deposits; ordering a new election of directors of the institution;
requiring that senior executive officers or directors be dismissed; prohibiting
the institution from accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries; prohibiting the payment of principal
or interest on subordinated debt; and ultimately, appointing a receiver for the
institution. As of December 31, 2005, UnionBank was well capitalized, as defined
by Federal Reserve regulations.

Additionally, institutions insured by the FDIC may be liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with the default of commonly controlled FDIC insured depository institutions or
any assistance provided by the FDIC to commonly controlled FDIC insured
depository institutions in danger of default.

Dividends. Under the Illinois Banking Act, Illinois-chartered banks may not pay
dividends in excess of their net profits then on hand, after deducting losses
and bad debts. The Federal Reserve Act also imposes limitations on the amount of
dividends that may be paid by state member banks, such as UnionBank. Generally,
a member bank may pay dividends out of its undivided profits, in such amounts
and at such times as the bank's board of directors deems prudent. Without prior
Federal Reserve approval, however, a state member bank may not pay dividends in
any calendar year which, in the aggregate, exceed such bank's calendar
year-to-date net income plus such bank's retained net income for the two
preceding calendar years.

The payment of dividends by any financial institution or its holding company is
affected by the requirement to maintain adequate capital pursuant to applicable
capital adequacy guidelines and regulations, and a financial institution
generally is prohibited from paying any dividends if, following payment thereof,
the institution would be undercapitalized. As described above, UnionBank
exceeded its minimum capital requirements under applicable guidelines and had
approximately $2.5 million available to be paid as dividends to the Company as
of December 31, 2005. Notwithstanding the availability of funds for dividends,
however, the Federal Reserve may prohibit the payment of any dividends by
UnionBank if the Federal Reserve determines such payment would constitute an
unsafe or unsound practice.

Insider Transactions. UnionBank is subject to certain restrictions imposed by
federal law on extensions of credit to the Company, on investments in the stock
or other securities of the Company and the acceptance of the stock or other
securities of the Company as collateral for loans. Certain limitations and
reporting requirements are also placed on extensions of credit by UnionBank to
its directors and officers, to directors and officers of the Company, to
principal stockholders of the Company, and to "related interests" of such
directors, officers and principal stockholders. In addition, federal law and
regulations may affect the terms upon which any person becoming a director or

                                       9.
<PAGE>

officer of the Company or a principal stockholder of the Company may obtain
credit from the banks with which UnionBank maintains a correspondent
relationship.

Safety and Soundness Standards. The federal banking agencies have adopted
guidelines which establish operational and managerial standards to promote the
safety and soundness of federally insured depository institutions. The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings.

In general, the safety and soundness guidelines prescribe the goals to be
achieved in each area, and each institution is responsible for establishing its
own procedures to achieve those goals. If an institution fails to comply with
any of the standards set forth in the guidelines, the institution's primary
federal regulator may require the institution to submit a plan for achieving and
maintaining compliance. If an institution fails to submit an acceptable
compliance plan, or fails in any material respect to implement a compliance plan
that has been accepted by its primary federal regulator, the regulator is
required to issue an order directing the institution to cure the deficiency.
Until the deficiency cited in the regulator's order is cured, the regulator may
restrict the institution's rate of growth, require the institution to increase
its capital, restrict the rates the institution pays on deposits or require the
institution to take any action the regulator deems appropriate under the
circumstances. Noncompliance with the standards established by the safety and
soundness guidelines may also constitute grounds for other enforcement action by
the federal banking regulators, including cease and desist orders and civil
money penalty assessments.

Branching Authority. Illinois banks, such as UnionBank, have the authority under
Illinois law to establish branches anywhere in the State of Illinois, subject to
receipt of all required regulatory approvals.

Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal Act"), both state and national banks are allowed to establish
interstate branch networks through acquisitions of other banks, subject to
certain conditions, including certain limitations on the aggregate amount of
deposits that may be held by the surviving bank and all of its insured
depository institution affiliates. Illinois law permits interstate mergers,
subject to certain conditions, including a prohibition against interstate
mergers involving an Illinois bank that has been in existence and continuous
operation for fewer than five years.

The establishment of new interstate branches or the acquisition of individual
branches of a bank in another state (rather than the acquisition of an
out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only if
specifically authorized by state law. Certain states permit out-of-state banks
to establish de novo branches or acquire branches from another bank although the
laws of some of these states require a reciprocal provision under the law of the
state where the bank establishing or acquiring the branch is chartered. Illinois
law permits out-of-state banks to establish branches in Illinois in this manner,
and Illinois-chartered banks may branch into other states in this manner if the
law of the state in which the branch will be established or acquired so
authorizes even if the law of such state requires a reciprocal provision under
Illinois law.

State Bank Activities. Under federal law and FDIC regulations, FDIC insured
state banks are prohibited, subject to certain exceptions, from making or
retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law and FDIC regulations also prohibit
FDIC insured state banks and their subsidiaries, subject to certain exceptions,
from engaging as principal in any activity that is not permitted for a national
bank or its subsidiary, respectively, unless the bank meets, and continues to
meet, its minimum regulatory capital requirements and the FDIC determines the
activity would not pose a significant risk to the deposit insurance fund of
which the bank is a member.

                                      10.
<PAGE>

The GLB Act also authorizes insured state banks to engage in financial
activities, through subsidiaries, similar to the activities permitted for
financial holding companies. If a state bank wants to establish a subsidiary
engaged in financial activities, it must meet certain criteria, including that
it and all of its affiliated insured depository institutions are
well-capitalized and have a Community Reinvestment Act rating of at least
"satisfactory" and that it is well-managed. There are capital deduction and
financial statement requirements and financial and operational safeguards that
apply to subsidiaries engaged in financial activities. Such a subsidiary is
considered to be an affiliate of the bank and there are limitations on certain
transactions between a bank and a subsidiary engaged in financial activities of
the same type that apply to transactions with a bank's holding company and its
subsidiaries.

Reserve Requirement. Federal Reserve regulations, as presently in effect,
require depository institutions to maintain non-interest earning reserves
against their transaction accounts (primarily NOW and regular checking
accounts), as follows:

          o    for the first $7.8 million of net transaction accounts, there is
               no reserve;
          o    for net transaction accounts totaling over $7.8 million and up to
               and including $48.3 million, a reserve of 3%; and
          o    for net transaction accounts totaling in excess of $48.3 million,
               a reserve requirement of $1.215 million plus 10% against that
               portion of the total transaction accounts greater than $48.3
               million

The dollar amounts and percentages reported here are all subject to adjustment
by the Federal Reserve. The effect of maintaining the required non-interest
earning reserves is to reduce UnionBank's interest earning assets.

Financial Services Division

UnionBank's financial services division is licensed as a general insurance
agency by the Illinois Department of Insurance (the "Department"). UnionBank is
subject to supervision and regulation by the Department with regard to
compliance with the laws and regulations governing insurance agents and by the
DFPR and the Federal Reserve with regard to compliance with banking laws and
regulations applicable to Illinois-chartered member banks.

UnionBank, through its financial services division, conducts a full service
trust business in the State of Illinois, pursuant to a certificate of authority
issued to the Commissioner under the Illinois Corporate Fiduciaries Act (the
"Fiduciaries Act"). The financial services division is subject to periodic
examination by the DFPR and the DFPR has the authority to take action against it
to enforce compliance with the laws applicable to its operations.

                               EXECUTIVE OFFICERS

The term of office for the executive officers of the Company is from the date of
election until the next annual organizational meeting of the Board of Directors.
In addition to the information provided in the 2006 Proxy Statement, the names
and ages of the executive officers of the Company as of December 31, 2005, as
well as the offices of the Company and the Subsidiary held by these officers on
that date, and principal occupations for the past five years are set forth
below.

        Robert L. Davidson, 60, was promoted to Executive Vice President, Chief
Investment Officer and ALCO Manager in January of 2006. He had previously served
as the Company's Senior Vice President, Chief Investment Officer and ALCO
Manager since 2001 Mr. Davidson became employed with UnionBancorp in 1995 as the

                                      11.
<PAGE>

Investment Officer as a result of the acquisition of Prairie Bancorp and
previously worked for Van Kampen Merritt Investment Advisory, Inc.

        Kurt R. Stevenson, 39, was promoted to Senior Executive Vice President
and Chief Financial Officer in January of 2006. He had previously served as the
Company's Senior Vice President and Chief Financial Officer since 2003. Prior to
that, Mr. Stevenson served as the Company's Vice President and Chief Financial
Officer since June of 2000. Also in 2000 and 2001, Mr. Stevenson served on the
Board of Directors of UnionFinancial Services, Inc., prior to its integration
with UnionTrust Corporation. Before stepping into his new role, he had been
acting as the Company's Vice President and Controller since 1996 and had served
in various operational capacities since joining the organization. In 2002, Mr.
Stevenson was also named Cashier of UnionBank, in addition to his corporate
responsibilities. He first started employment with the Ottawa National Bank in
1987 and, subsequently, began work with the Company following the acquisition in
1991.

        Scott A. Yeoman, 48, was named President and Chief Executive Officer of
UnionBancorp, Inc. in June of 2005, following the announcement of the retirement
of Dewey R. Yaeger at year end. Prior to joining the Company, Mr. Yeoman served
as the President and Chief Executive Officer of Associated Bank Lakeshore, a
subsidiary of Associated Banc Corp, in Manitowoc, Wisconsin from 1998 through
2004. Mr. Yeoman joined the organization with over 20 years of commercial
banking experience.


Item 1A.      Risk Factors

An investment in the Company's common stock is subject to risks inherent to the
Company's business. The material risk and uncertainties that management believes
affect the Company are described below. Before making an investment decision,
you should carefully consider the risks and uncertainties described below,
together with all of the other information included or incorporated by reference
in this report. The risks and uncertainties described below are not the only
ones facing the Company. Additional risks and uncertainties that management is
not aware of or focused on or that management currently deems immaterial may
also impair the Company's business operations. This report is qualified in its
entirety by these risk factors. See also, "Special Note Regarding
Forward-Looking Statements."

If any of the following risks actually occur, the Company's financial condition
and results of operations could be materially and adversely affected. If this
were to happen, the value of the Company's common stock could decline
significantly, and you could lose all or part of your investment.

References to "we," "us," and "our" in this section refer to the Company and its
subsidiary, unless otherwise specified or unless the context otherwise requires.

Risks Related to The Company's Business

We are subject to interest rate risk.

The Company's earnings and cash flows are largely dependent upon its net
interest income. Interest rates are highly sensitive to many factors that are
beyond the Company's control, including general economic conditions and policies
of various governmental and regulatory agencies and, in particular, the Federal
Reserve. Changes in monetary policy, including changes in interest rates, could
influence not only the interest the Company receives on loans and securities and
the amount of interest it pays on deposits and borrowings, but such changes
could also affect (i) the Company's ability to originate loans and obtain
deposits, (ii) the fair value of the Company's financial assets and liabilities,
and (iii) the average duration of the Company's mortgage-backed securities

                                      12.
<PAGE>

portfolio and other interest-earning assets. If the interest rates paid on
deposits and other borrowings increase at a faster rate than the interest rates
received on loans and other investments, the Company's net interest income, and
therefore earnings, could be adversely affected. Earnings could also be
adversely affected if the interest rates received on loans and other investments
fall more quickly than the interest rates pain on deposits and other borrowings.

Although management believes it has implemented effective asset and liability
management strategies to reduce the potential effects of changes in interest
rates on the Company's results of operations, any substantial, unexpected,
prolonged change in market interest rates could have a material adverse effect
on the Company's financial condition and results of operations. Also, the
Company's interest rate risk modeling techniques and assumptions likely may not
fully predict or capture the impact of actual interest rate changes on the
Company's balance sheet. See Part II sections "Net Interest Income" and
"Interest Rate Risk" in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," for further discussion related to the
Company's management of interest rate risk.

We are subject to lending risk

As of December 31, 2005 approximately 80.0% of the Company's loan portfolio
consisted of commercial, financial, and agricultural, real estate construction,
and commercial real estate loans (collectively, "commercial loans"). Commercial
loans are generally viewed as having more inherent risk of default than
residential mortgage loans or retail loans. Also, the commercial loan balance
per borrower is typically larger than that for residential mortgage loans and
retail loans, inferring higher potential losses on an individual loan basis.
Because the Company's loan portfolio contains a number of commercial loans with
large balances, the deterioration of one or a few of these loans could cause a
significant increase in nonperforming loans. An increase in nonperforming loans
could result in a net loss of earnings from these loans, an increase in the
provision for loan losses, and in increase in loan charge offs, all of which
could have a material adverse effect on the Company's financial condition and
results of operations. See Part II "Loans" in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," for further
discussion of credit risks related to different loan types.

We are subject to economic conditions of our geographic markets

The Company's success depends to a large degree on the general economic
conditions of the geographic markets served by the Bank in the State of Illinois
and, to a lesser extent, contiguous states. The local economic conditions on
these areas have a significant impact on the generation of the Bank's
commercial, real estate commercial, and real estate construction loans; the
ability of borrowers to repay these loans; and the value of the collateral
securing these loans. Adverse changes in the economic conditions of the north
central Illinois and northwest Illinois counties in which we operate could also
negatively impact the financial results of the Company's operations and have a
negative effect on its profitability. For example, these factors could lead to
reduced interest income and an increase in the provision for loan losses.

A portion of the loans in the Company's portfolio is secured by real estate.
Most of these loans are secured by properties located in the north central and
north west counties of Illinois. Negative conditions in the real estate markets
where collateral for a mortgage loan is located could adversely affect the
borrower's ability to repay the loan and the value of the collateral securing
the loan. Real estate values are affected by various factors, including changes
in general or regional economic conditions, supply and demand for properties and
governmental rules or policies.

                                      13.
<PAGE>

Our allowance for loan losses may be insufficient

Managing the Company's reserve for loan losses is based upon, among other
things, (1) historical experience, (2) an evaluation of local and national
economic conditions, (3) regular reviews of delinquencies and loan portfolio
quality, (4) current trends regarding the volume and severity of past due and
problem loans, (5) the existence and effect of concentrations of credit and (6)
results of regulatory examinations. Based upon such factors, management makes
various assumptions and judgments about the ultimate collectibility of the
respective loan portfolios. Although the Company believes that the reserve for
loan losses is adequate, there can be no assurance that such reserve will prove
sufficient to cover future losses. Future adjustments may be necessary if
economic conditions change or adverse developments arise with respect to
nonperforming or performing loans or if regulatory supervision changes. Material
additions to the reserve for loan losses would result in a material decrease in
the Company's net income, and possibly its capital, and could result in the
inability to pay dividends, among other adverse consequences.

Acquisitions may disrupt our business and dilute stockholder value

The Company regularly evaluates merger and acquisition opportunities and
conducts due diligence activities related to possible transactions with other
financial institutions and financial services companies. As a result,
negotiations may take place and future mergers or acquisitions involving cash,
debt, or equity securities may occur at any time. The Company seeks merger or
acquisition partners that are culturally similar, have experienced management,
and possess either significant market presence or have potential for improved
profitability through financial management, economies of scale, or expanded
services.

Acquiring other banks, businesses, or branches involves potential adverse impact
to the Company's financial results and various other risks commonly associated
with acquisitions, including, among other things:

o    Difficulty in estimating the value of the target company
o    Payment of a premium over book and market values that may dilute the
     Company's tangible book value and earnings per share in the short and long
     term
o    Potential exposure to unknown or contingent liabilities of the target
     company
o    Exposure to potential asset quality issues of the target company
o    There may be volatility in reported income as goodwill impairment losses
     could occur irregularly and in varying amounts
o    Difficulty and expense of integrating the operations and personnel of the
     target company
o    Inability to realize the expected revenue increases, cost savings,
     increases in geographic or product presence, and/or other projected
     benefits
o    Potential disruption to the Company's business
o    Potential diversion of the Company's management's time and attention
o    The possible loss of key employees and customers of the target company
o    Potential changes in banking or tax laws or regulations that may affect the
     target company

Details of the Company's recent acquisition activity is presented in Note 2,
"Business Combinations," of the notes to consolidated financial statements
within Part II, Item 8.

                                      14.
<PAGE>

Our information systems may experience an interruption of breach in security

The Company relies heavily on communications and information systems to conduct
its business. Any failure, interruption, or breach in security of these systems
could result in failures or disruptions in the Company's customer relationship
management, general ledger, deposit, loan, and other systems. While the Company
has policies and procedures designed to prevent or limit the effect of the
failure, interruption, or security breach of its information systems, we cannot
assure you that any such failures, interruptions, or security breaches will not
occur or, if they do occur, that they will be adequately addressed. The
occurrence of any failures, interruptions, or security breaches of the Company's
information systems could damage the Company's reputation, result in a loss of
customer business, subject the Company to additional regulatory scrutiny, or
expose the Company to civil litigation and possible financial liability, any of
which could have a material adverse effect on the Company's financial condition
and results of operations.


Risks Associated With The Company's Industry

We operate in a highly regulated industry

The banking industry is heavily regulated. The banking business of the Company
and the Bank are subject, in certain respects, to regulation by the Federal
Reserve, the FDIC, the Office of the Comptroller of the Currency, the IDFPR and
the SEC. The Company's success depends not only on competitive factors but also
on state and federal regulations affecting banks and bank holding companies. The
regulations are primarily intended to protect depositors, not stockholders or
other security holders. The ultimate effect of recent and proposed changes to
the regulation of the financial institution industry cannot be predicted.
Regulations now affecting the Company may be modified at any time, and there is
no assurance that such modifications, if any, will not adversely affect the
Company's business.

We operate in an industry that is significantly affected by general business and
economic conditions

The Company's operations and profitability are impacted by general business and
economic conditions in the United States and abroad. These conditions include
short-term and long-term interest rates, inflation, money supply, political
issues, legislative and regulatory changes, fluctuations in both debt and equity
capital markets, broad trends in industry and finance, and the strength of the
U. S. economy and the local economies in which the Company operates, all of
which are beyond the Company's control. A deterioration in economic conditions
could result in an increase in loan delinquencies and nonperforming assets,
decreases in loan collateral values, and a decrease in demand for the Company's
products and services among other things, any of which could have a material
adverse impact on the Company's financial condition and results of operations.



Item 1B.      Unresolved Staff Comments

None.

Item 2.       Properties

At December 31, 2005, the Company operated twenty offices in Illinois. The
principal offices of the Company are located in Ottawa, Illinois. All of the
Company's offices are owned by UnionBank and are not subject to any mortgage or

                                      15.
<PAGE>

material encumbrance, with the exception of two offices that are leased and are
located in LaSalle County. The Company believes that its current facilities are
adequate for its existing business.


AFFILIATE         MARKETS SERVED               PROPERTY/TYPE LOCATION
---------         --------------               ----------------------

The Company                                    Administrative Office: Ottawa, IL

UnionBank         Bureau, DeKalb, Grundy, Jo   Main Office: Streator, IL
                  Daviess, Kane, Kendall,
                  LaSalle, Livingston and      Seventeen banking offices and
                  Whiteside Counties           three non-banking offices located
                                               in markets served.

In addition to the banking locations listed above, UnionBank owns twenty
automated teller machines, some of which are housed within banking offices and
some of which are independently located.

At December 31, 2005, the properties and equipment of the Company had an
aggregate net book value of approximately $13.9 million.

Item 3.       Legal Proceedings

Neither the Company nor its subsidiary are involved in any pending legal
proceedings other than routine legal proceedings occurring in the normal course
of business, which, in the opinion of management, in the aggregate, are not
material to the Company's consolidated financial condition.

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

There were no items submitted to a vote of security holders in the fourth
quarter of the fiscal year ended December 31, 2005.

                                     PART II

Item 5.       Market For Registrant's Common Equity, Related Stockholder Matters
              and Issuer Purchases of Equity Securities

The Company's Common Stock was held by approximately 417 stockholders of record
as of March 1, 2006, and is traded on The Nasdaq Stock Market under the symbol
"UBCD." The table below indicates the high and low sales prices of the Common
Stock as reported by Nasdaq for transactions of which the Company is aware, and
the dividends declared per share for the Common Stock during the periods
indicated. Because the Company is not aware of the price at which certain
private transactions in the Common Stock have occurred, the prices shown may not
necessarily represent the complete range of prices at which transactions in the
Common Stock have occurred during such periods.

                                      16.
<PAGE>

                                             Stock Sales
                                     --------------------------
                                                                       Cash
                                         High           Low          Dividends
                                     -----------     ----------     -----------
 2005
   First Quarter..................   $     21.50     $    20.75     $      0.10
   Second Quarter.................         22.00          20.26            0.11
   Third Quarter..................         21.98          20.84            0.11
   Fourth Quarter.................         22.00          20.25            0.11

 2004
   First Quarter..................   $     22.23     $    21.00     $      0.09
   Second Quarter.................         23.00          19.25            0.10
   Third Quarter..................         20.88          19.20            0.10
   Fourth Quarter.................         21.94          20.29            0.10

The holders of the Common Stock are entitled to receive dividends as declared by
the Board of Directors of the Company, which considers payment of dividends
quarterly. Upon the consummation of the acquisition of Prairie in 1996,
preferential dividends were required to be paid or accrued quarterly, with
respect to the outstanding shares of Preferred Stock. The ability of the Company
to pay dividends in the future will be primarily dependent upon its receipt of
dividends from UnionBank. In determining cash dividends, the Board of Directors
considers the earnings, capital requirements, debt and dividend servicing
requirements, financial ratio guidelines it has established, financial condition
of the Company and other relevant factors. UnionBank's ability to pay dividends
to the Company and the Company's ability to pay dividends to its stockholders
are also subject to certain regulatory restrictions.

The Company has paid regular cash dividends on the Common Stock since it
commenced operations in 1982. There can be no assurance, however, that any such
dividends will be paid by the Company or that such dividends will not be reduced
or eliminated in the future. The timing and amount of dividends will depend upon
the earnings, capital requirements and financial condition of the Company and
UnionBank, as well as the general economic conditions and other relevant factors
affecting the Company and its subsidiaries. In 1996, the Company entered into a
new loan agreement in connection with the acquisition of Prairie and Country,
replacing the Company's prior loan agreement. The loan agreement contains no
direct prohibitions against the payment by the Company of dividends, but
indirectly restricts such dividends through the required maintenance of minimum
capital ratios. In addition, the terms of the Series A Preferred Stock, and the
Series B Preferred Stock issued to certain of Prairie's preferred stockholders
prohibit the payment of dividends by the Company on the Common Stock during any
period for which dividends on the respective series of Preferred Stock are in
arrears.

The Company has not issued any securities in the past three years which were not
registered for sale under the Securities Act of 1933, as amended.

                                      17.
<PAGE>

The following table provides information about purchases of the Company's common
stock by the Company during 2005:

<TABLE>
<CAPTION>
=================================================================================================
                                           Total Number of Shares
             Total Number     Average       Purchased as Part of      Maximum Number of Shares
               of Shares     Price Paid   Publicly Announced Plans    that May Yet Be Purchased
Period         Purchased     per Share           or Programs         Under the Plans or Programs
=================================================================================================
<S>               <C>          <C>                         <C>                        <C>
10/01/05 -            --           --                          --                     164,307
10/31/05
=================================================================================================
11/01/05 -        22,900       21.300                      22,900                     141,407
11/30/05
=================================================================================================
12/01/05 -        32,500       21.181                      32,500                     108,907
12/31/05
=================================================================================================
Total   (1)       55,400       21.230                      55,400                     108,907
(2)
=================================================================================================
</TABLE>

     (1)  Pursuant to the repurchase program that we originally announced on May
          2, 2003 (the "Program"), the Company repurchased 55,400 shares at an
          average price per share of $21.230 of our common stock during the
          quarter ended December 31, 2005.

     (2)  Our board of directors approved the repurchase by us of up to an
          aggregate of 5% of the outstanding shares of our common stock pursuant
          to the Program. The Program initially lasted for an eighteen month
          period, but was extended by our board of directors on September 23,
          2004 and June 16, 2005. Unless terminated earlier by resolution of our
          board of directors, the Program will expire on the earlier of such
          expiration date or when we have repurchased all shares authorized for
          repurchase under the Program.

                                      18.
<PAGE>

Item 6.       Selected Consolidated Financial Data

The following table presents selected consolidated financial data for the five
years ended December 31, 2005:

<TABLE>
<CAPTION>
                                                          2005            2004            2003             2002            2001
                                                      ------------    ------------    ------------     ------------    ------------
<S>                                                   <C>             <C>             <C>              <C>             <C>
Statement of Income Data
   Interest income                                    $     34,697    $     34,912    $     41,086     $     45,509    $     53,829
   Interest expense                                         13,712          13,250          15,961           20,186          29,385
                                                      ------------    ------------    ------------     ------------    ------------
   Net interest income                                      20,985          21,662          25,125           25,323          24,444
   Provision for loan losses                                   250           1,924           8,236            3,574           4,161
                                                      ------------    ------------    ------------     ------------    ------------
   Net interest income after provision                      20,735          19,738          16,889           21,749          20,283
     for loan losses
   Noninterest income                                        7,602          14,102          13,719           12,455          11,920
   Noninterest expense                                      22,965          26,981          28,607           29,026          26,212
                                                      ------------    ------------    ------------     ------------    ------------
   Income before income taxes                                5,372           6,859           2,001            5,178           5,991
   Provision (benefit) for income taxes                      1,199           2,056            (129)           1,134           1,537
                                                      ------------    ------------    ------------     ------------    ------------
   Net income                                         $      4,173    $      4,803    $      2,130     $      4,044    $      4,454
   Net income on common stock                         $      3,966    $      4,596    $      1,937     $      3,787    $      4,197
                                                      ============    ============    ============     ============    ============

Per Share Data
   Basic earnings per common share                    $       1.01    $       1.14    $       0.48     $       0.95    $       1.06
   Diluted earnings per common share                          0.99            1.12            0.48             0.94            1.05
   Cash dividends on common stock                             0.44            0.40            0.35             0.31            0.27
   Dividend payout ratio for common stock                    43.39%          35.10%          74.39%           32.59%          25.59%
   Book value per common stock                        $      17.23    $      17.30    $      16.77     $      16.97    $      15.91
   Basic weighted average common shares                  3,943,741       4,033,608       3,997,464        3,979,750       3,974,205
      outstanding
   Diluted weighted average common share                 4,002,908       4,109,999       4,069,220        4,027,441       4,008,867
      outstanding
   Period-end common shares outstanding                  3,806,876       4,032,144       4,026,850        3,980,946       3,979,056

Balance Sheet Data
   Securities                                         $    196,440    $    191,661    $    252,248     $    227,229    $    186,282
   Loans                                                   417,525         419,275         476,812          483,229         504,968
   Allowance for loan losses                                 8,362           9,732           9,011            6,450           6,295
   Total assets                                            676,222         669,546         793,422          791,616         784,307
   Total deposits                                          543,841         512,477         638,032          641,958         612,144
   Stockholders' equity                                     66,075          70,247          68,047           68,064          63,814

Earnings Performance Data
   Return on average total assets                             0.63%           0.65%           0.28%            0.53%           0.59%
   Return on average stockholders' equity                     6.06            7.06            3.16             6.11            7.04
   Net interest margin ratio                                  3.56            3.34            3.65             3.74            3.64
   Efficiency ratio (1)                                      77.78           82.90           72.25            71.73           68.14

Asset Quality Ratios
   Nonperforming assets to total end of period assets         0.62%           0.69%           1.10%            0.80%           1.44%
   Nonperforming loans to total end of period loans           0.96            1.00            1.78             0.99            1.76
   Net loan charge-offs to total average loans                0.39            0.23            1.18             0.70            0.85
   Allowance for loan losses to total loans                   2.00            2.32            1.89             1.33            1.25
   Allowance for loan losses to nonperforming loans         208.84          231.60          106.30           135.50           70.93

Capital Ratios
   Average equity to average assets                          10.39%           9.27%           8.87%            8.71%           8.37%
   Total capital to risk adjusted assets                     13.33           14.30           12.15            11.84           11.66
   Tier 1 leverage ratio                                      9.03            9.54            7.60             7.48            7.54
</TABLE>

(1)  Calculated as noninterest expense less amortization of intangibles and
     expenses related to other real estate owned divided by the sum of net
     interest income before provisions for loan losses and total noninterest
     income excluding securities gains and losses and gains on sale of assets.

                                      19.
<PAGE>

Item 7.       Management's Discussion and Analysis of Results of Operations and
              Financial Condition

The following discussion provides an analysis of the Company's results of
operations and financial condition of UnionBancorp, Inc. for the three years
ended December 31, 2005. Management's discussion and analysis (MD&A) should be
read in conjunction with "Selected Consolidated Financial Data," the
consolidated financial statements of the Company, and the accompanying notes
thereto. Unless otherwise stated, all earnings per share data included in this
section and throughout the remainder of this discussion are presented on a fully
diluted basis. All financial information is in thousands (000's), except per
share data.

                                      20.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

        This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Act of 1934 as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995 and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions
and describe future plans, strategies, and expectations of the Company, are
generally identified by the use of words such as "believe," "expect," "intend,"
"anticipate," "estimate," "project," "planned" or "potential" or similar
expressions. The Company's ability to predict results, or the actual effect of
future plans or strategies, is inherently uncertain. Factors which could have a
material adverse effect on the operations and future prospects of the Company
and the subsidiaries include, but are not limited to, changes in: interest
rates; general economic conditions; legislative/regulatory changes; monetary and
fiscal policies of the U.S. government, including policies of the U.S. Treasury
and the Federal Reserve Board; the quality and composition of the loan or
securities portfolios; demand for loan products; deposit flows; competition;
demand for financial services in the Company's market areas; the Company's
implementation of new technologies; the Company's ability to develop and
maintain secure and reliable electronic systems; and accounting principles,
policies, and guidelines. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements.

Critical Accounting Policies and Estimates

        Note 1 to our Consolidated Financial Statements for the year ended
December 31, 2005 contains a summary of our significant accounting policies.
Various elements of our accounting policies, by their nature, are inherently
subject to estimation techniques, valuation assumptions and other subjective
assessments. Our policy with respect to the methodologies used to determine the
allowance for loan losses is our most critical accounting policy. The policy is
important to the presentation of our financial condition and results of
operations, and it involves a higher decree of complexity and requires
management to make difficult and subjective judgments, which often require
assumptions or estimates about highly uncertain matters. The use of different
judgments, assumptions and estimates could result in material differences in our
results of operations or financial condition.

        The following is a description of our critical accounting policy and an
explanation of the methods and assumptions underlying its application.

Allowance for Loan Losses: The allowance for loan losses represents management's
estimate of probable credit losses inherent in the loan portfolio. Estimating
the amount of the allowance for loan losses requires significant judgment and
the use of estimates related to the amount and timing of expected future cash
flows on impaired loans, estimated losses on pools of homogeneous loans based on
historical loss experience, and consideration of current economic trends and
conditions, all of which may be susceptible to significant change. The loan
portfolio also represents the largest asset type on the consolidated balance
sheet. Loan losses are charged off against the allowance, while recoveries of
amounts previously charged off are credited to the allowance. A provision for
loan losses is charged to operations based on management's periodic evaluation
of the factors previously mentioned, as well as other pertinent factors.

The allowance for loan losses is based on an estimation computed pursuant to the
requirements of Financial Accounting Standards Board ("FASB") Statement No. 5,
"Accounting for Contingencies" and FASB Statements Nos. 114 and 118, "Accounting
by Creditors for Impairment of a Loan," the analysis of the allowance for loan
losses consists of three components: (i) specific credit allocation established

                                      21.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

for expected losses resulting from analysis developed through specific credit
allocations on individual loans for which the recorded investment in the loan
exceeds its fair value; (ii) general portfolio allocation based on historical
loan loss experience for each loan category; and (iii) subjective reserves based
on general economic conditions as well as specific economic factors in markets
in which the Company operates.

The specific credit allocation component of the allowances for loan losses is
based on an analysis of individual loans and historical loss experience for each
loan category. The specific credit allocations are based on regular analysis of
all loans over a fixed-dollar amount where the internal credit rating is at or
below a predetermined classification. These analyses involve a high degree of
judgment in estimating the amount of loss associated with specific loans,
including estimating the amount and timing of future cash flows and collateral
values.

The general portfolio allocation component of the allowance for loan losses is
determined statistically using a loss analysis that examines historical loan
loss experience. The loss analysis is performed quarterly and loss factors are
updated regularly based on actual experience. The general portfolio allocation
element of the allowance for loan losses also includes consideration of the
amounts necessary for concentrations and changes in portfolio mix and volume.

There are many factors affecting the allowance for loan losses; some are
quantitative while others require qualitative judgment. The process for
determining the allowance (which management believes adequately considers all of
the potential factors which might possibly result in credit losses) includes
subjective elements and, therefore, may be susceptible to significant change. To
the extent actual outcomes differs from management estimates, additional
provision for credit losses could be required that could adversely affect the
Company's earnings or financial position in future periods.

General

UnionBancorp, Inc. is a bank holding company organized under the laws of the
State of Delaware. The Company derives most of its revenues and income from the
banking operations of its bank subsidiary, but also derives revenue from the
Financial Services Division of its bank subsidiary. The Company provides a full
range of services to individual and corporate customers located in the north
central and northwest Illinois areas. These services include demand, time, and
savings deposits; lending; mortgage banking; insurance products; brokerage
services; asset management; and trust services. The Company is subject to
competition from other financial institutions, including banks, thrifts and
credits unions, as well as nonfinancial institutions providing financial
services. Additionally, the Company and UnionBank are subject to regulations of
certain regulatory agencies and undergo periodic examinations by those
regulatory agencies.

    Fourth Quarter

The Company incurred approximately $413 in nonrecurring expenses related to
organizational restructuring severance costs, loss on sale of securities and
other events. The impact to earnings, net of taxes, was approximately $0.05 per
diluted share. The largest portion of this cost was related to severance costs.
These were incurred as the Company strived to align our staffing levels with the
current and anticipated future needs of the Company. As the Company has
continued to develop into a flatter and more efficient management structure a
reduction in redundant staffing positions was necessary to achieve the
management structure needed to develop future growth.

                                      22.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

    Second Quarter

On May 31, 2005, the Company closed its Tiskilwa branch due to declining
transaction activity. On June 20, 2005, the Company announced the appointment of
Scott A. Yeoman to the position of President and Chief Executive Officer of
UnionBancorp, Inc. Additionally, the Company experienced a $251 reduction in
state income taxes due to the receipt of a tax refund related to amended tax
returns outstanding from prior years. The impact to earnings was approximately
$0.06 per diluted share.

Results of Operations

    Net Income

        2005 compared to 2004. Net income equaled $4,173 or $0.99 per diluted
share for the year ended December 31, 2005 as compared to net income of $4,803
or $1.12 per diluted share for the year ended December 31, 2004. This represents
a 13.1% decrease in net income and an 11.6% decrease in diluted per share
earnings in the current fiscal year over fiscal 2004.

The Company's annual results were lower in 2005 versus 2004 due to the $1,700
net gain on sale (after allocating a portion of the intangible assets and
goodwill, taxes and applicable expenses) associated with the Company's
divestiture of five western Illinois sales and service center locations recorded
in the third quarter of 2004. Also contributing to the change were volume
related decreases in net interest income and other fee based revenue largely
related to the sale of the West region. Positively impacted earnings were
decreases in the provision for loan losses due to continued improvement in asset
quality levels and volume related decreases in noninterest expense categories
due to the sale of the West region.

Return on average assets was 0.63% for the year ended December 31, 2005 compared
to 0.65% for the same period in 2004. Return on average stockholders' equity was
6.06% for the year ended December 31, 2005 compared to 7.06% for the same period
in 2004.

        2004 compared to 2003. Net income equaled $4,803 or $1.12 per diluted
share for the year ended December 31, 2004 as compared to net income of $2,130
or $0.48 per diluted share for the year ended December 31, 2003. This represents
a 125.5% increase in net income and a 133.3% increase in diluted per share
earnings in the current fiscal year over fiscal 2003.

The Company's annual results were positively impacted by the net gain on sale
(after allocating a portion of the intangible assets and goodwill, taxes and
applicable expenses) and volume related decreases in most noninterest expense
categories as a result of the sale of the West region. Also contributing to the
improvement in net income was a decrease in the provision for loan losses and
gains taken in as a result of the sale of its credit card portfolio and one
additional branch office. These positive variances were partially offset by
decreases in mortgage banking revenue due to the slowdown in refinancing
opportunities and volume related decreases in net interest income and other fee
based revenue due to the sale of the West region's branches.

Return on average assets was 0.65% for the year ended December 31, 2004 compared
to 0.28% for the same period in 2003. Return on average stockholders' equity was
7.06% for the year ended December 31, 2004 compared to 3.16% for the same period
in 2003.

                                      23.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

    Net Interest Income/ Margin

Net interest income is the difference between income earned on interest-earning
assets and the interest expense incurred for the funding sources used to finance
these assets. Changes in net interest income generally occur due to fluctuations
in the volume of earning assets and paying liabilities and rates earned and
paid, respectively, on those assets and liabilities. The net yield on total
interest-earning assets, also referred to as net interest margin, represents net
interest income divided by average interest-earning assets. Net interest margin
measures how efficiently the Company uses its earning assets and underlying
capital. The Company's long-term objective is to manage those assets and
liabilities to provide the largest possible amount of income while balancing
interest rate, credit, liquidity and capital risks. For purposes of this
discussion, both net interest income and margin have been adjusted to a fully
tax equivalent basis for certain tax-exempt securities and loans.

        2005 compared to 2004. Net interest income, on a tax equivalent basis,
was $21,587 for the year ended December 31, 2005, compared with $22,376 earned
during the same period in 2004. This represented a decrease of $789 or 3.5%. The
decrease in net interest income is attributable to the year-over-year reduction
of income earned on interest earning assets totaling $328 combined with the
year-over-year increase of interest expense paid on interest bearing liabilities
totaling $461.

The $328 reduction in interest income resulted from a decrease of $3,748 related
to volume partially offset by $3,420 improvement due to rates. The majority of
the change in interest income was related to a decline in the average loan
balance caused by the sale of the West region as well as the loan portfolio
declining due to normal paydowns, softening of loan demand, and exiting of
high-balance, high-risk credits from portfolio. This loss in volume overcame a
44 basis point increase in yields earned on average loans.

The $461 increase in interest expense resulted from an increase of $2,055
associated with rate partially offset by a $1,594 decrease due to volume. The
majority of the change was attributable to a 34 basis point increase in rates
paid on deposits due to the higher interest rate environment. This increase was
slightly offset by the lower expense caused by a decline in average deposit
balances related to the sale of the West region's branches.

The net interest margin increased 22 basis points to 3.56% for the year ended
December 31, 2005 from 3.34% during the same period in 2004. The increase
resulted primarily from the result of the overall rising interest rate
environment and a more disciplined approach to pricing.

        2004 compared to 2003. Net interest income, on a tax equivalent basis,
was $22,376 for the year ended December 31, 2004, compared with $26,066 earned
during the same period in 2003. This represented a decrease of $3,690 or 14.2%.
The decrease in net interest income is attributable to the year-over-year
reduction of income earned on interest earning assets totaling $6,336 exceeding
the year-over-year reduction of interest expense paid on interest bearing
liabilities totaling $2,646.

The $6,336 reduction in interest income resulted from decreases of $3,756
related to rate and $2,580 due to volume. The majority of the change in interest
income was related to a 60 basis point decline in yields earned on average loans
as competitive pricing on new and refinanced loans put downward pressure on loan
yields. Also contributing to the decrease was a decline in average loan balances
due to the sale of the West region.

The $2,646 reduction in interest expense resulted from decreases of $1,633
associated with rate and $1,013 associated with volume. The majority of the
change was attributable to a reduction in rates paid on time deposits due to the

                                      24.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

repricing of maturing time deposits at a lower rate. Also contributing to the
decrease was a decline in average loan balances due to the sale of the West
region.

The net interest margin decreased 31 basis points to 3.34% for the year ended
December 31, 2004 from 3.65% during the same period in 2003. The decline
resulted primarily from a decrease in yields earned on average loans as
competitive pricing on new and refinanced loans, as well as the repricing of
variable rate loans in a relative lower interest rate environment, put downward
pressure on loan yields.

The following table sets forth for each category of interest-earning assets and
interest-bearing liabilities the average amounts outstanding, the interest
earned or paid on such amounts, and the average rate paid during 2004, 2003 and
2002. The table also sets forth the average rate earned on all interest-earning
assets, the average rate paid on all interest-bearing liabilities, and the net
yield on average interest-earning assets for the same period. For purposes of
this discussion, both net interest income and margin have been adjusted to a
fully tax equivalent basis for certain tax-exempt securities and loans.

                                      25.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

                              AVERAGE BALANCE SHEET
                       AND ANALYSIS OF NET INTEREST INCOME

<TABLE>
<CAPTION>
                                                               For the Years Ended December 31,
                              --------------------------------------------------------------------------------------------------
                                           2005                             2004                             2003
                              ------------------------------    ------------------------------    ------------------------------
                                          Interest                          Interest                          Interest
                              Average     Income/    Average    Average     Income/    Average    Average     Income/    Average
                              Balance     Expense     Rate      Balance     Expense     Rate      Balance     Expense     Rate
                              --------    --------   -------    --------    --------   -------    --------    --------   -------
<S>                           <C>        <C>            <C>     <C>         <C>           <C>     <C>        <C>           <C>
ASSETS
Interest-earning assets
  Interest-earning
    deposits                  $    147    $      7      4.65%   $    137    $      2      1.46%   $    237    $      5      2.11%
  Securities (1)
    Taxable                    169,468       6,331      3.73     192,835       5,925      3.06     196,195       6,805      3.47
    Nontaxable (2)              21,076       1,504      7.14      26,066       1,848      7.07      31,239       2,323      7.44
                              --------    --------   -------    --------    --------   -------    --------    --------   -------
Total securities
  (tax equivalent)             190,544       7,835      4.11     218,901       7,773      3.54     227,434       9,128      4.01
                              --------    --------   -------    --------    --------   -------    --------    --------   -------
Federal funds sold               3,785         115      3.23       3,433          46      1.39       4,442          50      1.13
                              --------    --------   -------    --------    --------   -------    --------    --------   -------
    Loans (3)(4)
      Commercial               117,571       8,131      6.92     130,436       7,467      5.71     133,543       8,148      6.10
      Real estate              277,267      17,640      6.36     286,280      17,499      6.10     303,777      20,373      6.71
    Installment and other       16,945       1,571      9.27      30,889       2,840      9.17      45,023       4,259      9.46
                              --------    --------   -------    --------    --------   -------    --------    --------   -------
        Gross loans
          (tax equivalent)     411,783      27,342      6.64     447,605      27,806      6.20     482,343      32,780      6.80
                              --------    --------   -------    --------    --------   -------    --------    --------   -------
         Total interest-
            earning assets     606,259      35,299      5.82     670,076      35,627      5.30     714,456      41,963      5.87
                              --------    --------   -------    --------    --------   -------    --------    --------   -------

Noninterest-earning
 assets
  Cash and cash
    equivalents                 18,874                            21,497                            21,735
  Premises and
    equipment, net              13,782                            15,533                            14,923
  Other assets                  24,138                            24,879                            30,604
                              --------                          --------                          --------
    Total non-interest-
        earning assets          56,794                            61,909                            67,262
                              --------                          --------                          --------

      Total assets            $663,053                          $731,985                          $781,718
                              ========                          ========                          ========


LIABILITIES AND STOCKHOLDERS' EQUITY

Interest-bearing
 liabilities
  NOW accounts                $ 72,722    $    915      1.26%   $ 57,887    $    319      0.55%   $ 53,917    $    295      0.55%
  Money market accounts         59,160       1,080      1.83      94,074       1,166      1.24     109,700       1,544      1.41
  Savings deposits              42,122         212      0.50      47,337         265      0.56      49,334         373      0.76
  Time $100,000 and over       148,238       4,522      3.05     148,701       3,836      2.57     157,824       4,703      2.98
  Other time deposits          136,745       4,181      3.06     156,198       4,323      2.76     174,921       5,538      3.17
  Federal funds purchased
    and repurchase
    agreements                   6,243         197      3.16       5,099          98      1.92       6,776         122      1.80
  Advances from FHLB            54,571       2,128      3.91      70,359       2,887      4.09      70,019       2,997      4.28
  Notes payable                  9,176         477      5.20       8,033         357      4.43       7,912         325      4.11
                              --------    --------   -------    --------    --------   -------    --------    --------   -------
    Total interest-bearing
       liabilities             528,977      13,712      2.59     587,688      13,251      2.25     630,403      15,897      2.52
                              --------    --------   -------    --------    --------   -------    --------    --------   -------
Noninterest-bearing
 liabilities
  Non-interest-bearing
   deposits                     61,040                            71,912                            74,855
  Other liabilities              4,133                             4,503                             7,084
                              --------                          --------                          --------
    Total non-interest-
        bearing liabilities     65,173                            76,415                            81,939
                              --------                          --------                          --------
  Stockholders' equity          68,903                            67,882                            69,376
                              --------                          --------                          --------

  Total liabilities and
    stockholders' equity      $663,053                          $731,985                          $781,718
                              ========                          ========                          ========
  Net interest income
    (tax equivalent)                      $ 21,587                          $ 22,376                          $ 26,066
                                          ========                          ========                          ========
  Net interest income
    (tax equivalent) to
    total earning assets                                3.56%                             3.34%                             3.65%
                                                     =======                           =======                           =======
  Interest-bearing
    liabilities to
    earning assets               87.25%                            87.70%                            88.24%
                              ========                          ========                          ========
</TABLE>
------------------------------
(1)  Average balance and average rate on securities classified as
     available-for-sale are based on historical amortized cost balances.
(2)  Interest income and average rate on non-taxable securities are reflected on
     a tax equivalent basis based upon a statutory federal income tax rate of
     34%.
(3)  Nonaccrual loans are included in the average balances.
(4)  Overdraft loans are excluded in the average balances.


The Company's net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities, referred to as
"volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds referred to as "rate change." The following table reflects the
changes in net interest income stemming from changes in interest rates and from

                                      26.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

asset and liability volume, including mix. Any variance attributable jointly to
volume and rate changes is allocated to the volume and rate variances in
proportion to the relationship of the absolute dollar amount of the change in
each.

<TABLE>
<CAPTION>
                             RATE/VOLUME ANALYSIS OF
                               NET INTEREST INCOME

                                                    For the Years Ended December 31,
                                --------------------------------------------------------------------------
                                     2005 Compared to 2004                   2004 Compared to 2003
                                -----------------------------------    -----------------------------------
                                         Change Due to                           Change Due to
                                -----------------------------------    -----------------------------------
                                 Volume        Rate          Net        Volume        Rate          Net
                                ---------    ---------    ---------    ---------    ---------    ---------
<S>                             <C>          <C>          <C>          <C>          <C>          <C>
Interest income:
  Interest-earning deposits     $      --    $       5    $       5    $      (2)   $      (1)   $      (3)
  Investment securities:
     Taxable                         (778)       1,184          406         (110)        (770)        (880)
     Nontaxable                      (310)         (34)        (344)        (219)        (256)        (475)
  Federal funds sold                    5           65           69          (14)          10           (4)
  Loans                            (2,664)       2,200         (464)      (2,235)      (2,739)      (4,974)
                                ---------    ---------    ---------    ---------    ---------    ---------

     Total interest income         (3,748)       3,420         (328)      (2,580)      (3,756)      (6,336)
                                ---------    ---------    ---------    ---------    ---------    ---------

Interest expense:
  NOW accounts                         99          497          596           24           --           24
  Money market accounts              (524)         438          (86)        (205)        (173)        (378)
  Savings deposits                    (27)         (26)         (53)         (14)         (94)        (108)
  Time, $100,000 and over             (12)         698          686         (256)        (611)        (867)
  Other time                         (576)         434         (142)        (550)        (665)      (1,215)
  Federal funds purchased and
    repurchase agreements              26           73           99          (32)           8          (24)
  Advances from FHLB                 (634)        (125)        (759)          15         (125)        (110)
  AG & Comm Participations             --           --           --           --           --           --
  Notes payable                        54           66          120            5           27           32
                                ---------    ---------    ---------    ---------    ---------    ---------

     Total interest expense        (1,594)       2,055          461       (1,013)      (1,633)      (2,646)
                                ---------    ---------    ---------    ---------    ---------    ---------

        Net interest income     $  (2,154)   $   1,365    $    (789)   $  (1,567)   $  (2,123)   $  (3,690)
                                =========    =========    =========    =========    =========    =========
</TABLE>

        Provision for Loan Losses. The amount of the provision for loan losses
is based on management's evaluations of the loan portfolio, with particular
attention directed toward nonperforming, impaired and other potential problem
loans. During these evaluations, consideration is also given to such factors as
management's evaluation of specific loans, the level and composition of impaired
loans, other nonperforming loans, other identified potential problem loans,
historical loss experience, results of examinations by regulatory agencies,
results of the independent asset quality review process, the market value of
collateral, the estimate of discounted cash flows, the strength and availability
of guarantees, concentrations of credits, and various other factors, including
concentration of credit risk in various industries and current economic
conditions.

        2005 compared to 2004. The 2005 provision for loan losses charged to
operating expense totaled $250, a decrease of $1,674 in comparison to the $1,924
recorded during the same period for 2004. The decrease in the provision for loan
losses was due to the continued improvement in the management of the
nonperforming and action/watch list loans from year-end 2004 to year-end 2005,
including improved problem asset identification. Furthermore, this was
positively impacted by loan resolutions, either through charge-off of
nonbankable assets or through successful workout strategies that were executed
throughout 2005. Net charge-offs for the year ended December 31, 2005 were

                                      27.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

$1,620 compared with $1,029 in the same period of 2004. Annualized net
charge-offs increased to 0.39% of average loans for 2005 compared to 0.23% in
the same period in 2004.

Management remains watchful of credit quality issues. Should the economic
climate deteriorate from current levels, borrowers may experience difficulty,
and the level of nonperforming loans, charge-offs and delinquencies could rise
and require further increases in the provision.

        2004 compared to 2003. The 2004 provision for loan losses charged to
operating expense totaled $1,924, a decrease of $6,312 in comparison to the
$8,236 recorded during the same period for 2003. The decrease in the provision
for loan losses was due to an improvement in nonperforming and action/watch list
loans from year-end 2003 to year-end 2004, as well as resolutions, either
through charge-off of nonbankable assets or through successful workout
strategies that were executed throughout 2004. The Company's 2003 provisions
were largely attributable to the deterioration of two impaired commercial
credits identified in the Company's 10-Q report filed for the quarter ended June
20, 2003. As a result of the deterioration of these two loan relationships, the
Company specifically provided $3,500 to its allowance for loan losses during the
third quarter of 2003 for the losses incurred on these two credits. Net
charge-offs for the year ended December 31, 2004 were $1,029 compared with
$5,675 in the same period of 2003. Annualized net charge-offs decreased to 0.23%
of average loans for 2004 compared to 1.18% in the same period in 2003.

        Noninterest Income. Noninterest income consists of a wide variety of
fee-based revenues from bank-related service charges on deposits and mortgage
revenues. Also included in this category are revenues generated by the Company's
insurance, brokerage, trust and asset management services as well as increases
in cash surrender value on bank-owned life insurance. The following table
summarizes the Company's noninterest income:

                               NONINTEREST INCOME
                             (Dollars in Thousands)

                                                  Years Ended December 31,
                                           -------------------------------------
                                              2005          2004         2003
                                           ----------    ----------   ----------

Service charges                            $    1,996    $    2,866   $    3,090
Merchant fee income                                --            56          560
Trust income                                      811           740          701
Mortgage banking income                         1,350         2,020        3,947
Insurance commissions and fees                  1,818         2,234        2,318
Bank owned life insurance (BOLI)                  545           573          681
Securities gains (losses), net                    (79)          123          281
Gain on sale of assets                              4         4,263           --
Other income                                    1,157         1,227        2,141
                                           ----------    ----------   ----------

    Total noninterest income               $    7,602    $   14,102   $   13,719
                                           ==========    ==========   ==========


        2005 compared to 2004. Noninterest income totaled $7,602 for the year
ended December 31, 2005, as compared to $14,102 for the same timeframe in 2004.
This represented a decrease of $6,500 or 46.1% in 2005 over the prior period.
Excluding net securities gains and the gains on sale of branches and the
Company's credit card portfolio, noninterest income shows a year-over-year
decrease of $2,039 or 21.0%.

Excluding net securities gains and gains on sale of the branches and the credit
card portfolio, the decrease in noninterest income was related to a $670 decline
in mortgage banking income, an $870 decrease in service charges and $416 decline

                                      28.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

in insurance commissions. Decreases in service charges and other fee based
revenue were largely due to volume associated with the sale of the West region's
branches in 2004. The decrease in insurance commission fees was due to account
retention issues and lower than anticipated new account production. The
remaining categories remained relatively stable with only slight year-over-year
changes.

Mortgage banking income, which includes gains generated from the sale of loans
and net servicing revenue (after amortization of mortgage servicing rights), was
lower in 2005 due to a decrease in mortgage origination volume slightly offset
by an increase in revenue generated by the servicing rights portfolio due to the
slowdown in refinancing activity.

        2004 compared to 2003. Noninterest income totaled $14,102 for the year
ended December 31, 2004, as compared to $13,719 for the same timeframe in 2003.
This represented an increase of $383 or 2.8% in 2004 over the prior period.
Excluding net securities gains and the gains on sale of the West region, the
Company's credit card portfolio and Blandinsville, noninterest income shows a
year-over-year decrease of $3,722 or 27.7%.

Excluding net securities gains and gains on sale of the West region,
Blandinsville and the credit card portfolio, the majority of the change to
noninterest income was related to a $1,927 decline in mortgage banking income.
Mortgage banking income, which includes gains generated from the sale of loans
and net servicing revenue (after amortization of mortgage servicing rights), was
lower in 2004 due to a decrease in mortgage origination volume partially offset
by an increase in revenue generated by the servicing rights portfolio due to the
slowdown in refinancing activity.

Also contributing to the change was a decrease in merchant fee income due to the
sale of the credit card portfolio and volume related decreases in service
charges, nsf fees, and other fee based revenue related to the sale of the West
region. The remaining categories remained relatively stable with only slight
year-over-year changes.

        Noninterest Expense. Noninterest expense is comprised primarily of
compensation and employee benefits, occupancy and other operating expense. The
following table summarizes the Company's noninterest expense:

                               NONINTEREST EXPENSE
                             (Dollars in Thousands)

                                                      Years Ended December 31,
                                                  ------------------------------
                                                    2005       2004       2003
                                                  --------   --------   --------

Salaries and employee benefits                    $ 13,789   $ 15,410   $ 16,020
Occupancy expense, net                               1,571      2,461      2,138
Furniture and equipment expenses                     1,935      2,215      2,094
Marketing                                              496        615        709
Supplies and printing                                  359        435        541
Telephone                                              430        546        874
Other real estate expense                               59          8        178
Amortization of intangible assets                      170        337        247
Other expense                                        4,156      4,954      5,806
                                                  --------   --------   --------

    Total noninterest expense                     $ 22,965   $ 26,981   $ 28,607
                                                  ========   ========   ========

        2005 compared to 2004. Noninterest expense totaled $22,965 for the year
ended December 31, 2005, as compared to $26,981 for the same timeframe in 2004.
This represented a decrease of $4,016 or 14.9% in 2005 from 2004. Approximately

                                      29.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

40% of the improvement in noninterest expense levels was due to $1,621 in cost
savings from salaries and employee benefits expense related to the sale of the
West region's branches. Also contributing to the change were volume related
decreases in occupancy expense of $890, furniture and equipment of $280 and
other expense of $798 related to the branch sales in 2004.

        2004 compared to 2003. Noninterest expense totaled $26,981 for the year
ended December 31, 2004, as compared to $28,607 for the same timeframe in 2003.
This represented a decrease of $1,626 or 5.7% in 2004 from 2003. A majority of
the savings in noninterest expense was due to $724 in cost savings associated
with the divestiture of the credit card portfolio (included in other expenses)
and a $610 decline in salaries and employee benefits expense due to the sale of
the West region and other reductions in staffing levels. Also contributing to
the change were decreases in telephone costs related to the reduction of the
number of data lines utilized in the Company's infrastructure and savings in
other real estate expense related to the resolution of certain other real estate
properties.

These cost savings were partially offset by increases in occupancy and equipment
expense related to a full year of expenses from our Yorkville branch that was
opened in December of 2003 and the write-down of one of the Company's sales and
service center buildings in association with its anticipated closing. The
remaining categories remained relatively stable with only slight year-over-year
changes.

        Applicable Income Taxes. Income tax expense for the periods included
benefits for tax-exempt income, tax-advantaged investments and general business
tax credits offset by the effect of nondeductible expenses. The following table
shows the Company's income before income taxes, as well as applicable income
taxes and the effective tax rate for each of the past three years:

                                                Years Ended December 31,
                                        --------------------------------------
                                           2005          2004          2003
                                        ----------    ----------    ----------

Income before income taxes              $    5,372    $    6,859    $    2,001
Applicable income taxes                      1,199         2,056          (129)
Effective tax rates                           22.3%         30.0%        (6.45%)

        The Company recorded income tax expense of $1,199 and $2,056 for 2005
and 2004, respectively. Effective tax rates equaled 22.3% and 30.0%
respectively, for such periods. During the second quarter of 2005, the Company
recorded a $251 reduction in state income taxes due to the receipt of a tax
refund related to amended tax returns outstanding from prior years. Excluding
this refund, the effective tax rate would have been 27.0%.

        The Company's effective tax rate was lower than statutory rates due to
several factors. First, the Company derives interest income from municipal
securities and loans, which are exempt from federal tax and certain U. S.
government agency securities, which are exempt from Illinois State tax. Second,
the level of tax-exempt income has increased as a percentage of taxable income.
Third, state income taxes were lower due to a refund from amended tax returns
for prior years. Finally, the Company has reduced tax expense through various
tax planning initiatives.

        Preferred Stock Dividends. The Company paid $207 of preferred stock
dividends in 2005, $207 of preferred stock dividends in 2004 and $193 of
preferred stock dividends in 2003.

Interest Rate Sensitivity Management

The business of the Company and the composition of its balance sheet consist of
investments in interest-earning assets (primarily loans and securities) which
are primarily funded by interest-bearing liabilities (deposits and borrowings).

                                      30.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

All of the financial instruments of the Company are for other than trading
purposes. Such financial instruments have varying levels of sensitivity to
changes in market rates of interest. The operating income and net income of
UnionBank depends, to a substantial extent, on "rate differentials," i.e., the
differences between the income UnionBank receives from loans, securities, and
other earning assets and the interest expense they pay to obtain deposits and
other liabilities. These rates are highly sensitive to many factors that are
beyond the control of UnionBank, including general economic conditions and the
policies of various governmental and regulatory authorities.

The Company measures its overall interest rate sensitivity through a net
interest income analysis. The net interest income analysis measures the change
in net interest income in the event of hypothetical changes in interest rates.
This analysis assesses the risk of changes in net interest income in the event
of a sudden and sustained 100 to 200 basis point increase in market interest
rates or a 100 to 200 basis point decrease in market rates. The interest rates
scenarios are used for analytical purposes and do not necessarily represent
management's view of future market movements. The tables below present the
Company's projected changes in net interest income for 2005 and 2004 for the
various rate shock levels.

December 31, 2005                              Net Interest Income
-----------------            -------------------------------------------------
                               Amount                Change            Change
                             ---------             ---------          --------
                                             (Dollars in Thousands)

        +200 bp              $  23,043             $     959             4.34%
        +100 bp                 22,629                   545             2.47
        Base                    22,084                    --               --
        -100 bp                 21,314                  (770)           (3.49)
        -200 bp                 19,744                (2,340)          (10.59)

Based on the Company's model at December 31, 2005, the effect of an immediate
200 basis point increase in interest rates would increase the Company's net
interest income by 4.34% or approximately $959. The effect of an immediate 200
basis point decrease in rates would decrease the Company's net interest income
by $2,340 or 10.59%.

December 31, 2004                              Net Interest Income
-----------------            -------------------------------------------------
                               Amount                Change            Change
                             ---------             ---------          --------
                                             (Dollars in Thousands)

        +200 bp              $  21,070             $     996             4.96%
        +100 bp                 20,635                   560             2.79
        Base                    20,074                    --               --
        -100 bp                 19,048                (1,026)           (5.11)
        -200 bp                 17,559                (2,516)          (12.53)

Based on the Company's model at December 31, 2004, the effect of an immediate
200 basis point increase in interest rates would increase the Company's net
interest income by 4.96% or approximately $996. However, if this had been
presented the impact of a 200 basis point reduction would have been a decrease
of $2,516 or 12.53% to net interest income.

Financial Condition

        General. As of December 31, 2005, the Company had total assets of
$676,222, gross loans of $417,525, total deposits of $543,841, and total
stockholders' equity of $66,075. Total assets as of December 31, 2005 increased
by $6,676 or 1.0% from year-end 2004. Total gross loans as of December 31, 2005
decreased $1,750 or 0.4% from year-end 2004. Total deposits as of December 31,
2005 increased by $31,364 or 6.1% from year-end 2004.

                                      31.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

        Loans and Asset Quality. The Company offers a broad range of products,
including agribusiness, commercial, residential, and installment loans, designed
to meet the credit needs of its borrowers. The Company's loans are diversified
by borrower and industry group.

The following table describes the composition of loans by major categories
outstanding:

                             (Dollars in Thousands)
                                 LOAN PORTFOLIO
<TABLE>
<CAPTION>

                                                 Aggregate Principal Amount
                            ------------------------------------------------------------------
                                                       December 31,
                            ------------------------------------------------------------------
                               2005          2004          2003          2002          2001
                            ----------    ----------    ----------    ----------    ----------
<S>                         <C>           <C>           <C>           <C>           <C>
Commercial                  $   91,537    $   91,941    $  105,767    $  100,189    $  107,382
Agricultural                    26,694        28,718        33,766        36,467        40,563
Real estate:
   Commercial mortgages        126,503       129,597       134,985       147,253       150,878
   Construction                 68,508        38,882        30,674        24,486        23,676
   Agricultural                 33,033        30,601        37,092        34,688        34,611
   1-4 family mortgages         57,920        77,566        94,163        87,411        94,368
Installment                     12,747        21,502        37,415        49,949        50,961
Other                              583           468         2,950         2,786         2,529
                            ----------    ----------    ----------    ----------    ----------
Total loans                    417,525       419,275       476,812       483,229       504,968
Allowance for loan losses       (8,362)       (9,732)       (9,011)       (6,450)       (6,295)
                            ----------    ----------    ----------    ----------    ----------

   Loans, net               $  409,163    $  409,543    $  467,801    $  476,779    $  498,673
                            ==========    ==========    ==========    ==========    ==========


                                                  Aggregate Principal Amount
                            ------------------------------------------------------------------
                                              Percentage of Total Loan Portfolio
                            ------------------------------------------------------------------
                                                       December 31,
                            ------------------------------------------------------------------
                               2005          2004          2003          2002          2001
                            ----------    ----------    ----------    ----------    ----------

Commercial                       21.92%        21.93%        22.18%        20.73%        21.27%
Agricultural                      6.39          6.85          7.08          7.55          8.03
Real estate:
   Commercial mortgages          30.31         30.91         28.31         30.47         29.88
   Construction                  16.41          9.27          6.43          5.07          4.69
   Agricultural                   7.91          7.30          7.78          7.18          6.85
   1-4 family mortgages          13.87         18.50         19.75         18.08         18.69
Installment                       3.05          5.13          7.85         10.34         10.09
Other loans                       0.14          0.11          0.62          0.58          0.50
                            ----------    ----------    ----------    ----------    ----------

   Gross loans                  100.00%       100.00%       100.00%       100.00%       100.00%
                            ==========    ==========    ==========    ==========    ==========
</TABLE>

As of December 31, 2005 and 2004, commitments of UnionBank (and its
predecessors) under standby letters of credit and unused lines of credit totaled
approximately $87,510 and $94,346, respectively.

                                      32.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Stated loan maturities (including rate loans reset to market interest rates) of
the total loan portfolio, net of unearned income, at December 31, 2005 were as
follows:

                           STATED LOAN MATURITIES (1)
                             (Dollars in Thousands)

                                 Within       1 to 5      After 5
                                 1 Year        Years       Years        Total
                               ----------   ----------   ----------   ----------

Commercial                     $   76,006   $   14,475   $    1,056   $   91,537
Agricultural                       20,624        5,880          190       26,694
Real estate                       153,568      114,406       18,178      286,152
Installment                         6,036        7,010           96       13,142
                               ----------   ----------   ----------   ----------

    Total                      $  256,234   $  141,771   $   19,520   $  417,525
                               ==========   ==========   ==========   ==========

--------------------
(1)  Maturities based upon contractual maturity dates

The maturities presented above are based upon contractual maturities. Many of
these loans are made on a short-term basis with the possibility of renewal at
time of maturity. All loans, however, are reviewed on a continuous basis for
creditworthiness.

Rate sensitivities of the total loan portfolio, net of unearned income, at
December 31, 2005 were as follows:

                                 LOAN REPRICING
                             (Dollars in Thousands)

                                 Within      1 to 5       After 5
                                 1 Year       Years        Years        Total
                               ----------   ----------   ----------   ----------

Fixed rate                     $   54,226   $   54,933   $   15,501   $  124,660
Variable rate                     201,334       86,135        2,314      289,783
Nonaccrual                            674          703        1,705        3,082
                               ----------   ----------   ----------   ----------

    Total                      $  256,234   $  141,771   $   19,520   $  417,525
                               ==========   ==========   ==========   ==========

        Nonperforming Assets. The Company's financial statements are prepared on
the accrual basis of accounting, including the recognition of interest income on
its loan portfolio, unless a loan is placed on nonaccrual status. Loans are
placed on nonaccrual status when there are serious doubts regarding the
collectibility of all principal and interest due under the terms of the loans.
Amounts received on nonaccrual loans generally are applied first to principal
and then to interest after all principal has been collected. It is the policy of
the Company not to renegotiate the terms of a loan because of a delinquent
status. Rather, a loan is generally transferred to nonaccrual status if it is
not in the process of collection and is delinquent in payment of either
principal or interest beyond 90 days. Loans which are 90 days delinquent but are
well secured and in the process of collection are not included in nonperforming
assets. Other nonperforming assets consist of real estate acquired through loan
foreclosures or other workout situations and other assets acquired through
repossessions.

The classification of a loan as nonaccrual does not necessarily indicate that
the principal is uncollectible, in whole or in part. UnionBank makes a
determination as to collectibility on a case-by-case basis. UnionBank considers

                                      33.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

both the adequacy of the collateral and the other resources of the borrower in
determining the steps to be taken to collect nonaccrual loans. The final
determination as to the steps taken is made based upon the specific facts of
each situation. Alternatives that are typically considered to collect nonaccrual
loans are foreclosure, collection under guarantees, loan restructuring, or
judicial collection actions.

Each of the Company's loans is assigned a rating based upon an internally
developed grading system. A separate credit administration department also
reviews grade assignments on an ongoing basis. Management continuously monitors
nonperforming, impaired, and past due loans to prevent further deterioration of
these loans. The Company has an independent loan review function which is
separate from the lending function and is responsible for the review of new and
existing loans.

The following table sets forth a summary of nonperforming assets:

                              NONPERFORMING ASSETS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                 December 31,
                                       ------------------------------------------------------------------
                                          2005          2004          2003          2002          2001
                                       ----------    ----------    ----------    ----------    ----------
<S>                                    <C>           <C>           <C>           <C>           <C>
Nonaccrual loans                       $    3,082    $    3,649    $    8,149    $    3,931    $    7,259
Loans 90 days past due and still
  accruing interest                           922           553           328           829         1,616
                                       ----------    ----------    ----------    ----------    ----------
   Total nonperforming loans                4,004         4,202         8,477         4,760         8,875
Other real estate owned                       203           420           227         1,557         1,886
                                       ----------    ----------    ----------    ----------    ----------

   Total nonperforming assets          $    4,207    $    4,622    $    8,704    $    6,317    $   10,761
                                       ==========    ==========    ==========    ==========    ==========

Nonperforming loans to total loans           0.96%         1.00%         1.78%         0.99%         1.76%
Nonperforming assets to total loans          1.01          1.10          1.83          1.31          2.13
Nonperforming assets to total assets         0.62          0.69          1.10          0.80          1.44
</TABLE>

The level of nonperforming loans at December 31, 2005 decreased to $4,004 versus
the $4,202 that existed as of December 31, 2004. The level of nonperforming
loans to total end of period loans was 0.96% at December 31, 2005, as compared
to 1.00% at December 31, 2004. The reserve coverage ratio (allowance to
nonperforming loans) was reported at 208.84% as of December 31, 2005 as compared
to 231.6% as of December 31, 2004.

Subsequent to December 31, 2005, a loan relationship that was classified as
impaired as of year end paid off. The loan relationship had an outstanding
balance of $4,400 and the Company's allowance for loan loss calculation had a
specific reserve allocation of $1,500 on this relationship as of year end.

        Other Potential Problem Loans. The Company has other potential problem
loans that are currently performing and do not meet the criteria for impairment,
but where some concern exists. Excluding nonperforming loans and loans that
management has classified as impaired, these other potential problem loans
totaled $2,879 at December 31, 2005 as compared to $4,570 at December 31, 2004.
The classification of these loans, however, does not imply that management
expects losses on each of these loans. Rather, management believes that a higher
level of scrutiny and close monitoring is prudent under the circumstances. Such
classifications relate to specific concerns for each individual borrower and do
not relate to any concentration risk common to all loans in this group.

The following table sets forth a summary of other real estate owned and other
collateral acquired at December 31, 2005:

                                      34.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

                             OTHER REAL ESTATE OWNED
                             (Dollars in Thousands)

                                                          Number       Net Book
                                                            of         Carrying
                                                          Parcels       Value
                                                         ----------   ----------
Developed property                                                1   $       47
Vacant land or unsold lots                                        2          156
                                                         ----------   ----------
    Total other real estate owned                                 3   $      203
                                                         ==========   ==========

        Allowance for Loan Losses. At December 31, 2005, the allowance for loan
losses was $8,362 or 2.00% of total loans as compared to $9,732 or 2.32% at
December 31, 2004. In originating loans, the Company recognizes that credit
losses will be experienced and the risk of loss will vary with, among other
things: general economic conditions; the type of loan being made; the
creditworthiness of the borrower over the term of the loan; and, in the case of
a collateralized loan, the quality of the collateral for such a loan. The
allowance for loan losses represents the Company's estimate of the allowance
necessary to provide for probable incurred losses in the loan portfolio. In
making this determination, the Company analyzes the ultimate collectibility of
the loans in its portfolio, feedback provided by internal loan staff, the
independent loan review function, and information provided by examinations
performed by regulatory agencies. The Company makes an ongoing evaluation as to
the adequacy of the allowance for loan losses.

On a quarterly basis, management reviews the adequacy of the allowance for loan
losses. Commercial credits are graded by the loan officers and the loan review
function validates the officers' grades. In the event that the loan review
function downgrades the loan, it is included in the allowance analysis at the
lower grade. The grading system is in compliance with the regulatory
classifications and the allowance is allocated to the loans based on the
regulatory grading, except in instances where there are known differences (i.e.,
collateral value is nominal, etc.). To establish the appropriate level of the
allowance, a sample of loans (including impaired and nonperforming loans) are
reviewed and classified as to potential loss exposure.

Based on an estimation computed pursuant to the requirements of Financial
Accounting Standards Board ("FASB") Statement No. 5, "Accounting for
Contingencies," and FASB Statements Nos. 114 and 118, "Accounting by Creditors
for Impairment of a Loan," the analysis of the allowance for loan losses
consists of three components: (i) specific credit allocation established for
expected losses resulting from analysis developed through specific credit
allocations on individual loans for which the recorded investment in the loan
exceeds its fair value; (ii) general portfolio allocation based on historical
loan loss experience for each loan category; and (iii) subjective reserves based
on general economic conditions as well as specific economic factors in the
markets in which the Company operates.

The specific credit allocation component of the allowance for loan losses is
based on a regular analysis of loans over a fixed-dollar amount where the
internal credit rating is at or below a predetermined classification. The fair
value of the loan is determined based on either the present value of expected
future cash flows discounted at the loan's effective interest rate, the market
price of the loan, or, if the loan is collateral dependent, the fair value of
the underlying collateral less cost of sale.

The general portfolio allocation component of the allowance for loan losses is
determined statistically using a loss analysis that examines historical loan
loss experience. The loss analysis is performed quarterly and loss factors are
updated regularly based on actual experience. The general portfolio allocation
element of the allowance for loan losses also includes consideration of the
amounts necessary for concentrations and changes in portfolio mix and volume.

                                      35.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

The allowance for loan losses is based on estimates, and ultimate losses will
vary from current estimates. These estimates are reviewed quarterly, and as
adjustments, either positive or negative, become necessary, a corresponding
increase or decrease is made in the provision for loan losses. The composition
of the loan portfolio has not significantly changed since year-end 2003. The
methodology used to determine the adequacy of the allowance for loan losses is
consistent with prior years, and there were no reallocations.

Management remains watchful of credit quality issues. Should the economic
climate deteriorate from current levels, borrowers may experience difficulty,
and the level of nonperforming loans, charge-offs and delinquencies could rise
and require further increases in the provision.

The following table presents a detailed analysis of the Company's allowance for
loan losses:

                            ALLOWANCE FOR LOAN LOSSES
                             (Dollars in Thousands)
<TABLE>
<CAPTION>

                                                                  December 31,
                                      ------------------------------------------------------------------
                                         2005          2004          2003          2002          2001
                                      ----------    ----------    ----------    ----------    ----------
<S>                                   <C>           <C>           <C>           <C>           <C>
Beginning balance                     $    9,732    $    9,011    $    6,450    $    6,295    $    6,414

Charge-offs:
   Commercial                                342         1,497         4,791         2,561         3,202
   Real estate mortgages                   1,611           389           626           683           977
   Installment and other loans               367           578           812           634           496
                                      ----------    ----------    ----------    ----------    ----------
      Total charge-offs                    2,320         2,464         6,229         3,878         4,675
                                      ----------    ----------    ----------    ----------    ----------

Recoveries:
   Commercial                                394         1,021           415           354           312
   Real estate mortgages                     208           230            46            41            10
   Installment and other loans                98           184            93            64            73
                                      ----------    ----------    ----------    ----------    ----------
      Total recoveries                       700         1,435           554           459           395
                                      ----------    ----------    ----------    ----------    ----------

Net charge-offs                            1,620         1,029         5,675         3,419         4,280
                                      ----------    ----------    ----------    ----------    ----------
Provision for loan losses                    250         1,924         8,236         3,574         4,161
Reduction due to sale of loans                --           174            --            --            --

Ending balance                        $    8,362    $    9,732    $    9,011    $    6,450    $    6,295
                                      ==========    ==========    ==========    ==========    ==========

Period end total loans                $  417,525    $  419,275    $  476,812    $  483,229    $  504,968
                                      ==========    ==========    ==========    ==========    ==========

Average loans                         $  411,783    $  447,605    $  482,343    $  490,360    $  504,648
                                      ==========    ==========    ==========    ==========    ==========

Ratio of net charge-offs to
  average loans                             0.39%         0.23%         1.18%         0.70%         0.85%
Ratio of provision for loan losses
  to average loans                          0.06          0.43          1.71          0.73          0.82
Ratio of allowance for loan losses
  to ending total loans                     2.00          2.32          1.89          1.33          1.25
Ratio of allowance for loan losses
  to total nonperforming loans            208.84        231.60        106.30        135.50         70.93
Ratio of allowance at end of period
  to average loans                          2.03          2.17          1.87          1.32          1.25
</TABLE>

                                      36.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

The following table sets forth an allocation of the allowance for loan losses
among the various loan categories:

                   ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                    December 31,
                   ---------------------------------------------------------------------------------------------------------------
                          2005                   2004                   2003                   2002                   2001
                   -------------------    -------------------    -------------------    -------------------    -------------------
                                Loan                   Loan                   Loan                   Loan                   Loan
                              Category               Category               Category               Category               Category
                              to Gross               to Gross               to Gross               to Gross               To Gross
                    Amount      Loans      Amount      Loans      Amount      Loans      Amount      Loans      Amount      Loans
                   --------   --------    --------   --------    --------   --------    --------   --------    --------   --------
<S>                <C>          <C>       <C>          <C>       <C>          <C>       <C>          <C>       <C>          <C>
Commercial         $  7,386      28.32%   $  6,035      28.78%   $  4,935      29.26%   $  2,863      28.28%   $  3,499      29.30%
Real estate             773      68.49       3,311      65.98       2,846      62.27       2,110      60.80       1,786      60.11
Installment and
  other loans           203       3.19         386       5.24         593       8.47         719      10.92         537      10.59
Unallocated              --         --          --         --         637         --         758         --         473         --
                   --------   --------    --------   --------    --------   --------    --------   --------    --------   --------

  Total            $  8,362     100.00%   $  9,732     100.00%   $  9,011     100.00%   $  6,450     100.00%   $  6,295     100.00%
                   ========   ========    ========   ========    ========   ========    ========   ========    ========   ========
</TABLE>


In years prior to 2004, management considered the unallocated portion of the
allowance necessary to allow for inherent subjective reserves that are needed
based on general economic conditions and specific economic factors. Since 2004,
management has included the subjective portion of the allowance as a part of the
allocation process to the respective loan categories. Management does not deem
this process to be a change in methodology, but rather a refinement in their
loan loss calculation. Management believes that there would be no change in the
balance of the allowance for loan losses if this approach was used in all of the
years presented.

        Securities Activities. The Company's consolidated securities portfolio,
which represented 31.4% of the Company's average earning asset base as of
December 31, 2005, as compared to 32.7% as of December 31, 2004, is managed to
minimize interest rate risk, maintain sufficient liquidity, and maximize return.
The portfolio includes several callable agency debentures, adjustable rate
mortgage pass-throughs, and collateralized mortgage obligations. Corporate bonds
consist of investment grade obligations of public corporations. Equity
securities consist of Federal Reserve stock, Federal Home Loan Bank stock, and
trust preferred stock. The Company's financial planning anticipates income
streams generated by the securities portfolio based on normal maturity and
reinvestment. Securities classified as available-for-sale, carried at fair
value, were $196,440 at December 31, 2005 compared to $191,661 at December 31,
2004. The Company does not have any securities classified as trading or
held-to-maturity.

                                      37.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

The following table describes the composition of securities by major category
and maturity:

                              SECURITIES PORTFOLIO
                             (Dollars in Thousands)
<TABLE>
<CAPTION>

                                                                   December 31,
                                 -----------------------------------------------------------------------------------
                                           2005                         2004                         2003
                                 -------------------------    -------------------------    -------------------------
                                                  % of                         % of                         % of
                                   Amount       Portfolio       Amount       Portfolio       Amount       Portfolio
                                 -----------   -----------    -----------   -----------    -----------   -----------
<S>                              <C>                <C>       <C>                <C>       <C>                <C>
Available-for-Sale
  U.S. government agencies
    and corporations                  30,857         15.71         20,924         10.92         30,270         12.00
  U.S. government agency
    mortgage backed securities       101,022         51.42        117,500         61.30        158,305         62.76
  States and political
    subdivisions                      18,400          9.37         24,647         12.86         29,723         11.78
  Collateralized mortgage
    obligations                       20,938         10.66          2,486          1.30          5,972          2.37
  Corporate bonds                      6,907          3.52          8,239          4.30         10,598          4.20
  Other securities                    18,316          9.32         17,865          9.32         17,380          6.89
                                 -----------   -----------    -----------   -----------    -----------   -----------

     Total                       $   196,440        100.00%   $   191,661        100.00%   $   252,248        100.00%
                                 ===========   ===========    ===========   ===========    ===========   ===========
</TABLE>

The following table sets forth the contractual, callable or estimated maturities
and yields of the debt securities portfolio as of December 31, 2005. Mortgage
backed and collateralized mortgage obligation securities are included at
estimated maturity.

                                MATURITY SCHEDULE
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                                   Maturing
                         ----------------------------------------------------------------------------------------------------
                                                     After 1 but           After 5 but
                            Within 1 Year          Within 5 Years         Within 10 Years        After 10 Years       Total
                         -------------------    --------------------   --------------------   --------------------   --------
                          Amount      Yield      Amount      Yield      Amount      Yield      Amount      Yield      Amount
                         --------   --------    --------    --------   --------    --------   --------    --------   --------
<S>                      <C>           <C>      <C>           <C>      <C>           <C>      <C>           <C>      <C>
Available-for-Sale
U.S. government
  agencies and
  corporations           $  3,737      4.114%   $ 24,247      4.090%   $  2,873      4.900%   $     --         --%   $ 30,857
U.S. government
  agency mortgage
  backed securities           221      7.952         911      5.939       6,253      5.276      93,637      4.138     101,022
States and political
  subdivisions (1)          2,722      6.527       9,088      6.694       5,163      7.309       1,427      7.586      18,400
Collateralized
  mortgage obligations         --         --         173      4.116          --         --      20,765      5.517      20,938
Corporate bonds                --         --       6,907      5.653          --         --          --                  6,907
                         --------               --------               --------               --------               --------

   Total                 $  6,680               $ 41,326               $ 14,289               $115,829               $178,124
                         ========               ========               ========               ========               ========
</TABLE>

------------------
(1) Rates on obligations of states and political subdivisions have been adjusted
to tax equivalent yields using a 34% income tax rate

        Deposit Activities. Deposits are attracted through the offering of a
broad variety of deposit instruments, including checking accounts, money market
accounts, regular savings accounts, term certificate accounts (including "jumbo"
certificates in denominations of $100,000 or more), and retirement savings
plans. The Company's average balance of total deposits was $520,027 for 2005,
representing a decrease of $56,082 or 9.7% compared with the average balance of
total deposits for 2004.

                                      38.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

The following table sets forth certain information regarding UnionBank's average
deposits:

                                AVERAGE DEPOSITS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                                            For the Years Ended December 31,
                       ------------------------------------------------------------------------------------------------------------
                                     2005                                 2004                                2003
                       ----------------------------------   ----------------------------------   ----------------------------------
                                        %        Average                     %        Average                    %         Average
                         Average       of         Rate        Average       of         Rate        Average      of          Rate
                         Amount      Total        Paid        Amount       Total       Paid        Amount      Total        Paid
                       ----------  ----------   ---------   ----------  ----------   ---------   ----------  ----------   ---------
<S>                    <C>              <C>          <C>    <C>              <C>          <C>    <C>              <C>          <C>
Non-interest-bearing
  demand deposits      $   61,040       11.74%         --%  $   71,912       12.48%         --%  $   74,855       12.06%         --%
Savings accounts           42,122        8.10        0.50       47,337        8.22        0.56       49,334        7.95        0.76
Interest-bearing
  demand deposits         131,882       25.36        1.51      151,961       26.38        0.98      163,617       26.37        1.12
Time, less than
  $100,000                136,745       26.30        3.06      156,198       27.11        2.76      174,921       28.19        3.17
Time, $100,000
  or more                 148,238       28.50        3.05      148,701       25.81        2.57      157,824       25.43        2.98
                       ----------  ----------   ---------   ----------  ----------   ---------   ----------  ----------   ---------

   Total deposits      $  520,027      100.00%       2.10%  $  576,109      100.00%       1.72%  $  620,551      100.00%       2.01%
                       ==========  ==========   =========   ==========  ==========   =========   ==========  ==========   =========
</TABLE>

As of December 31, 2005, average time deposits over $100,000 represented 28.5%
of total average deposits, compared with 25.8% of total average deposits as of
December 31, 2004. The Company's large denomination time deposits are generally
from customers within the local market areas of its subsidiary bank and provide
a greater degree of stability than is typically associated with brokered deposit
customers with limited business relationships.

The following table sets forth the remaining maturities for time deposits of
$100,000 or more at December 31, 2005:

                        TIME DEPOSITS OF $100,000 OR MORE
                             (Dollars in Thousands)

Maturity Range

    Three months or less                                              $   60,256
    Over three months through six months                                  30,823
    Over six months through twelve months                                 36,871
    Over twelve months                                                    34,378
                                                                      ----------

        Total                                                         $  162,328
                                                                      ==========

        Return on Equity and Assets. The following table presents various ratios
for the Company:

                           RETURN ON EQUITY AND ASSETS

                                                       For the Years Ended
                                                           December 31,
                                                   ----------------------------
                                                   2005        2004        2003
                                                   ----        ----        ----

Return on average assets                           0.63%       0.65%       0.28%
Return on average equity                           6.06        7.06        3.16
Average equity to average assets                  10.39        9.27        8.87
Dividend payout ratio for common stock            43.39       36.42       74.39

                                      39.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

    Liquidity

The Company manages its liquidity position with the objective of maintaining
sufficient funds to respond to the needs of depositors and borrowers and to take
advantage of earnings enhancement opportunities. In addition to the normal
inflow of funds from core-deposit growth together with repayments and maturities
of loans and investments, the Company utilizes other short-term funding sources
such as brokered time deposits, securities sold under agreements to repurchase,
overnight federal funds purchased from correspondent banks and the acceptance of
short-term deposits from public entities, and Federal Home Loan Bank advances.

The Company monitors and manages its liquidity position on several bases, which
vary depending upon the time period. As the time period is expanded, other data
is factored in, including estimated loan funding requirements, estimated loan
payoffs, investment portfolio maturities or calls, and anticipated depository
buildups or runoffs.

The Company classifies all of its securities as available-for-sale, thereby
maintaining significant liquidity. The Company's liquidity position is further
enhanced by structuring its loan portfolio interest payments as monthly and by
the significant representation of retail credit and residential mortgage loans
in the Company's loan portfolio, resulting in a steady stream of loan
repayments. In managing its investment portfolio, the Company provides for
staggered maturities so that cash flows are provided as such investments mature.

The Company's cash flows are comprised of three classifications: cash flows from
operating activities, cash flows from investing activities, and cash flows from
financing activities. Cash flows used in investing activities offset by those
provided by operating activities and financing activities, resulted in a net
increase in cash and cash equivalents of $1,556 from December 31, 2004 to
December 31, 2005.

During 2005, the Company experienced net cash inflows of $3,104 in financing
activities primarily due to an increase in deposits and $8,735 from operating
activities due to proceeds from net loans sales and net income. In contrast, net
cash outflows of $10,283 were used in investing activities due to purchases of
securities.

UnionBank's securities portfolio, federal funds sold, and cash and due from bank
deposit balances serve as the primary sources of liquidity for the Company. At
December 31, 2005, 33.4% of UnionBank's interest-bearing liabilities were in the
form of time deposits of $100,000 and over. Management believes these deposits
to be a stable source of funds. However, if a large number of these time
deposits matured at approximately the same time and were not renewed,
UnionBank's liquidity could be adversely affected. Currently, the maturities of
UnionBank's large time deposits are spread throughout the year, with 37.1%
maturing in the first quarter of 2006, 19.0% maturing in the second quarter of
2006, 22.7% maturing in the third and fourth quarters of 2006, and the remaining
21.2% maturing thereafter. UnionBank monitors those maturities in an effort to
minimize any adverse effect on liquidity.

The Company's borrowings included notes payable at December 31, 2005 in the
principal amount of $9,200 payable to the Company's principal correspondent bank
and $268 payable to individuals related to the purchase of the Howard Marshall
Agency. The note to the Company's principal correspondent bank is renewable
annually, requires quarterly interest payments, and is collateralized by the
Company's stock in the Bank. The note related to the purchase of the Howard
Marshall Agency requires monthly principal and interest payments.

The Company's principal source of funds for repayment of the indebtedness is
dividends from UnionBank. At December 31, 2005, approximately $2,500 was
available for dividends without regulatory approval.

                                      40.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Contractual Obligations, Commitments, Contingencies, and Off-Balance Sheet
Financial Instruments

The Company has entered into contractual obligations and commitments and
off-balance sheet financial instruments. The following tables summarize the
Company's contractual cash obligations and other commitments and off-balance
sheet instruments as of December 31, 2005:

<TABLE>
<CAPTION>
                                                                Payments Due by Period
                                           --------------------------------------------------------------
                                            Within 1                                After
Contractural Obligations                      Year      1-3 Years     4-5 Years    5 Years        Total
                                           ----------   ----------   ----------   ----------   ----------
<S>                                        <C>          <C>          <C>          <C>          <C>
Short-term debt                            $    9,200   $       --   $       --   $       --   $    9,200
Long-term debt                                     --          268           --           --          268
Certificates of deposit                       227,895       65,303       15,057        2,750      311,005
Operating leases                                  107          214          172           13          506
Severance payments                                253           --           --           --          253
Series B Mandatory redeemable
    preferred stock                                --          831           --           --          831
FHLB Advances                                   8,300       23,500       10,200        8,000       50,000
                                           ----------   ----------   ----------   ----------   ----------

   Total contractual cash obligations      $  245,755   $   90,116   $   25,429   $   10,763   $  372,063
                                           ==========   ==========   ==========   ==========   ==========


                                                      Amount of Commitment Expiration per Period
                                           --------------------------------------------------------------
                                            Within 1                                After
Off-Balance Sheet Financial Instruments       Year      1-3 Years     4-5 Years    5 Years        Total
                                           ----------   ----------   ----------   ----------   ----------
Lines of credit                            $   58,741   $    2,451   $    1,670   $   16,582   $   79,444
Standby letters of credit                       7,444          622           --           --        8,066
                                           ----------   ----------   ----------   ----------   ----------

   Total commercial commitments            $   66,185   $    3,073   $    1,670   $   16,582   $   87,510
                                           ==========   ==========   ==========   ==========   ==========
</TABLE>

Capital Resources

    Stockholders' Equity

The Company is committed to managing capital for maximum shareholder benefit and
maintaining strong protection for depositors and creditors. Stockholders' equity
at December 31, 2005 was $66,075, a decrease of $4,172 or 5.9%, from December
31, 2004. The stockholders' equity decrease was largely the result of the
purchase of $5,739 in treasury stock and dividends paid to shareholders offset
partially by 2005 net income. Average equity as a percentage of average assets
was 10.39% at December 31, 2005, compared to 9.27% at December 31, 2004. Book
value per common share equaled $17.23 at December 31, 2005, a decrease from
$17.30 reported at the end of 2004.

    Stock Repurchase Programs

On May 2, 2003, the Board of Directors approved a stock repurchase plan whereby
the Company may repurchase from time to time up to 5% of its outstanding shares
of common stock in the open market or in private transactions over an 18 month
period. On September 23, 2004, the Board of Directors extended the Company's
stock repurchase program through May 2, 2006. On July 5, 2005, the Company
announced the approval of a new program to commence at the conclusion of the
previously authorized repurchase program. Under the terms of the plan, the
Company is able to repurchase, from time to time, up to 5% of its outstanding
shares of common stock in the open market or in private transactions. Purchases
are dependent upon market conditions and the availability of shares. The
extension of the repurchase program enables the Company to optimize its use of
capital relative to other investment alternatives and benefits both the Company
and the shareholders by enhancing earnings per share and return on equity. As of
December 31, 2005, the Company has repurchased 268,754 shares at a weighted
average cost of $21.35.

                                      41.
<PAGE>

UNIONBANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

    Capital Measurements

UnionBank is expected to meet a minimum risk-based capital to risk-weighted
assets ratio of 8%, of which at least one-half (or 4%) must be in the form of
Tier 1 (core) capital. The remaining one-half (or 4%) may be in the form of Tier
1 (core) or Tier 2 (supplementary) capital. The amount of loan loss allowance
that may be included in capital is limited to 1.25% of risk-weighted assets. The
ratio of Tier 1 (core) and the combined amount of Tier 1 (core) and Tier 2
(supplementary) capital to risk-weighted assets for the Company was 12.1% and
13.3%, respectively, at December 31, 2005. The Company is currently, and expects
to continue to be, in compliance with these guidelines.

As of December 31, 2005, the Tier 2 risk-based capital was comprised of $6,266
in allowance for loan losses (limited to 1.25% of risk-weighted assets). The
Series A Preferred Stock is convertible into common stock, subject to certain
adjustments intended to offset the amount of losses incurred by the Company upon
the post-closing sale of certain securities acquired in conjunction with the
1996 acquisition of Prairie.

The following table sets forth an analysis of the Company's capital ratios:

                            RISK-BASED CAPITAL RATIOS
                             (Dollars in Thousands)

<TABLE>
<CAPTION>
                                            December 31,                   Minimum       Well
                                --------------------------------------     Capital    Capitalized
                                   2005          2004          2003        Ratios       Ratios
                                ----------    ----------    ----------   ----------   -----------
<S>                             <C>           <C>           <C>                  <C>          <C>
Tier 1 risk-based capital       $   60,546    $   63,347    $   59,851
Tier 2 risk-based capital            6,266         6,067         7,790
                                ----------    ----------    ----------
Total capital                       66,812        69,414        67,641
Risk-weighted assets               501,342       485,325       556,729
Capital ratios
    Tier 1 risk-based capital         12.1%         13.0%         10.8%          4.0%          6.0%
    Tier 2 risk-based capital         13.3          14.3          12.2           8.0          10.0
    Leverage ratio                     9.0           9.5           7.7           4.0           5.0
</TABLE>

Impact of Inflation, Changing Prices, and Monetary Policies

The financial statements and related financial data concerning the Company have
been prepared in accordance with accounting principles generally accepted in the
United States of America which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation. The primary
effect of inflation on the operations of the Company is reflected in increased
operating costs. Unlike most industrial companies, virtually all of the assets
and liabilities of a financial institution are monetary in nature. As a result,
changes in interest rates have a more significant effect on the performance of a
financial institution than do the effects of changes in the general rate of
inflation and changes in prices. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services.
Interest rates are highly sensitive to many factors which are beyond the control
of the Company, including the influence of domestic and foreign economic
conditions and the monetary and fiscal policies of the United States government
and federal agencies, particularly the FRB.

                                      42.
<PAGE>

Item 7A.      Quantitative and Qualitative Disclosures About Market Risk

The discussion under the caption "Interest Rate Sensitivity Management"
contained in Item 7 of this Form 10-K is incorporated herein by this reference.

Item 8.       Financial Statements and Supplementary Data

                          Index to Financial Statements

Report of Independent Registered Public Accounting Firm.......................44

Consolidated Balance Sheets (December 31, 2005 and 2004) .....................45

Consolidated Statements of Income
        (For the years ended December 31, 2005, 2004 and 2003)................46

Consolidated Statements of Stockholders' Equity
        (For the years ended December 31, 2005, 2004 and 2003)................47

Consolidated Statements of Cash Flows
        (For the years ended December 31, 2005, 2004 and 2003)................49

Notes  .......................................................................51

                               Supplementary Data

The Supplementary Financial Information required to be included in this Item 8
is hereby incorporated by reference by Note 20 to the Notes to Consolidated
Financial Statements contained herein.

                                      43.
<PAGE>

[GRAPHIC OMITTED] Crowe(TM)

        Crowe Chizek and Company LLC
        Member Horwath International


             Report of Independent Registered Public Accounting Firm




UnionBancorp, Inc.
Ottawa, Illinois


We have audited the accompanying balance sheets of UnionBancorp, Inc. as of
December 31, 2005 and 2004, and the related statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2005. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UnionBancorp, Inc. at December
31, 2005 and 2004, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 2005, in conformity with
U.S. generally accepted accounting principles.


                                            /s/ Crowe Chizek and Company LLC

                                            Crowe Chizek and Company LLC
Oak Brook, Illinois
February 18, 2006

                                      44.
<PAGE>

UNIONBANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2005 and 2004 (In Thousands, Except Share and Per Share Data)

<TABLE>
<CAPTION>
                                                                      2005          2004
-------------------------------------------------------------------------------------------
<S>                                                                <C>           <C>
ASSETS
Cash and cash equivalents                                          $   24,358    $   22,802
Securities available-for-sale                                         196,440       191,661
Loans                                                                 417,525       419,275
Allowance for loan losses                                              (8,362)       (9,732)
                                                                   ----------    ----------
    Net loans                                                         409,163       409,543
Cash value of life insurance                                           15,498        14,953
Mortgage servicing rights                                               2,533         2,772
Premises and equipment, net                                            13,908        13,463
Goodwill                                                                6,963         6,963
Intangible assets, net                                                    533           703
Other real estate                                                         203           420
Other assets                                                            6,623         6,266
                                                                   ----------    ----------

    Total assets                                                   $  676,222    $  669,546
                                                                   ==========    ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
    Deposits
        Non-interest-bearing                                       $   57,832    $   55,800
        Interest-bearing                                              486,009       456,677
                                                                   ----------    ----------
           Total deposits                                             543,841       512,477
    Federal funds purchased and securities sold under
      agreements to repurchase                                            612        12,722
    Federal Home Loan Bank advances                                    50,000        61,900
    Notes payable                                                       9,468         6,629
    Series B mandatory redeemable preferred stock                         831           831
    Other liabilities                                                   5,395         4,740
                                                                   ----------    ----------
        Total liabilities                                             610,147       599,299


Stockholders' equity
    Preferred stock
    Series A Convertible Preferred Stock (aggregate liquidation
      preference of 2,762)                                                500           500
    Series C Preferred Stock                                               --            --
    Common stock, $1 par value, 10,000,000 shares authorized;
     4,684,393 and 4,640,907 shares issued in 2005 and 2004             4,684         4,641
    Surplus                                                            23,167        22,632
    Retained earnings                                                  48,837        46,592
    Accumulated other comprehensive income                                 95         1,351
                                                                   ----------    ----------
                                                                       77,283        75,716
    Treasury stock, at cost, 877,517 shares at December 31, 2005
      and 608,763 shares at December 31, 2004                         (11,208)       (5,469)
                                                                   ----------    ----------
        Total stockholders' equity                                     66,075        70,247
                                                                   ----------    ----------

           Total liabilities and stockholders' equity              $  676,222    $  669,546
                                                                   ==========    ==========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

                                      45.
<PAGE>

UNIONBANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2005, 2004, and 2003 (In Thousands, Except Per Share
Data)

<TABLE>
<CAPTION>
                                                          2005         2004         2003
-------------------------------------------------------------------------------------------
<S>                                                   <C>           <C>          <C>
Interest income
   Loans                                              $   27,251    $   27,718   $   32,693
   Securities
      Taxable                                              6,331         5,925        6,805
      Exempt from federal income taxes                       993         1,221        1,533
   Federal funds sold and other                              122            48           55
                                                      ----------    ----------   ----------
      Total interest income                               34,697        34,912       41,086

Interest expense
   Deposits                                               10,910         9,909       12,453
   Federal funds purchased and securities sold
     under agreements to repurchase                          197            98          122
   Advances from the Federal Home Loan Bank                2,128         2,887        2,997
   Series B Mandatory Redeemable preferred stock              50            50           64
   Notes payable and other                                   427           306          325
                                                      ----------    ----------   ----------
      Total interest expense                              13,712        13,250       15,961
                                                      ----------    ----------   ----------
Net interest income                                       20,985        21,662       25,125
Provision for loan losses                                    250         1,924        8,236
                                                      ----------    ----------   ----------
Net interest income after provision for loan losses       20,735        19,738       16,889

Noninterest income
   Service charges                                         1,996         2,866        3,090
   Merchant fee income                                        --            56          560
   Trust income                                              811           740          701
   Mortgage banking income                                 1,350         2,020        3,947
   Insurance and brokerage commissions and fees            1,818         2,234        2,318
   Bank Owned Life Insurance (BOLI)                          545           573          681
   Securities (losses) gains, net                            (79)          123          281
   Gain on sale of other assets                                4         4,263           --
   Other income                                            1,157         1,227        2,141
                                                      ----------    ----------   ----------
                                                           7,602        14,102       13,719
Noninterest expenses
   Salaries and employee benefits                         13,789        15,410       16,020
   Occupancy, net                                          1,571         2,461        2,138
   Furniture and equipment                                 1,935         2,215        2,094
   Marketing                                                 496           615          709
   Supplies and printing                                     359           435          541
   Telephone                                                 430           546          874
   Other real estate owned                                    59             8          178
   Amortization of intangible assets                         170           337          247
   Other                                                   4,156         4,954        5,806
                                                      ----------    ----------   ----------
                                                          22,965        26,981       28,607
                                                      ----------    ----------   ----------

Income before income taxes                                 5,372         6,859        2,001

Income taxes                                               1,199         2,056         (129)
                                                      ----------    ----------   ----------

Net income                                            $    4,173    $    4,803   $    2,130
Preferred stock dividends                                    207           207          193
                                                      ----------    ----------   ----------

Net income for common stockholders                    $    3,966    $    4,596   $    1,937
                                                      ==========    ==========   ==========
Basic earnings per common share                       $     1.01    $     1.14   $     0.48
                                                      ==========    ==========   ==========
Diluted earnings per common share                     $     0.99    $     1.12   $     0.48
                                                      ==========    ==========   ==========
Dividends per common share                            $     0.44    $     0.40   $     0.36
                                                      ==========    ==========   ==========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

                                      46.
<PAGE>

UNIONBANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2005, 2004, and 2003 (In Thousands, Except Share Data)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------

                                                                                              Unearned
                              Series A                                         Accumulated  Compensation
                             Convertible                                          Other        Under
                              Preferred    Common                   Retained  Comprehensive    Stock      Treasury
                                Stock       Stock      Surplus      Earnings      Income    Option Plans    Stock         Total
                              ----------  ----------  ----------   ----------   ----------   ----------   ----------   ----------
<S>                           <C>         <C>         <C>          <C>          <C>          <C>          <C>          <C>
Balance,
  January 1, 2003             $      500  $    4,571  $   21,856   $   43,113   $    3,171   $      (23)  $   (5,124)  $   68,064

  Common stock dividends              --          --          --       (1,441)          --           --           --       (1,441)
  Preferred stock dividends           --          --          --         (193)          --           --           --         (193)
  Exercise of stock options
    (56,404 shares)                   --          57         628           --           --           --           --          685
  Amortization of un-
    earned compensation
    under stock option plans          --          --          --           --           --           21           --           21
Purchase of 10,500 shares
    of treasury stock                 --          --          --           --           --           --         (189)        (189)
Comprehensive income
  Net income                          --          --          --        2,130           --           --           --        2,130
  Net decrease in fair
    value of securities
    classified as available-
    for-sale, net of income
    taxes and reclassi-
    fication adjustments              --          --          --           --       (1,030)          --           --       (1,030)
                                                                                                                       ----------
    Total comprehensive
      income                                                                                                                1,100
                              ----------  ----------  ----------   ----------   ----------   ----------   ----------   ----------

Balance,
  December 31, 2003                  500       4,628      22,484       43,609        2,141           (2)      (5,313)      68,047

  Common stock dividends              --          --          --       (1,613)          --           --           --       (1,613)
  Preferred stock dividends           --          --          --         (207)          --           --           --         (207)
  Exercise of stock options
    (13,294 shares)                   --          13         148           --           --           --           --          161
  Amortization of un-
    earned compensation
    under stock option plans          --          --          --           --           --            2           --            2
Purchase of 8,000 shares
    of treasury stock                 --          --          --           --           --           --         (156)        (156)
Comprehensive income
  Net income                          --          --          --        4,803           --           --           --        4,803
  Net decrease in fair
    value of securities
    classified as available-
    for-sale, net of income
    taxes and reclassi-
    fication adjustments              --          --          --           --         (790)          --           --         (790)
                                                                                                                       ----------
    Total comprehensive
      income                                                                                                                4,013
                              ----------  ----------  ----------   ----------   ----------   ----------   ----------   ----------

Balance,
  December 31, 2004           $      500  $    4,641  $   22,632   $   46,592   $    1,351   $       --   $   (5,469)  $   70,247
                              ==========  ==========  ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

(Continued)

                                      47.
<PAGE>

UNIONBANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2005, 2004, and 2003 (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------

                                                                                              Unearned
                              Series A                                         Accumulated  Compensation
                             Convertible                                          Other        Under
                              Preferred    Common                   Retained  Comprehensive    Stock      Treasury
                                Stock       Stock      Surplus      Earnings      Income    Option Plans    Stock         Total
                              ----------  ----------  ----------   ----------   ----------   ----------   ----------   ----------
<S>                           <C>         <C>         <C>          <C>          <C>          <C>          <C>          <C>
Balance,
  December 31, 2004           $      500  $    4,641  $   22,632   $   46,592   $    1,351   $       --   $   (5,469)  $   70,247

  Common stock dividends              --          --          --       (1,721)          --           --           --       (1,721)
  Preferred stock dividends           --          --          --         (207)          --           --           --         (207)
  Exercise of stock options
    (43,486 shares)                   --          43         535           --           --           --           --          578
  Purchase of 268,754 shares
    of treasury stock                 --          --          --           --           --           --       (5,739)      (5,739)
Comprehensive income
  Net income                          --          --          --        4,173           --           --            --       4,173
  Net decrease in fair value-
    of securities classified as
    available-for-sale, net of
    income taxes and reclassi-
    fication adjustments              --          --          --           --       (1,256)          --            --      (1,256)
                                                                                                                       ----------
    Total comprehensive
      income                                                                                                                2,917
                              ----------  ----------  ----------   ----------   ----------   ----------   ----------   ----------

Balance,
  December 31, 2005           $      500  $    4,684  $   23,167   $   48,837   $       95   $       --   $  (11,208)  $   66,075
                              ==========  ==========  ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

                                      48.
<PAGE>

UNIONBANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005, 2004, and 2003 (In Thousands)

<TABLE>
<CAPTION>
                                                                2005          2004          2003
--------------------------------------------------------------------------------------------------
<S>                                                         <C>           <C>           <C>
Cash flows from operating activities
   Net income                                               $    4,173    $    4,803    $    2,130
   Adjustments to reconcile net income to net cash
     provided by operating activities
      Depreciation                                               1,839         2,455         1,685
      Amortization of intangible assets                            170           337           247
      Amortization of mortgage servicing rights                    535           722         1,732
      Amortization of unearned compensation under
        stock option plans                                          --             2            21
      Amortization of bond premiums, net                         1,114         1,739         1,719
      Federal Home Loan Bank stock dividend                       (191)         (350)         (325)
      Provision for loan losses                                    250         1,924         8,236
      Provision for deferred income taxes                          702           464          (616)
      Net change in BOLI                                          (545)         (574)         (530)
      Net change in OREO                                          (655)         (619)         (210)
      Securities losses/(gains), net                                79          (123)         (281)
      Gain on sale of assets, net                                   (4)       (4,263)           --
      Gain (loss) on sale of real estate acquired in
        settlement of loans                                        (42)          (44)          168
      Gain on sale of loans                                     (1,034)       (1,877)       (4,727)
      Proceeds from sale of loans held for sale                 51,838        86,828       205,272
      Origination of loans held for sale                       (50,378)      (83,273)     (196,907)
Change in assets and liabilities
         (Increase) decrease in other assets                      (679)        1,053        (3,038)
         Increase (decrease) in other liabilities                1,563           606          (730)
                                                            ----------    ----------    ----------
           Net cash provided by operating activities             8,735         9,810        13,846

Cash flows from investing activities
   Securities available for sale
      Proceeds from maturities and paydowns                     56,414       104,192        64,500
      Proceeds from sales                                       10,885        19,584        72,398
      Purchases                                                (74,972)      (66,070)     (164,690)
   Purchase of loans                                            (3,275)           --            --
   Net decrease (increase)  in loans                             2,730        11,745        (3,106)
   Purchase of premises and equipment                           (2,979)       (2,197)       (4,186)
   Purchase of bank-owned life insurance, net                       --            --            73
   Proceeds from sale of real estate acquired in
     settlement of loans                                           914           470         1,372
   Sale of branches                                                 --       (50,835)           --
   Acquisition of insurance agency, net of debt assumed             --            --          (150)
                                                            ----------    ----------    ----------
      Net cash provided by (used in) investing activities      (10,283)       16,889       (33,789)
</TABLE>

(Continued)

                                      49.
<PAGE>

UNIONBANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2005, 2004, and 2003 (In Thousands)
<TABLE>
<CAPTION>

                                                               2005          2004          2003
---------------------------------------------------------------------------------------------------
<S>                                                         <C>           <C>           <C>
Cash flows from financing activities
   Net increase (decrease) in deposits                      $   31,364    $  (24,419)   $   (3,926)
   Net increase (decrease) in federal funds purchased
     and securities sold under agreements to repurchase        (12,110)       11,189        (2,055)
   Net increase (decrease) in advances from the
     Federal Home Loan Bank                                    (11,900)      (10,550)       10,700
   Payments on notes payable                                    (2,586)       (1,000)         (550)
   Proceeds from notes payable                                   5,425           500           148
   Dividends on common stock                                    (1,721)       (1,613)       (1,441)
   Dividends on preferred stock                                   (207)         (207)         (193)
   Proceeds from exercise of stock options                         578           161           685
   Purchase of treasury stock                                   (5,739)         (156)         (189)
                                                            ----------    ----------    ----------
      Net cash provided by (used in) financing activities        3,104       (26,095)        3,179
                                                            ----------    ----------    ----------

Net increase (decrease) in cash and cash equivalents             1,556           604       (16,764)

Cash and cash equivalents
   Beginning of year                                            22,802        22,198        38,962
                                                            ----------    ----------    ----------

   End of year                                              $   24,358    $   22,802    $   22,198
                                                            ==========    ==========    ==========

Supplemental disclosures of cash flow information
   Cash payments for
      Interest                                              $   12,980    $   13,219    $   16,453
      Income taxes                                                 862           346         1,850
   Transfers from loans to other real estate owned                 675           619           210
</TABLE>

See Accompanying Notes to Consolidated Financial Statements.

                                      50.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 1.  Nature of Operations and Summary of Significant Accounting Policies

UnionBancorp, Inc. ("the Company") is a bank holding company organized under the
laws of the state of Delaware. The Company provides a full range of banking
services to individual and corporate customers located in the north central and
west central areas of Illinois. These services include demand, time, and savings
deposits; lending; mortgage banking; insurance products; brokerage services; and
trust services. The Company is subject to competition from other financial
institutions and nonfinancial institutions providing financial services.
Additionally, the Company and its subsidiary UnionBank are subject to
regulations of certain regulatory agencies and undergo periodic examinations by
those regulatory agencies.

Basis of presentation
---------------------

The consolidated financial statements include the accounts of the Company and
UnionBank. Intercompany balances and transactions have been eliminated in
consolidation.

The accompanying financial statements have been prepared in conformity with U.
S. generally accepted accounting principles and with general practice in the
banking industry. In preparing the financial statements, management makes
estimates and assumptions based on available information that affects the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of income and expenses during the reporting period, and actual results could
differ. The allowance for loan losses, value of mortgage servicing rights,
deferred taxes, and fair values of financial instruments are particularly
subject to change.

Assets held in an agency or fiduciary capacity, other than trust cash on deposit
with UnionBank, are not assets of the Company and, accordingly, are not included
in the accompanying consolidated financial statements.

Cash flows
----------

Cash and cash equivalents includes cash, deposits with other financial
institutions under 90 days, and federal funds sold. Loan disbursements and
collections, repurchase agreements, federal funds purchased, Federal Home Loan
Bank advances, Bank owned life insurance and transactions in deposit accounts
are reported, net.

Securities
----------

Securities classified as available-for-sale are those securities that the
Company intends to hold for an indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified as available-for-sale would
be based on various factors, including significant movements in interest rates,
changes in the maturity mix of the Company's assets and liabilities, liquidity
needs, regulatory capital considerations, and other similar factors. Securities
available-for-sale are carried at fair value with unrealized gains or losses,
net of the related deferred income tax effect, reported in other comprehensive
income. Securities such as Federal Home Loan Bank stock and Federal Reserve Bank
stock are carried at cost. Declines in the fair value of securities below their
cost that are other than temporary are reflected as realized losses. In
estimating other-than-temporary losses, management considers: (1) the length of
time and extent that fair value has been less than cost, (2) the financial
condition and near term prospects of the issuer, and (3)

(Continued)

                                      51.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)

the Company's ability and intent to hold the security for a period sufficient to
allow for any anticipated recovery in fair value.

Interest income is reported net of amortization of premiums and accretion of
discounts. Gains or losses from the sale of securities are determined using the
specific identification method. Securities are written down to fair value when a
decline in fair value is not temporary.

Loan commitments and related financial instruments
--------------------------------------------------

Financial instruments include off-balance-sheet credit instruments such as
commitments to make loans and commercial letters of credit, issued to meet
customer financing needs. The face amount for these items represents the
exposure to loss, before considering customer collateral or ability to repay.
Such financial instruments are recorded when they are funded.

Loans
-----

Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or payoff are reported at the principal balance
outstanding, net of unearned interest, deferred loan fees and costs, and an
allowance for loan losses. Interest income is accrued on the unpaid principal
balance.

Interest income on mortgage and commercial loans is discontinued at the time the
loan is 90 days delinquent unless the loan is well-secured and in the process of
collection. Consumer and credit card loans are typically charged off no later
than 120 days past due. Past due status is based on the contractual terms of the
loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier
date if collection of principal or interest is considered doubtful.

All interest accrued but not received for loans placed on nonaccrual are
reversed against interest income. Interest received on such loans is accounted
for on the cash-basis or cost-recovery method, until qualifying for return to
accrual. Loans are returned to accrual status when all the principal and
interest amounts contractually due are brought current and future payments are
reasonably assured.

Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of aggregate cost or market, as determined by outstanding
commitments from investors. Net unrealized losses, if any, are recorded as a
valuation allowance and charged to earnings.

Mortgage loans held for sale are generally sold with servicing rights retained.
The carrying value of mortgage loans sold is reduced by the cost allocated to
the servicing right. Gains and losses on sales of mortgage loans are based on
the difference between the selling price and the carrying value of the related
loan sold.

The allowance for loan losses is a valuation allowance for probable incurred
credit losses. Loan losses are charged against the allowance when management
believes and confirms the loan balance to be uncollectible. Subsequent
recoveries, if any, are credited to the allowance. Management estimates the
allowance balance required using past loan loss experience, the nature and
volume of the portfolio, information about specific borrower situations and
estimated collateral values, economic conditions, and

(Continued)

                                      52.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)

other factors. Allocations of the allowance may be made for specific loans, but
the entire allowance is available for any loan that, in management's judgment,
should be charged-off.

The allowance consists of specific and general components. The specific
component relates to loans that are individually classified as impaired or loans
otherwise classified as substandard or doubtful. The general component covers
non-classified loans and is based on historical loss experience adjusted for
current factors.

A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant
payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of delay, the
reasons for the delay, the borrower's prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial and commercial real estate loans
by either the present value of expected future cash flows discounted at the
loan's effective interest rate, the loan's obtainable market price, or the fair
value of the collateral if the loan is collateral dependent. Large groups of
smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, the Company does not separately identify individual consumer and
residential loans for impairment disclosures.

Mortgage servicing rights
-------------------------

Servicing assets represent purchased rights and the allocated value of retained
servicing rights on loans sold. Servicing assets are expensed in proportion to,
and over the period of, estimated net servicing revenues. Impairment is
evaluated based on the fair value of the assets, using groupings of the
underlying loans as to interest rates and then, secondarily, as to geographic
and prepayment characteristics. Fair value is determined using prices for
similar assets with similar characteristics, when available, or based upon
discounted cash flows using market-based assumptions. Any impairment of a
grouping is reported as a valuation allowance, to the extent that fair value is
less than the capitalized amount for a grouping.

Foreclosed assets
-----------------

Assets acquired through or instead of loan foreclosure are initially recorded at
fair value when acquired, establishing a new cost basis. If fair value declines,
a valuation allowance is recorded through expense. Costs after acquisition are
expensed.

(Continued)

                                      53.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)

Premises and equipment
----------------------

Land is carried at cost. Premises and equipment are stated at cost less
accumulated depreciation. Building and related components are depreciated using
the straight-line method with useful lives ranging from 15 to 39 years.
Furniture, fixtures, and equipment are depreciated using the straight-line (or
accelerated) method with useful lives ranging from 3 to 10 years. The cost of
maintenance and repairs is charged to income as incurred; significant
improvements are capitalized.

Bank-owned life insurance
-------------------------

The Company has invested in bank-owned life insurance policies, for which the
Company is also the beneficiary, on certain members of management. Bank-owned
life insurance is recorded at its cash surrender value or the amount that can be
realized. These policies have an aggregate face value of $36.2 million and $37.0
million with an approximate cash surrender value of $15.5 million and $15.0
million at December 31, 2005 and 2004, respectively.

Goodwill and other intangible assets
------------------------------------

Goodwill results from business acquisitions and represents the excess of the
purchase price over the fair value of acquired tangible assets and liabilities
and identifiable intangible assets. Goodwill is assessed at least annually for
impairment and any such impairment will be recognized in the period identified.

Other intangible assets consist of core deposit and acquired customer
relationship intangible assets arising from whole bank, branch, and insurance
company acquisitions. They are initially measured at fair value and then are
amortized over their estimated useful lives, which is ten years.

Long-term assets
----------------

Premises and equipment, core deposit, and other intangible assets, and other
long-term assets are reviewed for impairment when events indicate their carrying
amount may not be recoverable from future undiscounted cash flows. If impaired,
the assets are recorded at fair value.

Repurchase agreements
---------------------

Substantially all repurchase agreement liabilities represent amounts advanced by
various customers. Securities are pledged to cover these liabilities, which are
not covered by federal deposit insurance.

Income taxes
------------

Deferred tax assets and liabilities are recognized for temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities. Deferred taxes are recognized for the estimated taxes
ultimately payable or recoverable based on enacted tax laws. Changes in enacted
tax rates and laws are reflected in the financial statements in the periods they
occur.

(Continued)

                                      54.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)

Earnings per share
------------------

Basic earnings per share is based on weighted-average common shares outstanding.
Diluted earnings per share assumes the issuance of any dilutive potential common
shares under stock options and Series A convertible preferred shares using the
treasury stock method.

Stock compensation
------------------

Employee compensation expense under stock options is reported using the
intrinsic value method. No stock-based compensation cost is reflected in net
income, as all options granted had an exercise price equal to or greater than
the market price of the underlying common stock at date of grant. The following
table illustrates the effect on net income and earnings per share if expense was
measured using the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation:

<TABLE>
<CAPTION>
                                                        2005         2004         2003
                                                     ----------   ----------   ----------
<S>                                                  <C>          <C>          <C>
    Net income as reported for common stockholders   $    3,966   $    4,596   $    1,937
    Deduct:  stock-based compensation expense
      determined under fair value based method              106           96           95
                                                     ----------   ----------   ----------

    Pro forma net income                             $    3,860   $    4,500   $    1,842
                                                     ==========   ==========   ==========


    Basic earnings per common share as reported      $     1.01   $     1.14   $     0.48
    Pro forma basic earnings per common share              0.98         1.12         0.46

    Diluted earnings per common share as reported          0.99         1.12         0.48
    Pro forma diluted earnings per common share            0.96         1.09         0.45
</TABLE>

The pro forma effects are computed using option pricing models, using the
following weighted-average assumptions as of grant date.

                                         2005          2004          2003
                                      ----------    ----------    ----------
    Fair value                        $     4.94    $     4.74    $     4.93
    Risk-free interest rate                 4.56%         3.32%         2.27%
    Expected option life (years)               5             5             5
    Expected stock price volatility        23.45%        24.58%        26.04%
    Dividend yield                          1.92%         1.90%         1.65%

(Continued)

                                      55.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)

Stockholders' Equity:
---------------------

Preferred stock
---------------

The Company's Certificate of Incorporation authorizes its Board of Directors to
fix or alter the rights, preferences, privileges, and restrictions of 200,000
shares of preferred stock.

The Company has the following classes of preferred stock issued or authorized:

    Series A Convertible Preferred Stock: The Company has authorized 2,765
    shares of Series A Convertible Preferred Stock. There were 2,762.24 shares
    of Series A Convertible Preferred Stock issued at December 31, 2005 and
    2004. Preferential cumulative cash dividends are payable quarterly at an
    annual rate of $75.00 per share. Dividends accrue on each share of Series A
    Preferred Stock from the date of issuance and from day to day thereafter,
    whether or not earned or declared. The shares of Series A Preferred Stock
    are convertible into 172,140 common shares. Series A Preferred Stock is not
    redeemable for cash. Upon dissolution, winding up, or liquidation of the
    Company, voluntary or otherwise, holders of Series A Preferred Stock will be
    entitled to receive, out of the assets of the Company available for
    distribution to stockholders, the amount of $1,000 per share, plus any
    accrued but unpaid dividends, before any payment or distribution may be made
    on shares of common stock or any other securities issued by the Company that
    rank junior to the Series A Preferred Stock.

    Series B Mandatory Redeemable Preferred Stock: The Company has authorized
    1,092 shares of Series B Mandatory Redeemable Preferred Stock. There were
    831 shares of Series B Mandatory Redeemable Preferred Stock issued at
    December 31, 2005 and 2004. Preferential cumulative cash dividends are
    payable quarterly at an annual rate of $60.00 per share. Dividends accrue on
    each share of Series B Preferred Stock from the date of issuance and from
    day to day, thereafter, whether or not earned or declared. Each original
    holder of Series B Preferred Stock (or upon such holder's death, their
    executor or personal representatives) will have the option, exercisable at
    their sole discretion, to sell, and the Company will be obligated to redeem
    such holder's shares of Series B Preferred Stock upon the earlier to occur
    of the death of the respective original holder of Series B Preferred Stock
    or August 6, 2006. The per share price payable by the Company for such
    shares of Series B Preferred Stock will be equal to $1,000 per share, plus
    any accrued but unpaid dividends. Upon dissolution, wind up, or liquidation
    of the Company, voluntary or otherwise, holders of Series B Preferred Stock
    will be entitled to receive, out of the assets of the Company available for
    distribution to stockholders, the amount of $1,000 per share, plus any
    accrued but unpaid dividends, before any payment or distribution may be made
    on shares of common stock or any other securities issued by the Company that
    rank junior to the Series B Preferred Stock.

    The Company adopted FASB Statement 150, Accounting for Certain Financial
    Instruments With Characteristics of Both Liabilities and Equities, during
    the fourth quarter of 2004.

    Statement 150 requires reporting mandatorily redeemable shares as
    liabilities, as well as obligations not in the form of shares to repurchase
    shares that may require cash payment and some obligations that may be
    settled by issuing a variable number of equity shares.

(Continued)

                                      56.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)

    Series C Junior Participating Preferred Stock: The Company has authorized
    4,500 shares of Series C Junior Participating Preferred Stock. There were no
    shares issued at December 31, 2005 and 2004. The Series C Preferred Stock is
    only issuable upon exercise of rights issued pursuant to the Company's
    Stockholder Rights Plan. Each share of Series C Junior Participating
    Preferred Stock is entitled to, when, as, and if declared, a minimum
    preferential quarterly dividend payment of $3.00 per share but will be
    entitled to an aggregate dividend of 1,000 times the dividend declared per
    share of common stock. In the event of liquidation, dissolution, or winding
    up of the Company, the holders of the Series C Preferred Stock will be
    entitled to a minimum preferential payment of $1,000 per share (plus any
    accrued but unpaid dividends) and will be entitled to an aggregate payment
    of 1,000 times the payment made per share of common stock. Each share of
    Series C Preferred Stock will have 1,000 votes, voting together with the
    common stock. Finally, in the event of any merger, consolidation, or other
    transaction in which outstanding shares of common stock are converted or
    exchanged, each share of Series C Preferred Stock will be entitled to
    receive 1,000 times the amount received per share of common stock. These
    rights are protected by customary antidilution provisions.

Stockholder rights plan
-----------------------

On July 17, 1996, the Company declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of common stock. Each
Right entitles the registered holder to purchase from the Company one
one-thousandth of a share of Series C Junior Participating Preferred Stock, no
par value, of the Company at a price of $50.00 per one one-thousandth of a share
of preferred stock ("the Purchase Price"), subject to adjustment.

The Rights are not exercisable until the earlier to occur of: (i) 10 days after
a person or group ("Acquiring Person") has acquired beneficial ownership of 15%
or more of the outstanding shares of common stock or (ii) 10 business days (or
such later date as determined by the Board of Directors) following the
commencement of a tender offer or exchange offer ("the Distribution Date").
Unless extended, the Rights will expire on August 4, 2006. At any time prior to
the time an Acquiring Person becomes such, the Board of Directors of the Company
may redeem the Rights in whole, but not in part, at a price of $.01 per Right.

Dividend restriction
--------------------

Banking regulations require the maintenance of certain capital levels and may
limit the amount of dividends that may be paid by the subsidiary bank to the
holding company or by the holding company to stockholders.

Fair value of financial instruments
-----------------------------------

Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed in a separate note.
Fair value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for particular items. Changes in
assumptions or in market conditions could significantly affect the estimates.

(Continued)

                                      57.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)

Loss contingencies
------------------

Loss contingencies, including claims and legal actions arising in the ordinary
course of business, are recorded as liabilities when the likelihood of loss is
probable and an amount or range of loss can be reasonably estimated. Management
does not believe there now are such matters that will have a material effect on
the financial statements.

Comprehensive income
--------------------

Comprehensive income includes both net income and other comprehensive income
elements, including the change in unrealized gains and losses on securities
available-for-sale, net of tax.

Adoption of new accounting standards
------------------------------------

SFAS 123R, "Accounting for Stock-Based Compensation, Revised," requires all
public companies to record compensation cost for stock options provided to
employees in return for employee service. The cost is measured at the fair value
of the options when granted, and this cost is expensed over the employee service
period, which is normally the vesting period of the options. The Securities and
Exchange Commission in April 2005 amended the compliance dates for SFAS 123R
from periods beginning after September 15, 2005 to those beginning after January
1, 2006. Compensation cost will also be recorded for prior option grants that
vest after the date of adoption. The effect of the results of operations will
depend on the level of future option grants and the calculation of the fair
value of the options granted at such future date, as well as the vesting periods
provided, and so cannot currently be predicted. Existing options that will vest
after adoption date are expected to result in additional compensation expense of
approximately $83,000 during the balance of 2006, $41,000 in 2007, $29,000 in
2008, and $29,000 in 2009. There will be no significant effect on financial
position as total equity will not change.

In June 2005, the FASB decided not to provide additional guidance on the meaning
of other-than-temporary impairment, and issued FSP 115-1 with references to
existing other-than-temporary impairment guidance, such as SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," SEC Staff
Accounting Bulletin No. 59, "Accounting for Noncurrent Marketable Equity
Securities," and APB Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock." FSP FAS 115-1 will codify the guidance set forth
in EITF Topic D-44 and clarify that an investor should recognize an impairment
loss no later than when the impairment is deemed other than temporary, even if a
decision to sell has not been made. FSP FAS 115-1 will be effective for
other-than-temporary impairment analysis conducted in periods beginning after
December 15, 2005.

SOP 03-3 requires that valuation allowance for loans acquired in a transfer,
including in a business combination, reflect only losses incurred after
acquisition and should not be recorded at acquisition. It applies to any loan
acquired in a transfer that showed evidence of credit quality deterioration
since it was made. The effect of these other new standards on the Company's
financial position and results of operations is not expected to be material upon
and after adoption.

(Continued)

                                      58.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 1. Nature of Operations and Summary of Significant Accounting Policies
(Continued)

Operating segments
------------------

Internal financial information is primarily reported and aggregated in the
following lines of business: banking, mortgage banking, financial services, and
other.

Note 2.  Business Acquisitions and Divestitures

On May 22, 2003, the Company sold its Internet Service Provider ("ISP") product
line. The Company sold the related assets of the product line, subscriber
accounts, and the "sainet.net" and "udnet.net" domains for approximately $364.
The Company recorded a gain of approximately $237 on the sale.

On May 3, 2004, the Company sold the deposits and premises of a UnionBank/West
branch location. At the date of sale, the branch had approximately $12,535 in
deposits, $1,720 in loans, and $336 in fixed assets. The sale price was $440.

On September 10, 2004, the Company completed the sale of five branch offices
located in western Illinois. Per the terms of the agreement announced on May 24,
2004, First Bankers Trust Company of Quincy, Illinois acquired the physical
assets, $88,600 in deposits, and $40,226 of the net loan portfolio of
UnionBank's Quincy, Macomb, Paloma, Carthage and Rushville, Illinois offices.
This transaction effectively exited UnionBank from the western Illinois
marketplace. The sales price was approximately $4.4 million. The Company also
allocated $679 of goodwill to the sale of these branches as well as amortized
the remaining core deposit intangible assigned to the deposits sold of $192. At
the date of sale the branch had the following assets and liabilities:

    Cash and cash equivalents                                  $     675
    Loans                                                         40,226
    Premises and equipment                                         2,495
    Other assets                                                     235
    Deposits                                                     (88,600)
    Other liabilities                                               (296)

On October 20, 2004, the Company completed the merger of UnionFinancial Services
& Trust Company into UnionBank. UnionFinancial was a stand-alone financial
services company that offers a full line of insurance, brokerage trust and asset
management services.

On December 23,2005, the Company entered into an agreement to sell the deposits
of their Mendota Illinois branch to First State Bank in Mendota. The Definitive
Purchase and Assumption Agreement entered into calls for First State to assume
approximately $10 million in deposits. The transaction is expected to be
completed late in the first quarter of 2006.

(Continued)

                                      59.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 3.  Securities

The fair value of securities available-for-sale and the related gross unrealized
gains and losses recognized in accumulated other comprehensive income were as
follows:

<TABLE>
<CAPTION>
                                                                   Gross           Gross
                                                    Fair         Unrealized      Unrealized
                                                    Value          Gains           Losses
                                                 ------------   ------------    ------------
<S>                                              <C>            <C>             <C>
Available-for-sale
    December 31, 2005
        U.S. government agencies                 $     30,857   $          8    $       (364)
        States and political subdivisions              18,400            424             (16)
        U.S. government agency mortgage-backed
          securities                                  101,022            854            (675)
        Collateralized mortgage obligations            20,938             21            (157)
        Equity securities                              18,316             54             (49)
        Corporate                                       6,907             62              (7)
                                                 ------------   ------------    ------------

                                                 $    196,440   $      1,423    $     (1,268)
                                                 ============   ============    ============

Available-for-sale
    December 31, 2004
        U.S. government agencies                 $     20,924   $        144    $        (26)
        States and political subdivisions              24,647            879              (6)
        U.S. government agency mortgage-backed
          securities                                  117,500          1,205            (318)
        Collateralized mortgage obligations             2,486             --             (26)
        Equity securities                              17,865             39              (9)
        Corporate                                       8,239            323              --
                                                 ------------   ------------    ------------
                                                 $    191,661   $      2,590    $       (385)
                                                 ============   ============    ============
</TABLE>

At December 31, 2005, approximately 35% of the fair value of equity securities
consists of Federal Home Loan Bank stock and Federal Reserve Bank stock.


Sales of securities available-for-sale were as follows:

                                           Years Ended December 31,
                                    --------------------------------------
                                       2005          2004          2003
                                    ----------    ----------    ----------

    Proceeds                        $   10,885    $   19,584    $   72,398
    Realized gains                          24           166           281
    Realized losses                       (103)          (43)           --

(Continued)

                                      60.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 3.  Securities (Continued)

The fair value of securities classified as available-for-sale at December 31,
2005, by contractual maturity, are shown below. Securities not due at a single
maturity date, primarily mortgage-backed securities, collateralized mortgage
obligations, and equity securities are shown separately.

Fair Value
----------

    Due in one year or less                                         $    6,460
    Due after one year through five years                               40,241
    Due after five years through ten years                               8,036
    Due after ten years                                                  1,427
    U.S. government agency mortgage-backed securities                  101,022
    Collateralized mortgage obligations                                 20,938
    Equity securities                                                   18,316
                                                                    ----------
                                                                    $  196,440
                                                                    ==========

As of December 31, 2005, the Company held callable securities carried at a fair
value of $47,091. The amortized cost of these securities was $47,095 as of
December 31, 2005.

Securities with carrying values of approximately $132,000 and $151,000 at
December 31, 2005 and 2004, respectively, were pledged to secure public deposits
and securities sold under agreements to repurchase and for other purposes as
required or permitted by law. At year end 2005 and 2004, there were no holdings
of securities of any one issuer, other than the U.S. Government agencies in an
amount greater than 10% of stockholders' equity.

Securities with unrealized losses at year-end 2005 not recognized in income are
as follows:

<TABLE>
<CAPTION>
                                   Less than 12 Months             12 Months or More                    Total
                               ---------------------------    ---------------------------    ---------------------------
                                  Fair         Unrealized        Fair        Unrealized         Fair        Unrealized
Description of Securities         Value           Loss           Value          Loss            Value          Loss
-------------------------      ------------   ------------    ------------   ------------    ------------   ------------
<S>                            <C>            <C>             <C>            <C>             <C>            <C>
U. S. government agencies      $     21,445   $       (260)   $      5,876   $       (104)   $     27,321   $       (364)
State and political
  subdivisions                          611             (5)            462            (11)          1,073            (16)
U.S. government agency
  mortgage-backed securities         36,194           (429)         13,929           (246)         50,123           (675)
Collateralized mortgage
  Obligations                        15,383           (157)             48             --          15,431           (157)
Equity securities                     1,030             (7)             --             --           1,030             (7)
Corporate                             1,822             (7)          3,708            (42)          5,530            (49)
                               ------------   ------------    ------------   ------------    ------------   ------------

Total temporarily impaired     $     76,485   $       (865)   $     24,023   $       (403)   $    100,508   $     (1,268)
                               ============   ============    ============   ============    ============   ============
</TABLE>

(Continued)

                                      61.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 3.  Securities (Continued)

Securities with unrealized losses at year-end 2004 not recognized in income are
as follows:

<TABLE>
<CAPTION>
                                   Less than 12 Months             12 Months or More                    Total
                               ---------------------------    ---------------------------    ---------------------------
                                  Fair         Unrealized        Fair        Unrealized         Fair        Unrealized
Description of Securities         Value           Loss           Value          Loss            Value          Loss
-------------------------      ------------   ------------    ------------   ------------    ------------   ------------
<S>                            <C>            <C>             <C>            <C>             <C>            <C>
U.S. government agencies       $      5,954   $        (26)   $         --   $         --    $      5,954   $        (26)
State and political
  subdivisions                          900             (1)            563             (5)          1,463             (6)
U.S. government agency
  mortgage-backed securities         30,476           (261)         11,297            (56)         41,773           (317)
Collateralized mortgage
  obligations                           222             (2)          2,074            (25)          2,296            (27)
Equity securities                        --             --              --             --              --             --
Corporate                             3,741             (9)             --             --           3,741             (9)
                               ------------   ------------    ------------   ------------    ------------   ------------

Total temporarily impaired     $     41,293   $       (299)   $     13,934   $        (86)   $     55,227   $       (385)
                               ============   ============    ============   ============    ============   ============
</TABLE>

The Company evaluates securities for other-than-temporary impairment at least on
a quarterly basis, and more frequently when economic and market concerns warrant
such evaluation. Consideration is given to the length of time and the extent to
which the fair value has been less than cost, the financial condition and
near-term prospects of the issuer, and the intent and ability of the Company to
retain its investment in the issuer for a period of time sufficient to allow for
any anticipated recovery in fair value. In analyzing an issuer's financial
condition, the Company may consider whether the securities are issued by the
federal government or its agencies, whether downgrades by bond rating agencies
have occurred, and the results of reviews of the issuer's financial condition.
The unrealized losses on all securities have not been recognized into income
because the securities are of high credit quality and management has the intent
and ability to hold for the foreseeable future and the decline in fair value is
largely due to increases in market interest rates.

Note 4.  Loans

The major classifications of loans follow:

                                                           December 31,
                                                     -----------------------
                                                        2005         2004
                                                     ----------   ----------

    Commercial                                       $  118,231   $  120,659
    Commercial real estate                              183,361      129,597
    Real estate                                         101,287      145,307
    Real estate loans held for sale                       1,316        1,742
    Installment                                          12,747       21,502
    Other                                                   583          468
                                                     ----------   ----------

                                                     $  417,525   $  419,275
                                                     ==========   ==========

(Continued)

                                      62.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 4.  Loans (Continued)

An analysis of activity in the allowance for loan losses follows:

<TABLE>
<CAPTION>
                                                                            Years Ended December 31,
                                                                     --------------------------------------
                                                                        2005          2004          2003
                                                                     ----------    ----------    ----------
<S>                                                                  <C>           <C>           <C>
    Balance at beginning of year                                     $    9,732    $    9,011    $    6,450
        Provision for loan losses                                           250         1,924         8,236
        Reduction due to sale of loans                                       --          (174)           --
        Recoveries                                                          700         1,435           554
        Loans charged off                                                (2,320)       (2,464)       (6,229)
                                                                     ----------    ----------    ----------

    Balance at end of year                                           $    8,362    $    9,732    $    9,011
                                                                     ==========    ==========    ==========

The following table presents data on impaired loans:
                                                                                   December 31,
                                                                     --------------------------------------
                                                                        2005          2004          2003
                                                                     ----------    ----------    ----------
   Year-end impaired loans for which an allowance
     has been provided                                               $   12,585    $   15,709    $   10,212
   Year-end impaired loans for which no allowance
     has been provided                                                      563           818         2,682
                                                                     ----------    ----------    ----------

   Total loans determined to be impaired                             $   13,148    $   16,527    $   12,894
                                                                     ==========    ==========    ==========

   Allowance for loan loss for impaired loans included
     in the allowance for loan losses                                $    3,913    $    4,978    $    3,386
                                                                     ==========    ==========    ==========
   Average recorded investment in impaired loans                     $   14,839    $   17,088    $   11,039
                                                                     ==========    ==========    ==========
   Interest income recognized from impaired loans                    $    1,189    $      885    $      694
                                                                     ==========    ==========    ==========
   Cash basis interest income recognized from impaired loans         $      177    $       24    $      138
                                                                     ==========    ==========    ==========
</TABLE>

Nonperforming loans were as follows:
                                                             December 31,
                                                       -----------------------
                                                          2005         2004
                                                       ----------   ----------

        Loans past due over 90 days still on accrual   $      922   $      553
        Nonaccrual loans                                    3,082        3,649

Nonperforming loans include both smaller balance homogeneous loans that are
collectively evaluated for impairment and individually classified impaired
loans.

The Company and its subsidiary conducts most of their business activities,
including granting agribusiness, commercial, residential, and installment loans,
with customers located in north central and northwest Illinois. The Bank's loan
portfolios include a concentration of loans to agricultural and
agricultural-related industries amounting to approximately $72,440 and $59,215
as of December 31, 2005 and 2004, respectively.

(Continued)

                                      63.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 4.  Loan (Continued)

In the normal course of business, loans are made to executive officers,
directors, and principal stockholders of the Company and its subsidiaries and to
parties that the Company or its directors, executive officers, and stockholders
have the ability to significantly influence (related parties). Changes in such
loans during the year ended December 31, 2005 follow:


        Balance at December 31, 2004                               $  23,689
           New loans, extensions, and modifications                   23,841
           Repayments                                                (24,885)
           Change in classification                                     (101)
                                                                   ---------

        Balance at December 31, 2005                               $  22,544
                                                                   =========


Note 5.  Loan Servicing

The following summarizes the secondary mortgage market activities:

                                                   Years Ended December 31,
                                            ------------------------------------
                                               2005         2004         2003
                                            ----------   ----------   ----------

    Proceeds from sales of mortgage loans   $   51,838   $   86,828   $  205,272
                                            ==========   ==========   ==========

    Gain on sales of mortgage loans         $    1,034   $    1,877   $    4,727
                                            ==========   ==========   ==========

Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheet. The unpaid principal balances of these loans are
summarized as follows:

                                                       December 31,
                                                 -----------------------
                                                    2005          2004
                                                 ----------   ----------

        Federal Home Loan Mortgage Corporation   $    1,706   $    2,586
        Federal National Mortgage Association       289,974      313,241
        Small Business Administration                 1,333        1,576
        Other                                         9,229        8,649
                                                 ----------   ----------

                                                 $  302,242   $  326,052
                                                 ==========   ==========

Custodial escrow balances maintained in connection with the foregoing loan
servicing were approximately $1,348 and $1,608 at December 31, 2005 and 2004,
respectively.

(Continued)

                                      64.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 5.  Loan Servicing (Continued)

Following is an analysis of the changes in originated mortgage servicing rights:

                                                  Years Ended December 31,
                                           ------------------------------------
                                              2005         2004         2003
                                           ----------   ----------   ----------

    Balance at beginning of year           $    2,772   $    2,775   $    2,640
    Originated mortgage servicing rights          296          719        1,867
    Amortization                                 (535)        (722)      (1,732)
                                           ----------   ----------   ----------

    Balance at end of year                 $    2,533   $    2,772   $    2,775
                                           ==========   ==========   ==========

The fair value of capitalized mortgage servicing rights was $2.5 million and
$2.7 million at December 31, 2005 and 2004, respectively. Fair value was
determined using discount rates ranging from 9.5% to 15.5%, prepayment speeds
ranging from 13.6% to 15.3%, depending on the stratification of the specific
right.

Estimated amortization expense for each of the next five years:

                  2005                                         $492
                  2006                                         $450
                  2007                                         $425
                  2008                                         $400
                  2009                                         $375

Loans held for sale, which are included in real estate loans, are summarized as
follows:

                                                               December 31,
                                                           -------------------
                                                             2005       2004
                                                           --------   --------

    Secured by one-to-four-family residences               $  1,316   $  1,742
                                                           ========   ========

Note 6.  Premises and Equipment

Premises and equipment consisted of:
                                                                December 31,
                                                           --------------------
                                                              2005       2004
                                                           ---------  ---------

    Land                                                   $   3,329  $   3,069
    Buildings                                                 11,632     11,290
    Furniture and equipment                                   17,728     16,288
    Construction in process                                      132        248
                                                           ---------  ---------
                                                              32,821     30,895
    Less accumulated depreciation                             18,913     17,432
                                                           ---------  ---------

                                                           $  13,908  $  13,463
                                                           =========  =========

(Continued)

                                      65.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 7.  Goodwill and Intangible Assets

Goodwill

The change in balance for goodwill during the year is as follows:

                                                            2005        2004
                                                         ---------   ---------

    Beginning of year                                    $   6,963   $   7,642

    Amount allocated to branch sales                             -        (679)
                                                         ---------   ---------

    End of year                                          $   6,963   $   6,963
                                                         =========   =========


Acquired Intangible Assets

Acquired intangible assets were as follows as of year end:

<TABLE>
<CAPTION>
                                                              2005                         2004
                                                  ---------------------------   ---------------------------
                                                     Gross                         Gross
                                                    Carrying      Accumulated     Carrying     Accumulated
                                                     Amount      Amortization      Amount      Amortization
                                                  ------------   ------------   ------------   ------------
<S>                                               <C>            <C>            <C>            <C>
    Amortized intangible assets:
        Core deposit intangibles                  $      1,089   $      1,022   $      1,089   $        911
        Other customer relationship intangibles            749            283            749            224
                                                  ------------   ------------   ------------   ------------

           Total                                  $      1,838   $      1,305   $      1,838   $      1,135
                                                  ============   ============   ============   ============
</TABLE>

Aggregate amortization expense was $170, $280, and $247 for 2005, 2004, and
2003.

Estimated amortization expense for subsequent years:

                          2006                        $   126
                          2007                             60
                          2008                             60
                          2009                             60
                          2010                             60
                          Thereafter                      164

(Continued)


                                      66.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 8.  Deposits

Deposit account balances by type are summarized as follows:

                                                              December 31,
                                                        -----------------------
                                                           2005          2004
                                                        ----------    ---------

    Non-interest-bearing demand deposits                $   57,832    $  55,800
    Savings, NOW, and money market accounts                175,004      179,740
    Time deposits of $100 or more                          162,328      134,149
    Other time deposits                                    148,677      142,788
                                                        ----------    ---------

                                                        $  543,841    $ 512,477
                                                        ==========    =========

At December 31, 2005, the scheduled maturities of time deposits are as follows:

                 Year                                      Amount
                 ----                                    ----------

                 2006                                    $  227,895
                 2007                                        48,121
                 2008                                        17,182
                 2009                                         9,030
                 2010                                         6,027
                 Thereafter                                   2,750
                                                         ----------

                                                         $  311,005
                                                         ==========

Time certificates of deposit in denominations of $100 or more mature as follows:

                                                             December 31,
                                                      -----------------------
                                                         2005          2004
                                                      ----------    ---------

    3 months or less                                  $   60,256    $  36,318
    Over 3 months through 6 months                        30,823       17,065
    Over 6 months through 12 months                       36,871       38,247
    Over 12 months                                        34,378       42,519
                                                      ----------    ---------

                                                      $  162,328    $ 134,149
                                                      ==========    =========

Deposits from principal officers, directors and their affiliates at year end
2005 and 2004 were $3,100 and $2,300.


Note 9.  Borrowed Funds

Borrowed funds include federal funds purchased and securities sold under
agreements to repurchase, advances from the Federal Home Loan Bank, and notes
payable to third parties.

(Continued)

                                      67.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 9.  Borrowed Funds (Continued)

A summary of short-term borrowings follows:
                                                             December 31,
                                                       -----------------------
                                                          2005         2004
                                                       ----------   ----------

    Federal funds purchased                            $       --   $   11,700
    Securities sold under agreements to repurchase            612        1,022
                                                       ----------   ----------

                                                       $      612   $   12,722
                                                       ==========   ==========

Federal funds purchased and securities sold under agreement to repurchase
generally mature within one day to five years from the transaction date.

At December 31, 2005, $11 million of Federal Home Loan Bank advances have
various call provisions. The Company maintains a collateral pledge agreement
covering secured advances whereby the Company had specifically pledged $46.6
million of first mortgage loans on improved residential and mixed use farm
property free of all other pledges, liens, and encumbrances (not more than 90
days delinquent) and securities carried at $17.5 million. The Company has one
variable rate advance at a rate of 4.29% at year end 2005 and 2004. The
remaining advances are at fixed rates ranging from 1.98% to 7.16%. The scheduled
maturities of advances from the Federal Home Loan Bank at December 31, 2005 are
as follows:

<TABLE>
<CAPTION>
                                                2005                        2004
                                      ------------------------    ------------------------
                                       Average                     Average
                                       Interest                    Interest
         Year                            Rate         Amount         Rate         Amount
         ----                         ----------    ----------    ----------    ----------
<S>                                         <C>     <C>                 <C>     <C>
         2005                                                           4.13%   $   16,900
         2006                               4.98%   $    8,300          5.03         8,300
         2007                               3.51        10,200          3.29        10,200
         2008                               2.97        13,300          2.97        13,300
         2009                               3.78         5,000          3.78         5,000
         2010                               4.50         5,200            --            --
         Thereafter                         4.68         8,000          4.67         8,200
                                      ----------    ----------    ----------    ----------
                                            3.93%   $   50,000          3.91%   $   61,900
                                                    ==========                  ==========

Notes payable consisted of the following at December 31, 2005 and 2004:

<CAPTION>
                                                                        2005          2004
                                                                     ----------    ----------
<S>                                                                  <C>           <C>
    Line of credit loan ($3,000) from LaSalle National Bank;
    interest due quarterly at the higher of (1) 90-day LIBOR
    plus 1.75% or (2) 4%; balance due on October 1, 2006;
    secured by 100% of the stock of UnionBank.                       $    1,000    $    2,000
</TABLE>

(Continued)

                                      68.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 9.  Borrowed Funds (Continued)

<TABLE>
<CAPTION>

<S>                                                                  <C>           <C>
    Revolving credit loan ($10,000) from LaSalle National
    Bank; interest due quarterly at the higher of (1) 90-day
    LIBOR plus 1.75% or (2) 4%; balance due on October 1, 2006;
    secured by 100% of the stock of UnionBank.                            8,200         4,275

    Three promissory notes to individuals related to the
    purchase of the Howard Marshall Agency. The original
    amounts of the notes were $376, $45, and $29. These notes
    were all entered into on November 1, 2003 and all carry an
    interest rate of 5%. The notes require monthly installment
    payments of principal and interest. These notes mature
    on November 1, 2008.                                                    268           354
                                                                     ----------    ----------

                                                                     $    9,468    $    6,629
                                                                     ==========    ==========
</TABLE>

The note payable agreements with LaSalle National Bank contain certain covenants
that limit the amount of dividends paid, the purchase of other banks and/or
businesses, the purchase of investments not in the ordinary course of business,
changes in capital structure, and guarantees of other liabilities and
obligations. In addition, the Company must maintain certain financial ratios.
The Company was in compliance with all covenants for the year ended December 31,
2005.

Information concerning borrowed funds is as follows:

<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                                                    --------------------------------------------
                                                        2005            2004            2003
                                                    ------------    ------------    ------------
<S>                                                 <C>             <C>             <C>
Federal Funds Purchased
      Maximum month-end balance during the year     $      8,600    $     11,700    $      6,600
      Average balance during the year                      2,340           1,935           2,155
      Weighted average interest rate for the year           3.34%           1.71%           0.95%
      Weighted average interest rate at year end            4.50%           1.71%            N/A
Securities Sold Under Agreements to Repurchase
      Maximum month-end balance during the year     $     12,497    $     15,210    $     17,355
      Average balance during the year                      3,903           3,164           4,621
      Weighted average interest rate for the year           3.04%           2.04%           2.19%
      Weighted average interest rate at year end            3.06%           3.59%           1.52%
Advances from the Federal Home Loan Bank
      Maximum month-end balance during the year     $     61,900    $     74,700    $     77,450
      Average balance during the year                     54,472          70,359          70,018
      Weighted average interest rate for the year           3.91%           4.10%           4.28%
      Weighted average interest rate at year end            3.99%           4.03%           4.21%
Notes Payable
      Maximum month-end balance during the year     $     10,105    $      7,882    $      8,275
      Average balance during the year                      8,345           7,347           7,898
      Weighted average interest rate for the year           5.11%           4.18%           4.06%
      Weighted average interest rate at year end            5.53%           3.33%           3.46%
</TABLE>

(Continued)

                                      69.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 10.  Income Taxes

Income taxes consisted of:

                                                 Years Ended December 31,
                                         --------------------------------------
                                            2005          2004          2003
                                         ----------    ----------    ----------
        Federal
           Current                       $    1,189    $    1,243    $      419
           Deferred                              28           438          (535)
                                         ----------    ----------    ----------
                                              1,217         1,681          (116)
        State
           Current                              (20)          349            68
           Deferred                               2            26           (81)
                                         ----------    ----------    ----------
                                                (18)          375           (13)
                                         ----------    ----------    ----------

                                         $    1,199    $    2,056    $     (129)
                                         ==========    ==========    ==========


The Company's income tax expense differed from the statutory federal rate of 34%
as follows:

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                            --------------------------------------
                                                               2005          2004          2003
                                                            ----------    ----------    ----------
<S>                                                         <C>           <C>           <C>
    Expected income taxes                                   $    1,826    $    2,332    $      680
    Income tax effect of
        Interest earned on tax-free investments and loans         (397)         (471)         (577)
        Nondeductible interest expense incurred to
          carry tax-free investments and loans                      35            37            48
        Nondeductible amortization                                  --           117            --
        State income taxes, net of federal tax benefit             154           241           (14)
        State income tax refund                                   (251)           --            --
        Increase in CSV of officers' life insurance               (186)         (195)         (223)
        Other                                                       17            (5)          (43)
                                                            ----------    ----------    ----------

                                                            $    1,199    $    2,056    $     (129)
                                                            ==========    ==========    ==========
</TABLE>

(Continued)

                                      70.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 10.  Income Taxes (continued)

The significant components of deferred income tax assets and liabilities
consisted of:

<TABLE>
<CAPTION>
                                                                   December 31,
                                                            ------------------------
                                                               2005           2004
                                                            ----------    ----------
<S>                                                         <C>           <C>
    Deferred tax assets
        Allowance for loan losses                           $    3,246    $    3,781
        Deferred compensation, other                               209           131
                                                            ----------    ----------
        Total deferred tax assets                                3,455         3,912
    Deferred tax liabilities
        Depreciation                                        $     (430)   $     (602)
        Basis adjustments arising from acquisitions             (1,147)       (1,174)
        Mortgage servicing rights                                 (983)       (1,076)
        Securities available-for-sale                              (60)         (854)
        Federal Home Loan Bank dividend received in stock         (512)         (416)
        Other                                                     (147)         (378)
                                                            ----------    ----------
           Total deferred tax liabilities                       (3,279)       (4,500)
                                                            ----------    ----------

               Net deferred tax liabilities                 $      176    $     (588)
                                                            ==========    ==========
</TABLE>

Note 11.  Benefit Plans

The Company's Employee Stock Ownership Plan ("the Plan") covers all full-time
employees who have completed six months of service and have attained the minimum
age of twenty and one-half years. Vesting in the Plan is based on years of
continuous service. A participant is fully vested after seven years of credited
service. As of December 31, 2005, the Plan owned 308,250 shares of the Company's
common stock. All shares held by the Plan are allocated to plan participants.
The Company expenses all cash contributions made to the Plan. Contributions were
$223, $269, and $262 for the years ended December 31, 2005, 2004, and 2003.

Effective January 1, 1999, the Company established a 401(k) salary reduction
plan (the 401(k) plan) covering substantially all employees. Eligible employees
may elect to make tax deferred contributions within a specified range of their
compensation as defined in the 401(k) plan. The Company contributes at its
discretion. Contributions to the 401(k) plan are expensed currently and
approximated $415, $339, and $344 for the years ended December 31, 2005, 2004,
and 2003.

Note 12.  Stock Option Plans

In April 1993, the Company adopted the UnionBancorp 1993 Stock Option Plan ("the
1993 Option Plan"). A total of 490,206 shares were issued pursuant to stock
options issued to employees and outside directors under this plan. The 1993
Stock Option Plan was terminated on April 12, 2003.

(Continued)

                                      71.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 12.  Stock Option Plans (Continued)

In 1999, the Company adopted the UnionBancorp, Inc. Non-qualified Stock Option
Plan ("the 1999 Option Plan"). Under the 1999 Option Plan, nonqualified options
may be granted to employees and eligible directors of the Company and its
subsidiaries to purchase the Company's common stock at 100% of the fair market
value on the date the option is granted. The Company has authorized 50,000
shares for issuance under the 1999 Option Plan. During 1999, 40,750 of these
shares were granted and are 100% fully vested. The options have an exercise
period of ten years from the date of grant. There are 9,250 shares available to
grant under this plan.

In April 2003, the Company adopted the UnionBancorp 2003 Stock Option Plan ("the
2003 Option Plan"). Under the 2003 Option Plan, nonqualified options, incentive
stock options, and/or stock appreciation rights may be granted to employees and
outside directors of the Company and its subsidiaries to purchase the Company's
common stock at an exercise price to be determined by the 2003 Option Plan's
administrative committee. Pursuant to the 2003 Option Plan, 200,000 shares of
the Company's unissued common stock have been reserved and are available for
issuance upon the exercise of options and rights granted under the 2003 Option
Plan. The options have an exercise period of ten years from the date of grant.
There are 110,000 shares available to grant under this plan.

A summary of the status of the option plans as of December 31, 2005, 2004 and
2003 and changes during the years ended on those dates is presented below.

<TABLE>
<CAPTION>
                                                2005                       2004                      2003
                                      ------------------------   ------------------------   ------------------------
                                                     Weighted-                  Weighted-                 Weighted-
                                                     Average                    Average                   Average
                                                     Exercise                   Exercise                  Exercise
                                        Shares        Price        Shares        Price        Shares        Price
                                      ----------    ----------   ----------    ----------   ----------    ----------
<S>                                      <C>        <C>             <C>        <C>             <C>        <C>
    Outstanding at beginning
      of year                            300,431    $    14.08      304,648    $    13.41      362,519    $    12.66
    Granted                               50,000         20.64       20,000         21.75       20,000         23.29
    Exercised                            (43,486)        10.86      (13,294)         9.12      (56,404)        10.54
    Forfeited                             (5,270)         7.64      (10,923)        15.58      (21,467)        14.19
                                      ----------    ----------   ----------    ----------   ----------    ----------

    Outstanding at end of year           301,675         15.74      300,431         14.08      304,648         13.41
                                      ==========                 ==========                 ==========

    Options exercisable at year end      187,511    $    13.78      200,152    $    12.75      181,556    $    11.90
                                      ==========    ==========   ==========    ==========   ==========    ==========
    Weighted-average fair
       value of options granted
       during the year                              $     4.94                 $     4.74                 $     4.93
                                                    ==========                 ==========                 ==========
</TABLE>

(Continued)

                                      72.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 12.  Stock Option Plans (Continued)


Options outstanding at year-end 2005 were as follows:

<TABLE>
<CAPTION>
                                         Outstanding                  Exercisable
                                  -------------------------     -----------------------
                                                  Weighted
                                                   Average                     Weighted
                                                  Remaining                    Average
       Range of                                  Contractual                   Exercise
    Exercise Prices                 Number          Life         Number         Price
    ---------------               ---------      ----------     ---------      --------
<S>                                 <C>           <C>             <C>          <C>
  $  7.25  -  $ 9.75                 22,300       0.7 years        22,300      $   8.69
    11.25  -   13.00                 62,681       4.5 years        54,855         11.63
    13.88  -   18.50                126,694       5.0 years        98,356         15.04
    21.75  -   23.29                 90,000       9.2 years        12,000         22.78
                                  ---------      ----------     ---------      --------

                                    301,675       5.8 years       187,511      $  13.78
                                  =========      ==========     =========      ========
</TABLE>

Grants under the option plans are accounted for following APB Opinion No. 25 and
related interpretations. Accordingly, no compensation cost has been recognized
for incentive stock option grants under the option plans. The compensation cost
charged to income for nonqualified stock option grants was $0, $2, and $21 for
the years ended December 31, 2005, 2004, and 2003.

Note 13.  Earnings Per Share

A reconciliation of the numerators and denominators for earnings per common
share computations for the years ended December 31 is presented below (shares in
thousands). The Convertible Preferred Stock is antidilutive for all years
presented and has not been included in the diluted earnings per share
calculation. In addition, options to purchase 60,000 shares and 40,000 shares of
common stock were outstanding at December 31, 2005 and December 31, 2004
respectively but were not included in the computation of diluted earnings per
share because the exercise price was greater than the average market price and,
therefore, were antidilutive.

(Continued)

                                      73.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 13.  Earnings Per Share (Continued)

<TABLE>
<CAPTION>
                                                         2005       2004       2003
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
   Basic earnings per share
      Net income available to common stockholders      $  3,966   $  4,596   $  1,937
                                                       ========   ========   ========

      Weighted average common shares outstanding          3,944      4,034      4,000
                                                       ========   ========   ========

         Basic earnings per share                      $   1.01   $   1.14   $   0.48
                                                       ========   ========   ========

      Weighted average common shares outstanding          3,944      4,034      4,000
      Add dilutive effect of assumed exercised stock
        options                                              59         76         69
                                                       --------   --------   --------

      Weighted average common and dilutive
        potential shares outstanding                      4,003      4,110      4,069
                                                       ========   ========   ========

         Diluted earnings per share                    $   0.99   $   1.12   $   0.48
                                                       ========   ========   ========
</TABLE>

Note 14.  Regulatory Matters

The Company and UnionBank are subject to regulatory capital requirements
administered by the federal banking agencies. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company and
UnionBank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices.

Upon receiving regulatory approval, the Company merged UnionBank and
UnionBank/Central in March of 2003, UnionBank and UnionBank/West and
UnionBank/Northwest in March of 2004 and UnionBank and UnionFinancial Services &
Trust Company in October of 2004.

Quantitative measures established by regulation to ensure capital adequacy
require the Company and UnionBank to maintain minimum amounts and ratios of
total and Tier I capital to risk-weighted assets and of Tier I capital to
average assets. Management believes, as of December 31, 2005, that the Company
and UnionBank meets all of the capital adequacy requirements to which they are
subject.

As of December 31, 2005, the most recent notification from the corresponding
regulatory agency categorized UnionBank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
UnionBank must maintain minimum total risk-based, Tier I risk- based, and Tier I
leverage ratios as set forth in the following table. There are no conditions or
events since that notification that management believes have changed UnionBank's
categories.

(Continued)

                                      74.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 14.  Regulatory Matters (Continued)

<TABLE>
<CAPTION>
                                                                                            To Be Well
                                                                                        Capitalized Under
                                                             To Be Adequately           Prompt Corrective
                                       Actual                  Capitalized              Action Provisions
                               -----------------------    -----------------------    -----------------------
                                 Amount       Ratio         Amount       Ratio         Amount       Ratio
                               ----------   ----------    ----------   ----------    ----------   ----------
<S>                            <C>                <C>     <C>                 <C>        <C>            <C>
As of December 31, 2005
   Total capital (to risk-
     weighted assets)
      UnionBancorp, Inc.       $   66,812         13.3%   $   40,107          8.0%          N/A          N/A
      UnionBank                    77,475         15.5        40,076          8.0        50,095         10.0
   Tier I capital (to risk-
     weighted assets)
      UnionBancorp, Inc.       $   60,546         12.1        20,054          4.0           N/A          N/A
      UnionBank                    71,214         14.2        20,038          4.0        30,057          6.0

   Tier I leverage ratio (to
     average assets)
      UnionBancorp, Inc.       $   60,546          9.0        26,831          4.0           N/A          N/A
      UnionBank                    71,214         10.6        26,816          4.0        33,520          5.0


                                                                                            To Be Well
                                                                                        Capitalized Under
                                                             To Be Adequately           Prompt Corrective
                                       Actual                  Capitalized              Action Provisions
                               -----------------------    -----------------------    -----------------------
                                 Amount       Ratio         Amount       Ratio         Amount       Ratio
                               ----------   ----------    ----------   ----------    ----------   ----------
As of December 31, 2004
   Total capital (to risk-
     weighted assets)
      UnionBancorp, Inc.       $   69,414         14.3%   $   38,826          8.0%          N/A          N/A
      UnionBank                    77,523         16.0        38,854          8.0        48,567         10.0
   Tier I capital (to risk-
     weighted assets)
      UnionBancorp, Inc.       $   63,347         13.0        19,413          4.0           N/A          N/A
      UnionBank                    71,452         14.7        19,427          4.0        29,140          6.0

   Tier I leverage ratio (to
     average assets)
      UnionBancorp, Inc.       $   63,347          9.5        26,560          4.0           N/A          N/A
      UnionBank                    71,452         10.7        26,646          4.0        33,307          5.0
</TABLE>

(Continued)

                                      75.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 14.  Regulatory Matters (Continued)

The Company's ability to pay dividends is dependent on the subsidiary bank,
which is restricted by various laws and regulations. These regulations pose no
practical restrictions to paying dividends at historical levels. At December 31,
2005, UnionBank had $2.5 million of retained earnings available for dividends
under these regulations.

Note 15.  Fair Value of Financial Instruments

The methods and assumptions used to estimate fair value are described as
follows:

The carrying amount is the estimated fair value for cash and due from banks,
federal funds sold, short-term borrowings, Federal Home Loan Bank stock, accrued
interest receivable and payable, demand deposits, short-term debt, and variable
rate loans or deposits that reprice frequently and fully. Security fair values
are based on market prices or dealer quotes and, if no such information is
available, on the rate and term of the security and information about the
issuer. For fixed rate loans or deposits and for variable rate loans or deposits
with infrequent repricing or repricing limits, the fair value is based on
discounted cash flows using current market rates applied to the estimated life
and credit risk. Fair values for impaired loans are estimated using discounted
cash flow analysis or underlying collateral values. The fair value of loans held
for sale is based on market quotes. The fair value of debt and redeemable stock
is based on current rates for similar financing. The fair value of
off-balance-sheet items is based on the current fees or cost that would be
charged to enter into or terminate such arrangements.

The estimated fair values of the Company's financial instruments were as
follows:

<TABLE>
<CAPTION>
                                                             December 31,
                                          -------------------------------------------------
                                                    2005                      2004
                                          -----------------------   -----------------------
                                           Carrying      Fair        Carrying       Fair
                                            Amount       Value        Amount        Value
                                          ----------   ----------   ----------   ----------
<S>                                       <C>          <C>          <C>          <C>
    Financial assets
        Cash and cash equivalents         $   24,358   $   24,358   $   22,802   $   22,802
        Securities                           196,440      196,440      191,661      191,661
        Loans                                409,163      405,398      409,543      412,728
        Accrued interest receivable            4,418        4,418        4,151        4,151
    Financial liabilities
        Deposits                             543,841      521,350      512,477      502,805
        Federal funds purchased and
          securities sold under
          agreements to repurchase               612          612       12,722       12,722
        Advances from the Federal
          Home Loan Bank                      50,000       48,828       61,900       61,669
        Series B mandatorily redeemable
          preferred stock                        831          831          831          831
        Notes payable                          9,468        9,468        6,629        6,629
        Accrued interest payable               3,206        3,206        2,474        2,474
</TABLE>

(Continued)

                                      76.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 15.  Fair Value of Financial Instruments (Continued)

In addition, other assets and liabilities of the Company that are not defined as
financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not recognized
in financial statements nevertheless may have value but are not included in the
above disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the earnings potential of loan servicing rights,
the earnings potential of the trust operations, the trained work force, customer
goodwill, and similar items.

Note 16.  Commitments, Contingencies, and Credit Risk

In the normal course of business, there are various contingent liabilities
outstanding, such as claims and legal actions, which are not reflected in the
consolidated financial statements. In the opinion of management, no material
losses are anticipated as a result of these actions or claims.

UnionBank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheet.

The contractual amounts of these instruments reflect the extent of involvement
in particular classes of financial instruments.

UnionBank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit written is represented by the contractual amount of those
instruments. UnionBank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. Financial
instruments whose contract amounts represent credit risk are as follows:

<TABLE>
<CAPTION>
                           Standby                                                          Range of Rates
                           Letters       Variable Rate     Fixed Rate          Total        on Fixed Rate
                          of Credit       Commitments      Commitments      Commitments      Commitments
                        --------------   --------------   --------------   --------------   -------------
<S>                     <C>              <C>              <C>              <C>              <C>
Commitments to extend
  credit and standby
  letters of credit
    December 31, 2005   $        8,066   $       58,667   $       20,777   $       87,510   2.25% - 18.00%
    December 31, 2004   $        4,331   $       64,787   $       25,228   $       94,346   2.25% - 18.00%
</TABLE>

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

(Continued)

                                      77.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 16.  Commitments, Contingencies, and Credit Risk (Continued)

the customer. Collateral held varies, but may include accounts receivable;
inventory; property, plant, and equipment; and income producing commercial
properties.

Standby letters of credit are conditional commitments issued by UnionBank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing standby letters of credit is essentially the same as that
involved in extending loan commitments to customers. The standby letters of
credit are unsecured.

The Company has employment agreements with certain executive officers and
certain other management personnel. These agreements generally continue until
terminated by the executive or the Company and provide for continued salary and
benefits to the executive under certain circumstances. The agreements provide
the employees with additional rights after a change of control of the Company
occurs.

The Company leases certain branch properties under operating leases. Rent
expense was $190, $196, and $269 for 2005, 2004 and 2003. Rent commitments,
before considering renewal options that generally are present, were as follows:

                  2006                                $     107
                  2007                                      107
                  2008                                      107
                  2009                                      107
                  2010                                       65
                  Thereafter                                 13
                                                      ---------
                        Total                         $     506
                                                      =========


Note 17.  Condensed Financial Information - Parent Company Only

The primary source of funds for the Company is dividends from its subsidiaries.
By regulation, UnionBank is prohibited from paying dividends that would reduce
regulatory capital below a specific percentage of assets without regulatory
approval. As a practical matter, dividend payments are restricted to maintain
prudent capital levels.

(Continued)

                                      78.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 17.  Condensed Financial Information - Parent Company Only (Continued)

Condensed financial information for UnionBancorp, Inc. follows:

Balance Sheets (Parent Company Only)
                                                               December 31,
                                                         -----------------------
ASSETS                                                      2005          2004
                                                         ----------   ----------

Cash and cash equivalents                                $      116   $      463
Investment in subsidiaries                                   76,744       78,352
Other assets                                                    100          100
                                                         ----------   ----------

                                                         $   76,960   $   78,915
                                                         ==========   ==========


LIABILITIES AND STOCKHOLDERS' EQUITY
                                                               December 31,
                                                         -----------------------
LIABILITIES                                                  2005         2004
                                                         ----------   ----------

Notes payable                                            $    9,200   $    6,275
Mandatory redeemable preferred stock                            831          831
Other liabilities                                               854        1,562
                                                         ----------   ----------
                                                             10,885        8,668

Stockholders' equity                                         66,075       70,247
                                                         ----------   ----------

                                                         $   76,960   $   78,915
                                                         ==========   ==========


Income Statements (Parent Company Only)
<TABLE>
<CAPTION>
                                                               Years Ended December 31,
                                                       --------------------------------------
                                                          2005          2004          2003
                                                       ----------    ----------    ----------
<S>                                                    <C>           <C>           <C>
    Dividends from subsidiaries                        $    5,031    $    3,395    $    4,358
    Other income                                                6         1,206         2,120
    Interest expense                                          459           334           382
    Other expenses                                            488         3,442         5,417
    Income tax benefit                                       (436)       (1,077)       (1,462)
    Equity in undistributed earnings of subsidiaries
      (dividends in excess of earnings)                      (353)        2,901           (11)
                                                       ----------    ----------    ----------

    Net income                                              4,173         4,803         2,130

    Less dividends on preferred stock                         207           207           193
                                                       ----------    ----------    ----------

    Net income on common stock                         $    3,966    $    4,596    $    1,937
                                                       ==========    ==========    ==========
</TABLE>

(Continued)

                                      79.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 17.  Condensed Financial Information - Parent Company Only (Continued)

Statements of Cash Flows (Parent Company Only)
<TABLE>
<CAPTION>
                                                              Years Ended December 31,
                                                       --------------------------------------
                                                          2005          2004          2003
                                                       ----------    ----------    ----------
<S>                                                    <C>           <C>           <C>
Cash flows from operating activities
    Net income                                         $    4,173    $    4,803    $    2,130
    Adjustments to reconcile net income to net
      cash provided by operating activities
        Depreciation                                           --           186           264
        Undistributed earnings of subsidiaries                353        (2,901)           11
        Amortization of deferred compensation -
          stock options                                        --             2            21
        Decrease (increase) in other assets                    (2)          514          (161)
        Increase in other liabilities                        (708)          196           472
                                                       ----------    ----------    ----------
           Net cash provided by operating activities        3,816         2,800         2,737

Cash flows from investing activities
    Purchases of premises and equipment                        --           223            70
    Investment in subsidiaries                                 --          (673)           --
                                                       ----------    ----------    ----------
        Net cash provided by financing activities              --          (450)           70

Cash flows from financing activities
    Net increase (decrease) in notes payable           $    2,925    $   (1,000)   $   (1,000)
    Dividend paid on common stock                          (1,721)       (1,613)       (1,441)
    Dividends paid on preferred stock                        (207)         (207)         (193)
    Proceeds from exercise of stock options                   579           161           685
    Purchase of treasury stock                             (5,739)         (156)         (189)
                                                       ----------    ----------    ----------
        Net cash used in financing activities              (4,163)       (2,815)       (2,138)
                                                       ----------    ----------    ----------
    Net increase (decrease) in cash and
      cash equivalents                                       (347)         (465)          669

Cash and cash equivalents
    Beginning of year                                         463           928           259
                                                       ----------    ----------    ----------

    End of year                                        $      116    $      463    $      928
                                                       ==========    ==========    ==========
</TABLE>

(Continued)

                                      80.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 18.  Other Comprehensive Income

Changes in other comprehensive income components and related taxes are as
follows:

<TABLE>
<CAPTION>
                                                             Years Ended December 31,
                                                     --------------------------------------
                                                        2005          2004          2003
                                                     ----------    ----------    ----------
<S>                                                  <C>           <C>           <C>
    Change in unrealized gains on
      securities available-for-sale                  $   (2,050)   $   (1,167)   $   (1,386)
    Reclassification adjustment for losses (gains)
       recognized in income                                  79          (123)         (281)
                                                     ----------    ----------    ----------
        Net unrealized gains                             (1,971)       (1,290)       (1,667)
    Tax expense                                            (715)         (500)         (637)
                                                     ----------    ----------    ----------

    Other comprehensive income                       $   (1,256)   $     (790)   $   (1,030)
                                                     ==========    ==========    ==========
</TABLE>

Note 19.  Segment Information

The reportable segments are determined by the products and services offered,
primarily distinguished between banking, mortgage banking, financial services,
and other operations. Loans, investments, and deposits provide the revenues in
the banking segment; insurance, brokerage, and trust in the financial services
segment; and holding company services are categorized as other.

The accounting policies used are the same as those described in the summary of
significant accounting policies. Segment performance is evaluated using net
interest income. Information reported internally for performance assessment
follows.

<TABLE>
<CAPTION>
                                      Banking        Mortgage       Financial        Other        Consolidated
                                      Segment        Banking        Services        Segments         Totals
                                    ------------   ------------   ------------    ------------    ------------
2005
----
<S>                                 <C>            <C>            <C>             <C>             <C>
   Net interest income              $     21,192   $        267   $        (15)   $       (459)   $     20,985
   Other revenue                           3,862          1,349          2,625            (234)          7,602
   Other expense                          16,111            868          2,876           1,093          20,948
   Noncash items
      Depreciation                         1,497             86            158              98           1,839
      Provision for loan loss                250             --             --              --             250
      Amortization of intangibles            114             --             56              --             170
   Segment profit (loss)                   7,082            662           (484)         (1,888)          4,173
   Goodwill                                5,143             --          1,820              --           6,963
   Segment assets                        668,273          4,368          3,723            (142)        676,222
</TABLE>

(Continued)

                                      81.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 19.  Segment Information  (Continued)

<TABLE>
<CAPTION>
                                      Banking        Mortgage       Financial        Other        Consolidated
                                      Segment        Banking        Services        Segments         Totals
                                    ------------   ------------   ------------    ------------    ------------
2004
----
<S>                                 <C>            <C>            <C>             <C>             <C>
   Net interest income              $     21,284   $        700   $          9    $       (331)   $     21,662
   Other revenue                           9,012          2,070          3,019               1          14,102
   Other expense                          16,833          1,605          3,699           2,052          24,189
   Noncash items
      Depreciation                         1,956            100            211             188           2,455
      Provision for loan loss              1,924             --             --              --           1,924
      Amortization of intangibles            286             --             51              --             337
   Segment profit (loss)                   9,297          1,065           (933)         (2,570)          4,803
   Goodwill                                5,143             --          1,820              --           6,963
   Segment assets                        662,415          3,887          5,388          (2,144)        669,546

2003
----
   Net interest income              $     25,143   $        379   $        (20)   $       (377)   $     25,125
   Other revenue                           5,043          4,914          3,192             570          13,719
   Other expense                          17,377          3,201          4,155           3,874          28,607
   Noncash items
      Depreciation                         1,144             99            179             263           1,685
      Provision for loan loss              8,081             --             --              --           8,081
      Amortization of intangibles            206             --             41              --             247
   Segment profit (loss)                   4,655            320           (627)         (2,218)          2,130
   Goodwill                                5,822             --          1,820              --           7,642
   Segment assets                        781,189          2,620          8,394           1,219         793,422
</TABLE>

(Continued)

                                      82.
<PAGE>

UNIONBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands, Except Share Data)
--------------------------------------------------------------------------------

Note 20.  Quarterly Results of Operations (Unaudited)

<TABLE>
<CAPTION>
                                     Year Ended December 31, 2005                         Year Ended December 31, 2004
                                          Three Months Ended                                   Three Months Ended
                            -------------------------------------------------   --------------------------------------------------
                            Dec. 31(A)    Sep. 30     June 30 (B)   March 31    Dec. 31(C)    Sep. 30(D)    June 30      March 31
                            ----------   ----------   ----------   ----------   ----------    ----------   ----------   ----------
<S>                         <C>          <C>          <C>          <C>          <C>           <C>          <C>          <C>
Total interest income       $    9,290   $    8,720   $    8,545   $    8,142   $    8,056    $    8,505   $    8,843   $    9,508
Total interest expense           3,886        3,504        3,265        3,057        3,089         3,142        3,312        3,707
                            ----------   ----------   ----------   ----------   ----------    ----------   ----------   ----------
Net interest income              5,404        5,216        5,280        5,085        4,967         5,363        5,531        5,801

Provision for loan losses          100           50           --          100          300           374          500          750
Noninterest income               1,707        2,014        2,031        1,850        1,093         6,895        3,190        2,924
Noninterest expense              6,042        5,750        5,627        5,546        5,459         7,514        7,029        6,979
                            ----------   ----------   ----------   ----------   ----------    ----------   ----------   ----------
Income (loss) before
  income taxes                     969        1,430        1,684        1,289          301         4,370        1,192          996
Income tax expense
  (benefit)                        203          369          302          325         (172)        1,753          279          196
                            ----------   ----------   ----------   ----------   ----------    ----------   ----------   ----------
                                   766        1,061        1,382          964          473         2,617          913          800
Preferred stock dividend            51           52           52           52           52            52           52           52
                            ----------   ----------   ----------   ----------   ----------    ----------   ----------   ----------

Net income (loss) for
  common stockholders       $      715   $    1,009   $    1,330   $      912   $      421    $    2,565   $      861   $      748
                            ==========   ==========   ==========   ==========   ==========    ==========   ==========   ==========

Basic earnings (loss)
  per share                 $     0.19   $     0.26   $     0.33   $     0.23   $     0.10    $     0.64   $     0.21   $     0.19
                            ==========   ==========   ==========   ==========   ==========    ==========   ==========   ==========

Diluted earnings (loss)
  per share                 $     0.18   $     0.26   $     0.33   $     0.22   $     0.10    $     0.62   $     0.21   $     0.18
                            ==========   ==========   ==========   ==========   ==========    ==========   ==========   ==========
</TABLE>

(A)  The net income for the quarter was impacted by nonrecurring expenses
     primarily related to organizational restructuring. The impact to earnings
     was a decrease of approximately $0.05 per diluted share.

(B)  The net income for the quarter was impacted by a reduction in state income
     taxes related to the receipt of a tax refund related to amended returns
     outstanding from prior years. The impact to earnings was an increase of
     approximately $0.06 per diluted share.

(C)  The net income for the quarter was impacted by the sale of 5 branches in
     the western Illinois region with a pretax gain of $4.2 million.

(D)  A reclassification was made to the third quarter information to allocate a
     portion of the allowance for loan losses to the loans sold as part of the
     branch sales during the quarter. This reclassification had no impact on the
     balance sheet or income, as noninterest income was increased by $174 and
     the provision for loan losses was increased by $174.

(Continued)

                                      83.
<PAGE>

Item 9.       Changes in and Disagreements with Accountants on Accounting and
              Financial Disclosure

None.

Item 9A.      Controls and Procedures

The Company's Chief Executive Officer and Chief Financial Officer carried out an
evaluation, with the participation of other members of management as they deemed
appropriate, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as contemplated by Exchange Act Rule 13a-14
as of December 31, 2005. Based upon, and as of the date of that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective, in all material respects, in
timely alerting them to material information relating to the Company (and its
consolidated subsidiaries) required to be included in the periodic reports the
Company is required to file and submit to the SEC under the Exchange Act.

There were no significant changes to the Company's internal control over
financial reporting during the quarter ended December 31, 2005 that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.

Item 9B.      Other Information

None.

                                    PART III

Item 10.      Directors and Executive Officers of the Registrant

The information beginning on page 2 of the Company's 2006 Proxy Statement under
the caption "Election of Directors", on page 9 of the 2006 Proxy Statement under
the caption "Section 16(a) Beneficial Ownership Compliance," on page 19 under
the caption "Audit Committee Financial Expert" and on page 6 under the caption
"Code of Ethics" is incorporated herein by reference.

The Audit Committee of the Company's Board of Directors is an "audit committee"
for purposes of section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
members of the Audit Committee are Messrs. I. J. Reinhardt, Jr., Walter E.
Breipohl and Robert J. Doty.

Item 11.      Executive Compensation

The information on pages 6, 10 through 16 of the 2006 Proxy Statement under the
caption "Compensation of Directors" and "Executive Compensation" is incorporated
herein reference, excluding however the information contained under the
sub-headings "Board Compensation Committee Report on Executive Compensation" and
"Stockholder Return Performance Presentation."

Item 12.      Security Ownership of Certain Beneficial Owners and Management

The information on pages 7 through 9 of the 2006 Proxy Statement under the
caption "Security Ownership of Certain Beneficial Owners and Management" and on
page 7 under the caption "Existing Equity Compensation Plans" is incorporated
herein by reference.

                                      84.
<PAGE>

Item 13.      Certain Relationships and Related Transactions

The information on pages 12 and 17 of the 2006 Proxy Statement under the caption
"Executive Compensation-Employment Agreements and other Arrangements" and on
page 17 under the caption "Transactions with Management" is incorporated herein
by reference.

Item 14.      Principal Accountant Fees and Services

The information on page 17 of the 2006 Proxy Statement under the caption
"Accountant Fees" is incorporated herein by reference.

Item 15.      Exhibits and Financial Statement Schedules

(a)(1)  Index to Financial Statements

        The index to Financial Statements is contained in Item 8, appearing on
        page 43 of this Form 10-K.

(a)(2)  Financial Statement Schedules

        All schedules are omitted because they are not required or applicable,
        or the required information is shown in the Consolidated Financial
        Statements or the notes thereto.

(a)(3)  Schedule of Exhibits

        The Exhibit Index which immediately follows the signature pages to this
        Form 10-K is incorporated herein by reference.

(b)     Exhibits

        The exhibits required to be filed with this Form 10-K are included with
        this Form 10-K and are located immediately following the Exhibit Index
        to this Form 10-K.

(c)     Financial Statement Schedules

        The response to this portion of Item 15 is submitted as a separate
        section of this report.

                                      85.
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on March 24, 2006.

                                UNIONBANCORP, INC.

                                By: /s/ SCOTT A. YEOMAN
                                    --------------------------------------------
                                    Scott A. Yeoman
                                    President and Principal Executive Officer

                                By: /s/ KURT R. STEVENSON
                                    --------------------------------------------
                                    Kurt R. Stevenson
                                    Senior Executive Vice President and
                                    Principal Financial and Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 24, 2006

/s/ RICHARD J. BERRY                         /s/ I. J. REINHARDT, JR.
-------------------------------              -----------------------------------
Richard J. Berry                             I. J. Reinhardt, Jr.
Director                                     Director

/s/ WALTER E. BREIPOHL                       /s/ JOHN A. SHINKLE
-------------------------------              -----------------------------------
Walter E. Breipohl                           John A. Shinkle
Director                                     Director

/s/ ROBERT J. DOTY                           /s/ SCOTT C. SULLIVAN
-------------------------------              -----------------------------------
Robert J. Doty                               Scott C. Sullivan
Director                                     Director

/s/ DENNIS J. MCDONNELL                      /s/ JOHN A. TRAINOR
-------------------------------              -----------------------------------
Dennis J. McDonnell                          John A. Trainor
Director                                     Director

                                             /s/ SCOTT A. YEOMAN
                                             -----------------------------------
                                             Scott A. Yeoman
                                             Director
<PAGE>

                               UNIONBANCORP, INC.

                                  EXHIBIT INDEX
                                       TO
                           ANNUAL REPORT ON FORM 10-K

Exhibits

3.1     Restated Certificate of Incorporation of the Company [incorporated by
        reference to Exhibit 3.1 to the Registration Statement on Form S-1 filed
        by the Company on August 19, 1996 (File No. 33-9891)].

3.2     Bylaws of the Company [incorporated by reference from Exhibit 3.2 to the
        Registration Statement on Form S-1 filed by the Company on August 19,
        1996 (File No. 33-9891)].

4.1     Certificate of Designation, Preferences and Rights of Series A
        Convertible Preferred Stock of the Company [incorporated by reference
        from Exhibit 4.3 to the Registration Statement on Form S-1 filed by the
        Company on August 19, 1996 (File No. 33-9891)].

4.2     Certificate of Designation, Preferences and Rights of Series B Preferred
        Stock of the Company [incorporated by reference from Exhibit 4.4 to the
        Registration Statement on Form S-1 filed by the Company on August 19,
        1996 (File No. 33-9891)].

4.3     Specimen Common Stock Certificate of the Company [incorporated by
        reference from Exhibit 4.6 to the Registration Statement on Form S-1
        filed by the Company on August 19, 1996 (File No. 33-9891)].

4.4     Rights Agreement between the Company and Harris Trust and Savings Bank,
        dated August 5, 1996 [incorporated by reference from Exhibit 4.7 to the
        Registration Statement on Form S-1 filed by the Company on August 19,
        1996 (File No. 33-9891)]

10.1    Registration Agreement dated August 6, 1996, between the Company and
        each of Wayne W. Whalen and Dennis J. McDonnell [incorporated by
        reference from Exhibit 10.10 to the Registration Statement on Form S-1
        filed by the Company on August 19, 1996 (File No. 33-9891)].

10.2    Loan Agreement between the Company and LaSalle National Bank dated
        August 2, 1996 [incorporated by reference from Exhibit 10.11 to the
        Registration Statement on Form S-1 filed by the Company on August 19,
        1996 (File No. 33-9891)].

10.3    UnionBancorp, Inc. Employee Stock Ownership Plan [incorporated by
        reference from Exhibit 10.12 to the Registration Statement on Form S-1
        filed by the Company on August 19, 1996 (File No. 33-9891)].

10.4    UnionBancorp, Inc. 1999 Nonqualified Stock Option Plan [incorporated by
        reference from Exhibit 10.1 to the registration statement on Form S-8
        filed by the Company on December 10, 1999 (File No. 333-92549)].

10.5    UnionBancorp, Inc. 2000 Incentive Compensation Plan [incorporated by
        reference from Exhibit 10.1 to UnionBancorp's Quarterly Report on Form
        10-Q for the quarter ended September 30, 2001 as filed with the SEC on
        November 13, 2001].
<PAGE>

10.6    UnionBancorp, Inc. 2003 Stock Option Plan [incorporated by reference
        from UnionBancorp's 2003 Proxy Statement].

10.7    Form of Stock Option Agreement

10.8    Employment Security Agreement - Scott A. Yeoman

10.9    Employment Security Agreement - Kurt R. Stevenson

21.1    Subsidiaries of UnionBancorp, Inc.

23.1    Consent of Crowe Chizek and Company LLC.

31.1.   Certification of Scott A. Yeoman, the Company's Principal Executive
        Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2    Certification of Kurt R. Stevenson, the Company's Principal Financial
        Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*   Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
        Section 906 of the Sarbanes-Oxley Act of 2002, from the Company's
        President and Principal Executive Officer.

32.2*   Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
        Section 906 of the Sarbanes-Oxley Act of 2002, from the Company's Senior
        Executive Vice President and Principal Financial and Accounting Officer.





*       This certification is not "filed" for purposes of Section 18 of the
        Securities Exchange Act of 1934, as amended, or incorporated by
        reference into any filing under the Securities Act of 1933, as amended,
        or the Securities Exchange Act of 1934, as amended.