##### Table of Contents









UNITED STATES SECURITIES

AND


EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K

Annual Report Pursuant to Section 13 OR
15(d) of


The Securities Exchange Act of 1934


For the fiscal year ended December 31, 2003

Commission file number 0-14468



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FIRST OAK BROOK BANCSHARES, INC.

|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|DELAWARE                                                           |  | 36-3220778                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

1400 Sixteenth Street, Oak Brook, IL
60523 - Telephone Number (630) 571-1050

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

None


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

Common Stock, $2.00 par value


Preferred Share Purchase Rights




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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 and 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 (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. Yes
X

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

The aggregate market value of the voting and
non-voting stock held by non-affiliates of the registrant at
June 30, 2003 was approximately: $139,067,377 based upon
the last sales price of the registrants common stock of
$21.99 per share as reported by the National Association of
Securities Dealers Automated Quotation System on June 30,
2003. As of March 8, 2004, 9,690,381 shares of common
stock were outstanding.

Documents incorporated by reference: Portions of
the Companys Proxy Statement for its 2004 Annual Meeting
of Shareholders to be filed on or about April 1, 2004 are
incorporated by reference in Part III.



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Form 10-K Table of Contents

Certain information required to be included in
Form 10-K is included in the Proxy Statement used in
connection with the 2004 Annual Meeting of Shareholders to be
held on May 4, 2004.

|                     |  |                                                                                                        |    |        |    | 
|-------------------- |  | ------------------------------------------------------------------------------------------------------ | -- | ------ | -- | 
|                     |  |                                                                                                        |    | Page  
|                     |  |                                                                                                        |    | Number
|                     |  |                                                                                                        |    |       
|PART I              
|Item 1               |  | Business and Statistical
    Disclosure by Bank Holding Companies                                      |    |        | 3  | 
|Item 2               |  | Properties                                                                                             |    |        | 10 | 
|Item 3               |  | Legal Proceedings                                                                                      |    |        | 10 | 
|Item 4               |  | Submission of Matters to a
    Vote of Security Holders                                                |    |        | 10 | 
|PART II             
|                    
|Item 5               |  | Market for Registrants
    Common Equity and Related Shareholder Matters                              |    |        | 11 | 
|Item 6               |  | Selected Financial Data                                                                                |    |        | 12 | 
|Item 7               |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operation               |    |        | 14 | 
|Item 7A              |  | Quantitative and Qualitative
    Disclosures about Market Risks                                        |    |        | 45 | 
|Item 8               |  | Financial Statements and
    Supplementary Data                                                        |    |        | 46 | 
|Item 9               |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure               |    |        | 75 | 
|Item 9A              |  | Controls and Procedures                                                                                |    |        | 75 | 
|PART III            
|                    
|Item 10              |  | Directors and Executive
    Officers of the Registrant                                                 |    |        | 75 | 
|Item 11              |  | Executive Compensation                                                                                 |    |        | 75 | 
|Item 12              |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Shareholder
    Matters |    |        | 76 | 
|Item 13              |  | Certain Relationships and
    Related Transactions                                                     |    |        | 76 | 
|Item 14              |  | Principal Accountant Fees
    and Services                                                             |    |        | 76 | 
|PART IV             
|                    
|Item 15              |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                    |    |        | 76 | 
|Signatures           |  |                                                                                                        | 79 |       
|Subsidiaries        
|Consent of KPMG LLP 
|Certification of CEO
|Certification of CFO
|Certification of CEO
|Certification of CFO



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##### Table of Contents






PART I






|        |                                                                  
|------- | -----------------------------------------------------------------
|ITEM 1. | Business and Statistical Disclosure by Bank
    Holding Companies

General

First Oak Brook Bancshares, Inc. (the
Company) was organized under Delaware law in 1983 as
a bank holding company under the Bank Holding Company Act of
1956, as amended. The Company owns all of the outstanding
capital stock of Oak Brook Bank (the Bank), Oak
Brook, Illinois, which is an Illinois state-chartered bank. The
Company is headquartered and its largest banking office is
located in Oak Brook, Illinois, twenty miles west of downtown
Chicago. The Company employs 331 full-time and
31 part-time employees which represent 349 full-time
equivalent employees at December 31, 2003.

The Company has authorized 16,000,000 shares
of Common Stock with a par value of $2.00. As of
December 31, 2003, the Company had total assets of
$1.848 billion, loans of $915.7 million, deposits of
$1.459 billion, and shareholders equity of
$120.9 million.

The business of the Company consists primarily of
the ownership, supervision and control of the Bank. The Company
provides the Bank with advice, counsel and specialized services
in various fields of banking policy and strategic planning. In
addition to the Bank, the Company operates three wholly-owned
subsidiaries: FOBB Statutory Trust I, FOBB Statutory
Trust II and FOBB Statutory Trust III, created in
2000, 2002 and 2003, respectively, for the purpose of raising
capital through participation in pooled trust preferred
offerings. In accordance with new accounting guidelines, the
Statutory Trust subsidiaries were deconsolidated in the first
quarter of 2004. This deconsolidation did not have a material
effect on the consolidated financial statements of the Company.
See Impact of Pending Accounting Standards in
Item 7 of this Form 10-K.

The Bank operates three wholly-owned
subsidiaries, Oak Real Estate Development Corporation, West
Erie, LLC, and OBB Real Estate Holdings, LLC. Oak Real Estate
Development Corporation was formed in 2000 to acquire, develop
and rehabilitate single family and multifamily properties in
Illinois. West Erie, LLC was formed in 2002 solely to develop
and market a luxury condominium project acquired by the Bank by
agreement in lieu of foreclosure.

In October 2003, the Bank formed OBB Real Estate
Holdings, LLC, a wholly-owned subsidiary. This subsidiary owns
substantially all the shares of OBB Real Estate Investments,
LLC. These subsidiaries were established as part of an
initiative to enhance earnings by reducing expenses and to
provide alternative methods of raising capital in the future.

The Company, through the Bank, operates in a
single segment engaging in general retail and commercial banking
business, primarily in the Chicago Metropolitan area. The
services offered include demand, savings and time deposits,
corporate treasury management services, merchant credit card
processing, commercial lending products such as commercial
loans, construction loans, mortgages and letters of credit, and
personal lending products such as residential mortgages, home
equity lines and vehicle loans. The Bank operates a full-service
investment management and trust department, and in 2003, formed
an investment sales division. The investment sales division
executes customer investment transactions in U.S. Treasury,
U.S. Government agency, corporate and municipal securities
primarily for commercial businesses, not-for-profit
organizations, governmental entities and high net worth families.

The Bank offers its services through multiple
delivery channels. The Bank has seventeen brick and mortar
offices; ten in DuPage County, five in Cook County, one in Will
County, and one in Kane County, Illinois. Fifteen of these
offices are in the western suburbs of Chicago, one is in a
northern suburb of Chicago and one is in the River North
neighborhood of Chicago, just north of the Loop and west of
Michigan Avenue. The Bank offers a call center at
800-536-3000. Our Internet Branch at
www.obb.com offers on-line banking and bill
payment services in addition to accepting applications for
consumer loans and retail accounts. The Bank has deployed 21
owned ATMs, 17 located at bank offices and 4 located off
premises, which its customers can use for free; and it allows
its customers access to networked ATMs (STAR &
CIRRUS) for a fee.

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The extension of credit inherently involves
certain levels and types of risk (credit and default risk,
interest rate and maturity mismatch risk, liquidity risk,
industry and concentration risk and general economic
conditions), which the Company manages through the establishment
of lending, credit and asset/liability management policies and
procedures. Credit risk is controlled and monitored through the
use of lending standards, an individual review of potential
borrowers and active asset quality management and
administration. Active asset quality management and
administration, including early problem loan identification and
timely resolution of problems, further promotes appropriate
management of credit risk and minimization of loan losses.

Loans originated must comply with governmental
rules, regulations and laws. While the Banks loan policies
vary for different loan products, the policies generally cover
such items as: percentages to be advanced and the type of lien
taken to secure collateral, payment and maturity terms, down
payment and/or loan-to-value requirements, debt-to-income and/or
debt service coverage ratios, credit history, insurance
requirements and other matters of credit concern. The
Banks loan policies grant limited loan approval authority
to designated loan officers. Where a credit request exceeds the
loan officers approval authority, approval by a senior
lending officer and/or bank loan committee and/or board of
directors is required.

Competition

The Companys offices are part of the
Chicago banking market, as defined by the Federal Reserve Bank
of Chicago, which at June 30, 2003 (the most recent date
for which statistics are available), had deposits in 305
financial institutions (commercial banks and thrift
institutions) totaling $211.4 billion. Based on total
deposits, the Bank was the 23rd largest financial
institution serving the Chicago banking market. At June 30,
2003, the Bank had an approximate 4.9% market share of the total
deposits in 75 DuPage County financial institutions, an
approximate .2% market share of total deposits in 202 Cook
County financial institutions and an approximate .4% market
share of total deposits in 49 Will County financial
institutions. The Company also began operating in Kane County in
October of 2003. At June 30, 2003, Kane County consisted of
45 financial institutions with $6.5 billion of deposits. At
December 31, 2003, the Company had $23.3 million in
Kane County deposits.

The Bank is located in a highly competitive
market, facing competition for banking and related financial
services from many financial intermediaries, including banks,
savings and loan associations, finance companies, credit unions,
mortgage companies, merchants, stockbrokers, insurance
companies, mutual funds and investment companies. Competition is
generally expressed in terms of interest rates charged on loans
and paid on deposits; the price of products and services; the
variety of financial services offered; convenience of service
delivery in terms of extended hours, access to services through
branches and offices, ATMs, the internet and call centers; and
the qualifications, experience and skills of bank personnel.
Additional competitive pressure also comes from several
out-of-state banks (for example, Fifth Third Bank,
Washington Mutual Savings Bank, and Bank of America) recent
aggressive branch expansion into the Chicago banking market. In
doing so, these banks are competing with the Company not only
for retail and commercial customers, but also for competent bank
personnel.

Available Information

Our Internet address is
www.firstoakbrook.com. We make available at this
address, free of charge, our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as
soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC. In addition, our site
also includes Investor Information, Stock Information, Corporate
Governance Policies, Code of Ethics, Audit Committee Charter and
Independent Directors Committee Charter including sub-charter
relating to Compensation Matters and Nominating and Corporate
Governance Matters.

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Regulation and Supervision

General

Banking is a highly regulated industry. The
following is a summary of several applicable statutes and
regulations. However, these summaries are not complete, and
reference should be made to the statutes and regulations for
more information. Also, these statutes and regulations may
change in the future, and it cannot be predicted what effect
such changes, if made, will have on the Company. The
supervision, regulation and examination of banks and bank
holding companies by bank regulatory agencies are intended
primarily for the protection of depositors, rather than
stockholders of banks and bank holding companies.

Bank Holding Company Regulation

The Company is registered as a bank holding
company with the Board of Governors of the Federal Reserve
System (the Federal Reserve) pursuant to the Bank
Holding Company Act of 1956, as amended (the Bank Holding
Company Act of 1956 and the regulations issued thereunder are
collectively referred to as the BHC Act), and the
Company is subject to regulation, supervision and examination by
the Federal Reserve, Federal securities laws and Delaware law.

Minimum Capital
Requirements.The Federal Reserve has
adopted risk-based capital requirements for assessing bank
holding company capital adequacy. These standards define capital
and establish minimum capital ratios in relation to assets, both
on an aggregate basis, and as adjusted for credit risks and
off-balance sheet exposures. Under the Federal Reserves
risk-based guidelines applicable to the Company, capital is
classified into two categories.



| |                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Tier 1, or core, capital
    consists of the sum of: common shareholders equity;
    qualifying noncumulative perpetual preferred stock; qualifying
    cumulative perpetual preferred stock (subject to some
    limitations); and minority interests in the common equity
    accounts of consolidated subsidiaries, less goodwill and
    specified intangible assets.                                                  
|
| | Tier 2, or supplementary,
    capital consists of the sum of: the allowance for loan losses;
    perpetual preferred stock and related surplus; hybrid capital
    instruments; unrealized holding gains on equity securities;
    perpetual debt and mandatory convertible debt securities; term
    subordinated debt, including related surplus; and
    intermediate-term preferred stock, including related securities.

Under the Federal Reserves capital
guidelines, bank holding companies are required to maintain a
minimum ratio of qualifying total capital to risk-weighted
assets of 8%, of which at least 4% must be in the form of
Tier 1 capital. The Federal Reserve has established a
minimum ratio of Tier 1 capital to total assets of 3% for
strong bank holding companies (those rated a composite
1 under the Federal Reserves rating system).
For all other bank holding companies, the minimum ratio of
Tier 1 capital to total assets is 4%. In addition, the
Federal Reserve continues to consider the Tier 1 leverage
ratio (after deducting all intangibles) in evaluating proposals
for expansion or new activities.

In its capital adequacy guidelines, the Federal
Reserve emphasizes that the foregoing standards are supervisory
minimums and that banking organizations generally are expected
to operate well above the minimum ratios. These guidelines also
state that banking organizations experiencing growth, whether
internally or by making acquisitions, are expected to maintain
strong capital positions substantially above the minimum levels.

As of December 31, 2003, the Companys
and the Banks capital exceeded the Federal Reserves
and FDICs well capitalized guidelines. See
Note 11 to Item 8 of this Form 10-K.

Acquisitions.The
BHC Act requires prior Federal Reserve approval for, among other
things, the acquisition by a bank holding company of direct or
indirect ownership or control of more than 5% of the voting
shares or substantially all the assets of any bank, or for a
merger or consolidation of a bank holding company with another
bank holding company. With limited exceptions, the BHC Act
prohibits a bank holding company from acquiring direct or
indirect ownership or control of voting shares of any company
which is not a bank or bank holding company and from engaging
directly or indirectly in any activity other than banking or
managing

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or controlling banks or performing services for
its authorized subsidiaries. A bank holding company may,
however, engage in or acquire an interest in a company that
engages in activities which the Federal Reserve has determined,
by regulation or order, to be so closely related to banking or
managing or controlling banks as to be a proper incident
thereto, such as owning and operating a savings association,
performing functions or activities that may be performed by a
trust company, or acting as an investment or financial advisor.
As stated above, however, the Federal Reserve expects bank
holding companies to maintain strong capital positions while
experiencing growth. In addition, the Federal Reserve, as a
matter of policy, may require a bank holding company to be
well-capitalized at the time of filing an
acquisition application and upon consummation of the
acquisition. Under the BHC Act and Federal Reserve regulations,
the Company is prohibited from engaging in tie-in arrangements
in connection with an extension of credit, lease, sale of
property, or furnishing of services. That means that, except
with respect to traditional banking products, the Company may
not condition a clients purchase of one of its services on
the purchase of another service. The passage of the
Gramm-Leach-Bliley Act, however, allows bank holding companies
to become financial holding companies. Financial holding
companies do not face the same prohibitions to entering into
certain business transactions that bank holding companies
currently face. See the discussion of the Gramm-Leach-Bliley Act
below.


Interstate Banking and Branching
Legislation.Under the Riegle-Neal
Interstate Banking and Efficiency Act of 1994 (the
Interstate Banking Act), adequately capitalized and
adequately managed bank holding companies are allowed to acquire
banks across state lines subject to various limitations. In
addition, under the Interstate Banking Act, banks are permitted,
under some circumstances, to merge with one another across state
lines and thereby create a main bank with branches in separate
states. After establishing branches in a state through an
interstate merger transaction, a bank may establish and acquire
additional branches at any location in the state where any bank
involved in the interstate merger could have established or
acquired branches under applicable federal and state law.

Ownership
Limitations.Under the Illinois
Banking Act, any person who acquires more than 10% of the
Companys common stock may be required to obtain the prior
approval of the commissioner of the Illinois Office of Banks and
Real Estate (the Commissioner). Under the Change in
Bank Control Act, a person may be required to obtain the prior
regulatory approval of the Federal Reserve before acquiring the
power to directly or indirectly control the management,
operations or policies of the Company or before acquiring
control of 10% or more of our outstanding common stock.

Dividends.The
Federal Reserve has issued a policy statement on the payment of
cash dividends by bank holding companies. In the policy
statement, the Federal Reserve expressed its view that a bank
holding company experiencing earnings weaknesses should not pay
cash dividends exceeding its net income or which could only be
funded in ways that weakened the bank holding companys
financial health, such as by borrowing. Additionally, the
Federal Reserve 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 prohibit or limit the payment of dividends by
banks and bank holding companies.

Under a longstanding policy of the Federal
Reserve, the Company is expected to act as a source of financial
strength to the Bank subsidiary and to commit resources to
support it. The Federal Reserve takes the position that in
implementing this policy, it may require the Company to provide
financial support when the Company otherwise would not consider
itself able to do so.

In addition to the restrictions on dividends
imposed by the Federal Reserve, Delaware law also places
limitations on the Companys ability to pay dividends. For
example, the Company may not pay dividends to shareholders if,
after giving effect to the dividend, the Company would not be
able to pay its debts as they become due. Because a major source
of the Companys cash flow is the dividends from the Bank,
the Companys ability to pay dividends will depend on the
amount of dividends paid by the Bank. The Company cannot be sure
that the Bank will pay such dividends.

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Bank Regulation

The Bank is subject to supervision and
examination by the commissioner of the Illinois Office of Banks
and Real Estate (the Commissioner) and, as a
non-Federal Reserve member, FDIC-insured bank, to supervision
and examination by the Federal Deposit Insurance Corporation
(FDIC). The Bank is also a member of the Federal
Home Loan Bank (FHLB) of Chicago. The Federal
Deposit Insurance Act (FDIA) requires prior FDIC
approval for any merger and/or consolidation by or with another
depository institution, as well as for the establishment or
relocation of any bank or branch office. The FDIA also gives the
power to the FDIC to issue cease and desist orders. A cease and
desist order could either prohibit a bank from engaging in
certain unsafe and unsound bank activity or could require a bank
to take certain affirmative action. The FDIC also supervises
compliance with the federal law and regulations which place
restrictions on loans by FDIC-insured banks to an executive
officer, director or principal shareholder of the bank, the bank
holding company which owns the bank, and any subsidiary of such
bank holding company. The FDIC also examines the Bank for its
compliance with statutes which restrict and, in some cases,
prohibit certain transactions between a bank and its affiliates.
Among other provisions, these laws place restrictions upon:
extensions of credit between the bank holding company and any
non-banking affiliates; the purchase of assets from affiliates;
the issuance of guarantees, acceptances or letters of credit on
behalf of affiliates; and, investments in stock or other
securities issued by affiliates or acceptance thereof as
collateral for an extension of credit. Also, the Bank is subject
to restrictions with respect to engaging in the issuance,
underwriting, public sale or distribution of certain types of
securities and to restrictions upon: the nature and amount of
loans which it may make to a single borrower (and, in some
instances, a group of affiliated borrowers); the nature and
amount of securities in which it may invest; the amount of
investment in the Bank premises; and the manner in and extent to
which it may borrow money.

Furthermore, all banks are affected by the credit
policies of the Federal Reserve, which regulates the national
supply of bank credit. Such regulation influences overall growth
of bank loans, investments, and deposits and may also affect
interest rates charged on loans and paid on deposits. The
Federal Reserves monetary policies have had a significant
effect on the operating results of commercial banks in the past
and we expect this trend to continue in the future.

Dividends.The
Illinois Banking Act provides that an Illinois bank may not pay
dividends of an amount greater than its current net profits
after deducting losses and bad debts while such bank continues
to operate a banking business. For the purpose of determining
the amount of dividends that an Illinois bank may pay, bad debts
are defined as debts upon which interest is past due and unpaid
for a period of six months or more unless such debts are
well-secured and in the process of collection.

In addition to the foregoing, the ability of the
Company and the Bank to pay dividends may be affected by the
various minimum capital requirements and the capital and
non-capital standards established under the Federal Deposit
Insurance Corporation Improvements Act of 1991
(FDICIA), as described below.

Federal Reserve
System.The Bank is subject to Federal
Reserve regulations requiring depository institutions to
maintain noninterest-earning reserves against their transaction
accounts (primarily NOW and regular checking accounts). The
Federal Reserve regulations generally require 3% reserves on the
first $45.4 million of transaction accounts plus 10% on the
remainder. The first $6.6 million of otherwise reservable
balances (subject to adjustments by the Federal Reserve) are
exempted from the reserve requirements. The Banks balance
in vault cash is available to satisfy reserve requirements. At
December 31, 2003, the Bank is in compliance with these
requirements.

Standards for Safety and
Soundness.The FDIA, as amended by
FDICIA and the Riegle Community Development and Regulatory
Improvement Act of 1994, requires the FDIC, together with the
other federal bank regulatory agencies, to prescribe standards
of safety and soundness, by regulations or guidelines, relating
generally to operations and management, asset growth, asset
quality, earnings, stock valuation, and compensation. The FDIC
and the other federal bank regulatory agencies have adopted a
set of guidelines prescribing safety and soundness standards
pursuant to FDICIA. The guidelines establish general standards
relating to internal controls and information systems, internal
audit systems, loan documentation, credit underwriting, interest
rate exposure, asset growth, compensation, fees and benefits. In
general, the guidelines require, among

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other things, appropriate systems and practices
to identify and manage the risks and exposures specified in the
guidelines. The guidelines prohibit excessive compensation as an
unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or
disproportionate to the services performed by an executive
officer, employee, director or principal stockholder. In
addition, the FDIC adopted regulations that authorize, but do
not require, the FDIC to order an institution that has been
given notice by the FDIC that it is not satisfying the safety
and soundness guidelines to submit a compliance plan. If, after
being so notified, an institution fails to submit an acceptable
compliance plan or fails in any material respect to implement an
accepted compliance plan, the FDIC must issue an order directing
action to correct the deficiency and may issue an order
directing other actions of the types to which an
undercapitalized institution is subject under the prompt
corrective action provisions of FDICIA. If an institution
fails to comply with such an order, the FDIC may seek to enforce
its order in judicial proceedings and to impose civil money
penalties. The FDIC and the other federal bank regulatory
agencies have also proposed guidelines for asset quality and
earning standards.


Prompt Corrective
Action.FDICIA requires the federal
banking regulators, including the Federal Reserve and the FDIC,
to take prompt corrective action with respect to depository
institutions that fall below minimum capital standards and
prohibits any depository institution from making any capital
distribution that would cause it to be undercapitalized.
Institutions that are not adequately capitalized may be subject
to a variety of supervisory actions, including restrictions on
growth, investment activities, capital distributions and
affiliate transactions, and will be required to submit a capital
restoration plan which, to be accepted by the regulators, must
be guaranteed in part by any company having control of the
institution (for example, the company or a stockholder
controlling the company). In other respects, FDICIA provides for
enhanced supervisory authority, including greater authority for
the appointment of a conservator or receiver for critically
under-capitalized institutions. The capital-based prompt
corrective action provisions of FDICIA and its implementing
regulations apply to FDIC-insured depository institutions.
However, federal banking agencies have indicated that, in
regulating bank holding companies, the agencies may take
appropriate action at the holding company level based on their
assessment of the effectiveness of supervisory actions imposed
upon subsidiary insured depository institutions pursuant to the
prompt corrective action provisions of FDICIA. Also, under
FDICIA, insured depository institutions with assets of
$500 million or more at the beginning of a fiscal year,
must submit an annual report for that year, including financial
statements and a management report, to each of the FDIC, any
appropriate federal banking agency, and any appropriate bank
supervisor. The Bank had assets of $500 million or more at
the beginning of fiscal year 2003, and must therefore provide an
annual report as required by FDICIA.

As of December 31, 2003, the Company and the
Bank had capital in excess of the requirements for a
well-capitalized institution under the prompt
corrective action provisions of FDICIA.

Insurance of Deposit
Accounts.Under FDICIA, as an
FDIC-insured institution, the Bank is required to pay deposit
insurance premiums based on the risk it poses to the Bank
Insurance Fund (BIF). The FDIC has authority to
raise or lower assessment rates on insured deposits in order to
achieve statutorily required reserve ratios in the insurance
funds and to impose special additional assessments. Each
depository institution is assigned to one of three capital
groups: well capitalized, adequately
capitalized or undercapitalized. Within each
capital group, institutions are assigned to one of three
supervisory subgroups: A (institutions with few
minor weaknesses), B (institutions which demonstrate
weaknesses which, if not corrected, could result in significant
deterioration of the institution and increased risk of loss to
BIF), and C (institutions that pose a substantial
probability of loss to BIF unless effective corrective action is
taken). Accordingly, there are nine combinations of capital
groups and supervisory subgroups to which varying assessment
rates would be applicable. An institutions assessment rate
depends on the capital category and supervisory category to
which it is assigned. Effective, January 1, 2004 the FDIC
Assessment Rate Schedule for BIF member banks ranged from zero
for well capitalized institutions to $.27 per
$100 of deposits for undercapitalized institutions.
During 2003, the Bank was classified as well
capitalized and was assessed the BIF semi-annual rate of
zero.

Deposits insured by BIF are also assessed
interest on bonds issued in the late 1980s by the
Financing Company to recapitalize the now defunct Federal
Savings and Loan Insurance Company (FICO bonds). The
Companys deposit insurance for the FICO bonds was $201,000
in 2003.

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Deposit insurance may be terminated by the FDIC
upon a finding that an institution has engaged in unsafe or
unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC. Such
termination can only occur, if contested, following judicial
review through the federal courts. Management is not aware of
any practice, condition or violation that might lead to
termination of deposit insurance.

Community
Reinvestment.Under the Community
Reinvestment Act (CRA), a financial institution has
a continuing and affirmative obligation to help meet the credit
needs of its entire community, including low- and
moderate-income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial
institutions, nor does it limit an institutions discretion
to develop the types of products and services that it believes
are best suited to its particular community. However,
institutions are rated on their performance in meeting the needs
of their communities. Performance is judged in three areas:
(a) a lending test, to evaluate the institutions
record of making loans in its assessment areas; (b) an
investment test, to evaluate the institutions record of
investing in community development projects, affordable housing,
and programs benefiting low or moderate income individuals and
business; and (c) a service test, to evaluate the
institutions delivery of services through its branches,
ATMs and other offices. The CRA requires each federal banking
agency, in connection with its examination of a financial
institution, to assess and assign one of four ratings to the
institutions record of meeting the credit needs of its
community and to take such record into account in its evaluation
of certain applications by the institution, including
applications for charters, branches and other deposit
facilities, relocations, mergers, consolidations, acquisitions
of assets or assumptions of liabilities, and savings and loan
holding company acquisitions. The CRA also requires that all
institutions make public disclosure of their CRA ratings.

The Bank was assigned a satisfactory
rating as a result of its last CRA examination in May 2002.

Bank Secrecy Act.Under the Bank Secrecy Act (BSA), a financial
institution is required to have systems in place to detect
certain transactions, based on the size and nature of the
transaction. Financial institutions are generally required to
report cash transactions involving more that $10,000 to the
United States Treasury. In addition, financial institutions are
required to file suspicious activity reports for transactions
that involve more than $5,000 and which the financial
institution knows, suspects or has reason to suspect involves
illegal funds, is designed to evade the requirements of the BSA
or has no lawful purpose. The USA PATRIOT Act of 2001, enacted
in response to the September 11, 2001 terrorist attacks,
requires bank regulators to consider a financial
institutions compliance with the BSA when reviewing
applications. Final rules implementing customer identification
procedures to be followed by financial institutions have been
released and must be complied with by all financial institutions
subject to the BSA.

Compliance with Consumer Protection
Laws.The Bank is subject to many
federal consumer protection statutes and regulations including
the CRA, the Truth in Lending Act, the Truth in Savings Act, the
Equal Credit Opportunity Act, the Fair Housing Act, the Real
Estate Settlement Procedures Act and the Home Disclosure Act.
Among other things, these acts: require banks to meet the credit
needs of their communities; require banks to disclose credit and
deposit terms in meaningful and consistent ways; prohibit
discrimination against an applicant in any consumer or business
credit transaction; prohibit discrimination in housing-related
lending activities; require banks to collect and report
applicant and borrower data regarding loans for home purchases
or improvement projects; require lenders to provide borrowers
with information regarding the nature and cost of real estate
settlement; prohibit certain lending practices and limit escrow
account amounts with respect to real estate transactions; and
prescribe possible penalties for violations of the requirements
of consumer protection statutes and regulations.

Enforcement Actions.Federal and state statutes and regulations provide financial
institution regulatory agencies with great flexibility to
undertake an enforcement action against an institution that
fails to comply with regulatory requirements, particularly
capital requirements. Possible enforcement actions range from
the imposition of a capital plan and capital directive to civil
money penalties, cease and desist orders, receivership,
conservatorship or the termination of deposit insurance.

The Company is also subject to the Financial
Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA). The FIRREA broadened the regulatory powers
of federal bank regulatory agencies. The

9



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##### Table of Contents



original, primary purpose of FIRREA was to
address the financial crisis in the thrift industry through the
imposition of strict reforms on that industry. FIRREA also
granted bank holding companies the right to acquire savings
institutions.


One of the provisions of FIRREA contains a
cross-guarantee provision which can impose liability
on the Company for losses incurred by the FDIC in connection
with assistance provided to or the failure of the Companys
insured depository institution.

Impact of the Gramm-Leach-Bliley
Act.The Gramm-Leach-Bliley Act (the
GLB Act), among other things, establishes a
comprehensive framework to permit affiliations among commercial
banks, insurance companies and securities firms. Also, it
permits a bank holding company which meets certain criteria to
certify that it satisfies such criteria and become a financial
holding company and thereby engage in a broader range of
activity than permitted a bank holding company.

The GLB Act also imposes requirements on
financial institutions with respect to customer privacy by
generally prohibiting disclosure of non-public personal
information to non-affiliated third parties unless the customer
has been given the opportunity to object and has not objected to
such disclosure. Financial institutions are further required to
disclose their privacy policies to customers annually.

To the extent the GLB Act permits banks,
securities firms and insurance companies to affiliate, the
financial services industry may experience further
consolidation. This consolidation could result in a growing
number of larger financial institutions that offer a wider
variety of financial services than the Company currently offers
and that can aggressively compete in the market the Company
currently serves.






|        |           
|------- | ----------
|ITEM 2. | Properties

The Companys offices are located in Oak
Brook, Illinois in the headquarters of Oak Brook Bank. The
Company leases space from the Bank. The Bank and its branches
conduct business in both owned and leased premises. The Bank
currently operates from ten owned and seven leased properties.
The Company believes its facilities in the aggregate are
suitable and adequate to operate its banking business. For
information concerning lease obligations, see Note 5 to
Item 8 of this Form 10-K.






|        |                  
|------- | -----------------
|ITEM 3. | Legal Proceedings

From time to time, the Company or its
subsidiaries may be party to various legal proceedings arising
in the normal course of business. Since the Bank acts as a
depository of funds, it may be named from time to time as a
defendant in various lawsuits (such as garnishment proceedings)
involving claims to the ownership of funds in particular
accounts. At December 31, 2003, neither the Company nor any
of its subsidiaries is a party to any pending material legal
proceedings that we believe will have a material adverse effect
on our business, results of operations, financial condition or
cash flows.






|        |                                                        
|------- | -------------------------------------------------------
|ITEM 4. | Submission Of Matters To A Vote Of Security
    Holders

There were no matters submitted to a vote of
shareholders during the fourth quarter of 2003.

10



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##### Table of Contents






PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|ITEM 5. | Market For Registrants Common Equity
    And Related Shareholder Matters

The Companys Common Stock trades on the
NASDAQ National Market under the symbol FOBB. As of
February 5, 2004, there were 398 holders of record and
approximately 1,773 beneficial shareholders. See Notes 10,
12 and 14 to Item 8 of this Form 10-K for additional
shareholder information.

Stock Data(1)

|                   |  |             |      |           |  |       |      |              |  |               |       |           |  |   |       |  |  |   |       |  |  |   |       | 
|------------------ |  | ----------- | ---- | --------- |  | ----- | ---- | ------------ |  | ------------- | ----- | --------- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                   |  |            
|                   |  | Per Share  
|                   |  |            
|                   |  | Diluted Net |      |          
|                   |  | Earnings    |      | Dividends |  | Book  |      |              |  | Quarter      
|Quarter Ended      |  | (Loss)      |      | Paid      |  | Value |      | Low Price(2) |  | High Price(2) |       | End Price
|                   |  |             |      |           |  |       |      |              |  |               |       |          
|December 31, 2003  |  | $           | .47  |           |  | $     | .14  |              |  | $             | 12.12 |           |  | $ | 26.00 |  |  | $ | 32.00 |  |  | $ | 30.01 | 
|September 30, 2003 |  |             | .47  |           |  |       | .107 |              |  |               | 11.88 |           |  |   | 22.55 |  |  |   | 27.00 |  |  |   | 24.78 | 
|June 30, 2003      |  |             | .47  |           |  |       | .107 |              |  |               | 12.65 |           |  |   | 19.84 |  |  |   | 21.99 |  |  |   | 21.99 | 
|March 31, 2003     |  |             | .46  |           |  |       | .095 |              |  |               | 11.73 |           |  |   | 18.95 |  |  |   | 20.88 |  |  |   | 20.26 | 
|December 31, 2002  |  |             | .49  |           |  |       | .095 |              |  |               | 11.44 |           |  |   | 19.67 |  |  |   | 22.29 |  |  |   | 20.95 | 
|September 30, 2002 |  |             | .42  |           |  |       | .095 |              |  |               | 11.07 |           |  |   | 18.18 |  |  |   | 21.50 |  |  |   | 19.82 | 
|June 30, 2002      |  |             | (.25 | )         |  |       | .08  |              |  |               | 10.49 |           |  |   | 20.06 |  |  |   | 22.97 |  |  |   | 21.05 | 
|March 31, 2002     |  |             | .41  |           |  |       | .08  |              |  |               | 10.31 |           |  |   | 16.03 |  |  |   | 20.90 |  |  |   | 20.77 | 



---



|    |                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------
|(1) | Common Stock data has been restated to give
    effect to the three-for-two stock split effective in August 2003.
|(2) | The prices shown represent the high and low
    closing sales prices for the quarter.                            

11



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##### Table of Contents








|        |                        
|------- | -----------------------
|ITEM 6. | Selected Financial Data

The consolidated financial information which
reflects a summary of the operating results and financial
condition of First Oak Brook Bancshares, Inc. for the five years
ended December 31, 2003 is presented in the following
table. All share and per share data has been restated to give
effect to the three-for-two stock split effective in August
2003. This summary should be read in conjunction with
consolidated financial statements and accompanying notes
included in Item 8 of this report. A more detailed
discussion and analysis of the Companys financial
condition and operating results is presented in Item 7 of
this report.

Earnings Summary and Selected Consolidated
Financial Data

|                                                        |          |                                          |           |       |  |      |           |       |  |      |           |       |  |   |           |       |  |   |           |       | 
|------------------------------------------------------- | -------- | ---------------------------------------- | --------- | ----- |  | ---- | --------- | ----- |  | ---- | --------- | ----- |  | - | --------- | ----- |  | - | --------- | ----- | 
|                                                        |          |                                         
|                                                        |          | At and for the years ended December 31, 
|                                                        |          |                                         
|                                                        |          | 2003                                     |           | 2002  |  | 2001 |           | 2000  |  | 1999
|                                                        |          |                                          |           |       |  |      |           |       |  |     
|                                                        |          |                                         
|                                                        |          | (Dollars in thousands except share data)
|Statement of Income Data                                |          |                                          |           |       |  |      |           |       |  |      |           |       |  |   |           |       |  |   |           |      
|Net interest income                                     |          | $                                        | 51,231    |       |  | $    | 47,448    |       |  | $    | 38,916    |       |  | $ | 33,205    |       |  | $ | 32,337    |      
|Provision for loan losses                               |          |                                          | 1,600     |       |  |      | 14,650    |       |  |      | 1,550     |       |  |   | 900       |       |  |   | 840       |      
|Net interest income after provision for loan
    losses |          |                                          | 49,631    |       |  |      | 32,798    |       |  |      | 37,366    |       |  |   | 32,305    |       |  |   | 31,497    |      
|Other income                                            |          |                                          | 18,435    |       |  |      | 17,450    |       |  |      | 14,442    |       |  |   | 10,482    |       |  |   | 8,966     |      
|Other expenses                                          |          |                                          | 41,503    |       |  |      | 35,741    |       |  |      | 31,928    |       |  |   | 27,117    |       |  |   | 25,640    |      
|Income before income taxes                              |          |                                          | 26,563    |       |  |      | 14,507    |       |  |      | 19,880    |       |  |   | 15,670    |       |  |   | 14,823    |      
|Income tax expense                                      |          |                                          | 8,128     |       |  |      | 4,006     |       |  |      | 6,232     |       |  |   | 4,621     |       |  |   | 4,277     |      
|Net income                                              |          | $                                        | 18,435    |       |  | $    | 10,501    |       |  | $    | 13,648    |       |  | $ | 11,049    |       |  | $ | 10,546    |      
|Common Stock Data(1)                                    |          |                                          |           |       |  |      |           |       |  |      |           |       |  |   |           |       |  |   |           |      
|Basic earnings per share                                |          | $                                        | 1.92      |       |  | $    | 1.10      |       |  | $    | 1.44      |       |  | $ | 1.15      |       |  | $ | 1.07      |      
|Diluted earnings per share                              |          |                                          | 1.87      |       |  |      | 1.08      |       |  |      | 1.41      |       |  |   | 1.13      |       |  |   | 1.05      |      
|Cash dividends paid per share(2)                        |          |                                          | .449      |       |  |      | .35       |       |  |      | .30       |       |  |   | .29       |       |  |   | .27       |      
|Book value per share                                    |          |                                          | 12.12     |       |  |      | 11.44     |       |  |      | 10.29     |       |  |   | 9.09      |       |  |   | 8.03      |      
|Closing price of Common Stock per
    share(2)          |          |                                          |           |       |  |      |           |       |  |      |           |       |  |   |           |       |  |   |           |      
|                                                        | High     |                                          |           | 32.00 |  |      |           | 22.97 |  |      |           | 17.00 |  |   |           | 12.25 |  |   |           | 14.00 | 
|                                                        | Low      |                                          |           | 18.95 |  |      |           | 16.03 |  |      |           | 11.63 |  |   |           | 9.00  |  |   |           | 11.00 | 
|                                                        | Year-End |                                          |           | 30.01 |  |      |           | 20.95 |  |      |           | 16.10 |  |   |           | 11.75 |  |   |           | 12.33 | 
|Dividends paid per share to closing price               |          |                                          | 1.5       | %     |  |      | 1.7       | %     |  |      | 1.9       | %     |  |   | 2.4       | %     |  |   | 2.2       | %    
|Closing price to diluted earnings per share             |          |                                          | 16.05     | x     |  |      | 19.5      | x     |  |      | 11.4      | x     |  |   | 10.4      | x     |  |   | 11.8      | x    
|Market capitalization                                   |          | $                                        | 290,518   |       |  | $    | 199,050   |       |  | $    | 152,402   |       |  | $ | 111,844   |       |  | $ | 120,797   |      
|Period end shares outstanding                           |          |                                          | 9,680,711 |       |  |      | 9,501,196 |       |  |      | 9,465,947 |       |  |   | 9,518,618 |       |  |   | 9,796,971 |      
|Volume of shares traded                                 |          |                                          | 2,276,351 |       |  |      | 3,318,996 |       |  |      | 2,318,964 |       |  |   | 3,769,329 |       |  |   | 2,484,674 |      

12



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##### Table of Contents



|                                                         |  |                                          |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|-------------------------------------------------------- |  | ---------------------------------------- | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                                         |  |                                         
|                                                         |  | At and for the years ended December 31, 
|                                                         |  |                                         
|                                                         |  | 2003                                     |           | 2002 |  | 2001 |           | 2000 |  | 1999
|                                                         |  |                                          |           |      |  |      |           |      |  |     
|                                                         |  |                                         
|                                                         |  | (Dollars in thousands except share data)
|Year-End Balance Sheet Data                              |  |                                          |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Total assets                                             |  | $                                        | 1,847,815 |      |  | $    | 1,597,496 |      |  | $    | 1,386,551 |   |  | $ | 1,249,272 |   |  | $ | 1,146,356 |  
|Loans, net of unearned discount                          |  |                                          | 915,678   |      |  |      | 912,081   |      |  |      | 916,645   |   |  |   | 825,020   |   |  |   | 719,969   |  
|Allowance for loan losses                                |  |                                          | 8,369     |      |  |      | 7,351     |      |  |      | 6,982     |   |  |   | 5,682     |   |  |   | 4,828     |  
|Investment securities                                    |  |                                          | 783,471   |      |  |      | 507,485   |      |  |      | 327,389   |   |  |   | 319,985   |   |  |   | 348,607   |  
|Demand deposits                                          |  |                                          | 250,101   |      |  |      | 247,806   |      |  |      | 211,939   |   |  |   | 221,552   |   |  |   | 196,243   |  
|Total deposits                                           |  |                                          | 1,458,502 |      |  |      | 1,264,731 |      |  |      | 1,077,966 |   |  |   | 978,226   |   |  |   | 894,072   |  
|Federal Home Loan Bank borrowings                        |  |                                          | 161,500   |      |  |      | 102,000   |      |  |      | 86,000    |   |  |   | 81,000    |   |  |   | 63,000    |  
|Trust Preferred Capital Securities                       |  |                                          | 23,000    |      |  |      | 18,000    |      |  |      | 6,000     |   |  |   | 6,000     |   |  |   |          |  
|Shareholders equity                                     |  |                                          | 120,892   |      |  |      | 111,942   |      |  |      | 99,552    |   |  |   | 87,606    |   |  |   | 79,999    |  
|Financial Ratios                                         |  |                                          |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Return on average assets                                 |  |                                          | 1.11      | %    |  |      | .71       | %    |  |      | 1.04      | % |  |   | .90       | % |  |   | .99       | %
|Return on average equity                                 |  |                                          | 15.79     |      |  |      | 10.03     |      |  |      | 14.47     |   |  |   | 13.58     |   |  |   | 13.30     |  
|Net interest margin                                      |  |                                          | 3.36      |      |  |      | 3.44      |      |  |      | 3.26      |   |  |   | 2.99      |   |  |   | 3.35      |  
|Net interest spread                                      |  |                                          | 2.97      |      |  |      | 2.89      |      |  |      | 2.38      |   |  |   | 1.95      |   |  |   | 2.35      |  
|Dividend payout ratio                                    |  |                                          | 25.75     |      |  |      | 32.98     |      |  |      | 21.29     |   |  |   | 25.45     |   |  |   | 24.62     |  
|Consolidated Capital Ratios                              |  |                                          |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Average equity to average total assets                   |  |                                          | 7.05      | %    |  |      | 7.06      | %    |  |      | 7.22      | % |  |   | 6.63      | % |  |   | 7.41      | %
|Tier 1 capital ratio                                     |  |                                          | 12.52     |      |  |      | 11.06     |      |  |      | 10.03     |   |  |   | 9.75      |   |  |   | 10.05     |  
|Total capital ratio                                      |  |                                          | 13.26     |      |  |      | 11.73     |      |  |      | 10.72     |   |  |   | 10.35     |   |  |   | 10.65     |  
|Capital leverage ratio                                   |  |                                          | 8.11      |      |  |      | 7.74      |      |  |      | 7.42      |   |  |   | 7.47      |   |  |   | 7.12      |  
|Asset Quality Ratios                                     |  |                                          |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Nonperforming loans to total loans outstanding           |  |                                          | .06       | %    |  |      | .16       | %    |  |      | .19       | % |  |   | .05       | % |  |   | .05       | %
|Nonperforming assets to total assets                     |  |                                          | .91       |      |  |      | .60       |      |  |      | .14       |   |  |   | .05       |   |  |   | .03       |  
|Nonperforming assets to total capital                    |  |                                          | 13.88     |      |  |      | 8.58      |      |  |      | 1.89      |   |  |   | .67       |   |  |   | .50       |  
|Allowance for loan losses to total loans
    outstanding |  |                                          | .91       |      |  |      | .81       |      |  |      | .76       |   |  |   | .69       |   |  |   | .67       |  
|Net charge-offs to average loans                         |  |                                          | .07       |      |  |      | 1.54      |      |  |      | .03       |   |  |   | .01       |   |  |   | .07       |  
|Allowance for loan losses to nonperforming loans         |  |                                          | 15.44     | x    |  |      | 5.09      | x    |  |      | 4.03      | x |  |   | 12.94     | x |  |   | 12.98     | x



---



|    |                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Common Stock data has been restated to give
    effect to the three-for-two stock split effective in August 2003.                                                                                                                                                                                                                                                                    
|(2) | On May 4, 1999, the shareholders approved
    the reclassification of the Common Stock into Class A
    Common Stock on a one for one basis. As a result, the
    Class A Common Stock is now the only class of outstanding
    Common Stock and has been renamed Common Stock.
    Historical dividend and price information shown is that of the
    former Class A Common Stock.

13



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##### Table of Contents








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|ITEM 7. | Managements Discussion And Analysis
    Of Financial Condition And Results Of Operation

The following discussion and analysis provides
information about the financial condition and results of
operations of First Oak Brook Bancshares, Inc. (the Company) for
the years ended December 31, 2003, 2002 and 2001. All share
and per share data has been restated to give effect to the
three-for-two stock split effective in August 2003. This
discussion and analysis should be read in conjunction with the
Companys consolidated financial statements and
accompanying notes included in Item 8 of this report.

EXECUTIVE SUMMARY

The Company, through its wholly-owned bank
subsidiary, operates a single line of business encompassing
general retail and commercial banking business primarily in the
Chicago metropolitan area. The Company is located in a highly
competitive market, facing competition for banking and related
financial services from many financial intermediaries.
Competition amongst financial intermediaries is generally
expressed in terms of interest rates charged on loans and paid
on deposits, the price of products and services a bank can offer
and the variety of financial services offered. The Company
offers a full range of banking services such as demand, savings
and time deposits, corporate treasury management services,
merchant credit card processing, commercial lending products and
personal lending products. The Company also maintains a
full-service investment management and trust department, and in
2003, formed an investment sales division to execute customer
investment transactions in U.S. Treasury,
U.S. Government agency, corporate and municipal securities
primarily for commercial businesses, not-for-profit
organizations, governmental entities and high net worth families.

The profitability of the Companys
operations depends on net interest income, provision for loan
losses, noninterest income, and noninterest expense. Net
interest income is dependent on the amounts and yields of
interest-earning assets as compared to the amounts and rates on
interest-bearing liabilities. Net interest income is sensitive
to changes in market rates of interest as well as to the
execution of the Companys asset/liability management
strategy. The provision for loan losses is affected by changes
in the loan portfolio, managements assessment of the
collectibility of the loan portfolio, loss experience, as well
as economic and market factors.

Noninterest income consists primarily of treasury
management, merchant and trust fee income, and to a lesser
extent, fees for ancillary banking services. Noninterest
expenses are heavily influenced by the growth of internal
operations. The Companys growth directly affects the
majority of the Companys expense categories. The Company
opened three new branches in fiscal year 2003, one each in
Countryside, Graue Mill and St. Charles, which added new
deposits and increased noninterest expenses. The Companys
primary growth strategy continues to revolve around the
expansion of branch locations in the Chicago metropolitan area
while maintaining a strong capital position to enhance the
confidence of our customers, shareholders and banking
regulators. The Company has sought to maximize our internal
growth opportunities by positioning the Company as one of the
leading Chicago area community banks.

Earnings

The Companys consolidated net income,
earnings per share and selected ratios for 2003, 2002 and 2001
were as follows:

|                           |  |      |            |      |  |      |            |   |  |   |            |  
|-------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- | - |  | - | ---------- | -
|                           |  | 2003 |            | 2002 |  | 2001
|                           |  |      |            |      |  |     
|Net income                 |  | $    | 18,435,000 |      |  | $    | 10,501,000 |   |  | $ | 13,648,000 |  
|Basic earnings per share   |  | $    | 1.92       |      |  | $    | 1.10       |   |  | $ | 1.44       |  
|Diluted earnings per share |  | $    | 1.87       |      |  | $    | 1.08       |   |  | $ | 1.41       |  
|Return on average assets   |  |      | 1.11       | %    |  |      | .71        | % |  |   | 1.04       | %
|Return on average equity   |  |      | 15.79      | %    |  |      | 10.03      | % |  |   | 14.47      | %

14



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##### Table of Contents



Set forth below are significant items that
occurred during 2003 and some related 2002 discussion:



| |   |                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Assets at year-end grew to $1.85 billion, up
    16% over 2002.                                                                                                                                                                                                                                                                   
|
| |  | Equity increased to $120.9 million, up 8%
    over 2002.                                                                                                                                                                                                                                                                          
|
| |  | Cash dividends were increased twice in 2003, a
    47% overall hike; FOBB share price increased 43% to
    $30.01 per share at year end; and a three-for-two stock
    split was effected in August 2003.                                                                                                                         
|
| |  | Net income is up $7.9 million in 2003. The
    Companys 2002 net income was depressed due primarily
    to a significant loss from an apparent fraud on a construction
    loan. (See Asset Quality).                                                                                                                          
|
| |  | Net interest income increased $3.8 million.
    Volume of average earning assets increased $139.4 million;
    average investments rose $190.3 million and average loans
    fell $35.8 million.                                                                                                                                  
|
| |  | Net interest margin went down 8 basis points
    to 3.36% due to lower interest rates and a change in the asset
    mix partially offset by approximately $1.2 million in
    additional loan fees, prepayment penalties and accretion
    remaining on security calls.                                                           
|
| |  | Treasury management fees went down $561,000
    primarily due to the loss of one significant customer.                                                                                                                                                                                                                            
|
| |  | Trust fees rose $439,000 due to $150 million
    increase in discretionary assets under management.                                                                                                                                                                                                                               
|
| |  | Gain on mortgages sold reached $1 million,
    up $190,000 from 2002, due to high volume of refinancings in the
    low interest rate environment.                                                                                                                                                                                
|
| |  | The sale of covered call options provided income
    of $1.2 million, up $772,000 over 2002.                                                                                                                                                                                                                                      
|
| |  | Income from bank owned life insurance went up
    $645,000 over 2002.                                                                                                                                                                                                                                                             
|
| |  | Countryside, Graue Mill and St. Charles branches
    opened in 2003, adding $90.4 million in new deposits and
    increasing noninterest expenses.                                                                                                                                                                                
|
| |  | The luxury 24 unit condominium construction
    project held in OREO was substantially completed and an
    additional write-down of $1.4 million was taken during
    2003. As of March 8, 2004, ten units and 25 parking
    spaces have been sold, of which five units and eighteen parking
    spaces are closed and occupied.
|
| |  | Total loans on the Management Watch list
    (including commitments) declined to $9.2 million at
    December 31, 2003 from $32.0 million at
    December 31, 2002, a $22.8 million improvement.                                                                                                                                  

See Results of Operations for further
explanation of the Companys 2003 performance.

Application of Critical Accounting
Policies

The Company has established various accounting
policies which govern the application of accounting principles
generally accepted in the United States of America in the
preparation of the Companys consolidated financial
statements. The significant accounting policies of the Company
are described in the footnotes to the consolidated financial
statements. Certain accounting policies involve significant
judgments and assumptions by management which have a material
impact on the carrying value of certain assets and liabilities;
management considers such accounting policies to be critical
accounting policies. The judgments and assumptions used by
management are based on historical experience, projected results
and other factors, which are believed to be reasonable under the
circumstances. Because of the nature of the judgments and
assumptions made by management, actual results could differ from
these judgments and estimates, which could have a material
impact on the carrying values of assets and liabilities and the
results of operations of the Company.

The Company believes the policies that govern the
allowance for loan losses and the deferred tax assets and
liabilities are critical accounting policies that require the
most significant judgments and estimates used in preparation of
its consolidated financial statements.

15



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| |                          
| | -------------------------
| | Allowance for Loan Losses

Management of the Bank prepares a detailed
analysis, at least quarterly, reviewing the adequacy of its
allowance for loan losses and, when appropriate, recommends an
increase or decrease in its provision for loan losses. The
quarterly analysis is divided into two segments: the allocated
portion for specific loans and loan categories and the
unallocated portion which is not specifically related to any
specific segment of the portfolio.

The analysis to determine the allocated portion
of the allowance is again divided into two parts. The first part
involves primarily an estimated calculation of losses on loans
on the Management Watch list. The Companys Management
Watch list includes all nonaccrual loans, commercial
nonperforming loans and potential problem loans and related
commitments. Although the Management Watch list includes the
Companys property in OREO, this asset is reviewed
individually and not included in the allowance for loan loss
calculation (See Asset Quality). Loans on the
Management Watch list are classified as special
mention, substandard, doubtful, or
loss. An asset is classified as substandard if it is
inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any.
Substandard assets include those characterized by the distinct
possibility that the Company will sustain some loss if the
deficiencies are not corrected. Assets classified as Doubtful
have all the weaknesses inherent in those classified Substandard
with the added characteristic that the weaknesses present make
collection or liquidation in full, on the basis of currently
existing facts, conditions and values, highly questionable and
improbable. Assets classified as Loss are those considered
uncollectible and requiring charge-off. Assets that do not
currently expose the Company to sufficient risk to warrant
classification in one of the aforementioned categories, but
possess weaknesses that may or may not be within the control of
the customer are deemed to be Special Mention. The second part
of the allocated portion involves primarily a calculation of the
Banks actual net charge-off history (excluding the
apparent fraud loss in 2002) averaged with industry net
charge-off history by major loan categories. The Bank also
employs a rating system for loans in its Commercial Lending and
Commercial Real Estate departments. Loans that are rated in
certain categories may require a higher allocation.

The unallocated portion of the reserve involves a
higher degree of subjectivity in its determination. The Bank
considers its portfolio composition, loan growth, management
capabilities, economic trends, credit concentrations, industry
risks, underlying collateral values and the opinions of bank
management. Accordingly, because each of these criteria is
subject to change, the allocation of the allowance is not
necessarily indicative of the trend of future loan losses in any
particular loan category. The total allowance is available to
absorb losses from any segment of the portfolio.

In order to identify potential risks in the loan
portfolio and determine the necessary provision for loan losses,
detailed information is obtained from the following sources:



| |   |                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Monthly reports prepared by the Banks
    management and reviewed by the loan committee which contain
    information on the overall characteristics of the loan
    portfolio, including delinquencies, nonaccruals and specific
    analysis of potential problem loans that require special
    attention (i.e. Management Watch list);
|
| |  | Examinations of the loan portfolio of the Bank by
    Federal and State regulatory agencies, including Shared National
    Credit reviews of syndicated loans;                                                                                                                                                                               
|
| |  | Reviews by third-party credit review consultants.                                                                                                                                                                                                                                                                                            

For additional disclosures regarding the
allowance for loan losses, refer to the section titled
Allowance for Loan Losses in this Form 10-K.



| |             
| | ------------
| | Income Taxes

The Company accounts for income tax expense by
applying an estimated effective tax rate to its pre-tax income.
The effective tax rate is based on managements judgments
and estimates regarding permanent differences in the treatment
of specific items of income and expense for financial statement
and income tax purposes. In addition, the Company recognizes
deferred tax assets and liabilities based on managements

16



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##### Table of Contents



judgments and estimates regarding temporary
differences in the recognition of income and expenses for
financial statement and income tax purposes.


The Company must also assess the likelihood that
any deferred tax assets will be realized through the reduction
or refund of taxes in future periods and establish a valuation
allowance for those assets for which recovery is unlikely. In
making this assessment, management must make judgments and
estimates regarding the ability to realize the asset through
carryback to taxable income in prior years, the future reversal
of existing taxable temporary differences, future taxable
income, and the possible application of future tax planning
strategies. While the Company has determined that a valuation
allowance is not required for all deferred tax assets, there is
no guarantee that these assets are realizable. For additional
disclosures on income taxes, see the section titled Income
Tax Expense in addition to Note 9 to Item 8 of
this Form 10-K.

RESULTS OF OPERATIONS

Net Interest Income

Net interest income is the difference between
interest earned on loans, investments, and other earning assets
and interest paid on deposits, borrowings and other
interest-bearing liabilities. The net interest spread is the
difference between the average rates on interest-earning assets
and the average rates on interest-bearing liabilities. The
interest rate margin represents net interest income divided by
average earning assets. Since a significant portion of the
Companys funding is derived from interest-free sources,
primarily demand deposits and shareholders equity, the
effective rate paid for all funding sources is lower than the
rate paid on interest-bearing liabilities alone.



| |                 
| | ----------------
| | 2003 versus 2002

Net interest income, on a tax equivalent basis,
increased $3,515,000, or 7%, as compared to 2002. This increase
is primarily attributable to a 10% increase in average earning
assets partially offset by an 8 basis point decrease in the
net interest margin to 3.36% for 2003 from 3.44% for 2002. Since
the Companys average deposits grew by $126.9 million,
loan payoffs were high and loan demand was soft throughout much
of 2003, the growth in earning assets came primarily from
investment securities. The changes in net interest income and
the net interest margin were primarily the result of the
following:

RATE



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The yield on average earning assets decreased
    72 basis points to 5.22%, while the cost of deposits and
    other borrowed funds decreased 80 basis points to 2.25% for
    2003. The Federal Reserve reduced interest rates by
    50 basis points late in 2002 and another 25 basis
    points late in June 2003, resulting in an average prime rate for
    2003 of 4.12% as compared to 4.68% for 2002. Although the
    Company uses various indexes (including prime) to price loans,
    this decrease in prime was indicative of the general interest
    rate environment.                                                                                                                         
|
| |  | As a result of the low interest rate environment,
    the expected margin compression was partially offset by
    increases in loan fees of $1,033,000 in 2003 as compared to
    2002. Although loan fee income is a normal part of the business,
    the fees associated with the prepayment of loans and contingent
    fee arrangements are less predictable and can result in a spike
    in earnings since these fees are recorded in income when
    received. The margin was also boosted by accretion income of
    $196,000 on security calls. Since the Companys policy is
    to accrete discounts to maturity, any remaining discount on a
    called security is immediately accreted to income.

VOLUME



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Total average earning assets increased
    $139.4 million, or 10%, as compared to 2002. The
    Companys average securities portfolio increased by
    $190.3 million, or 46%, and consists of increases in
    U.S. Government agency securities ($136.2 million),
    U.S. Treasury securities ($31.2 million), and
    corporate and other securities ($23.9 million), offset by a
    decrease in municipal securities ($1.0 million).

17



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##### Table of Contents



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | The increase in corporate and other securities is
    primarily due to the purchase of $30.0 million of FHLB of
    Chicago stock. See Investment Securities for further
    analysis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Average loans for 2003 decreased
    $35.8 million, or 4%, as compared to 2002. The decrease is
    primarily attributable to high payoffs resulting in decreases in
    construction loans ($39.7 million), commercial loans
    ($10.0 million), and residential mortgage loans
    ($9.8 million), offset by growth in home equity loans
    ($15.3 million) and indirect vehicle loans
    ($10.5 million). Payoffs slowed and loan demand picked up
    towards the end of 2003, recouping most of the decrease
    experienced earlier in the year. The yield on loans dropped
    65 basis points as compared to 2002. See Loans
    for further analysis.                                                                                                                                                                                                                  
|
| |  | Average Fed funds sold and interest-bearing
    deposits with banks decreased $15.1 million due to a
    decrease in short-term debt, and cash flows from deposit growth
    and loan repayments being invested in readily marketable
    U.S. Government agency securities rather than in the Fed
    funds market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Average interest-bearing liabilities increased
    $125.7 million, or 11%, as compared to 2002. Average
    interest-bearing deposits increased $126.9 million
    primarily due to growth in time deposits ($77.9 million)
    and in savings and NOW accounts ($69.5 million), offset by
    a decrease in money market accounts ($20.4 million). Time
    deposits were augmented by a $55.8 million average increase
    in public funds and a $13.4 million average increase in
    brokered CDs; savings and NOW growth was spurred by the
    promotion of higher rate products and the increase in 2003
    includes average deposits of $34.2 million from the new
    Countryside office (opened in January 2003), $5.4 million
    from the new Graue Mill office (opened in May 2003), and
    $2.5 million from the new St. Charles office (opened in
    October 2003).
|
| |  | Average short-term debt decreased
    $15.6 million due primarily to an $8.8 million average
    decrease in the treasury, tax and loan note and a
    $7.9 million average decrease in commercial repurchase
    agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Average Federal Home Loan Bank
    (FHLB) of Chicago borrowings increased
    $8.4 million due primarily to advances obtained late in
    2002 to finance the buildout of property now carried in Other
    Real Estate Owned (OREO). See Asset
    Quality.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Average Trust Preferred Capital Securities
    (TRUPS) increased $6.0 million through a
    $12 million participation in a pooled trust preferred
    offering late in the second quarter of 2002 and a
    $5 million participation in the fourth quarter of 2003. See
    Note 8 to Item 8 of this Form 10-K for more
    information.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Average demand deposits increased
    $30.4 million due primarily to new customer volume.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



| |                 
| | ----------------
| | 2002 versus 2001

Net interest income, on a tax equivalent basis,
increased $8,147,000 or 20% from 2001. This increase is due to a
14% increase in average earning assets and an 18 basis
point increase in the net interest margin to 3.44% in 2002 from
3.26% in 2001. The increase in net interest income and the net
interest margin was primarily the result of the following:

RATE



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | For 2002, the yield on average earning assets
    decreased 117 basis points to 5.94%, while the cost of
    deposits and other borrowed funds decreased 168 basis
    points to 3.05%. The Federal Reserve reduced interest rates by
    50 basis points late in 2002 and 475 basis points
    throughout 2001, resulting in an average prime rate of 4.68% for
    the year ended December 31, 2002 as compared to 6.92% for
    2001. In 2002, the net interest margin continued to benefit from
    the Federal Reserve interest rate reductions since the
    Companys deposits and other interest-bearing liabilities
    repriced downward more quickly than its loans and investments.

18



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##### Table of Contents



VOLUME



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Total average earning assets increased
    $171.7 million, or 14%, as compared to 2001. The
    Companys average securities portfolio increased
    $108.5 million, or 35%, primarily due to the growth in
    U.S. Government agency securities ($107.2 million) and
    corporate and other securities ($13.8 million), offset by
    decreases in U.S. Treasury ($2.6 million) and
    municipal ($9.9 million) securities.                                                                                                                                        
|
| |  | Average loans grew $56.5 million, or 6%, in
    comparison to 2001. The increase is primarily attributable to
    growth in commercial real estate ($30.7 million),
    construction loans ($18.7 million), indirect vehicle loans
    ($14.7 million) and home equity loans ($10.0 million),
    offset by a decrease in residential mortgages
    ($15.9 million).                                                                                                                                                                                                   
|
| |  | Average interest-bearing liabilities increased
    $146.6 million, or 15%, as compared to 2001. Average
    interest-bearing deposits increased $136.9 million
    primarily due to the promotion of the new Advance Interest CD
    product ($77.6 million), an increase in public funds
    ($17.7 million) and growth in savings, NOW and money market
    accounts ($46.4 million). The Advance Interest CD pays
    interest in advance rather than in arrears. The Bolingbrook
    office, opened in March 2002, averaged $14.0 million in
    deposits for 2002.
|
| |  | Average FHLB of Chicago borrowings increased due
    primarily to new advances intended for the buildout of the
    property in OREO.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Average TRUPS increased due to the Companys
    $12 million participation in a pooled trust preferred
    offering issued late in the second quarter of 2002.                                                                                                                                                                                                                                                                                                                                                                                                         

19



---



##### Table of Contents



The following table presents the average interest
rate on each major category of interest-earning assets and
interest-bearing liabilities for 2003, 2002, and 2001.

|                                                         |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |       |       | 
|-------------------------------------------------------- | ----------------------------------------------------------- | -------------------------- | --------- | -------- | ------- | ------ | ------ | ------- | ------ | -------- | ---- | ------ | ---- | ------- | --------- | -------- | ------- | ------ | ------ | ------ | ------ |  | ---- | ---- | ---- | - | --------- | ------- | ------- | - | ------ | ------ | ------ |  | ---- | ----- | ----- | 
|                                                         |                                                             |                            |           |          |         |       
|                                                         |                                                             | 2003                       |           | 2002     |         | 2001  
|                                                         |                                                             |                            |           |          |         |       
|                                                         |                                                             |                            |           | Interest |         |        |        |         |        | Interest |      |        |      |         |           | Interest |         |       
|                                                         |                                                             | Average                    |           | Income/  |         | Yield/ |        | Average |        | Income/  |      | Yield/ |      | Average |           | Income/  |         | Yield/
|                                                         |                                                             | Balance                    |           | Expense  |         | Rates  |        | Balance |        | Expense  |      | Rates  |      | Balance |           | Expense  |         | Rates 
|                                                         |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |       
|                                                         |                                                             |                           
|                                                         |                                                             | (Dollars in thousands)    
|Assets                                                   |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|Earning assets:                                          |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|                                                         | Fed funds sold and interest-bearing deposits with
    banks |                            | $         | 45,678   |         |        | $      | 500     |        |          |      | 1.10   | %    |         | $         | 60,755   |         |        | $      | 1,001  |        |  |      | 1.65 | %    |   | $         | 54,034  |         |   | $      | 1,878  |        |  |      | 3.48  | %    
|Investment securities:                                   |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|                                                         | Taxable securities                                          |                            |           | 570,662  |         |        |        | 26,796  |        |          |      | 4.70   |      |         |           | 376,096  |         |        |        | 20,752 |        |  |      | 5.52 |      |   |           | 257,538 |         |   |        | 16,466 |        |  |      | 6.39  |      
|                                                         | Tax exempt securities(1)                                    |                            |           | 37,551   |         |        |        | 2,356   |        |          |      | 6.27   |      |         |           | 41,808   |         |        |        | 2,728  |        |  |      | 6.52 |      |   |           | 51,863  |         |   |        | 3,971  |        |  |      | 7.66  |      
|                                                         |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|Total investment securities(2)                           |                                                             |                            | 608,213   |          |         |        | 29,152 |         |        |          | 4.79 |        |      |         | 417,904   |          |         |        | 23,480 |        |        |  | 5.62 |      |      |   | 309,401   |         |         |   | 20,437 |        |        |  | 6.61 |      
|Loans:(1)(3)                                             |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|                                                         | Commercial and Syndicated(1)                                |                            |           | 127,733  |         |        |        | 6,564   |        |          |      | 5.14   |      |         |           | 137,748  |         |        |        | 8,265  |        |  |      | 6.00 |      |   |           | 138,848 |         |   |        | 10,341 |        |  |      | 7.45  |      
|                                                         | Construction                                                |                            |           | 56,084   |         |        |        | 3,579   |        |          |      | 6.38   |      |         |           | 95,777   |         |        |        | 5,609  |        |  |      | 5.86 |      |   |           | 77,064  |         |   |        | 5,827  |        |  |      | 7.56  |      
|                                                         | Commercial mortgage                                         |                            |           | 227,233  |         |        |        | 16,030  |        |          |      | 7.05   |      |         |           | 227,188  |         |        |        | 16,139 |        |  |      | 7.10 |      |   |           | 196,524 |         |   |        | 15,718 |        |  |      | 8.00  |      
|                                                         | Residential mortgage                                        |                            |           | 92,732   |         |        |        | 5,380   |        |          |      | 5.80   |      |         |           | 102,555  |         |        |        | 6,909  |        |  |      | 6.74 |      |   |           | 118,447 |         |   |        | 8,456  |        |  |      | 7.14  |      
|                                                         | Home equity                                                 |                            |           | 131,934  |         |        |        | 5,207   |        |          |      | 3.95   |      |         |           | 116,593  |         |        |        | 5,475  |        |  |      | 4.70 |      |   |           | 106,607 |         |   |        | 7,328  |        |  |      | 6.87  |      
|                                                         | Indirect vehicle loans:                                     |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |       |      
|                                                         |                                                             | Auto                       |           |          | 212,962 |        |        |         | 11,366 |          |      |        | 5.34 |         |           |          | 209,801 |        |        |        | 13,854 |  |      |      | 6.60 |   |           |         | 209,365 |   |        |        | 15,538 |  |      |       | 7.42  | 
|                                                         |                                                             | Harley Davidson motorcycle |           |          | 33,232  |        |        |         | 2,254  |          |      |        | 6.78 |         |           |          | 25,939  |        |        |        | 1,980  |  |      |      | 7.63 |   |           |         | 11,709  |   |        |        | 1,179  |  |      |       | 10.07 | 
|                                                         | Consumer                                                    |                            |           | 8,669    |         |        |        | 540     |        |          |      | 6.24   |      |         |           | 10,811   |         |        |        | 760    |        |  |      | 7.03 |      |   |           | 11,350  |         |   |        | 946    |        |  |      | 8.33  |      
|                                                         |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|Total loans, net of unearned discount                    |                                                             |                            | 890,579   |          |         |        | 50,920 |         |        |          | 5.72 |        |      |         | 926,412   |          |         |        | 58,991 |        |        |  | 6.37 |      |      |   | 869,914   |         |         |   | 65,333 |        |        |  | 7.51 |      
|                                                         |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|Total earning assets/ interest income                    |                                                             | $                          | 1,544,470 |          |         | $      | 80,572 |         |        |          | 5.22 | %      |      | $       | 1,405,071 |          |         | $      | 83,472 |        |        |  | 5.94 | %    |      | $ | 1,233,349 |         |         | $ | 87,648 |        |        |  | 7.11 | %    
|Cash and due from banks                                  |                                                             |                            | 39,898    |          |         |        |        |         |        |          |      |        |      |         | 42,428    |          |         |        |        |        |        |  |      |      |      |   | 42,732    |         |         |   |        |        |        |  |      |      
|Other assets                                             |                                                             |                            | 79,429    |          |         |        |        |         |        |          |      |        |      |         | 46,183    |          |         |        |        |        |        |  |      |      |      |   | 37,058    |         |         |   |        |        |        |  |      |      
|Allowance for loan losses                                |                                                             |                            | (8,204    | )        |         |        |        |         |        |          |      |        |      |         | (10,035   | )        |         |        |        |        |        |  |      |      |      |   | (6,233    | )       |         |   |        |        |        |  |      |      
|                                                         |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|                                                         |                                                             | $                          | 1,655,593 |          |         |        |        |         |        |          |      |        |      | $       | 1,483,647 |          |         |        |        |        |        |  |      |      |      | $ | 1,306,906 |         |         |   |        |        |        |  |      |      
|                                                         |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|                                                        
|Liabilities and Shareholders
    Equity                 |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|Interest-bearing liabilities:                            |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|                                                         | Savings deposits and NOW accounts                           |                            | $         | 214,120  |         |        | $      | 2,163   |        |          |      | 1.01   | %    |         | $         | 144,650  |         |        | $      | 1,710  |        |  |      | 1.18 | %    |   | $         | 126,477 |         |   | $      | 2,751  |        |  |      | 2.18  | %    
|                                                         | Money market accounts                                       |                            |           | 132,964  |         |        |        | 1,534   |        |          |      | 1.15   |      |         |           | 153,379  |         |        |        | 3,062  |        |  |      | 2.00 |      |   |           | 125,163 |         |   |        | 4,157  |        |  |      | 3.32  |      
|                                                         | Time deposits                                               |                            |           | 732,738  |         |        |        | 17,899  |        |          |      | 2.44   |      |         |           | 654,877  |         |        |        | 22,380 |        |  |      | 3.42 |      |   |           | 564,325 |         |   |        | 30,558 |        |  |      | 5.41  |      
|                                                         | Short-term debt                                             |                            |           | 78,779   |         |        |        | 829     |        |          |      | 1.05   |      |         |           | 94,350   |         |        |        | 1,596  |        |  |      | 1.69 |      |   |           | 96,675  |         |   |        | 4,128  |        |  |      | 4.27  |      
|                                                         | FHLB of Chicago borrowings                                  |                            |           | 99,679   |         |        |        | 5,051   |        |          |      | 5.07   |      |         |           | 91,241   |         |        |        | 5,390  |        |  |      | 5.91 |      |   |           | 85,493  |         |   |        | 5,206  |        |  |      | 6.09  |      
|                                                         | Trust Preferred Capital Securities                          |                            |           | 18,178   |         |        |        | 1,228   |        |          |      | 6.76   |      |         |           | 12,214   |         |        |        | 981    |        |  |      | 8.03 |      |   |           | 6,000   |         |   |        | 642    |        |  |      | 10.71 |      
|                                                         |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|Total interest-bearing liabilities/ interest
    expense |                                                             | $                          | 1,276,458 |          |         | $      | 28,704 |         |        |          | 2.25 | %      |      | $       | 1,150,711 |          |         | $      | 35,119 |        |        |  | 3.05 | %    |      | $ | 1,004,133 |         |         | $ | 47,442 |        |        |  | 4.73 | %    
|Noninterest-bearing demand deposits                      |                                                             |                            | 246,525   |          |         |        |        |         |        |          |      |        |      |         | 216,100   |          |         |        |        |        |        |  |      |      |      |   | 193,778   |         |         |   |        |        |        |  |      |      
|Other liabilities                                        |                                                             |                            | 15,846    |          |         |        |        |         |        |          |      |        |      |         | 12,130    |          |         |        |        |        |        |  |      |      |      |   | 14,691    |         |         |   |        |        |        |  |      |      
|                                                         |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|Total liabilities                                        |                                                             | $                          | 1,538,829 |          |         |        |        |         |        |          |      |        |      | $       | 1,378,941 |          |         |        |        |        |        |  |      |      |      | $ | 1,212,602 |         |         |   |        |        |        |  |      |      
|Shareholders equity                                     |                                                             |                            | 116,764   |          |         |        |        |         |        |          |      |        |      |         | 104,706   |          |         |        |        |        |        |  |      |      |      |   | 94,304    |         |         |   |        |        |        |  |      |      
|                                                         |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|                                                         |                                                             | $                          | 1,655,593 |          |         |        |        |         |        |          |      |        |      | $       | 1,483,647 |          |         |        |        |        |        |  |      |      |      | $ | 1,306,906 |         |         |   |        |        |        |  |      |      
|                                                         |                                                             |                            |           |          |         |        |        |         |        |          |      |        |      |         |           |          |         |        |        |        |        |  |      |      |      |   |           |         |         |   |        |        |        |  |      |      
|Net interest income/ net interest
    spread(4)          |                                                             |                            |           |          |         | $      | 51,868 |         |        |          | 2.97 | %      |      |         |           |          |         | $      | 48,353 |        |        |  | 2.89 | %    |      |   |           |         |         | $ | 40,206 |        |        |  | 2.38 | %    
|Net interest margin (5)                                  |                                                             |                            |           |          |         |        |        |         |        |          | 3.36 | %      |      |         |           |          |         |        |        |        |        |  | 3.44 | %    |      |   |           |         |         |   |        |        |        |  | 3.26 | %    



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Tax equivalent basis. Interest income and average
    yield on tax exempt loans and investment securities include the
    effects of tax equivalent adjustments using a tax rate of 35% in
    2003, 2002 and 2001. Tax equivalent interest income on tax
    exempt securities consists of GAAP income of $1,787, $1,907 and
    $2,812, plus the tax equivalent adjustment of $569, $821 and
    $1,159 for the years ended December 31, 2003, 2002 and
    2001, respectively. Tax equivalent interest income on commercial
    loans consists of GAAP income of $6,496, $8,181 and $10,210,
    plus the tax equivalent adjustment of $68, $84 and $131 for the
    years ended December 31, 2003, 2002 and 2001, respectively.
|(2) | Investment securities are shown at their
    respective carrying values. Based on the amortized cost, the
    average balance and weighted-average tax equivalent yield of
    total investment securities was $599,081 and 4.87% in 2003;
    $409,278 and 5.75% in 2002; and $303,601 and 6.74% in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                         
|(3) | Total average nonaccrual loans of $275, $8,835
    and $529 for the years ended December 31, 2003, 2002 and
    2001, respectively, are included in the average balance. The
    majority of average nonaccrual loans are construction loans
    which represent $200, $8,794 and $454 of the total nonaccrual
    balance for the years ended December 31, 2003, 2002 and
    2001, respectively. The yield on construction loans would have
    been 6.41%, 6.45%, and 7.61% for the years ended
    December 31, 2003, 2002 and 2001, respectively, had
    nonaccrual loans been excluded.                                                                                                                                     
|(4) | Total yield on average earning assets, less total
    rate paid on average interest-bearing liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(5) | Net interest income on a tax equivalent basis
    divided by average earning assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

20



---



##### Table of Contents



The following table presents a summary analysis
of changes in interest income and interest expense for 2003 as
compared to 2002 and 2002 as compared to 2001. Interest income
decreased in 2003 primarily due to the overall 72 basis
point decrease in the yield earned on interest earning assets
and the decrease in the average volume of loans, partially
offset by an increase in the average volume of securities.
Interest expense decreased primarily due to the overall decrease
of 80 basis points on the cost of interest-bearing
liabilities, partially offset by increases in the average volume
of interest-bearing deposits, FHLB of Chicago borrowings and
proceeds from the TRUPS offering.

Interest income decreased in 2002 primarily due
to the overall 117 basis point decrease in the yield earned
on interest earning assets, partially offset by increases in the
average volume of loans and securities. Interest expense
decreased primarily due to the overall decrease of
168 basis points on the cost of interest-bearing
liabilities, partially offset by increases in the average volume
of interest-bearing deposits, FHLB of Chicago borrowings and
proceeds from the TRUPS offering.

Analysis of Net Interest Income
Changes

|                                         |                                                             |                        |       |                |   |       |        |           |   |         |        |        |   |   |        |       |   |   |         |         |   |   |         |        |  
|---------------------------------------- | ----------------------------------------------------------- | ---------------------- | ----- | -------------- | - | ----- | ------ | --------- | - | ------- | ------ | ------ | - | - | ------ | ----- | - | - | ------- | ------- | - | - | ------- | ------ | -
|                                         |                                                             |                        |       |               
|                                         |                                                             | 2003 Over 2002         |       | 2002 Over 2001
|                                         |                                                             |                        |       |               
|                                         |                                                             | Volume(1)              |       | Rate(1)        |   | Total |        | Volume(1) |   | Rate(1) |        | Total 
|                                         |                                                             |                        |       |                |   |       |        |           |   |         |        |       
|                                         |                                                             |                       
|                                         |                                                             | (Dollars in thousands)
|Increase (decrease) in interest income:  |                                                             |                        |       |                |   |       |        |           |   |         |        |        |   |   |        |       |   |   |         |         |   |   |         |       
|                                         | Fed funds sold and interest-bearing deposits with
    banks |                        | $     | (213           | ) |       | $      | (288      | ) |         | $      | (501   | ) |   | $      | 210   |   |   | $       | (1,087  | ) |   | $       | (877   | )
|                                         | Taxable securities                                          |                        |       | 9,447          |   |       |        | (3,403    | ) |         |        | 6,044  |   |   |        | 6,820 |   |   |         | (2,534  | ) |   |         | 4,286  |  
|                                         | Tax exempt securities(2)                                    |                        |       | (270           | ) |       |        | (102      | ) |         |        | (372   | ) |   |        | (705  | ) |   |         | (538    | ) |   |         | (1,243 | )
|                                         | Loans, net of unearned discount(2,3)                        |                        |       | (2,218         | ) |       |        | (5,853    | ) |         |        | (8,071 | ) |   |        | 4,090 |   |   |         | (10,432 | ) |   |         | (6,342 | )
|                                         |                                                             |                        |       |                |   |       |        |           |   |         |        |        |   |   |        |       |   |   |         |         |   |   |         |       
|Total interest income                    |                                                             | $                      | 6,746 |                |   | $     | (9,646 | )         |   | $       | (2,900 | )      |   | $ | 10,415 |       |   | $ | (14,591 | )       |   | $ | (4,176  | )     
|                                         |                                                             |                        |       |                |   |       |        |           |   |         |        |        |   |   |        |       |   |   |         |         |   |   |         |       
|Increase (decrease) in interest expense: |                                                             |                        |       |                |   |       |        |           |   |         |        |        |   |   |        |       |   |   |         |         |   |   |         |       
|                                         | Savings and NOW accounts                                    |                        | $     | 732            |   |       | $      | (279      | ) |         | $      | 453    |   |   | $      | 316   |   |   | $       | (1,357  | ) |   | $       | (1,041 | )
|                                         | Money market accounts                                       |                        |       | (366           | ) |       |        | (1,162    | ) |         |        | (1,528 | ) |   |        | 802   |   |   |         | (1,897  | ) |   |         | (1,095 | )
|                                         | Time deposits                                               |                        |       | 2,437          |   |       |        | (6,918    | ) |         |        | (4,481 | ) |   |        | 4,355 |   |   |         | (12,533 | ) |   |         | (8,178 | )
|                                         | Short-term debt                                             |                        |       | (233           | ) |       |        | (534      | ) |         |        | (767   | ) |   |        | (97   | ) |   |         | (2,435  | ) |   |         | (2,532 | )
|                                         | FHLB of Chicago borrowings                                  |                        |       | 470            |   |       |        | (809      | ) |         |        | (339   | ) |   |        | 343   |   |   |         | (159    | ) |   |         | 184    |  
|                                         | Trust Preferred Capital Securities                          |                        |       | 422            |   |       |        | (175      | ) |         |        | 247    |   |   |        | 531   |   |   |         | (192    | ) |   |         | 339    |  
|                                         |                                                             |                        |       |                |   |       |        |           |   |         |        |        |   |   |        |       |   |   |         |         |   |   |         |       
|Total interest expense                   |                                                             | $                      | 3,462 |                |   | $     | (9,877 | )         |   | $       | (6,415 | )      |   | $ | 6,250  |       |   | $ | (18,573 | )       |   | $ | (12,323 | )     
|                                         |                                                             |                        |       |                |   |       |        |           |   |         |        |        |   |   |        |       |   |   |         |         |   |   |         |       
|Increase in net interest income          |                                                             | $                      | 3,284 |                |   | $     | 231    |           |   | $       | 3,515  |        |   | $ | 4,165  |       |   | $ | 3,982   |         |   | $ | 8,147   |       
|                                         |                                                             |                        |       |                |   |       |        |           |   |         |        |        |   |   |        |       |   |   |         |         |   |   |         |       



---



|    |                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The change in interest due to both rate and
    volume has been allocated proportionately.                                                                                
|(2) | Tax equivalent basis. Tax exempt loans and
    investment securities include the effects of tax equivalent
    adjustments using a tax rate of 35% in 2003, 2002 and 2001.
|(3) | Includes nonaccrual loans.                                                                                                                                                

Provision for Loan Losses

The Provision for Loan Losses decreased
$13,050,000 in 2003 as compared to 2002 primarily due to special
provisions in 2002 totaling $12,050,000 related to the apparent
loan fraud on the property now carried in OREO. See Asset
Quality. The remaining decrease in 2003 is primarily
related to the reduction in Management Watch list loans. The
provision for loan losses increased $13,100,000 in 2002 as
compared to 2001 primarily due to the special provisions. The
remaining increase in the 2002 provision was due to an increase
in Management Watch list loans, weak general economic
conditions, and the growth in the average balances of the
commercial real estate and construction portfolios.

See Allowance for Loan Losses and
Asset Quality for further analysis.

21



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##### Table of Contents



Summary of Other Income

The following table summarizes significant
components of Other Income and percentage changes from year to
year:

|                                                                        |  |                        |        |      |  |      |        |          |  |         |        |  |  |  |     |    |  |  |     |  
|----------------------------------------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------ | -------- |  | ------- | ------ |  |  |  | --- | -- |  |  | --- | -
|                                                                        |  |                        |        |      |  |      |        |         
|                                                                        |  |                        |        |      |  |      |        | % Change
|                                                                        |  |                        |        |      |  |      |        |         
|                                                                        |  | 2003                   |        | 2002 |  | 2001 |        | 03-02  |  | 02-01
|                                                                        |  |                        |        |      |  |      |        |          |  |        
|                                                                        |  |                        |        |      |  |     
|                                                                        |  | (Dollars in thousands) |        |      |  |     
|Service charges on deposit accountstreasury
    management             |  | $                      | 5,601  |      |  | $    | 6,162  |          |  | $       | 4,853  |  |  |  | (9  | )% |  |  | 27  | %
|Service charges on deposit accountsretail
    and small business       |  |                        | 1,259  |      |  |      | 1,214  |          |  |         | 1,179  |  |  |  | 4   |    |  |  | 3   |  
|Investment management and trust fees                                    |  |                        | 2,140  |      |  |      | 1,701  |          |  |         | 1,429  |  |  |  | 26  |    |  |  | 19  |  
|Merchant credit card processing fees                                    |  |                        | 4,849  |      |  |      | 4,813  |          |  |         | 3,777  |  |  |  | 1   |    |  |  | 27  |  
|Gain on mortgages sold, net of commissions                              |  |                        | 1,004  |      |  |      | 814    |          |  |         | 643    |  |  |  | 23  |    |  |  | 27  |  
|Income from bank owned life insurance                                   |  |                        | 829    |      |  |      | 184    |          |  |         |       |  |  |  | 351 |    |  |  |    |  
|Income from sale of covered call options                                |  |                        | 1,167  |      |  |      | 395    |          |  |         |       |  |  |  | 195 |    |  |  |    |  
|Income from revenue sharing agreement on credit
    card portfolio sale |  |                        |       |      |  |      | 450    |          |  |         | 900    |  |  |  |    |    |  |  | (50 | )
|Other operating income                                                  |  |                        | 1,369  |      |  |      | 1,403  |          |  |         | 1,402  |  |  |  | (2  | )  |  |  |    |  
|Investment securities gains, net                                        |  |                        | 217    |      |  |      | 314    |          |  |         | 259    |  |  |  | (31 | )  |  |  | 21  |  
|                                                                        |  |                        |        |      |  |      |        |          |  |         |        |  |  |  |     |    |  |  |     |  
|Total                                                                   |  | $                      | 18,435 |      |  | $    | 17,450 |          |  | $       | 14,442 |  |  |  | 6   | %  |  |  | 21  | %
|                                                                        |  |                        |        |      |  |      |        |          |  |         |        |  |  |  |     |    |  |  |     |  



| |                 
| | ----------------
| | 2003 versus 2002

Total Other Income increased $985,000, or 6%.
Service charges on deposit accounts from treasury management
clients decreased $561,000 due primarily to the loss of one
significant customer whose contract with the Bank expired on
June 30, 2003 and was not renewed. Revenue from this
customer, consisting primarily of cash fees, totaled $950,000
and $1,427,000 for the years ended December 31, 2003 and
2002, respectively. Total treasury management service charges,
both cash fees and balance equivalents, decreased 9% as compared
to 2002. Excluding the significant customer, cash fees were down
2% as compared to 2002 and total service charges were down 4% as
compared to 2002 due to lost revenue from departing customers.
As interest rates decrease so does the value of earnings credits
assigned to deposit balances. Therefore, in a low interest rate
environment (like that experienced during 2003), cash fees tend
to rise; whereas, in a higher interest rate environment, deposit
balances cover more of the service charges and cash fees tend to
decline. Treasury management clients have the option of paying
for services either by maintaining noninterest-bearing deposit
balances, paying in cash, or a combination thereof. The treasury
management fees included in service charges on deposit accounts
represent only the cash fees paid by treasury management
customers.

Investment management and trust fees increased
$439,000 primarily due to an increase in total trust assets
resulting from strong business development and retention
activity. In addition, asset growth was favorably impacted by
market appreciation of approximately 5%. Discretionary assets
under management climbed to $635 million at
December 31, 2003, up from $485 million at
December 31, 2002. Total trust assets under management rose
to $786 million at December 31, 2003, up from
$688 million at December 31, 2002.

Merchant credit card processing fees increased
$36,000 primarily due to a $6.4 million increase in sales
volume partially offset by price decreases resulting from
competitive pressures. The number of merchant outlets at
December 31, 2003 and 2002 was 429. Merchant credit card
interchange expense (in Other Expense section) increased $82,000
as compared to 2002.

Gain on mortgages sold with servicing released
increased $190,000 as compared to 2002. As a result of lower
interest rates, the residential mortgage loan refinance market
was strong through much of 2003, dropping off significantly in
the fourth quarter of 2003. The Company originated a total of
$144.1 million in mortgage loans in 2003, of which
$82.1 million were sold. During 2002, the Company
originated $132.0 million in

22



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##### Table of Contents



mortgage loans, of which $80.3 million were
sold. Although the dollar value of loans sold increased only
marginally, the Company capitalized on the falling interest rate
environment, resulting in approximately 26 basis points
more gain per dollar sold. Fee income is shown net of
commissions paid to the mortgage originators of $477,000 in 2003
and $466,000 in 2002. Fees from mortgages sold are expected to
drop significantly in 2004 because the volume of refinance
activity has markedly slowed.


Income from bank owned life insurance
(BOLI) increased $645,000 over 2002 primarily from
the purchase of $15 million of BOLI late in 2002 and the
purchase of an additional $5 million in August 2003. Income
earned from BOLI is currently exempt from Federal income tax.

Income from covered calls increased $772,000. The
Company periodically sells options to securities dealers for the
dealers right to purchase certain U.S. Treasury or
U.S. Government agency securities held within the
investment portfolio. These transactions are designed primarily
as yield enhancements to increase the total return associated
with holding the securities as earning assets. There were no
outstanding call options at December 31, 2003. Since
selling covered call options are most attractive in a volatile
and declining rate environment, continued income from this
source is dependent on market conditions.

Income from the revenue sharing agreement arising
from the sale of the credit card portfolio in 1997 decreased
$450,000. Under the agreement the Company shared in the revenue
from the sold portfolio for five years ending June 2002. Since
the contractual term has expired, no income was recorded in 2003.

The Company recorded net investment securities
gains of $217,000 in 2003, compared to gains of $314,000 in
2002. The net gains in 2003 were recorded on sales of
$88.6 million in U.S. Government agency securities,
$45.2 million in U.S. Treasury securities and
$2.7 million in corporate and other securities. The net
gains in 2002 were from the sales of $50.3 million in
U.S. Government agency securities and $2.6 million in
corporate and other securities. As market opportunities present
themselves, the Company will periodically sell securities to
reposition the investment portfolio in an effort to improve
overall yield. Gains or losses from investment sales are
considered non-recurring by the Companys management.



| |                 
| | ----------------
| | 2002 versus 2001

Total Other Income increased $3,008,000, or 21%,
over 2001. Service charges on deposit accounts from treasury
management clients increased $1,309,000. The Banks
treasury management customers have the option of paying for
their services either by maintaining noninterest-bearing deposit
balances, paying fees in cash or a combination of both. The
treasury management fees included in this category represent
cash fees paid by treasury management customers. These cash fees
increased primarily due to a slight increase in pricing and more
customers paying a portion of their fees in cash. In a low
interest rate environment (like that experienced during 2002),
cash fees tend to rise; whereas in a higher interest rate
environment, the value of deposit balances cover more of the
service charges and cash fees tend to decline. Total treasury
management service charges, both cash and balance equivalents
increased 3% for 2002 as compared to 2001. Included in this
category is income from one significant customer totaling
$1,427,000 in 2002 and $1,297,000 in 2001. This customers
contract with the Bank expired on June 30, 2003.

Investment management and trust fees increased
$272,000 due primarily to new investment management customers.
Discretionary assets under management reached $485 million
at December 31, 2002 compared to $379 million at
December 31, 2001. Total assets climbed to
$688 million at December 31, 2002 from
$567 million at December 31, 2001, attributed
primarily to new business generated, complemented by a slight
increase in market appreciation.

Merchant credit card processing fees increased
$1,036,000 primarily due to new merchant accounts and higher
sales volume. The number of merchant outlets at
December 31, 2002 increased to 429 as compared to 385 at
year end 2001. Merchant interchange expense (in Other Expense
section) rose $724,000 as compared to 2001.

Gain on mortgages sold with servicing released
increased $171,000 as compared to 2001. As a result of lower
interest rates, the residential mortgage loan refinance market
was strong throughout 2002. The Company originated a total of
$132.0 million in mortgage loans during 2002, of which
$80.3 million were sold. During

23



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##### Table of Contents



2001, the Company originated $87.9 million
in mortgage loans, of which $71.3 million were sold. Fee
income is shown net of commissions paid to the mortgage
originators of $466,000 in 2002 and $322,000 in 2001.


Income from the revenue sharing agreement arising
from the sale of the credit card portfolio in 1997 decreased
$450,000. Under the agreement, the Company shared in the revenue
from the sold portfolio for five years. The five year duration
of the revenue sharing agreement expired June 30, 2002.

Income from BOLI was $184,000 in 2002 resulting
from $11.4 million of BOLI purchased in September 2002 and
an additional $3.6 million purchased in November 2002.

Income from covered calls was $395,000 in 2002.
The Company began to periodically sell options to securities
dealers for the dealers right to purchase certain
U.S. Treasury or U.S. Government agency securities
held within the investment portfolio. These transactions are
designed primarily as yield enhancements to increase the total
return associated with holding the securities as earning assets.
There were no outstanding call options at December 31, 2002.

Excluding the gain on the sale of the Broadview
drive-thru of $172,000 in 2001, other operating income increased
$173,000 primarily due to an increase of $147,000 in mutual fund
fees attributable to a higher volume of investment sweep
activity by treasury management customers.

The Company recorded net investment securities
gains of $314,000 in 2002, compared to net gains of $259,000 in
2001. The net gains in 2002 were from the sales of
$50.3 million in U.S. Government agency securities
that were expected to be called and $2.6 million in
corporate and other securities. The net gains in 2001 were from
the sales of $29 million in U.S. Government agency
securities and $1 million of trust preferred convertible
capital securities.

Summary of Other Expenses

The following table summarizes significant
components of Other Expenses and percentage changes from year to
year:

|                                         |                                                                     |                        |        |      |   |      |        |          |   |         |        |      |   |  |     |   |  |  |     |   | 
|---------------------------------------- | ------------------------------------------------------------------- | ---------------------- | ------ | ---- | - | ---- | ------ | -------- | - | ------- | ------ | ---- | - |  | --- | - |  |  | --- | - | 
|                                         |                                                                     |                        |        |      |   |      |        |         
|                                         |                                                                     |                        |        |      |   |      |        | % Change
|                                         |                                                                     |                        |        |      |   |      |        |         
|                                         |                                                                     | 2003                   |        | 2002 |   | 2001 |        | 03-02  |   | 02-01
|                                         |                                                                     |                        |        |      |   |      |        |          |   |        
|                                         |                                                                     |                        |        |      |   |     
|                                         |                                                                     | (Dollars in thousands) |        |      |   |     
|Salaries and employee benefits           |                                                                     | $                      | 23,346 |      |   | $    | 19,610 |          |   | $       | 18,810 |      |   |  | 19  | % |  |  | 4   | %
|Occupancy expense                        |                                                                     |                        | 2,893  |      |   |      | 2,188  |          |   |         | 2,035  |      |   |  | 32  |   |  |  | 8   |  
|Equipment expense                        |                                                                     |                        | 1,979  |      |   |      | 1,870  |          |   |         | 1,991  |      |   |  | 6   |   |  |  | (6  | )
|Data processing                          |                                                                     |                        | 1,828  |      |   |      | 1,727  |          |   |         | 1,488  |      |   |  | 6   |   |  |  | 16  |  
|Professional fees                        |                                                                     |                        | 1,309  |      |   |      | 1,766  |          |   |         | 766    |      |   |  | (26 | ) |  |  | 131 |  
|Postage, stationery and supplies         |                                                                     |                        | 1,132  |      |   |      | 1,116  |          |   |         | 963    |      |   |  | 1   |   |  |  | 16  |  
|Advertising and business development     |                                                                     |                        | 1,778  |      |   |      | 1,641  |          |   |         | 1,390  |      |   |  | 8   |   |  |  | 18  |  
|Merchant credit card interchange expense |                                                                     |                        | 3,799  |      |   |      | 3,717  |          |   |         | 2,993  |      |   |  | 2   |   |  |  | 24  |  
|Provision for other real estate owned    |                                                                     |                        | 1,415  |      |   |      |       |          |   |         |       |      |   |  |    |   |  |  |    |  
|FDIC assessment                          |                                                                     |                        | 201    |      |   |      | 189    |          |   |         | 183    |      |   |  | 6   |   |  |  | 3   |  
|Other operating expenses                 |                                                                     |                        | 1,823  |      |   |      | 1,917  |          |   |         | 1,309  |      |   |  | (5  | ) |  |  | 46  |  
|                                         |                                                                     |                        |        |      |   |      |        |          |   |         |        |      |   |  |     |   |  |  |     |  
|Total                                    |                                                                     | $                      | 41,503 |      |   | $    | 35,741 |          |   | $       | 31,928 |      |   |  | 16  | % |  |  | 12  | %
|                                         |                                                                     |                        |        |      |   |      |        |          |   |         |        |      |   |  |     |   |  |  |     |  
|Expense ratios:                          |                                                                     |                        |        |      |   |      |        |          |   |         |        |      |   |  |     |   |  |  |     |  
|                                         | Operating expenses as a percentage of average
    assets            |                        |        | 2.5  | % |      |        | 2.4      | % |         |        | 2.4  | % |  |     |   |  |  |     |   | 
|                                         | Net overhead expenses as a percentage of average
    earning assets |                        |        | 1.5  |   |      |        | 1.3      |   |         |        | 1.4  |   |  |     |   |  |  |     |   | 
|                                         | Efficiency ratio                                                    |                        |        | 59.6 |   |      |        | 55.1     |   |         |        | 59.8 |   |  |     |   |  |  |     |   | 

24



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##### Table of Contents





| |                 
| | ----------------
| | 2003 versus 2002

Total Other Expenses increased $5,762,000, or
16%. Salaries and employee benefits increased $3,736,000
primarily due to normal salary increases, higher
performance-related compensation and the average number of
full-time equivalents increasing to 356 for 2003 from 332 for
2002. The increase in full-time equivalents resulted primarily
from additional staff for the three new branches and increased
calling officers. The Company expects continued increases in
these expenses during 2004.

The combined expense for occupancy and equipment
increased $814,000 in 2003 over 2002, due primarily to costs
associated with the opening of the Countryside branch in January
2003, the Graue Mill branch in May 2003, and the St. Charles
branch in October 2003. In addition, the lease for one of the
tenants of the Companys Oak Brook headquarters expired in
April 2003. The Bank renovated and expanded into this space in
the fourth quarter of 2003.

Data processing fees increased $101,000 due
partially to an increase in fees paid to the main software
provider. Until April 2003, this provider was on a long term
contract permitting only limited inflationary increases. In
addition, trust processing fees increased due primarily to an
increase in the volume of assets managed.

Professional fees decreased $457,000 due
primarily to a reduction in legal and other professional fees
associated with the property now carried in OREO. Total
professional fees related to this property were $265,000 in 2003
compared to $687,000 in 2002. The Company continued to incur
professional fees for corporate governance in 2003. Professional
fees in 2004 are expected to include services for compliance
with new SEC regulations and continued ongoing litigation fees
related to the property in OREO (See Asset Quality).

Advertising and business development increased
$137,000 due primarily to general marketing and promoting the
opening of three new branches.

Merchant credit card interchange expense
increased $82,000 due primarily to increased sales volume and
increased interchange rates. Merchant credit card processing
fees (in Other Income section) rose $36,000 in 2003.

The provision for OREO was $1,415,000 due to
valuation adjustments on the property in OREO (See Asset
Quality).

Other operating expense decreased $94,000 due
primarily to costs of $423,000 incurred in 2002 related to the
apparent loan fraud. This decrease was partially offset by
increased insurance costs of $231,000. The Companys
Executive Risk policies (directors and officers, fidelity bond
and fiduciary) all had three year terms that expired in 2002. In
2003, increased limits and a hardened insurance market led to a
significant premium increase at renewal. In addition to the
increase in the Executive Risk policies, branch expansion and a
higher employee count led to increases in property and workers
compensation coverages, respectively.



| |                 
| | ----------------
| | 2002 versus 2001

Total Other Expenses increased $3,813,000, or
12%. Salaries and employee benefits increased $800,000 primarily
due to increased compensation costs and an increase in the
number of average full-time equivalents to 332 for 2002 from 309
for 2001. The increase was partially offset by reductions in
performance-related compensation resulting from 2002 earnings
falling short of performance-related targets due to
significantly higher loan loss provisions and additional
expenses related to the apparent loan fraud.

The combined expense for occupancy and equipment
increased $32,000 in 2002 over 2001, due primarily to increased
costs related to the opening of the Bolingbrook branch, offset
by reductions in expense of fully depreciated equipment.

Data processing fees increased $239,000 due to an
increase in various services received from the main software
provider and an increase in merchant credit card and ATM
processing expenses.

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##### Table of Contents



Professional fees increased $1,000,000 primarily
due to legal and other fees totaling $687,000 related to the
apparent loan fraud (See Asset Quality). In
addition, the Company incurred additional professional fees
related to tax planning initiatives, employee benefits,
corporate matters and the Banks subsidiary, Oak Real
Estate Development.

Advertising and business development increased
$251,000 due primarily to additional general marketing and
promoting the opening of the Bolingbrook branch in March 2002.

Merchant credit card interchange expense
increased $724,000 due to new merchant accounts and increased
sales volume. Merchant credit card processing fees (in Other
Income section) rose $1,036,000 in 2002.

Other operating expenses increased $608,000
primarily due to receiver fees and miscellaneous expenses of
$423,000 related to the apparent loan fraud (See Asset
Quality) and increased insurance costs.

Income Tax Expense

Income taxes for 2003 totaled $8,128,000 as
compared to $4,006,000 for 2002 and $6,232,000 for 2001. When
measured as a percentage of income before income taxes, the
Companys effective tax rate was 30.6% for 2003, 27.6% for
2002 and 31.3% for 2001. The Companys provision for income
taxes includes Federal income tax expense in 2003 and 2002 and
both Federal and state income tax expense in 2001. The Company
had no state tax liability in 2003 due to significant income
from state tax exempt investment securities (U.S. Treasury
and U.S. Government agency securities) and, to a lesser
extent, tax planning initiatives. The Company had no state tax
liability in 2002 due to significant income from state tax
exempt securities and the lower pre-tax earnings. A state net
operating loss carryforward was produced in both 2003 and 2002
and totaled $5,078,000 at December 31, 2003.

The accounting policies underlying the
recognition of income taxes in the balance sheets and statements
of income are included in the section titled Application
of Critical Accounting Policies and Notes 1 and 9 to
Item 8 of this Form 10-K. In accordance with such
policies, the Company records income tax expense
(benefits) in accordance with Financial Accounting
Standards Board Statement No. 109, Accounting for Income
Taxes (SFAS 109). Pursuant to these rules, the
Company recognizes deferred tax assets and liabilities based on
temporary differences in the recognition of income and expenses
for financial statement and income tax purposes. Such
differences are measured using the enacted tax rates and laws
that are applicable to periods in which the differences are
expected to affect taxable income. A net deferred tax asset
totaling $710,000 is recorded in the accompanying Consolidated
Balance Sheet at December 31, 2003.

Under FAS 109, deferred tax assets must be
reduced by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax asset will not be
realized. In assessing whether a valuation allowance is
required, the Company considers the ability to realize the asset
through carryback to taxable income in prior years, the future
reversal of existing taxable temporary differences, and future
taxable income and tax planning strategies. Based on this
assessment, a valuation allowance of $237,000 is required on the
state net operating loss carryforward as disclosed in
Note 9 to Item 8 of this Form 10-K.

FINANCIAL CONDITION

Liquidity

Effective management of balance sheet liquidity
is necessary to fund growth in earning assets, to meet maturing
obligations and depositors withdrawal requirements, to pay
shareholders dividends and to purchase treasury stock
under stock repurchase programs.

The Company has numerous sources of liquidity
including a portfolio of shorter-term loans, readily marketable
investment securities, the ability to attract retail and public
time deposits and purchase brokered time deposits, and access to
various borrowing arrangements and capital resources.

26



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##### Table of Contents



Available borrowing arrangements are summarized
as follows:

The Bank:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Fed funds lines aggregating $95 million with
    five correspondent banks, subject to continued good financial
    standing of the Bank. As of December 31, 2003, all
    $95 million was available for use under these lines.                                                                                                                                                                                                   
|
| |  | Reverse repurchase agreement lines aggregating
    $475 million with five brokerage firms based on the pledge
    of specific collateral and continued good financial standing of
    the Bank. As of December 31, 2003, all $475 million
    was available for use under these lines, subject to the
    availability of collateral.                                                                                            
|
| |  | Advances from the FHLB of Chicago based on the
    pledge of specific collateral and FHLB of Chicago stock
    ownership. As of December 31, 2003, advances totaled
    $161.5 million and approximately $9.3 million remained
    available to the Bank under the FHLB of Chicago agreements
    without the pledge of additional collateral. Additional advances
    can be obtained subject to the availability of collateral.
|
| |  | The Bank has a borrowing line of approximately
    $156.2 million at the discount window of the Federal
    Reserve Bank, subject to the availability of collateral. The
    line was unused at December 31, 2003.                                                                                                                                                                                                               

As of December 31, 2003, the Bank has excess
collateral totaling approximately $209.1 million available
to pledge towards reverse repurchase agreements or FHLB of
Chicago advances.

Parent Company:



| |   |                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company has a revolving credit arrangement
    for $15 million. The line was unused at December 31,
    2003. The maturity date of the line is April 1, 2004 and is
    anticipated to continue to be renewed annually.
|
| |  | The Company also has cash, short-term investments
    and other marketable securities totaling $13.7 million at
    December 31, 2003.                                                                                     

Interest Rate Sensitivity

The business of the Company and the composition
of its balance sheet consist of investments in interest earning
assets (primarily loans and investment securities) which are
primarily funded by interest-bearing liabilities (deposits and
borrowings). Such financial instruments have varying levels of
sensitivity to changes in market rates of interest. The net
income of the Company depends, to a substantial extent, on the
differences between the income the Company receives from loans,
investment securities, and other earning assets and the interest
expense it pays to obtain deposits and other liabilities. These
rates are highly sensitive to many factors that are beyond the
control of the Company, including general economic conditions
and the policies of various governmental and regulatory
authorities. In addition, since the Companys primary
source of interest-bearing liabilities are customer deposits,
the Companys ability to manage the types and terms of such
deposits may be somewhat limited by customer preferences and
local competition in the market areas in which the Company
operates.

The Company manages its overall interest rate
sensitivity through various measurement techniques including
rate shock analysis. In addition, as part of the risk management
process, asset liability management policies are established and
monitored by management. The policy objective is to limit the
change in annual net interest income to 10% from an immediate
and sustained parallel change in interest rates of plus or minus
200 basis points. At December 31, 2003 and 2002, the
Company was within policy objectives based on its models.

Rate shock analysis assesses the risk of changes
in annual net interest income in the event of an immediate and
sustained parallel change in market rates of plus or minus 25 to
200 basis points. The interest rate sensitivity presented
includes assumptions that (i) the composition of the
Companys interest sensitive assets and liabilities
existing at period end will remain constant over the twelve
month measurement period and (ii) that changes in market
interest rates are parallel and instantaneous across the yield
curve. This

27



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##### Table of Contents



analysis is limited by the fact that it does not
include any balance sheet repositioning actions the Company may
take should severe movements in interest rates occur, such as
lengthening or shortening the duration of the securities
portfolio. These repositioning actions would likely reduce the
variability of net interest income shown in the extreme interest
rate shock forecasts.


As a result of absolute interest rates being so
low at December 31, 2003 and 2002, (rates on Fed funds, the
three-month Treasury, LIBOR and rates paid on certain core
deposits were all below 2.00%), the Company assumed rates will
probably not decline 200 basis points. The scale shown
below reflects a more meaningful plus or minus 25 and
100 basis points in addition to a plus 200 basis point
rate shock. These projections should not be relied upon as
indicative of actual results that would be experienced if such
interest rate changes occurred.

|                                                                        |  |                        |        |        |  |        |      |         |  |         |     |   |  |   |     |   |  |   |     |  
|----------------------------------------------------------------------- |  | ---------------------- | ------ | ------ |  | ------ | ---- | ------- |  | ------- | --- | - |  | - | --- | - |  | - | --- | -
|                                                                        |  |                       
|                                                                        |  | 2003                  
|                                                                        |  |                       
|                                                                        |  | -100 bp                |        | -25 bp |  | +25 bp |      | +100 bp |  | +200 bp
|                                                                        |  |                        |        |        |  |        |      |         |  |        
|                                                                        |  |                       
|                                                                        |  | (Dollars in thousands)
|Annual net interest income change from an
    immediate change in rates |  | $                      | (1,177 | )      |  | $      | (246 | )       |  | $       | 184 |   |  | $ | 265 |   |  | $ | 500 |  
|Percent change                                                          |  |                        | (2.3   | )%     |  |        | (.5  | )%      |  |         | .4  | % |  |   | .5  | % |  |   | 1.0 | %

|                                                                        |  |                        |     |        |  |        |     |         |  |         |     |    |  |   |      |    |  |   |     |  
|----------------------------------------------------------------------- |  | ---------------------- | --- | ------ |  | ------ | --- | ------- |  | ------- | --- | -- |  | - | ---- | -- |  | - | --- | -
|                                                                        |  |                       
|                                                                        |  | 2002                  
|                                                                        |  |                       
|                                                                        |  | -100 bp                |     | -25 bp |  | +25 bp |     | +100 bp |  | +200 bp
|                                                                        |  |                        |     |        |  |        |     |         |  |        
|                                                                        |  |                       
|                                                                        |  | (Dollars in thousands)
|Annual net interest income change from an
    immediate change in rates |  | $                      | 626 |        |  | $      | 293 |         |  | $       | (96 | )  |  | $ | (301 | )  |  | $ | 159 |  
|Percent change                                                          |  |                        | 1.3 | %      |  |        | .6  | %       |  |         | (.2 | )% |  |   | (.6  | )% |  |   | 0.3 | %

The profile as of December 31, 2003
indicates the Companys net interest margin is decreasing
when interest rates are shocked down and increasing as interest
rates are shocked up. The change in the risk profile from
December 31, 2002 is primarily due to the changes in
interest rates from year-end 2002 levels as well as changes in
the composition of the balance sheet.

The following gap analysis is prepared based on
the maturity and repricing characteristics of interest earning
assets and interest-bearing liabilities for selected time
periods. The mismatch between asset and liability repricings or
maturities within a time period is commonly referred to as the
gap for that period. The following table presents a
static gap analysis as of December 31, 2003 which shows
that the Companys rate sensitive liabilities may reprice
more quickly than its rate sensitive assets. However, the gap
report does not capture the true dynamics of interest rate
changes including the timing and/or degree of interest rate
changes. While most of the asset categories rates change
when certain independent indices (such as the prime rate)
change, most liability categories are repriced at the
Companys discretion subject, however, to competitive
interest rate pressures. Also, the gap report does not reflect
the call associated with certain investment assets,
which if called, reduces the negative cumulative gap for the
time periods of one year or less. See the Investment
Securities section for more information on
call characteristics.

28



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##### Table of Contents



Interest Rate Sensitive Position

|                                     |                                                             |                        |          |             |         |              |          |             |         |       |          |         |           |   |         |         |           |  |   |         |           | 
|------------------------------------ | ----------------------------------------------------------- | ---------------------- | -------- | ----------- | ------- | ------------ | -------- | ----------- | ------- | ----- | -------- | ------- | --------- | - | ------- | ------- | --------- |  | - | ------- | --------- | 
|                                     |                                                             | 1-90 days              |          | 91-180 days |         | 181-365 days |          | Over 1 year |         | Total
|                                     |                                                             |                        |          |             |         |              |          |             |         |      
|                                     |                                                             |                       
|                                     |                                                             | (Dollars in thousands)
|Rate sensitive assets:               |                                                             |                        |          |             |         |              |          |             |         |       |          |         |           |   |         |         |           |  |   |        
|                                     | Fed funds sold and interest-bearing deposits with
    banks |                        | $        | 20,008      |         |              | $        |            |         |       | $        |        |           |   | $       |        |           |  | $ | 20,008  |          
|                                     | Taxable securities                                          |                        |          | 136,315     |         |              |          | 35,971      |         |       |          | 37,536  |           |   |         | 538,732 |           |  |   | 748,554 |          
|                                     | Tax exempt securities                                       |                        |          | 1,625       |         |              |          | 240         |         |       |          | 5,232   |           |   |         | 27,820  |           |  |   | 34,917  |          
|                                     | Loans, net of unearned discount                             |                        |          | 359,939     |         |              |          | 82,255      |         |       |          | 101,455 |           |   |         | 372,029 |           |  |   | 915,678 |          
|                                     |                                                             |                        |          |             |         |              |          |             |         |       |          |         |           |   |         |         |           |  |   |        
|                                     |                                                             | Total                  |          | $           | 517,887 |              |          | $           | 118,466 |       |          | $       | 144,223   |   |         | $       | 938,581   |  |   | $       | 1,719,157 | 
|                                     |                                                             |                        |          |             |         |              |          |             |         |       |          |         |           |   |         |         |           |  |   |        
|                                     |                                                             | Cumulative total       |          | $           | 517,887 |              |          | $           | 636,353 |       |          | $       | 780,576   |   |         | $       | 1,719,157 |  |   |         |           | 
|                                     |                                                             |                        |          |             |         |              |          |             |         |       |          |         |           |   |         |         |           |  |   |        
|Rate sensitive liabilities:          |                                                             |                        |          |             |         |              |          |             |         |       |          |         |           |   |         |         |           |  |   |        
|                                     | Savings deposits and NOW accounts                           |                        | $        | 275,075     |         |              | $        |            |         |       | $        |        |           |   | $       |        |           |  | $ | 275,075 |          
|                                     | Money market accounts                                       |                        |          | 123,222     |         |              |          |            |         |       |          |        |           |   |         |        |           |  |   | 123,222 |          
|                                     | Time deposits                                               |                        |          | 246,184     |         |              |          | 144,010     |         |       |          | 277,059 |           |   |         | 142,851 |           |  |   | 810,104 |          
|                                     | Borrowings                                                  |                        |          | 102,910     |         |              |          |            |         |       |          | 5,000   |           |   |         | 146,500 |           |  |   | 254,410 |          
|                                     |                                                             |                        |          |             |         |              |          |             |         |       |          |         |           |   |         |         |           |  |   |        
|                                     |                                                             | Total                  |          | $           | 747,391 |              |          | $           | 144,010 |       |          | $       | 282,059   |   |         | $       | 289,351   |  |   | $       | 1,462,811 | 
|                                     |                                                             |                        |          |             |         |              |          |             |         |       |          |         |           |   |         |         |           |  |   |        
|                                     |                                                             | Cumulative total       |          | $           | 747,391 |              |          | $           | 891,401 |       |          | $       | 1,173,460 |   |         | $       | 1,462,811 |  |   |         |           | 
|                                     |                                                             |                        |          |             |         |              |          |             |         |       |          |         |           |   |         |         |           |  |   |        
|Cumulative gap                       |                                                             | $                      | (229,504 | )           |         | $            | (255,048 | )           |         | $     | (392,884 | )       |           | $ | 256,346 |         |           |  |   |        
|                                     |                                                             |                        |          |             |         |              |          |             |         |       |          |         |           |   |         |         |           |  |   |        
|Cumulative gap to total assets ratio |                                                             |                        | (12.42   | )%          |         |              | (13.80   | )%          |         |       | (21.26   | )%      |           |   | 13.87   | %       |           |  |   |        
|                                     |                                                             |                        |          |             |         |              |          |             |         |       |          |         |           |   |         |         |           |  |   |        

Off-Balance Sheet Arrangements and Other
Contractual Obligations and Commercial Commitments



| |                               
| | ------------------------------
| | Off-Balance Sheet Arrangements

The Company does not have any material
off-balance sheet arrangements that have, or are reasonably
likely to have, a current or future effect on the financial
condition, changes in financial condition, revenue or expenses,
results of operations, liquidity, capital expenditures or
capital resources.



| |                        
| | -----------------------
| | Contractual Obligations

The Company has certain obligations and
commitments to make future payments under contracts. The
Companys long-term borrowing agreements represent TRUPS in
addition to FHLB of Chicago advances with various terms and
rates collateralized primarily by first mortgage loans in
addition to certain specifically assigned securities. The
operating lease obligations represent lease payments on the
seven real properties leased by the Company. The Company does
not have any capital leases. Employee benefit obligations
represent anticipated payments on supplemental pension
agreements and the executive deferred compensation plan.
Purchase obligations include the minimum payment required under
various non-cancelable contracts for the purchase of goods or
services in the ordinary course of business. See Note 8,
Note 5 and Note 15 to Item 8 of this
Form 10-K for additional information relating to long term
borrowings, operating lease obligations and employee benefit
plans, respectively.

29



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##### Table of Contents



The following table represents the Companys
contractual obligations:

|                                  |  |                        |        |             |  |            |        |              |  |   |        |  |  |   |        | 
|--------------------------------- |  | ---------------------- | ------ | ----------- |  | ---------- | ------ | ------------ |  | - | ------ |  |  | - | ------ | 
|                                  |  | Less Than              |        | One to      |  | Three to   |        |             
|                                  |  | One Year               |        | Three Years |  | Five Years |        | Over 5 Years
|                                  |  |                        |        |             |  |            |        |             
|                                  |  |                       
|                                  |  | (Dollars in thousands)
|Long term borrowings              |  | $                      | 21,000 |             |  | $          | 42,500 |              |  | $ | 98,000 |  |  | $ | 23,000 | 
|Operating lease obligations       |  |                        | 422    |             |  |            | 801    |              |  |   | 703    |  |  |   | 619    | 
|Employment benefit obligations(1) |  |                        | 20     |             |  |            | 39     |              |  |   | 601    |  |  |   | 2,813  | 
|Purchase obligations              |  |                        | 1,838  |             |  |            | 93     |              |  |   |       |  |  |   |       | 
|                                  |  |                        |        |             |  |            |        |              |  |   |        |  |  |   |        | 
|                                  |  | $                      | 23,280 |             |  | $          | 43,433 |              |  | $ | 99,304 |  |  | $ | 26,432 | 
|                                  |  |                        |        |             |  |            |        |              |  |   |        |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Balances represent the current actuarial
    calculation of present value of potential payout on the
    supplemental pension agreements assuming payout begins when
    fully vested. This total also includes the liability for the
    executive deferred compensation plan assuming retirement at age
    72.



| |                       
| | ----------------------
| | Commercial Commitments

In the normal course of business, there are
various outstanding commitments and contingent liabilities,
including commitments to extend credit, performance standby
letters of credit and financial standby letters of credit
(collectively commitments) that are not reflected in
the consolidated financial statements. The Companys
exposure to credit loss in the event of nonperformance by the
other party to the commitments is limited to their contractual
amount. Many commitments expire without being used. Therefore,
the amounts stated below do not necessarily represent future
cash commitments. Commitments to extend credit are agreements to
lend funds to a customer as long as there is no violation of any
condition established in the contract. Specifically, the home
equity lines are reviewed annually and the Bank has the ability
to deny any future extensions of credit based upon the
borrowers continued credit worthiness. Performance standby
letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third
party. Financial standby letters of credit are conditional
guarantees of payment to a third party on behalf of a customer
of the Company. These commitments are subject to the same credit
policies followed for loans recorded in the financial statements.

A summary of these commitments to extend credit
at December 31, 2003 follows:

|                                      |                                                          |                        |        |              |  |               |        |                 |  |   |        |        |  |   |         |        | 
|------------------------------------- | -------------------------------------------------------- | ---------------------- | ------ | ------------ |  | ------------- | ------ | --------------- |  | - | ------ | ------ |  | - | ------- | ------ | 
|                                      |                                                          | Less than              |        |              |  |               |        |                
|                                      |                                                          | one year               |        | One to three |  | Three to five |        | Over five years
|                                      |                                                          |                        |        |              |  |               |        |                
|                                      |                                                          |                       
|                                      |                                                          | (Dollars in thousands)
|Commercial loans                      |                                                          | $                      | 48,662 |              |  | $             | 359    |                 |  | $ | 315    |        |  | $ | 728     |       
|Syndicated loans                      |                                                          |                        |       |              |  |               | 8,918  |                 |  |   | 31,040 |        |  |   | 2,000   |       
|Real estate:                          |                                                          |                        |        |              |  |               |        |                 |  |   |        |        |  |   |         |       
|                                      | Construction, land acquisition and development
    loans |                        |        | 22,617       |  |               |        | 17,163          |  |   |        | 316    |  |   |         | 938    | 
|                                      | Commercial mortgage                                      |                        |        | 142          |  |               |        |                |  |   |        | 713    |  |   |         |       | 
|                                      | Home equity loans                                        |                        |        | 7,831        |  |               |        | 7,632           |  |   |        | 20,707 |  |   |         | 97,861 | 
|                                      | Residential mortgage                                     |                        |        |             |  |               |        | 127             |  |   |        |       |  |   |         |       | 
|Check credit                          |                                                          |                        | 766    |              |  |               |       |                 |  |   |       |        |  |   |        |       
|Consumer                              |                                                          |                        | 114    |              |  |               |       |                 |  |   |       |        |  |   |        |       
|Performance standby letters of credit |                                                          |                        | 7,667  |              |  |               | 942    |                 |  |   | 47     |        |  |   |        |       
|Financial standby letters of credit   |                                                          |                        | 1,638  |              |  |               | 1,074  |                 |  |   | 1,298  |        |  |   | 72      |       
|                                      |                                                          |                        |        |              |  |               |        |                 |  |   |        |        |  |   |         |       
|Total commitments                     |                                                          | $                      | 89,437 |              |  | $             | 36,215 |                 |  | $ | 54,436 |        |  | $ | 101,599 |       
|                                      |                                                          |                        |        |              |  |               |        |                 |  |   |        |        |  |   |         |       

30



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##### Table of Contents



Investment Securities

The following table sets forth the carrying
values of investment securities held on the dates indicated.

|                                           |  |                        |         |      |  |      |         |  |  |   |         | 
|------------------------------------------ |  | ---------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                           |  |                       
|                                           |  | December 31,          
|                                           |  |                       
|                                           |  | 2003                   |         | 2002 |  | 2001
|                                           |  |                        |         |      |  |     
|                                           |  |                       
|                                           |  | (Dollars in thousands)
|U.S. Treasury                              |  | $                      | 61,745  |      |  | $    | 26,436  |  |  | $ | 16,561  | 
|U.S. Government agencies                   |  |                        | 558,501 |      |  |      | 382,274 |  |  |   | 234,026 | 
|Agency mortgage-backed securities          |  |                        | 47,384  |      |  |      | 5,111   |  |  |   | 8,212   | 
|Agency collateralized mortgage obligations |  |                        | 190     |      |  |      | 335     |  |  |   | 304     | 
|State and municipal obligations            |  |                        | 40,768  |      |  |      | 42,144  |  |  |   | 46,789  | 
|Corporate and other securities             |  |                        | 74,883  |      |  |      | 51,185  |  |  |   | 21,497  | 
|                                           |  |                        |         |      |  |      |         |  |  |   |         | 
|Total investment portfolio                 |  | $                      | 783,471 |      |  | $    | 507,485 |  |  | $ | 327,389 | 
|                                           |  |                        |         |      |  |      |         |  |  |   |         | 

At December 31, 2003 there are no investment
securities of any one issuer in excess of 10% of
shareholders equity other than securities of the
U.S. Government and its agencies, including the FHLB of
Chicago.

The Companys investment portfolio increased
$276.0 million, or 54%, during 2003 to $783.5 million
at year-end from $507.5 million at year-end 2002. This
increase was primarily in the U.S. Treasury,
U.S. Government agency (including mortgage-backed
securities) and corporate and other security portfolios and was
the result of excess liquidity received from deposit growth and
softer loan demand. In addition, on December 30, 2003, the
Company purchased $75 million in U.S. Government
Agencies as part of a balance sheet arbitrage initiated to lock
in a favorable spread on an FHLB of Chicago borrowing. The
average effective duration of the entire portfolio (excluding
FHLB of Chicago stock, which has no stated maturity) is 4.15 at
December 31, 2003 compared to 2.4 at December 31,
2002. Effective duration takes into account all embedded options
and represents the ratio of the proportional change in bond
values taking into account that expected cash flows will
fluctuate as interest rates change.

U.S. Treasury Securities:The Company increased its holdings of
U.S. Treasuries by $35.3 million to $61.7 million
at year-end 2003 from $26.4 million at year-end 2002. The
average contractual maturity of the U.S. Treasury portfolio
increased to 8.5 years in 2003 from 7.9 years in 2002
and none of the securities had call features.

U.S. Government agencies and Mortgage
Backed Securities:The
U.S. Government agency securities (including agency
mortgage backed securities and agency collateralized mortgage
obligations totaling $47.6 million) portfolio increased
$218.4 million to $606.1 million at year-end 2003 from
$387.7 million at year-end 2002. The increase is primarily
due to additional purchases of $496.8 million partially
offset by maturities, calls and sales. The average contractual
maturity of this portfolio increased to 7.1 years in 2003
compared to 6.4 years in 2002. Included in this portfolio
are securities with a carrying value of $447.4 million that
have certain call characteristics, of which $198.7 million
are in the money. Of the callable securities,
$305.3 million ($163.7 million in the money) with
coupon rates ranging from 2.5% to 6.1% have the potential of
being called in 2004 and $131.4 million ($24.3 million
in the money) with coupon rates ranging from 3.4% to 6.0% have
the potential of being called in 2005.

Municipal
Securities:The Companys
municipal security holdings decreased $1.3 million to
$40.8 million at year-end 2003 from $42.1 million at
year-end 2002. The decrease is primarily due to scheduled
maturities and calls on securities exceeding purchases, due to
the lower rate environment. All municipal securities held are
rated A or better by one or more of the national
rating services or are non-rated issues of local
communities which, through the Banks own analysis, are
deemed to be of satisfactory quality. The average contractual
maturity of this portfolio was 4.0 years in 2003 compared
to 4.3 years in 2002. Included in this portfolio are securities
with a carrying value of $14.1 million that have certain
call characteristics, of which $12.5 million are in the
money. Of the callable securities, $6.2 million
($5.3 million in the money) with coupon rates ranging from
1.8% to 6.9% have the potential of being called in 2004 and
$4.3 million

31



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##### Table of Contents



($4.0 million in the money) with coupon
rates ranging from 2.4% to 6.2% have the potential of being
called in 2005.


Corporate and Other
Securities:Holdings of corporate and
other securities increased $23.7 million to
$74.9 million in 2003 from $51.2 million in 2002. The
increase consisted primarily of purchases of $30.0 million
in FHLB of Chicago stock and purchases of long-term TRUPS
partially offset by sales including $15 million in mutual
funds backed by U.S. Government agencies. At
December 31, 2003, the portfolio consists primarily of
$37.3 million of FHLB of Chicago stock, $25.6 million
in TRUPS, and $9.2 million in Fannie Mae preferred stock.
The average contractual maturity of this portfolio (excluding
FHLB of Chicago stock and Fannie Mae preferred stock which have
no stated maturity) increased to 24.4 years in 2003 from
14.5 years in 2002. The increase in contractual maturity
resulted from the sale of $15 million in short-term mutual
funds that had a life of one day. Included in this portfolio are
securities with a carrying value of $27.3 million that have
certain call characteristics, of which $16.2 million are in
the money. Of the callable securities, $10.5 million
($1.3 million in the money) with coupon rates ranging from
1.8% to 9.4% have the potential of being called in 2004 and none
have the potential of being called in 2005.

The Company increased its holdings in the FHLB of
Chicago stock in 2003 due to its strong credit quality and
currently attractive dividend. The FHLB of Chicago declares a
quarterly dividend based on the average stock holdings for the
prior quarter; thus, dividend income from this source is
recorded on a lagging basis which resulted in a yield of 4.19%
for 2003. The FHLB of Chicago declared a quarterly dividend in
January 2004 based on the average balance held during the
quarter ending December 31, 2003 of 6.50%.



| |     
| | ----
| | 2002

The Companys investment portfolio increased
$180.1 million, or 55%, during 2002 to $507.5 million
at year-end from $327.4 million at year-end 2001. This
increase was primarily in the U.S. Government agency and
corporate security portfolios and was a result of deposit growth
and softer loan demand. In purchasing securities, the Company
has continued its strategy to minimize state income taxes by
primarily investing in state income tax exempt
U.S. Government agency securities.

U.S. Treasury
Securities:The Company increased its
holdings of U.S. Treasuries by $9.9 million to
$26.4 million at year-end from $16.6 million at
year-end 2001.

U.S. Government agency and Mortgage
Backed Securities:The
U.S. Government agency securities (including agency
mortgage backed securities and agency collateralized mortgage
obligations) portfolio increased $145.2 million to
$387.7 million at year-end 2002 from $242.5 million at
year-end 2001. The increase was primarily due to additional
purchases of $374.6 million offset by maturities, calls and
sales.

Municipal
Securities:The Companys
municipal security holdings decreased $4.7 million to
$42.1 million at year-end 2002 from $46.8 million at
year-end 2001. The decrease was primarily due to scheduled
maturities and calls on securities due to the lower rate
environment.

Corporate and Other
Securities:Holdings of corporate and
other securities increased $29.7 million to
$51.2 million in 2002 from $21.5 million in 2001. The
increase consisted primarily of purchases of $15 million in
mutual funds holding U.S. Government agencies and purchases
of higher yielding long-term TRUPS. The mutual funds were
purchased with excess liquidity in lieu of Fed funds. At
December 31, 2002, the portfolio consisted primarily of
$20.6 million in TRUPS, $15.0 million in mutual funds,
$5.0 million in Fannie Mae preferred stock, and
$6.4 million of FHLB of Chicago stock.

The contractual maturity distribution and
weighted average yield of investment securities at
December 31, 2003 are presented in the following table.
Actual maturities of securities may differ from that reflected

32



---



##### Table of Contents



in the table due to securities with call features
which are assumed to be held to contractual maturity for
maturity distribution purposes.


Analysis of Investment
Portfolio(1)

|                           |  |                        |        |                 |  |                     |      |                  |  |        |         |          |  |        |      |       |  |        |        |       |  |  |      |   |  |   |        |  |  |  |      |   |  |   |         |  |  |  |      |  
|-------------------------- |  | ---------------------- | ------ | --------------- |  | ------------------- | ---- | ---------------- |  | ------ | ------- | -------- |  | ------ | ---- | ----- |  | ------ | ------ | ----- |  |  | ---- | - |  | - | ------ |  |  |  | ---- | - |  | - | ------- |  |  |  | ---- | -
|                           |  |                        |        |                 |  |                     |      |                  |  |        |         |         
|                           |  | U.S. Treasury          |        | U.S. Government |  | State and Municipal |      | Corporate and    |  |       
|                           |  | Securities             |        | Agencies(2)     |  | Securities          |      | Other Securities |  | Total 
|                           |  |                        |        |                 |  |                     |      |                  |  |       
|                           |  | Amount                 |        | Yield           |  | Amount              |      | Yield            |  | Amount |         | Yield(3) |  | Amount |      | Yield |  | Amount |        | Yield
|                           |  |                        |        |                 |  |                     |      |                  |  |        |         |          |  |        |      |       |  |        |        |      
|                           |  |                       
|                           |  | (Dollars in thousands)
|Maturities:                |  |                        |        |                 |  |                     |      |                  |  |        |         |          |  |        |      |       |  |        |        |       |  |  |      |   |  |   |        |  |  |  |      |   |  |   |         |  |  |  |      |  
|Within 1 year              |  | $                      | 5,208  |                 |  |                     | 5.72 | %                |  | $      | 1       |          |  |        | 2.85 | %     |  | $      | 5,280  |       |  |  | 3.93 | % |  | $ |       |  |  |  |     | % |  | $ | 10,489  |  |  |  | 4.81 | %
|1-5 years                  |  |                        |       |                 |  |                     |     |                  |  |        | 143,451 |          |  |        | 4.15 |       |  |        | 24,270 |       |  |  | 5.03 |   |  |   | 2,395  |  |  |  | 6.57 |   |  |   | 170,116 |  |  |  | 4.30 |  
|5-10 years                 |  |                        | 56,537 |                 |  |                     | 3.70 |                  |  |        | 462,093 |          |  |        | 4.35 |       |  |        | 11,166 |       |  |  | 4.50 |   |  |   | 250    |  |  |  | 6.90 |   |  |   | 530,046 |  |  |  | 4.28 |  
|After 10 years             |  |                        |       |                 |  |                     |     |                  |  |        | 530     |          |  |        | 2.06 |       |  |        | 52     |       |  |  | 4.95 |   |  |   | 25,613 |  |  |  | 6.95 |   |  |   | 26,195  |  |  |  | 6.84 |  
|Other Securities(4)        |  |                        |       |                 |  |                     |     |                  |  |        |        |          |  |        |     |       |  |        |       |       |  |  |     |   |  |   | 46,625 |  |  |  |     |   |  |   | 46,625  |  |  |  |     |  
|                           |  |                        |        |                 |  |                     |      |                  |  |        |         |          |  |        |      |       |  |        |        |       |  |  |      |   |  |   |        |  |  |  |      |   |  |   |         |  |  |  |      |  
|                           |  | $                      | 61,745 |                 |  |                     | 3.86 | %                |  | $      | 606,075 |          |  |        | 4.30 | %     |  | $      | 40,768 |       |  |  | 4.73 | % |  | $ | 74,883 |  |  |  | 6.92 | % |  | $ | 783,471 |  |  |  | 4.38 | %
|                           |  |                        |        |                 |  |                     |      |                  |  |        |         |          |  |        |      |       |  |        |        |       |  |  |      |   |  |   |        |  |  |  |      |   |  |   |         |  |  |  |      |  
|Average months to maturity |  |                        | 103    |                 |  |                     |      |                  |  |        | 86      |          |  |        |      |       |  |        | 48     |       |  |  |      |   |  |   | 293    |  |  |  |      |   |  |   | 93      |  |  |  |      |  



---

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts listed in the table are at carrying value
    and the yield is calculated based on amortized cost.                                                                                                                                                                                                                                                                                                                                                                    
|(2) | Included in U.S. Government agencies are
    agency mortgage-backed securities (MBS) and agency
    collateralized mortgage obligations (CMOs). Given
    the amortizing nature of MBS and CMOs, the maturities presented
    in the table are based on their estimated average lives at
    December 31, 2003. The estimated average lives may differ
    from actual principal cash flows since cash flows include
    prepayments and scheduled principal amortization.
|(3) | Yields on state and municipal securities include
    the effects of tax equivalent adjustments using a tax rate of
    35%.                                                                                                                                                                                                                                                                                                                                                   
|(4) | Other securities include FHLB of Chicago stock,
    Fannie Mae preferred stock and money market funds, which have no
    stated maturity date and are not included in the average months
    to maturity or the average yield.                                                                                                                                                                                                                                                

Loans

|                        |                                                |                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |         | 
|----------------------- | ---------------------------------------------- | ---------------------- | ------- | ------- |  | ---- | ------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                        |                                                |                       
|                        |                                                | December 31,          
|                        |                                                |                       
|                        |                                                | 2003                   |         | 2002    |  | 2001 |         | 2000    |  | 1999
|                        |                                                |                        |         |         |  |      |         |         |  |     
|                        |                                                |                       
|                        |                                                | (Dollars in thousands)
|Commercial loans        |                                                | $                      | 95,761  |         |  | $    | 96,681  |         |  | $    | 100,975 |         |  | $ | 101,024 |         |  | $ | 100,865 |        
|Syndicated loans        |                                                |                        | 33,088  |         |  |      | 39,285  |         |  |      | 45,716  |         |  |   | 35,290  |         |  |   | 6,692   |        
|Real estate loans      |                                                |                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|                        | Construction, land acquisition and development |                        |         | 40,493  |  |      |         | 60,805  |  |      |         | 102,594 |  |   |         | 46,082  |  |   |         | 22,566  | 
|                        | Commercial mortgage                            |                        |         | 234,967 |  |      |         | 245,099 |  |      |         | 213,689 |  |   |         | 181,380 |  |   |         | 158,008 | 
|                        | Residential mortgage                           |                        |         | 101,133 |  |      |         | 100,840 |  |      |         | 105,168 |  |   |         | 127,794 |  |   |         | 120,191 | 
|                        | Home equity                                    |                        |         | 139,926 |  |      |         | 123,531 |  |      |         | 112,877 |  |   |         | 102,841 |  |   |         | 85,343  | 
|Indirect vehicle loans |                                                |                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|                        | Auto                                           |                        |         | 226,877 |  |      |         | 206,568 |  |      |         | 205,298 |  |   |         | 213,940 |  |   |         | 214,945 | 
|                        | Harley Davidson motorcycle                     |                        |         | 35,957  |  |      |         | 29,552  |  |      |         | 19,013  |  |   |         | 5,408   |  |   |         | 419     | 
|Consumer loans          |                                                |                        | 7,487   |         |  |      | 9,731   |         |  |      | 11,353  |         |  |   | 11,399  |         |  |   | 11,274  |        
|                        |                                                |                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|                        |                                                | $                      | 915,689 |         |  | $    | 912,092 |         |  | $    | 916,683 |         |  | $ | 825,158 |         |  | $ | 720,303 |        
|Less:                   |                                                |                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|                        | Unearned discount                              |                        |         | 11      |  |      |         | 11      |  |      |         | 38      |  |   |         | 138     |  |   |         | 334     | 
|                        | Allowance for loan losses                      |                        |         | 8,369   |  |      |         | 7,351   |  |      |         | 6,982   |  |   |         | 5,682   |  |   |         | 4,828   | 
|                        |                                                |                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        
|                        | Loans, net                                     |                        | $       | 907,309 |  |      | $       | 904,730 |  |      | $       | 909,663 |  |   | $       | 819,338 |  |   | $       | 715,141 | 
|                        |                                                |                        |         |         |  |      |         |         |  |      |         |         |  |   |         |         |  |   |         |        

The commercial and syndicated loan portfolios are
substantially secured by business assets. Loans secured by real
estate comprise the greatest percentage of total loans.
Commercial mortgages and construc-

33



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##### Table of Contents



tion, land acquisition and development loans are
generally secured by properties in the Chicago metropolitan
area. Substantially all of the Companys residential real
estate loans are secured by first mortgages, and home equity
loans are secured primarily by junior liens or first liens on
one-to-four family residences in the Chicago metropolitan area.
Substantially all of the Companys combined portfolio of
residential and home equity loans have loan to value ratios of
less than eighty percent of the appraised value. Indirect loans
represent consumer loans made through a network of new car and
Harley Davidson dealers. Other than the following descriptions,
there is no significant concentration of loans exceeding 10% of
total loans in any specific industry or specific region of the
United States other than the Chicago metropolitan area.




| |     
| | ----
| | 2003

At December 31, 2003, loans outstanding, net
of unearned discount, increased $3.6 million compared to
2002. Due to soft loan demand and increased paydowns, the
Companys loan portfolio was shrinking through much of
2003, hitting a low of $863.6 million in August 2003. Loan
demand picked up in the fourth quarter resulting in slight
growth year over year.

Commercial loans decreased $1.0 million to
$95.8 million in 2003. This category is comprised of
approximately 20% new car dealers; 9% insurance premium
receivables; 8% physicians practices; 7% electrical
contractors; 4% medical equipment manufacturers; and 52% of
various other industries in which the Company has no significant
concentration.

Syndicated loans decreased $6.2 million
primarily due to the sale of $8.5 million in balances
($9.8 million of exposure) on two credits. Total exposure
to nationally syndicated loans (including unfunded commitments)
was $76.8 million and $72.1 million at
December 31, 2003 and 2002, respectively. There is no
concentration of these loans in any region of the United States.

Construction, land acquisition and development
loans decreased $20.3 million, or 33%, to
$40.5 million at December 31, 2003. This decrease is
due to increased payoffs and paydowns, partially offset by new
business generation. This category is comprised of approximately
73% construction of 1-4 family detached homes, condominiums and
townhomes in the Chicago area; 21% multi-family residential
projects; and 6% retail developments.

Commercial real estate loans decreased
$10.1 million, or 4%, to $235.0 million in 2003 due to
increased payoffs and paydowns, partially offset by new business
generation. In the low interest rate environment experienced
during 2003, borrowers were willing to pay significant
prepayment penalties for the ability to lock their loan in at a
new lower rate. The commercial real estate portfolio is
comprised of approximately 43% multi-family residential
properties; 27% retail properties; 18% owner occupied office and
industrial properties; and 12% non-owner occupied office and
industrial properties.

Home equity loans increased $16.4 million,
or 13%, to $139.9 million in 2003. This increase is due to
new originations and, to a lesser extent, increased usage as a
result of successful marketing efforts in a low interest rate
environment. These increases were offset by increased payoffs
due to first mortgage loan refinancing.

Residential mortgages increased slightly to
$101.1 million in 2003. To offset payoffs due primarily to
mortgage refinancing, the Company retained for the Banks
portfolio $62.0 million of the $144.1 million of 2003
mortgage loan originations. At the time of origination, the
Company makes the determination if the loan will be kept in the
portfolio or sold to investors based upon an analysis of the
Banks need and current market trends. The remaining
$82.1 million in originations were sold with servicing
released to investors.

Indirect auto loans increased $20.3 million
primarily due to $143.3 million in new loans, offset by
payoffs and regular paydowns. The Companys indirect auto
portfolio consists of approximately 14,300 loans originated in
the Chicago land area, of which 80% are new and 20% are used
vehicles.

Harley-Davidson motorcycle loans increased
$6.4 million. The Companys portfolio consists of
approximately 3,100 loans generated in thirteen states as part
of a national marketing initiative, of which 63% were originated
in Illinois or Wisconsin.

34



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##### Table of Contents



Consumer loans decreased $2.2 million and
consist primarily of student loans, direct automobile loans and
check credit loans.

The Company did not have any programs to buy
subprime indirect loan paper or any other subprime credit in
2003 or 2002.



| |     
| | ----
| | 2002

At December 31, 2002, loans outstanding, net
of unearned discount, decreased $4.6 million compared to
2001 primarily due to decreases in commercial, syndicated,
construction and residential mortgage loans, offset by increases
in commercial mortgage, home equity loans and indirect vehicle
loans. The overall decrease was partially the result of the
apparent loan fraud (charged off with the net realizable value
transferred to OREO) and softening loan demand.

Commercial loans decreased $4.3 million to
$96.7 million in 2002. This decrease was due primarily to
payoffs and paydowns, offset by new loans generated.

Syndicated loans decreased $6.4 million
primarily due to the payoff in 2002 of one syndicated credit
with an outstanding balance at December 31, 2001 of
$7.2 million.

Construction, land acquisition and development
loans decreased $41.8 million, or 41%, to
$60.8 million at December 31, 2002. This decrease is
partially due to the charge-off and transfer to OREO of the
apparent loan fraud. At December 31, 2002, this category
was comprised of approximately 36% construction of
1-4 family detached homes, condominiums and townhomes in
the Chicago area; 29% retail developments; 33% multi-family
residential projects; 1% hotel properties; and 1% industrial
properties.

Commercial real estate loans increased
$31.4 million, or 15%, to $245.1 million in 2002. At
December 31, 2002, the commercial mortgage portfolio was
comprised of approximately 43% multi-family residential
properties; 27% retail properties; 18% owner occupied office and
industrial properties; 12% non-owner occupied office properties
and industrial properties. The growth in this portfolio was
primarily due to successful marketing.

Home equity loans increased $10.7 million,
or 9%, to $123.5 million in 2002. This increase was due to
new originations and increased usage as a result of successful
mass marketing efforts in a low interest rate environment,
offset by increased payoffs due to first mortgage loan
refinancing.

Residential mortgages decreased
$4.3 million, or 4%, to $100.8 million in 2002. The
decrease was primarily due to increased payoffs on the existing
portfolio due to the historical low mortgage interest rate
environment. To offset payoffs, the Company retained for the
Banks portfolio $51.7 million of the
$132.0 million in 2002 mortgage loan originations. The
remaining $80.3 million in originations were sold with
servicing released to investors.

Indirect auto loans increased $1.3 million
to $206.6 million in 2002. The increase was primarily due
to an increase in originations resulting from very competitive
pricing in the luxury import market, partially offset by an
increase in payoffs as compared to 2001.

Harley-Davidson motorcycle loans increased
$10.5 million. The Companys portfolio consisted of
approximately 2,500 loans generated in nine states as part of a
national marketing initiative, of which 67% were originated in
Illinois or Wisconsin.

35



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The following table indicates the remaining
contractual maturity distribution of selected loans at
December 31, 2003:

Maturity Distribution of Selected
Loans

|                                |                                                          |                        |         |             |  |             |         |          |  |       |         |         |  |   |        |        |  |   |         |         | 
|------------------------------- | -------------------------------------------------------- | ---------------------- | ------- | ----------- |  | ----------- | ------- | -------- |  | ----- | ------- | ------- |  | - | ------ | ------ |  | - | ------- | ------- | 
|                                |                                                          | One year               |         | One to five |  | Five to ten |         | Over ten |  |      
|                                |                                                          | or less(1)             |         | years       |  | years       |         | Years    |  | Total
|                                |                                                          |                        |         |             |  |             |         |          |  |      
|                                |                                                          |                       
|                                |                                                          | (Dollars in thousands)
|Commercial and Syndicated loans |                                                          | $                      | 57,825  |             |  | $           | 60,678  |          |  | $     | 6,554   |         |  | $ | 3,792  |        |  | $ | 128,849 |        
|Real estate:                    |                                                          |                        |         |             |  |             |         |          |  |       |         |         |  |   |        |        |  |   |         |        
|                                | Construction, land acquisition and development
    loans |                        |         | 25,382      |  |             |         | 13,249   |  |       |         | 997     |  |   |        | 865    |  |   |         | 40,493  | 
|                                | Commercial mortgage loans                                |                        |         | 22,564      |  |             |         | 164,419  |  |       |         | 37,514  |  |   |        | 10,470 |  |   |         | 234,967 | 
|                                | Residential mortgage loans                               |                        |         | 577         |  |             |         | 10,776   |  |       |         | 9,612   |  |   |        | 80,168 |  |   |         | 101,133 | 
|                                | Home equity loans                                        |                        |         | 4,926       |  |             |         | 30,154   |  |       |         | 104,846 |  |   |        |       |  |   |         | 139,926 | 
|                                |                                                          |                        |         |             |  |             |         |          |  |       |         |         |  |   |        |        |  |   |         |        
|                                |                                                          | $                      | 111,274 |             |  | $           | 279,276 |          |  | $     | 159,523 |         |  | $ | 95,295 |        |  | $ | 645,368 |        
|                                |                                                          |                        |         |             |  |             |         |          |  |       |         |         |  |   |        |        |  |   |         |        



---



|    |                       
|--- | ----------------------
|(1) | Includes demand notes.

The following table indicates, for the loans in
the Maturity Distribution table, the amounts due after one year
which have fixed and variable interest rates at
December 31, 2003:

|                                |                                                          |                        |         |          |  |       |         |         |  |   |         |         | 
|------------------------------- | -------------------------------------------------------- | ---------------------- | ------- | -------- |  | ----- | ------- | ------- |  | - | ------- | ------- | 
|                                |                                                          | Fixed                  |         | Variable |  |      
|                                |                                                          | Rate                   |         | Rate     |  | Total
|                                |                                                          |                        |         |          |  |      
|                                |                                                          |                       
|                                |                                                          | (Dollars in thousands)
|Commercial and Syndicated loans |                                                          | $                      | 27,724  |          |  | $     | 43,300  |         |  | $ | 71,024  |        
|Real estate:                    |                                                          |                        |         |          |  |       |         |         |  |   |         |        
|                                | Construction, land acquisition and development
    loans |                        |         | 1,701    |  |       |         | 13,410  |  |   |         | 15,111  | 
|                                | Commercial mortgage loans                                |                        |         | 147,667  |  |       |         | 64,736  |  |   |         | 212,403 | 
|                                | Residential mortgage loans                               |                        |         | 68,783   |  |       |         | 31,773  |  |   |         | 100,556 | 
|                                | Home equity loans                                        |                        |         | 1,416    |  |       |         | 133,584 |  |   |         | 135,000 | 
|                                |                                                          |                        |         |          |  |       |         |         |  |   |         |        
|                                |                                                          | $                      | 247,291 |          |  | $     | 286,803 |         |  | $ | 534,094 |        
|                                |                                                          |                        |         |          |  |       |         |         |  |   |         |        

Variable rate loans are those on which the
interest rate can be adjusted for changes in the Companys
index rate (similar to prime rate), various maturity
U.S. Treasury rates, The Wall Street Journals
published prime rate, LIBOR or the brokers call money
rate. Certain of the loans classified as variable rate have a
fixed rate for a certain period and then adjust after the fixed
period expires. Fixed rate loans are those on which the interest
rate cannot be changed during the term of the loan.

Allowance for Loan Losses

The allowance for loan losses is maintained at a
level believed adequate by management to absorb estimated
probable loan losses. Managements periodic evaluation of
the adequacy of the allowance is based on the Companys
past loan loss experience, known and inherent risks in the
portfolio, composition of the loan portfolio, current economic
conditions, historical losses experienced by the industry, value
of the underlying collateral and other relevant factors. Loans
which are determined to be uncollectible are charged off against
the allowance for loan losses and recoveries of loans that were
previously charged off are credited to the allowance.

The Companys charge-off policy varies with
respect to the category of and specific circumstances
surrounding each loan under consideration. The Company records
charge-offs on the basis of managements ongoing evaluation
of collectibility. Consumer loans are charged off at the earlier
of the time management can quantify a loss or when the loan
becomes 180 days past due with the exception of a pending
insurance claim or the pending resolution of a Chapter 13
bankruptcy payment plan.

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The Company records specific valuation allowances
on commercial, commercial real estate mortgage and construction
loans when a loan is considered to be impaired. A loan is
impaired when, based on an evaluation of current information and
events, it is probable that the Company will not be able to
collect all amounts due (principal and interest) pursuant to the
original contractual terms. The Company measures impairment
based upon the present value of expected future cash flows
discounted at the loans original effective interest rate
or the fair value of the collateral if the loan is collateral
dependent. Large groups of homogeneous loans, such as
residential mortgage, home equity, indirect vehicle and consumer
loans, are collectively evaluated for impairment and not subject
to impaired loan disclosures. Interest income on impaired loans
is recognized using the cash basis method.

The following table summarizes loan loss
experience for each of the last five years.

Summary of Loan Loss Experience

|                                                                                                             |                                       |                                                          |                   |      |     |        |         |      |         |         |         |      |   |      |         |      |   |      |         |      |    |      |  
|------------------------------------------------------------------------------------------------------------ | ------------------------------------- | -------------------------------------------------------- | ----------------- | ---- | --- | ------ | ------- | ---- | ------- | ------- | ------- | ---- | - | ---- | ------- | ---- | - | ---- | ------- | ---- | -- | ---- | -
|                                                                                                             |                                       | 2003                                                     |                   | 2002 |     | 2001   |         | 2000 |         | 1999   
|                                                                                                             |                                       |                                                          |                   |      |     |        |         |      |         |        
|                                                                                                             |                                       |                                                         
|                                                                                                             |                                       | (Dollars in thousands)                                  
|Average loans for the year, net of unearned
    discount and allowance for loan losses                       |                                       | $                                                        | 882,375           |      |     | $      | 916,377 |      |         | $       | 863,681 |      |   | $    | 772,992 |      |   | $    | 671,356 |     
|                                                                                                             |                                       |                                                          |                   |      |     |        |         |      |         |         |         |      |   |      |         |      |   |      |         |     
|Allowance for loan losses, beginning of the year                                                             |                                       | $                                                        | 7,351             |      |     | $      | 6,982   |      |         | $       | 5,682   |      |   | $    | 4,828   |      |   | $    | 4,445   |     
|Charge-offs during the year:(1)                                                                              |                                       |                                                          |                   |      |     |        |         |      |         |         |         |      |   |      |         |      |   |      |         |     
|                                                                                                             | Real estate:                          |                                                          |                   |      |     |        |         |      |         |         |         |      |   |      |         |      |   |      |         |      |   
|                                                                                                             |                                       | Construction, land acquisition and development
    loans |                   |      |    |        |         |      | (13,963 | )       |         |      |  |      |         |      |  |      |         |      |   |     
|                                                                                                             |                                       | Home equity loans                                        |                   |      |    |        |         |      |        |         |         |      |  |      |         |      |  |      |         |      | (1 | )   
|                                                                                                             | Commercial loans                      |                                                          |                   |     |     |        |         |     |         |         |         | (7   | ) |      |         | (40  | ) |      |         | (357 | ) 
|                                                                                                             | Syndicated loans                      |                                                          |                   | (815 | )   |        |         |     |         |         |         |     |   |      |         |     |   |      |         |     |   
|                                                                                                             | Indirect vehicle loans                |                                                          |                   | (478 | )   |        |         | (533 | )       |         |         | (304 | ) |      |         | (150 | ) |      |         | (130 | ) 
|                                                                                                             | Overdraft loans and uncollected funds |                                                          |                   | (5   | )   |        |         | (11  | )       |         |         | (3   | ) |      |         | (4   | ) |      |         | (4   | ) 
|                                                                                                             | Consumer loans                        |                                                          |                   | (8   | )   |        |         | (4   | )       |         |         | (9   | ) |      |         | (16  | ) |      |         | (36  | ) 
|                                                                                                             |                                       |                                                          |                   |      |     |        |         |      |         |         |         |      |   |      |         |      |   |      |         |     
|                                                                                                             |                                       |                                                          | Total charge-offs |      |     | (1,306 | )       |      |         | (14,511 | )       |      |   | (323 | )       |      |   | (210 | )       |      |    | (528 | )
|                                                                                                             |                                       |                                                          |                   |      |     |        |         |      |         |         |         |      |   |      |         |      |   |      |         |     
|Recoveries during the year:(1)                                                                               |                                       |                                                          |                   |      |     |        |         |      |         |         |         |      |   |      |         |      |   |      |         |     
|                                                                                                             | Real estate:                          |                                                          |                   |      |     |        |         |      |         |         |         |      |   |      |         |      |   |      |         |      |   
|                                                                                                             |                                       | Construction, land acquisition and development
    loans |                   |      | 492 |        |         |      |        |         |         |      |  |      |         |      |  |      |         |      |   |     
|                                                                                                             |                                       | Home equity loans                                        |                   |      |    |        |         |      |        |         |         |      |  |      |         |      |  |      |         |      | 1  |     
|                                                                                                             | Commercial loans                      |                                                          |                   | 1    |     |        |         | 44   |         |         |         |     |   |      |         | 75   |   |      |         | 4    |   
|                                                                                                             | Indirect vehicle loans                |                                                          |                   | 215  |     |        |         | 161  |         |         |         | 41   |   |      |         | 32   |   |      |         | 5    |   
|                                                                                                             | Overdraft loans and uncollected funds |                                                          |                   |     |     |        |         | 1    |         |         |         | 1    |   |      |         | 1    |   |      |         |     |   
|                                                                                                             | Consumer loans                        |                                                          |                   | 16   |     |        |         | 24   |         |         |         | 31   |   |      |         | 56   |   |      |         | 61   |   
|                                                                                                             |                                       |                                                          |                   |      |     |        |         |      |         |         |         |      |   |      |         |      |   |      |         |     
|                                                                                                             |                                       |                                                          | Total recoveries  |      |     | 724    |         |      |         | 230     |         |      |   | 73   |         |      |   | 164  |         |      |    | 71   |  
|                                                                                                             |                                       |                                                          |                   |      |     |        |         |      |         |         |         |      |   |      |         |      |   |      |         |     
|Net charge-offs during the year                                                                              |                                       |                                                          | (582              | )    |     |        | (14,281 | )    |         |         | (250    | )    |   |      | (46     | )    |   |      | (457    | )   
|Provision for loan losses                                                                                    |                                       |                                                          | 1,600             |      |     |        | 14,650  |      |         |         | 1,550   |      |   |      | 900     |      |   |      | 840     |     
|                                                                                                             |                                       |                                                          |                   |      |     |        |         |      |         |         |         |      |   |      |         |      |   |      |         |     
|Allowance for loan losses, end of the year                                                                   |                                       | $                                                        | 8,369             |      |     | $      | 7,351   |      |         | $       | 6,982   |      |   | $    | 5,682   |      |   | $    | 4,828   |     
|                                                                                                             |                                       |                                                          |                   |      |     |        |         |      |         |         |         |      |   |      |         |      |   |      |         |     
|Ratio of net charge-offs to average loans
    outstanding                                                    |                                       |                                                          | .07               | %    |     |        | 1.54    | %    |         |         | .03     | %    |   |      | .01     | %    |   |      | .07     | %   
|Allowance for loan losses as a percent of loans
    outstanding, net of unearned discount at end of the year |                                       |                                                          | .91               | %    |     |        | .81     | %    |         |         | .76     | %    |   |      | .69     | %    |   |      | .67     | %   
|Ratio of allowance for loan losses to
    nonperforming loans                                                |                                       |                                                          | 15.44             | x    |     |        | 5.09    | x    |         |         | 4.03    | x    |   |      | 12.94   | x    |   |      | 12.98   | x   



---



|    |                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | There have been no losses or recoveries in the
    commercial mortgage and residential mortgage loan portfolios and
    no recoveries in the syndicated loan portfolio over the past
    five years.

37



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##### Table of Contents



Net charge-offs for 2003 totaled $582,000, or
..07%, of average loans outstanding. Gross charge-offs in 2003 of
$1,306,000 relate primarily to $815,000 charged off on the sale
into the secondary market of $9.8 million in exposure
($8.5 million of outstanding balances) on two performing
nationally syndicated credits. The Companys remaining
portfolio of nationally syndicated loans is fully performing as
required contractually. With the exception of the charge-offs on
these two credits, substantially all other charge-offs relate
primarily to the Companys indirect vehicle portfolio. Net
charge-offs as a percent of the average indirect vehicle
portfolio decreased to .11% in 2003 from .16% in 2002. Gross
recoveries in 2003 totaled $724,000, of which $492,000 related
to a hotel loan charged off in 2002 (See Asset
Quality). The remaining recoveries were primarily from
indirect vehicle loans.

Net charge-offs for 2002 totaled $14,281,000, or
1.54%, of average loans. Virtually all net charge-offs for 2002
relate to $13,963,000 charged off on two commercial construction
loans. See Asset Quality for discussion regarding
these construction loans. The remaining charge-offs relate
primarily to the Companys indirect vehicle portfolio.

The Companys allowance for loan losses as a
percent of loans outstanding was .91% at December 31, 2003
as compared to .81% in 2002 and .76% in 2001. The allowance for
loan losses is sufficient to provide for probable loan losses
based upon managements evaluation of the risks inherent in
the various loan categories. Management believes the allowance
for loan losses is at an adequate level. Refer to the section
titled Application of Critical Accounting Policies
for a detailed description of the Companys policy
regarding the Allowance for Loan Losses.

38



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##### Table of Contents



The following table shows the allocation of the
allowance for loan losses by loan type for each of the last five
years.

Allocation of Allowance for Loan
Losses

|                                         |                        |                                                          |                 |       |      |       |       |       |      |       |       |       |      |       |       |       |      |       |       |       |      |       | 
|---------------------------------------- | ---------------------- | -------------------------------------------------------- | --------------- | ----- | ---- | ----- | ----- | ----- | ---- | ----- | ----- | ----- | ---- | ----- | ----- | ----- | ---- | ----- | ----- | ----- | ---- | ----- | 
|                                         |                        |                                                         
|                                         |                        | December 31,                                            
|                                         |                        |                                                         
|                                         |                        | 2003                                                     |                 | 2002  |      | 2001  |       | 2000  |      | 1999 
|                                         |                        |                                                          |                 |       |      |       |       |       |      |      
|                                         |                        |                                                         
|                                         |                        | (Dollars in thousands)                                  
|Allocation of allowance for loan losses: |                        |                                                          |                 |       |      |       |       |       |      |       |       |       |      |       |       |       |      |       |       |      
|                                         | Real estate:           |                                                          |                 |       |      |       |       |       |      |       |       |       |      |       |       |       |      |       |       |       |     
|                                         |                        | Construction, land acquisition and development
    loans |                 | $     | 42   |       |       | $     | 64   |       |       | $     | 257  |       |       | $     | 210  |       |       | $     | 29   |      
|                                         |                        | Commercial mortgage loans                                |                 |       | 386  |       |       |       | 740  |       |       |       | 413  |       |       |       | 83   |       |       |       | 284  |      
|                                         |                        | Residential mortgage loans                               |                 |       | 75   |       |       |       | 100  |       |       |       | 56   |       |       |       | 57   |       |       |       | 77   |      
|                                         |                        | Home equity loans                                        |                 |       | 46   |       |       |       | 47   |       |       |       | 44   |       |       |       | 116  |       |       |       | 49   |      
|                                         | Commercial loans       |                                                          |                 | 951   |      |       |       | 1,125 |      |       |       | 887   |      |       |       | 626   |      |       |       | 408   |     
|                                         | Syndicated loans       |                                                          |                 | 582   |      |       |       | 2,531 |      |       |       | 810   |      |       |       | 143   |      |       |       | 20    |     
|                                         | Indirect vehicle loans |                                                          |                 | 1,319 |      |       |       | 1,233 |      |       |       | 1,241 |      |       |       | 1,104 |      |       |       | 793   |     
|                                         | Consumer loans         |                                                          |                 | 42    |      |       |       | 47    |      |       |       | 54    |      |       |       | 82    |      |       |       | 120   |     
|                                         | Unallocated            |                                                          |                 | 4,926 |      |       |       | 1,464 |      |       |       | 3,220 |      |       |       | 3,261 |      |       |       | 3,048 |     
|                                         |                        |                                                          |                 |       |      |       |       |       |      |       |       |       |      |       |       |       |      |       |       |      
|                                         |                        |                                                          | Total allowance |       | $    | 8,369 |       |       | $    | 7,351 |       |       | $    | 6,982 |       |       | $    | 5,682 |       |       | $    | 4,828 | 
|                                         |                        |                                                          |                 |       |      |       |       |       |      |       |       |       |      |       |       |       |      |       |       |      
|Percentage of loans to gross loans:      |                        |                                                          |                 |       |      |       |       |       |      |       |       |       |      |       |       |       |      |       |       |      
|                                         | Real estate:           |                                                          |                 |       |      |       |       |       |      |       |       |       |      |       |       |       |      |       |       |       |     
|                                         |                        | Construction, land acquisition and development
    loans |                 |       | 4.4  | %     |       |       | 6.6  | %     |       |       | 11.2 | %     |       |       | 5.6  | %     |       |       | 3.1  | %    
|                                         |                        | Commercial mortgage loans                                |                 |       | 25.7 |       |       |       | 26.9 |       |       |       | 23.3 |       |       |       | 22.0 |       |       |       | 22.0 |      
|                                         |                        | Residential mortgage loans                               |                 |       | 11.0 |       |       |       | 11.1 |       |       |       | 11.5 |       |       |       | 15.5 |       |       |       | 16.7 |      
|                                         |                        | Home equity loans                                        |                 |       | 15.3 |       |       |       | 13.5 |       |       |       | 12.3 |       |       |       | 12.4 |       |       |       | 11.8 |      
|                                         | Commercial loans       |                                                          |                 | 10.5  |      |       |       | 10.6  |      |       |       | 11.0  |      |       |       | 12.2  |      |       |       | 14.0  |     
|                                         | Syndicated loans       |                                                          |                 | 3.6   |      |       |       | 4.3   |      |       |       | 5.0   |      |       |       | 4.3   |      |       |       | 0.9   |     
|                                         | Indirect vehicle loans |                                                          |                 | 28.7  |      |       |       | 25.9  |      |       |       | 24.5  |      |       |       | 26.6  |      |       |       | 29.9  |     
|                                         | Consumer loans         |                                                          |                 | 0.8   |      |       |       | 1.1   |      |       |       | 1.2   |      |       |       | 1.4   |      |       |       | 1.6   |     
|                                         |                        |                                                          |                 |       |      |       |       |       |      |       |       |       |      |       |       |       |      |       |       |      
|                                         |                        |                                                          | 100.0           | %     |      |       | 100.0 | %     |      |       | 100.0 | %     |      |       | 100.0 | %     |      |       | 100.0 | %    
|                                         |                        |                                                          |                 |       |      |       |       |       |      |       |       |       |      |       |       |       |      |       |       |      

The allocation for commercial, syndicated and
commercial real estate loans decreased from 2002 due to a
decrease in the level of Management Watch list loans due
partially to the sale into the secondary market of two
nationally syndicated credits (see Summary of Loan Loss
Experience) and, to a lesser extent, a reduction of the
outstanding balances in the portfolios. The allocation for
construction, land acquisition and development loans decreased
due to a reduction in the portfolio balance. In calculating the
allocation of allowance for construction loans, the charge-off
of the apparent fraudulent loan in 2002 was not considered in
the Banks historical charge-off data due to the isolated
nature of the apparent fraud. The unallocated reserve increased
due to managements ongoing review of the qualitative
factors, including economic trends, credit concentrations,
industry risks, and the opinions of Bank management.

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Asset Quality

The accrual of interest is discontinued on
commercial, real estate and consumer loans when the
collectibility of contractual principal or interest is deemed
doubtful by management or when 90 days or more past due and
the loan is not well secured or in the process of collection.
Interest income is recorded on these loans only as it is
collected. Interest payments on nonaccrual loans may be applied
directly to loan principal for accounting purposes.

The following table summarizes the Companys
nonperforming assets.

|                                               |                            |                        |        |        |  |      |       |       |  |      |       |       |  |   |     |     |  |   |     |     | 
|---------------------------------------------- | -------------------------- | ---------------------- | ------ | ------ |  | ---- | ----- | ----- |  | ---- | ----- | ----- |  | - | --- | --- |  | - | --- | --- | 
|                                               |                            |                       
|                                               |                            | December 31,          
|                                               |                            |                       
|                                               |                            | 2003                   |        | 2002   |  | 2001 |       | 2000  |  | 1999
|                                               |                            |                        |        |        |  |      |       |       |  |     
|                                               |                            |                       
|                                               |                            | (Dollars in thousands)
|Nonaccruing loans                              |                            | $                      | 293    |        |  | $    | 821   |       |  | $    | 1,295 |       |  | $ | 121 |     |  | $ | 90  |    
|Loans which are past due 90 days or more       |                            |                        | 249    |        |  |      | 623   |       |  |      | 437   |       |  |   | 318 |     |  |   | 282 |    
|                                               |                            |                        |        |        |  |      |       |       |  |      |       |       |  |   |     |     |  |   |     |    
|                                               | Total nonperforming loans  |                        |        | 542    |  |      |       | 1,444 |  |      |       | 1,732 |  |   |     | 439 |  |   |     | 372 | 
|Other real estate owned                        |                            |                        | 16,130 |        |  |      | 7,944 |       |  |      |      |       |  |   |    |     |  |   |    |    
|Repossessed vehicles                           |                            |                        | 106    |        |  |      | 217   |       |  |      | 146   |       |  |   | 152 |     |  |   | 28  |    
|                                               |                            |                        |        |        |  |      |       |       |  |      |       |       |  |   |     |     |  |   |     |    
|                                               | Total nonperforming assets |                        | $      | 16,778 |  |      | $     | 9,605 |  |      | $     | 1,878 |  |   | $   | 591 |  |   | $   | 400 | 
|                                               |                            |                        |        |        |  |      |       |       |  |      |       |       |  |   |     |     |  |   |     |    
|Nonperforming loans to total loans outstanding |                            |                        | .06    | %      |  |      | .16   | %     |  |      | .19   | %     |  |   | .05 | %   |  |   | .05 | %  
|Nonperforming assets to total assets           |                            |                        | .91    | %      |  |      | .60   | %     |  |      | .14   | %     |  |   | .05 | %   |  |   | .03 | %  
|Nonperforming assets to total capital          |                            |                        | 13.88  | %      |  |      | 8.58  | %     |  |      | 1.89  | %     |  |   | .67 | %   |  |   | .50 | %  

At December 31, 2003, nonaccrual loans
totaled $293,000 and consisted of a $113,000 residential
mortgage loan, a $91,000 commercial mortgage loan, a $74,000
commercial loan and a $15,000 home equity loan, all of which are
in foreclosure. At December 31, 2002, the Company had an
$820,000 participation in a nonaccrual construction loan on an
unfinished hotel. In March 2003, an order was entered by the
Bankruptcy Court and the proceeds of approximately
$1.3 million were distributed to the Bank. The proceeds
were applied to the remaining balance on the Banks books,
with the excess $492,000 treated as a recovery.

Other real estate owned consists of a
24 unit luxury condominium construction project with
53 deeded parking spaces. The project is substantially
completed within budget. As of March 8, 2004, ten units and
25 parking spaces have been sold, of which five units and
eighteen parking spaces are closed and occupied and five units
and seven parking spaces are under contract with earnest money
in hand. These sales represent approximately 42% of the total
number of units and approximately 34% of projected sales dollars.

Title to the property was acquired in November
2002 and recorded at its then net realizable value. The
repayment of the Banks investment in the project is
dependent on the strength of the Chicago luxury condominium
market; as a result, the Company recorded a provision for
impairment of $1.4 million during 2003. The Company will
continue to evaluate the property quarterly for impairment and
make valuation adjustments as deemed necessary.

A schedule of activity in the OREO balance for
2003 and 2002 is shown in the following table:

|                                         |                        |      |        |        |  |   |       |       | 
|---------------------------------------- | ---------------------- | ---- | ------ | ------ |  | - | ----- | ----- | 
|                                         |                        | 2003 |        | 2002  
|                                         |                        |      |        |       
|Beginning Balance                        |                        | $    | 7,944  |        |  | $ |      |      
|Transfer of net realizable value to OREO |                        |      |       |        |  |   | 3,606 |      
|Funding towards project                  |                        |      | 12,135 |        |  |   | 4,338 |      
|Sales proceeds, net                      |                        |      | (2,534 | )      |  |   |      |      
|Provision for OREO                       |                        |      | (1,415 | )      |  |   |      |      
|                                         |                        |      |        |        |  |   |       |      
|                                         | Balance at December 31 |      | $      | 16,130 |  |   | $     | 7,944 | 
|                                         |                        |      |        |        |  |   |       |      

As of December 31, 2003, the Company
anticipates approximately $2.8 million in additional
fundings to be disbursed once the project is fully completed and
all claims are settled. Additional net sales proceeds, based

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on current projections, total $19.0 million.
The Company expects to receive approximately $4.9 million
of this amount in 2004 based upon scheduled closings.


The Bank is pursuing multiple legal actions
against potentially responsible parties, including the
developers and guarantors, the Banks bonding company and
other professional service providers. No assurances can be given
about the likelihood, amount, or timing of any recoveries. See
Note 6 to Item 8 of this Form 10-K for additional
information.

Losses on repossessed vehicles are charged off to
the allowance when title is taken and the vehicle is valued.
Once the Bank obtains title, repossessed vehicles are not
included in loans, but rather are classified as other
assets on the Consolidated Balance Sheets. The typical
holding period for resale of repossessed vehicles is
90 days unless significant repairs to the vehicle are
needed which occasionally results in a longer holding period.
The Banks portfolio of repossessed vehicles totaled
$106,000 and $217,000 at December 31, 2003 and 2002,
respectively.

In addition to nonperforming assets, there are
certain loans in the portfolio that management has identified,
through its problem loan identification process, which exhibit a
higher than normal credit risk. However, these loans are still
performing and, accordingly, are not included in nonperforming
loans. The balance in this category at any reporting period can
fluctuate widely. The Company has potential problem loans,
including related outstanding commitments, totaling
$8.9 million at December 31, 2003, down from
$30.4 million at December 31, 2002.

Deposits

At year-end 2003, total deposits were
$1.5 billion, an increase of $193.8 million, or 15%,
compared to 2002. This increase was primarily due to a
$111.1 million increase in time deposits and
$106.8 million in savings deposits and NOW accounts. The
growth in time deposits was primarily due to the opening of
three branches in 2003 ($90.4 million), new public fund
relationships (up $41.4 million), and the purchase of
brokered certificates (up $24.9 million). The growth in
savings deposits and NOW accounts was fuelled by a new tiered
rate retail checking product which has generated
$62.6 million since its inception in February 2003.
Noninterest-bearing demand deposits increased $2.3 million
primarily from treasury management customers. These increases
were offset by a decrease in money market accounts of
$26.4 million at year-end 2003 compared to 2002.

Average Deposits and Rate by Type

|                                    |  |                        |           |      |  |        |      |      |  |        |           |      |  |  |      |   |  |   |           |  |  |  |      |  
|----------------------------------- |  | ---------------------- | --------- | ---- |  | ------ | ---- | ---- |  | ------ | --------- | ---- |  |  | ---- | - |  | - | --------- |  |  |  | ---- | -
|                                    |  |                        |           |      |  |       
|                                    |  | 2003                   |           | 2002 |  | 2001  
|                                    |  |                        |           |      |  |       
|                                    |  | Amount                 |           | Rate |  | Amount |      | Rate |  | Amount |           | Rate
|                                    |  |                        |           |      |  |        |      |      |  |        |           |     
|                                    |  |                       
|                                    |  | (Dollars in thousands)
|Noninterest-bearing demand deposits |  | $                      | 246,525   |      |  |        |     | %    |  | $      | 216,100   |      |  |  |     | % |  | $ | 193,778   |  |  |  |     | %
|Savings deposits and NOW accounts   |  |                        | 214,120   |      |  |        | 1.01 |      |  |        | 144,650   |      |  |  | 1.18 |   |  |   | 126,477   |  |  |  | 2.18 |  
|Money market accounts               |  |                        | 132,964   |      |  |        | 1.15 |      |  |        | 153,379   |      |  |  | 2.00 |   |  |   | 125,163   |  |  |  | 3.32 |  
|Time deposits                       |  |                        | 732,738   |      |  |        | 2.44 |      |  |        | 654,877   |      |  |  | 3.42 |   |  |   | 564,325   |  |  |  | 5.41 |  
|                                    |  |                        |           |      |  |        |      |      |  |        |           |      |  |  |      |   |  |   |           |  |  |  |      |  
|Total                               |  | $                      | 1,326,347 |      |  |        | 1.63 | %    |  | $      | 1,169,006 |      |  |  | 2.32 | % |  | $ | 1,009,743 |  |  |  | 3.71 | %
|                                    |  |                        |           |      |  |        |      |      |  |        |           |      |  |  |      |   |  |   |           |  |  |  |      |  

Average deposits for 2003 increased
$157.3 million, or 13%, as compared to 2002. The increase
is due to a $77.9 million increase in average time
deposits; a $69.5 million increase in average savings
deposits and NOW accounts; and a $30.4 million increase in
average noninterest-bearing demand deposits, offset by a
$20.4 million decrease in average money market deposits.

Average deposits for 2002 increased
$159.3 million, or 16%, as compared to 2001. There were
increases in all average deposit accounts: a $90.6 million
increase in average time deposits; a $28.2 million increase
in average money market deposits; a $22.3 million increase
in average noninterest-bearing demand deposits; and an
$18.2 million increase in average savings and NOW accounts.

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Maturities of time deposits of $100,000 or more
outstanding at December 31, 2003 are summarized as follows:

|                               |       |                        |         |         | 
|------------------------------ | ----- | ---------------------- | ------- | ------- | 
|                               |       | Amount                
|                               |       |                       
|                               |       | (Dollars in thousands)
|Three months or less           |       | $                      | 189,506 |        
|Over three through six months  |       |                        | 74,538  |        
|Over six through twelve months |       |                        | 119,449 |        
|Over twelve months             |       |                        | 68,836  |        
|                               |       |                        |         |        
|                               | Total |                        | $       | 452,329 | 
|                               |       |                        |         |        

Borrowings

Short-term borrowings include Fed funds
purchased, securities sold under agreements to repurchase,
treasury, tax and loan demand notes, and draws on the
Companys line of credit. These totaled $69.9 million
at December 31, 2003 compared to $84.6 million at the
end of 2002. The $14.7 million decrease in 2003 was
primarily due to decreases in commercial repurchase agreements.
In 2002, short-term borrowings decreased to $84.6 million
from $102.0 million in 2001, primarily due to decreases in
treasury, tax and loan demand notes and term repurchase
agreements.

As a member of the FHLB of Chicago, the Bank may
obtain advances secured by certain of its residential mortgage
loans and other assets. The Company continued to utilize the
FHLB of Chicago advances due to the comparatively favorable
terms available. Borrowings increased to $161.5 million at
December 31, 2003 from $102.0 million at
December 31, 2002, up 58%, due primarily to
$75 million borrowed on December 30, 2003 to purchase
U.S. Government agency securities as part of a balance
sheet arbitrage initiated to lock in a favorable spread. In 2002
total FHLB of Chicago borrowings increased $16.0 million,
or 19%, from $86.0 million at December 31, 2001 due
primarily to increased borrowings intended for the buildout of
OREO (See Asset Quality). FHLB of Chicago borrowings
mature from 2004 to 2008 and bear interest rates ranging from
1.29% to 7.14%. At December 31, 2003, $10 million in
FHLB of Chicago borrowings are callable at the discretion of the
FHLB of Chicago. See Note 8 to Item 8 of this
Form 10-K for additional information.

At December 31, 2003, the Company has
$23 million of TRUPS outstanding that were issued as part
of three separate pooled trust preferred offerings distributed
through institutional private placements. The outstanding
balance of the TRUPS increased $5 million due to an
additional participation by the Company in a pooled trust
preferred offering during the fourth quarter of 2003. The TRUPS
are recorded in the Consolidated Financial Statements as a
liability and included as Tier 1 capital for regulatory
purposes (See Capital Resources). Interest on the
securities is currently tax deductible. See Note 8 to
Item 8 of this Form 10-K for additional discussion.

Capital Resources

One of the Companys primary objectives is
to maintain a strong capital position to warrant the confidence
of its customers, shareholders and bank regulatory agencies. A
strong capital base is needed to take advantage of profitable
growth opportunities that arise and to provide assurance to
depositors and creditors. Banking is inherently a risk-taking
activity requiring a sufficient level of capital to effectively
and efficiently manage these risks. The Companys capital
objectives are to:



| |   |                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | maintain sufficient capital to support the risk
    characteristics of the Company and the Bank; and                                                                                                        
|
| |  | maintain capital ratios which meet and exceed the
    well-capitalized regulatory capital ratio guidelines
    for the Bank, thereby minimizing regulatory intervention and
    lowering FDIC assessments.

At December 31, 2003, the Companys
shareholders equity totaled $120.9 million. The
Companys and the Banks capital ratios not only
exceeded minimum regulatory guidelines, but also the FDIC
criteria for

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well-capitalized banks. As a result
of the TRUPS issued late in 2003, the Companys
consolidated capital ratios increased. See Note 11 to
Item 8 of this Form 10-K for regulatory capital
disclosures.


FIN No. 46R requires the deconsolidation of
statutory trusts for financial statement presentation. The Board
of Governors of the Federal Reserve System issued a supervisory
letter instructing bank holding companies to continue to include
the TRUPS in their Tier 1 Capital for regulatory capital
purposes until notice is given to the contrary. The Federal
Reserve intends to review the regulatory implications of any
accounting treatment changes and, if necessary or warranted,
provide further appropriate guidance. There can be no assurance
that the Federal Reserve will continue to allow the Company to
include TRUPS in Tier 1 Capital for regulatory purposes.
The Company would still be considered well
capitalized if TRUPS are excluded from Tier 1 Capital.

In 2003, cash dividends declared totaled
$4,747,000, a 37% increase from 2002. In 2003, the Company
increased dividends twice to take advantage of the new lower 15%
Federal tax ceiling on dividends. The Company has increased
dividends each year over the last twelve years. In 2002, cash
dividends declared totaled $3,463,000, a 19% increase from 2001.
The dividend payout ratio for 2003 was 25.75%, as compared to
32.98% in 2002.

In 2000, the Board of Directors approved a stock
repurchase program which authorizes (but does not require) the
Company to repurchase up to 300,000 shares (or
approximately 3% of outstanding shares) of common stock through
January 2005 (as extended). Repurchases can be made in the open
market or through negotiated transactions from time to time
depending on market conditions. The repurchased stock is held as
treasury stock to be used for general corporate purposes. In
2003, the Company repurchased 7,500 shares at an average
price of $19.88. No shares were repurchased during 2002. Through
December 31, 2003, the Company had repurchased
151,410 shares under this plan at an average price of
$12.32 per share, and there are approximately
149,000 shares remaining available for repurchases under
this program.

Investment Sales Division

In May 2003, the Bank began operation of an
Investment Sales Division. The new area executes a variety of
securities transactions, dealing primarily in
U.S. Treasuries, U.S. Government agencies, corporate
debt securities, municipal bonds and mutual funds. The division
serves primarily commercial businesses, not-for-profit
organizations, governmental entities, and high net worth
families. During the first two years of start-up, the Company
anticipates expenses to exceed income from this source.

Branch Expansion

The Companys banking subsidiary is Oak
Brook Bank. The Bank currently operates seventeen banking
offices: fifteen in the western suburbs of Chicago, one in the
northern suburbs of Chicago, and one at Huron and Dearborn
streets in downtown Chicago, in addition to a Call Center at
800-536-3000 and an Internet branch at
www.obb.com.The Bank opened three new branches in
2003: Countryside in January, Graue Mill in May, and
St. Charles in October.

The Companys primary growth strategy
continues to include branch expansion in the Chicago
metropolitan area. The strategy for selecting branch locations
includes providing market fill-ins in the Banks core west
suburban market; extending our market to locations the Bank has
concentrations of deposit and loan customers but no physical
presence; and, extending our market into high growth outlying
areas. We are currently working on opportunities that meet these
criteria. Although this form of growth requires a significant
investment in nonearning assets during the construction phase
and start-up costs for several years exceed revenues, the
Company believes its market warrants judicious office additions.

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Condensed Quarterly Earnings Summary

|                                  |  |                        |        |         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |        |  |  |   |        |  |  |   |        |   |  |   |        | 
|--------------------------------- |  | ---------------------- | ------ | ------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ |  |  | - | ------ |  |  | - | ------ | - |  | - | ------ | 
|                                  |  |                        |        |        
|                                  |  | 2003                   |        | 2002   
|                                  |  |                        |        |        
|                                  |  | Fourth                 |        | Third   |  | Second  |        | First   |  | Fourth  |        | Third   |  | Second  |        | First  
|                                  |  | Quarter                |        | Quarter |  | Quarter |        | Quarter |  | Quarter |        | Quarter |  | Quarter |        | Quarter
|                                  |  |                        |        |         |  |         |        |         |  |         |        |         |  |         |        |        
|                                  |  |                       
|                                  |  | (Dollars in thousands)
|Interest income                   |  | $                      | 19,937 |         |  | $       | 19,635 |         |  | $       | 20,079 |         |  | $       | 20,284 |         |  | $ | 20,925 |  |  | $ | 21,302 |  |  | $ | 20,504 |   |  | $ | 19,836 | 
|Interest expense                  |  |                        | 7,020  |         |  |         | 6,582  |         |  |         | 7,295  |         |  |         | 7,807  |         |  |   | 8,491  |  |  |   | 9,147  |  |  |   | 8,645  |   |  |   | 8,836  | 
|                                  |  |                        |        |         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |        |  |  |   |        |  |  |   |        |   |  |   |        | 
|Net interest income               |  | $                      | 12,917 |         |  | $       | 13,053 |         |  | $       | 12,784 |         |  | $       | 12,477 |         |  | $ | 12,434 |  |  | $ | 12,155 |  |  | $ | 11,859 |   |  | $ | 11,000 | 
|Provision for loan losses         |  |                        | 250    |         |  |         | 350    |         |  |         | 250    |         |  |         | 750    |         |  |   | 1,100  |  |  |   | 2,200  |  |  |   | 10,850 |   |  |   | 500    | 
|Other income                      |  |                        | 4,157  |         |  |         | 4,422  |         |  |         | 5,133  |         |  |         | 4,723  |         |  |   | 4,779  |  |  |   | 4,198  |  |  |   | 4,475  |   |  |   | 3,998  | 
|Other expense                     |  |                        | 10,346 |         |  |         | 10,534 |         |  |         | 10,901 |         |  |         | 9,722  |         |  |   | 9,390  |  |  |   | 8,374  |  |  |   | 9,254  |   |  |   | 8,723  | 
|                                  |  |                        |        |         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |        |  |  |   |        |  |  |   |        |   |  |   |        | 
|Income (loss) before income taxes |  | $                      | 6,478  |         |  | $       | 6,591  |         |  | $       | 6,766  |         |  | $       | 6,728  |         |  | $ | 6,723  |  |  | $ | 5,779  |  |  | $ | (3,770 | ) |  | $ | 5,775  | 
|Income tax expense (benefit)      |  |                        | 1,809  |         |  |         | 1,955  |         |  |         | 2,182  |         |  |         | 2,182  |         |  |   | 1,973  |  |  |   | 1,662  |  |  |   | (1,441 | ) |  |   | 1,812  | 
|                                  |  |                        |        |         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |        |  |  |   |        |  |  |   |        |   |  |   |        | 
|Net Income (loss)                 |  | $                      | 4,669  |         |  | $       | 4,636  |         |  | $       | 4,584  |         |  | $       | 4,546  |         |  | $ | 4,750  |  |  | $ | 4,117  |  |  | $ | (2,329 | ) |  | $ | 3,963  | 
|                                  |  |                        |        |         |  |         |        |         |  |         |        |         |  |         |        |         |  |   |        |  |  |   |        |  |  |   |        |   |  |   |        | 

The above quarterly financial information
contains all normal and recurring reclassifications for a fair
and consistent presentation.

Impact of Pending Accounting
Standards

In 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities (FIN No. 46) which provides new
accounting guidance on when to consolidate a variable interest
entity. A variable interest entity exists when either the total
equity investment at risk is not sufficient to permit the entity
to finance its activities by itself, or the equity investors
lack one of three characteristics associated with owning a
controlling financial interest. Those characteristics include
the direct or indirect ability to make decisions about an
entitys activities through voting rights or similar
rights, the obligation to absorb the expected losses of an
entity if they occur, and the right to receive the expected
residual returns of the entity if they occur. The accounting
requirements of FIN No. 46 are effective for the Company on
December 31, 2003, on a prospective basis. The impact of
adoption did not have an impact on the consolidated financial
statements of the Company.

In 2003, the FASB issued Interpretation
No. 46 (revised), Consolidation of Variable Interest
Entities (FIN No. 46R), which provides
further guidance on the accounting for variable interest
entities. FIN No. 46R replaces FIN No. 46, which was
issued earlier in 2003. As permitted by FIN No. 46R, the
Company applied the provisions of FIN No. 46 as of
December 31, 2003. The Company adopted the provisions of
FIN No. 46R in the first quarter of 2004. The adoption of
FIN No. 46R resulted in the deconsolidation of the three
statutory trust subsidiaries of the Holding Company. This
deconsolidation will not have a material effect on the
consolidated financial statements of the Company.

In November 2003, the FASB ratified a consensus
reached by the Emerging Issues Task Force (EITF) in
EITF 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments,
which is effective for fiscal years ending after
December 15, 2003. The consensus requires certain
quantitative and qualitative disclosures for debt and marketable
equity securities classified as available-for-sale or
held-to-maturity under SFAS No. 115, Accounting
for Certain Investments in Debt and Equity Securities for
which an other-than-temporary impairment has not been
recognized. These disclosures are contained in Note 3 of
Item 8 of this Form 10-K.

FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains
certain forward-looking statements within the meaning of
Section 21E of the Securities Exchange 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 this statement is included for purposes of
invoking these safe

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harbor provisions. Forward-looking statements,
which are based on certain assumptions and describe the
Companys future plans, strategies and expectations, can
generally be identified by use of the words believe,
expect, intend, anticipate,
estimate, project, or similar
expressions. The Companys ability to predict results or
the actual effect of future plans or strategies is inherently
uncertain and actual results may differ materially from the
results projected in forward-looking statements due to various
factors. These risks and uncertainties include, but are not
limited to, fluctuations in market rates of interest and loan
and deposit pricing; a deterioration of general economic
conditions in the Companys market areas; legislative or
regulatory changes; adverse developments in our loan or
investment portfolios; the assessment of the provision and
allowance for loan losses; developments pertaining to the
apparent loan fraud and condominium project discussed above,
including, without limitation, construction costs, delays and
the strength of the Chicago luxury condominium for sale market;
significant increases in competition or changes in depositor
preferences or loan demand, difficulties in identifying
attractive branch sites or other expansion opportunities, or
unanticipated delays in construction buildout; difficulties in
attracting and retaining qualified personnel; and possible
dilutive effect of potential acquisitions or expansion. These
risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be
placed on such statements. We undertake no obligation to update
publicly any of these statements in light of future events
except as may be required in subsequent periodic reports filed
with the Securities and Exchange Commission.







|         |                                                                
|-------- | ---------------------------------------------------------------
|Item 7A. | Quantitative And Qualitative Disclosures
    About Market Risks

See Interest Rate Sensitivity in
Item 7 of this document.

45



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##### Table of Contents








|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements And Supplementary
    Data

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                                        |                                                                                                                           |                             |           |         |         |   |           |         |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | --------------------------- | --------- | ------- | ------- | - | --------- | ------- | ------- | 
|                                                                                                                                                                                                        |                                                                                                                           |                            
|                                                                                                                                                                                                        |                                                                                                                           | December 31,               
|                                                                                                                                                                                                        |                                                                                                                           |                            
|                                                                                                                                                                                                        |                                                                                                                           | 2003                        |           | 2002   
|                                                                                                                                                                                                        |                                                                                                                           |                             |           |        
|                                                                                                                                                                                                        |                                                                                                                           |                            
|                                                                                                                                                                                                        |                                                                                                                           | (Dollars in thousands)     
|Assets                                                                                                                                                                                                  |                                                                                                                           |                             |           |         |         |   |           |        
|Cash and due from banks                                                                                                                                                                                 |                                                                                                                           | $                           | 46,308    |         |         | $ | 61,505    |        
|Fed funds sold and interest-bearing deposits with
    banks                                                                                                                                             |                                                                                                                           |                             | 20,008    |         |         |   | 55,005    |        
|Investment securities:                                                                                                                                                                                  |                                                                                                                           |                             |           |         |         |   |           |        
|                                                                                                                                                                                                        | Securities held-to-maturity, at amortized cost
    (fair value of $13,742 and $10,685 in 2003 and 2002,
    respectively) |                             |           | 13,426  |         |   |           | 10,027  |        
|                                                                                                                                                                                                        | Securities available-for-sale, at fair value                                                                              |                             |           | 770,045 |         |   |           | 497,458 |        
|                                                                                                                                                                                                        |                                                                                                                           |                             |           |         |         |   |           |        
|                                                                                                                                                                                                        |                                                                                                                           | Total investment securities |           |         | 783,471 |   |           |         | 507,485 | 
|Loans, net of unearned discount                                                                                                                                                                         |                                                                                                                           |                             | 915,678   |         |         |   | 912,081   |        
|Less-allowance for loan losses                                                                                                                                                                          |                                                                                                                           |                             | (8,369    | )       |         |   | (7,351    | )      
|                                                                                                                                                                                                        |                                                                                                                           |                             |           |         |         |   |           |        
|                                                                                                                                                                                                        | Net loans                                                                                                                 |                             |           | 907,309 |         |   |           | 904,730 |        
|Other real estate owned                                                                                                                                                                                 |                                                                                                                           |                             | 16,130    |         |         |   | 7,944     |        
|Premises and equipment, net                                                                                                                                                                             |                                                                                                                           |                             | 33,461    |         |         |   | 26,530    |        
|Bank owned life insurance                                                                                                                                                                               |                                                                                                                           |                             | 21,011    |         |         |   | 15,184    |        
|Other assets                                                                                                                                                                                            |                                                                                                                           |                             | 20,117    |         |         |   | 19,113    |        
|                                                                                                                                                                                                        |                                                                                                                           |                             |           |         |         |   |           |        
|Total Assets                                                                                                                                                                                            |                                                                                                                           | $                           | 1,847,815 |         |         | $ | 1,597,496 |        
|                                                                                                                                                                                                        |                                                                                                                           |                             |           |         |         |   |           |        
|                                                                                                                                                                                                       
|Liabilities and Shareholders
    Equity                                                                                                                                                                |                                                                                                                           |                             |           |         |         |   |           |        
|Noninterest-bearing demand deposits                                                                                                                                                                     |                                                                                                                           | $                           | 250,101   |         |         | $ | 247,806   |        
|Interest-bearing deposits:                                                                                                                                                                              |                                                                                                                           |                             |           |         |         |   |           |        
|                                                                                                                                                                                                        | Savings deposits and NOW accounts                                                                                         |                             |           | 275,075 |         |   |           | 168,288 |        
|                                                                                                                                                                                                        | Money market accounts                                                                                                     |                             |           | 123,222 |         |   |           | 149,671 |        
|                                                                                                                                                                                                        | Time deposits:                                                                                                            |                             |           |         |         |   |           |         |        
|                                                                                                                                                                                                        |                                                                                                                           | Under $100,000              |           |         | 357,775 |   |           |         | 331,694 | 
|                                                                                                                                                                                                        |                                                                                                                           | $100,000 and over           |           |         | 452,329 |   |           |         | 367,272 | 
|                                                                                                                                                                                                        |                                                                                                                           |                             |           |         |         |   |           |        
|Total interest-bearing deposits                                                                                                                                                                         |                                                                                                                           |                             | 1,208,401 |         |         |   | 1,016,925 |        
|                                                                                                                                                                                                        |                                                                                                                           |                             |           |         |         |   |           |        
|Total deposits                                                                                                                                                                                          |                                                                                                                           |                             | 1,458,502 |         |         |   | 1,264,731 |        
|Fed funds purchased, securities sold under
    agreements to repurchase and other short-term debt                                                                                                       |                                                                                                                           |                             | 54,487    |         |         |   | 71,602    |        
|Treasury, tax and loan demand notes                                                                                                                                                                     |                                                                                                                           |                             | 15,423    |         |         |   | 13,035    |        
|Federal Home Loan Bank borrowings                                                                                                                                                                       |                                                                                                                           |                             | 161,500   |         |         |   | 102,000   |        
|Trust Preferred Capital Securities                                                                                                                                                                      |                                                                                                                           |                             | 23,000    |         |         |   | 18,000    |        
|Other liabilities                                                                                                                                                                                       |                                                                                                                           |                             | 14,011    |         |         |   | 16,186    |        
|                                                                                                                                                                                                        |                                                                                                                           |                             |           |         |         |   |           |        
|Total Liabilities                                                                                                                                                                                       |                                                                                                                           |                             | 1,726,923 |         |         |   | 1,485,554 |        
|Shareholders Equity:                                                                                                                                                                                   |                                                                                                                           |                             |           |         |         |   |           |        
|Preferred Stock, no par value,
    Authorized100,000 shares, issuednone                                                                                                                               |                                                                                                                           |                             |          |         |         |   |          |        
|Common Stock, $2 par value,
    Authorized16,000,000 shares in 2003 and 2002,
    issued10,924,868 shares in 2003 and 2002,
    outstanding9,680,711 shares in 2003 and
    9,501,196 shares in 2002 |                                                                                                                           |                             | 21,850    |         |         |   | 21,850    |        
|Surplus                                                                                                                                                                                                 |                                                                                                                           |                             | 5,765     |         |         |   | 4,586     |        
|Accumulated other comprehensive income, net of tax                                                                                                                                                      |                                                                                                                           |                             | 1,463     |         |         |   | 8,523     |        
|Retained earnings                                                                                                                                                                                       |                                                                                                                           |                             | 102,062   |         |         |   | 88,374    |        
|Less cost of shares in treasury, 1,244,157 common
    shares in 2003 and 1,423,672 common shares in 2002                                                                                                |                                                                                                                           |                             | (10,248   | )       |         |   | (11,391   | )      
|                                                                                                                                                                                                        |                                                                                                                           |                             |           |         |         |   |           |        
|Total Shareholders Equity                                                                                                                                                                              |                                                                                                                           |                             | 120,892   |         |         |   | 111,942   |        
|                                                                                                                                                                                                        |                                                                                                                           |                             |           |         |         |   |           |        
|Total Liabilities and Shareholders Equity                                                                                                                                                              |                                                                                                                           | $                           | 1,847,815 |         |         | $ | 1,597,496 |        
|                                                                                                                                                                                                        |                                                                                                                           |                             |           |         |         |   |           |        

See accompanying notes to consolidated financial
statements.

46



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##### Table of Contents



CONSOLIDATED STATEMENTS OF INCOME

|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |        |        | 
|------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------------------------------------ | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                        |                                                                                                               |                                                 
|                                                        |                                                                                                               | Years Ended December 31,                        
|                                                        |                                                                                                               |                                                 
|                                                        |                                                                                                               | 2003                                             |        | 2002   |        | 2001
|                                                        |                                                                                                               |                                                  |        |        |        |     
|                                                        |                                                                                                               |                                                 
|                                                        |                                                                                                               | (Dollars in thousands                           
|                                                        |                                                                                                               | except per share amounts)                       
|Interest income:                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|                                                        | Interest and fees on loans                                                                                    |                                                  | $      | 50,852 |        |      | $      | 58,907 |        |   | $      | 65,202 |       
|                                                        | Interest on securities:                                                                                       |                                                  |        |        |        |      |        |        |        |   |        |        |       
|                                                        |                                                                                                               | U.S. Treasury and U.S. Government
    agencies   |        |        | 23,465 |      |        |        | 18,767 |   |        |        | 14,988 | 
|                                                        |                                                                                                               | Obligations of states and political subdivisions |        |        | 2,036  |      |        |        | 2,053  |   |        |        | 2,958  | 
|                                                        |                                                                                                               | Other securities                                 |        |        | 3,082  |      |        |        | 1,839  |   |        |        | 1,332  | 
|                                                        | Interest on Fed funds sold and interest-bearing
    deposits with banks                                       |                                                  |        | 500    |        |      |        | 1,001  |        |   |        | 1,878  |       
|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|Total interest income                                   |                                                                                                               |                                                  | 79,935 |        |        |      | 82,567 |        |        |   | 86,358 |       
|Interest expense:                                       |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|                                                        | Interest on savings deposits and NOW accounts                                                                 |                                                  |        | 2,163  |        |      |        | 1,710  |        |   |        | 2,751  |       
|                                                        | Interest on money market accounts                                                                             |                                                  |        | 1,534  |        |      |        | 3,062  |        |   |        | 4,157  |       
|                                                        | Interest on time deposits                                                                                     |                                                  |        | 17,899 |        |      |        | 22,380 |        |   |        | 30,558 |       
|                                                        | Interest on Fed funds purchased, securities sold
    under agreements to repurchase and other short-term debt |                                                  |        | 797    |        |      |        | 1,411  |        |   |        | 3,491  |       
|                                                        | Interest on treasury, tax and loan demand notes                                                               |                                                  |        | 32     |        |      |        | 185    |        |   |        | 637    |       
|                                                        | Interest on Federal Home Loan Bank borrowings                                                                 |                                                  |        | 5,051  |        |      |        | 5,390  |        |   |        | 5,206  |       
|                                                        | Interest on Trust Preferred Capital Securities                                                                |                                                  |        | 1,228  |        |      |        | 981    |        |   |        | 642    |       
|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|Total interest expense                                  |                                                                                                               |                                                  | 28,704 |        |        |      | 35,119 |        |        |   | 47,442 |       
|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|Net interest income                                     |                                                                                                               |                                                  | 51,231 |        |        |      | 47,448 |        |        |   | 38,916 |       
|Provision for loan losses                               |                                                                                                               |                                                  | 1,600  |        |        |      | 14,650 |        |        |   | 1,550  |       
|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|Net interest income after provision for loan
    losses |                                                                                                               |                                                  | 49,631 |        |        |      | 32,798 |        |        |   | 37,366 |       
|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|Other income:                                           |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|                                                        | Service charges on deposit accounts                                                                           |                                                  |        | 6,860  |        |      |        | 7,376  |        |   |        | 6,032  |       
|                                                        | Investment management and trust fees                                                                          |                                                  |        | 2,140  |        |      |        | 1,701  |        |   |        | 1,429  |       
|                                                        | Merchant credit card processing fees                                                                          |                                                  |        | 4,849  |        |      |        | 4,813  |        |   |        | 3,777  |       
|                                                        | Gain on mortgages sold, net of commissions                                                                    |                                                  |        | 1,004  |        |      |        | 814    |        |   |        | 643    |       
|                                                        | Income from bank owned life insurance                                                                         |                                                  |        | 829    |        |      |        | 184    |        |   |        |       |       
|                                                        | Income from sale of covered call options                                                                      |                                                  |        | 1,167  |        |      |        | 395    |        |   |        |       |       
|                                                        | Income from revenue sharing agreement                                                                         |                                                  |        |       |        |      |        | 450    |        |   |        | 900    |       
|                                                        | Other operating income                                                                                        |                                                  |        | 1,369  |        |      |        | 1,403  |        |   |        | 1,402  |       
|                                                        | Investment securities gains, net                                                                              |                                                  |        | 217    |        |      |        | 314    |        |   |        | 259    |       
|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|Total other income                                      |                                                                                                               |                                                  | 18,435 |        |        |      | 17,450 |        |        |   | 14,442 |       
|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|Other expenses:                                         |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|                                                        | Salaries and employee benefits                                                                                |                                                  |        | 23,346 |        |      |        | 19,610 |        |   |        | 18,810 |       
|                                                        | Occupancy expense                                                                                             |                                                  |        | 2,893  |        |      |        | 2,188  |        |   |        | 2,035  |       
|                                                        | Equipment expense                                                                                             |                                                  |        | 1,979  |        |      |        | 1,870  |        |   |        | 1,991  |       
|                                                        | Data processing                                                                                               |                                                  |        | 1,828  |        |      |        | 1,727  |        |   |        | 1,488  |       
|                                                        | Professional fees                                                                                             |                                                  |        | 1,309  |        |      |        | 1,766  |        |   |        | 766    |       
|                                                        | Postage, stationery and supplies                                                                              |                                                  |        | 1,132  |        |      |        | 1,116  |        |   |        | 963    |       
|                                                        | Advertising and business development                                                                          |                                                  |        | 1,778  |        |      |        | 1,641  |        |   |        | 1,390  |       
|                                                        | Merchant credit card interchange expense                                                                      |                                                  |        | 3,799  |        |      |        | 3,717  |        |   |        | 2,993  |       
|                                                        | Provision for other real estate owned                                                                         |                                                  |        | 1,415  |        |      |        |       |        |   |        |       |       
|                                                        | Other operating expenses                                                                                      |                                                  |        | 2,024  |        |      |        | 2,106  |        |   |        | 1,492  |       
|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|Total other expenses                                    |                                                                                                               |                                                  | 41,503 |        |        |      | 35,741 |        |        |   | 31,928 |       
|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|Income before income taxes                              |                                                                                                               |                                                  | 26,563 |        |        |      | 14,507 |        |        |   | 19,880 |       
|Income tax expense                                      |                                                                                                               |                                                  | 8,128  |        |        |      | 4,006  |        |        |   | 6,232  |       
|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|Net income                                              |                                                                                                               | $                                                | 18,435 |        |        | $    | 10,501 |        |        | $ | 13,648 |       
|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|Basic earnings per share                                |                                                                                                               | $                                                | 1.92   |        |        | $    | 1.10   |        |        | $ | 1.44   |       
|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       
|Diluted earnings per share                              |                                                                                                               | $                                                | 1.87   |        |        | $    | 1.08   |        |        | $ | 1.41   |       
|                                                        |                                                                                                               |                                                  |        |        |        |      |        |        |        |   |        |       

See accompanying notes to consolidated financial
statements.

47



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##### Table of Contents



CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

|                                                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |        |  
|------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ---------- | ----- |  | ----------- | ------ | ------------- |  | -------- | ----- | -------- |  | ------------- | ----- | ------ | - | - | ------- | ------ |  | - | ------- | - |  | - | ------- | ------ | -
|                                                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |         
|                                                              |                                                                                                                                                | Common Stock                                |            |       |  | Accumulated |        |               |  |          |       |         
|                                                              |                                                                                                                                                |                                             |            |       |  | Other       |        |               |  |          |       | Total   
|                                                              |                                                                                                                                                |                                             |            | Par   |  |             |        | Comprehensive |  | Retained |       | Treasury |  | Shareholders
|                                                              |                                                                                                                                                | Shares                                      |            | Value |  | Surplus     |        | Income (loss) |  | Earnings |       | Stock    |  | Equity       
|                                                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |              
|                                                              |                                                                                                                                                |                                            
|                                                              |                                                                                                                                                | (Dollars in thousands except share amounts)
|Balance at December 31, 2000                                  |                                                                                                                                                |                                             | 10,924,868 |       |  | $           | 21,850 |               |  | $        | 4,566 |          |  | $             | 1,410 |        |   | $ | 70,593  |        |  | $ | (10,813 | ) |  | $ | 87,606  |       
|                                                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |       
|Comprehensive income, net of tax                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |       
|                                                              | Net income                                                                                                                                     |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         | 13,648 |  |   |         |   |  |   |         | 13,648 |  
|                                                              | Unrealized holding gain during the year of
    $2,198, net of reclassification adjustment for realized gain
    included in net income of $171 |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       | 2,027  |   |   |         |        |  |   |         |   |  |   |         | 2,027  |  
|                                                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |       
|Total comprehensive income                                    |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   | 15,675  |       
|Dividends declared                                            |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   | (2,905  | )      |  |   |         |   |  |   | (2,905  | )     
|Exercise of stock options (including tax benefit)             |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          | 29    |          |  |               |       |        |   |   |         |        |  |   | 182     |   |  |   | 211     |       
|Purchase of treasury stock (76,191 common shares)             |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   | (1,035  | ) |  |   | (1,035  | )     
|                                                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |       
|Balance at December 31, 2001                                  |                                                                                                                                                |                                             | 10,924,868 |       |  | $           | 21,850 |               |  | $        | 4,595 |          |  | $             | 3,437 |        |   | $ | 81,336  |        |  | $ | (11,666 | ) |  | $ | 99,552  |       
|                                                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |       
|Comprehensive income, net of tax                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |       
|                                                              | Net income                                                                                                                                     |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         | 10,501 |  |   |         |   |  |   |         | 10,501 |  
|                                                              | Unrealized holding gain during the year of
    $5,293, net of reclassification adjustment for realized gain
    included in net income of $207 |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       | 5,086  |   |   |         |        |  |   |         |   |  |   |         | 5,086  |  
|                                                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |       
|Total comprehensive income                                    |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   | 15,587  |       
|Dividends declared                                            |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   | (3,463  | )      |  |   |         |   |  |   | (3,463  | )     
|Issuance of notes receivable on exercised options             |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          | (300  | )        |  |               |       |        |   |   |         |        |  |   |         |   |  |   | (300    | )     
|Issuance of common stock for employee stock
    purchase plan |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          | 61    |          |  |               |       |        |   |   |         |        |  |   | 41      |   |  |   | 102     |       
|Exercise of stock options (including tax benefit)             |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          | 230   |          |  |               |       |        |   |   |         |        |  |   | 234     |   |  |   | 464     |       
|                                                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |       
|Balance at December 31, 2002                                  |                                                                                                                                                |                                             | 10,924,868 |       |  | $           | 21,850 |               |  | $        | 4,586 |          |  | $             | 8,523 |        |   | $ | 88,374  |        |  | $ | (11,391 | ) |  | $ | 111,942 |       
|                                                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |       
|Comprehensive income, net of tax                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |       
|                                                              | Net income                                                                                                                                     |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         | 18,435 |  |   |         |   |  |   |         | 18,435 |  
|                                                              | Unrealized holding loss during the year of
    $6,919, plus reclassification adjustment for realized gain
    included in net income of $141   |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       | (7,060 | ) |   |         |        |  |   |         |   |  |   |         | (7,060 | )
|                                                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |       
|Total comprehensive income                                    |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   | 11,375  |       
|Dividends declared                                            |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   | (4,747  | )      |  |   |         |   |  |   | (4,747  | )     
|Payment of note receivable on exercised
    options           |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          | 100   |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   | 100     |       
|Issuance of common stock for employee stock
    purchase plan |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          | 123   |          |  |               |       |        |   |   |         |        |  |   | 88      |   |  |   | 211     |       
|Exercise of stock options (including tax
    benefit)         |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          | 956   |          |  |               |       |        |   |   |         |        |  |   | 1,204   |   |  |   | 2,160   |       
|Purchase of treasury stock (7,500 common
    shares)          |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   | (149    | ) |  |   | (149    | )     
|                                                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |       
|Balance at December 31, 2003                                  |                                                                                                                                                |                                             | 10,924,868 |       |  | $           | 21,850 |               |  | $        | 5,765 |          |  | $             | 1,463 |        |   | $ | 102,062 |        |  | $ | (10,248 | ) |  | $ | 120,892 |       
|                                                              |                                                                                                                                                |                                             |            |       |  |             |        |               |  |          |       |          |  |               |       |        |   |   |         |        |  |   |         |   |  |   |         |       

See accompanying notes to consolidated financial
statements.

48



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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                         |                                                                                       |                                                                 |          |         |          |      |          |         |          |   |         |         |          |  
|-------------------------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------------------------------- | -------- | ------- | -------- | ---- | -------- | ------- | -------- | - | ------- | ------- | -------- | -
|                                                         |                                                                                       |                                                                
|                                                         |                                                                                       | Years Ended December 31,                                       
|                                                         |                                                                                       |                                                                
|                                                         |                                                                                       | 2003                                                            |          | 2002    |          | 2001
|                                                         |                                                                                       |                                                                 |          |         |          |     
|                                                         |                                                                                       |                                                                
|                                                         |                                                                                       | (Dollars in thousands)                                         
|Cash flows from operating activities:                    |                                                                                       |                                                                 |          |         |          |      |          |         |          |   |         |        
|                                                         | Net income                                                                            |                                                                 | $        | 18,435  |          |      | $        | 10,501  |          |   | $       | 13,648  |         
|                                                         | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                 |          |         |          |      |          |         |          |   |         |         |         
|                                                         |                                                                                       | Depreciation and amortization                                   |          |         | 2,577    |      |          |         | 2,337    |   |         |         | 2,471    |  
|                                                         |                                                                                       | Discount accretion                                              |          |         | (818     | )    |          |         | (511     | ) |         |         | (931     | )
|                                                         |                                                                                       | Premium amortization                                            |          |         | 757      |      |          |         | 779      |   |         |         | 806      |  
|                                                         |                                                                                       | Provision for other real estate owned                           |          |         | 1,415    |      |          |         |         |   |         |         |         |  
|                                                         |                                                                                       | Provision for loan losses                                       |          |         | 1,600    |      |          |         | 14,650   |   |         |         | 1,550    |  
|                                                         |                                                                                       | Deferred taxes                                                  |          |         | (183     | )    |          |         | (631     | ) |         |         | (570     | )
|                                                         |                                                                                       | Investment securities gains, net                                |          |         | (217     | )    |          |         | (314     | ) |         |         | (259     | )
|                                                         |                                                                                       | Origination of real estate loans for sale                       |          |         | (77,906  | )    |          |         | (76,250  | ) |         |         | (75,615  | )
|                                                         |                                                                                       | Proceeds from sale of real estate loans
    originated for sale |          |         | 82,067   |      |          |         | 80,303   |   |         |         | 71,301   |  
|                                                         |                                                                                       | Gain on sale of mortgage loans originated for sale              |          |         | (1,481   | )    |          |         | (1,280   | ) |         |         | (965     | )
|                                                         |                                                                                       | Increase in cash surrender value of life insurance              |          |         | (827     | )    |          |         | (184     | ) |         |         |         |  
|                                                         |                                                                                       | FHLB of Chicago stock dividends                                 |          |         | (986     | )    |          |         | (312     | ) |         |         | (413     | )
|                                                         |                                                                                       | Gain on sale of Broadview property                              |          |         |         |      |          |         |         |   |         |         | (172     | )
|                                                         |                                                                                       | Decrease from revenue sharing agreement                         |          |         |         |      |          |         | (28      | ) |         |         | (97      | )
|                                                         |                                                                                       | (Increase) decrease in other assets                             |          |         | (230     | )    |          |         | (1,699   | ) |         |         | 668      |  
|                                                         |                                                                                       | Increase (decrease) in other liabilities                        |          |         | 3,660    |      |          |         | (1,989   | ) |         |         | 1,862    |  
|                                                         |                                                                                       |                                                                 |          |         |          |      |          |         |          |   |         |        
|Net cash provided by operating activities                |                                                                                       |                                                                 | 27,863   |         |          |      | 25,372   |         |          |   | 13,284  |        
|Cash flows from investing activities:                    |                                                                                       |                                                                 |          |         |          |      |          |         |          |   |         |        
|                                                         | Securities held-to-maturity:                                                          |                                                                 |          |         |          |      |          |         |          |   |         |         |         
|                                                         |                                                                                       | Purchases                                                       |          |         | (6,829   | )    |          |         | (5,193   | ) |         |         | (1,800   | )
|                                                         |                                                                                       | Proceeds from maturities, calls and paydowns                    |          |         | 3,444    |      |          |         | 5,402    |   |         |         | 13,598   |  
|                                                         | Securities available-for-sale:                                                        |                                                                 |          |         |          |      |          |         |          |   |         |         |         
|                                                         |                                                                                       | Purchases                                                       |          |         | (634,417 | )    |          |         | (427,543 | ) |         |         | (128,389 | )
|                                                         |                                                                                       | Proceeds from maturities, calls and paydowns                    |          |         | 177,903  |      |          |         | 154,024  |   |         |         | 83,125   |  
|                                                         |                                                                                       | Proceeds from sales                                             |          |         | 173,456  |      |          |         | 102,509  |   |         |         | 29,932   |  
|                                                         | Increase in loans                                                                     |                                                                 |          | (7,653  | )        |      |          | (17,560 | )        |   |         | (87,326 | )       
|                                                         | Purchases of premises and equipment, net                                              |                                                                 |          | (9,488  | )        |      |          | (5,388  | )        |   |         | (2,942  | )       
|                                                         | Investment in bank owned life insurance                                               |                                                                 |          | (5,000  | )        |      |          | (15,000 | )        |   |         |        |         
|                                                         | Proceeds from sale of Broadview property                                              |                                                                 |          |        |          |      |          |        |          |   |         | 300     |         
|                                                         | Proceeds from sales of other real estate owned,
    net                               |                                                                 |          | 2,534   |          |      |          |        |          |   |         |        |         
|                                                         | Additional capitalized costs of other real estate
    owned                           |                                                                 |          | (12,135 | )        |      |          | (4,338  | )        |   |         |        |         
|                                                         |                                                                                       |                                                                 |          |         |          |      |          |         |          |   |         |        
|Net cash used in investing activities                    |                                                                                       |                                                                 | (318,185 | )       |          |      | (213,087 | )       |          |   | (93,502 | )      
|Cash flows from financing activities:                    |                                                                                       |                                                                 |          |         |          |      |          |         |          |   |         |        
|                                                         | Increase (decrease) in noninterest-bearing demand
    deposits                        |                                                                 |          | 2,295   |          |      |          | 35,867  |          |   |         | (9,613  | )       
|                                                         | Increase in interest-bearing deposit accounts                                         |                                                                 |          | 191,476 |          |      |          | 150,898 |          |   |         | 109,353 |         
|                                                         | (Decrease) increase in short-term borrowing
    obligations                           |                                                                 |          | (14,727 | )        |      |          | (17,376 | )        |   |         | 18,306  |         
|                                                         | Proceeds from FHLB borrowings                                                         |                                                                 |          | 85,000  |          |      |          | 21,000  |          |   |         | 5,000   |         
|                                                         | Repayment of FHLB borrowings                                                          |                                                                 |          | (25,500 | )        |      |          | (5,000  | )        |   |         |        |         
|                                                         | Proceeds from Trust Preferred Capital Securities                                      |                                                                 |          | 5,000   |          |      |          | 12,000  |          |   |         |        |         
|                                                         | Purchase of treasury stock                                                            |                                                                 |          | (149    | )        |      |          |        |          |   |         | (1,035  | )       
|                                                         | Exercise of stock options                                                             |                                                                 |          | 1,169   |          |      |          | 399     |          |   |         | 160     |         
|                                                         | Payment (issuance) of notes receivable on
    exercised options                       |                                                                 |          | 100     |          |      |          | (300    | )        |   |         |        |         
|                                                         | Issuance of common stock for employee stock
    purchase plan                         |                                                                 |          | 211     |          |      |          | 102     |          |   |         |        |         
|                                                         | Cash dividends                                                                        |                                                                 |          | (4,747  | )        |      |          | (3,463  | )        |   |         | (2,905  | )       
|                                                         |                                                                                       |                                                                 |          |         |          |      |          |         |          |   |         |        
|Net cash provided by financing activities                |                                                                                       |                                                                 | 240,128  |         |          |      | 194,127  |         |          |   | 119,266 |        
|                                                         |                                                                                       |                                                                 |          |         |          |      |          |         |          |   |         |        
|Net (decrease) increase in cash and cash
    equivalents |                                                                                       |                                                                 | (50,194  | )       |          |      | 6,412    |         |          |   | 39,048  |        
|Cash and cash equivalents at beginning of year           |                                                                                       |                                                                 | 116,510  |         |          |      | 110,098  |         |          |   | 71,050  |        
|                                                         |                                                                                       |                                                                 |          |         |          |      |          |         |          |   |         |        
|Cash and cash equivalents at end of year                 |                                                                                       | $                                                               | 66,316   |         |          | $    | 116,510  |         |          | $ | 110,098 |        
|                                                         |                                                                                       |                                                                 |          |         |          |      |          |         |          |   |         |        
|Supplemental disclosures:                                |                                                                                       |                                                                 |          |         |          |      |          |         |          |   |         |        
|                                                         | Interest paid                                                                         |                                                                 | $        | 33,399  |          |      | $        | 40,097  |          |   | $       | 48,965  |         
|                                                         | Income taxes paid                                                                     |                                                                 |          | 7,300   |          |      |          | 5,000   |          |   |         | 6,365   |         
|                                                         | Transfer of securities to available-for-sale from
    held-to-maturity                |                                                                 |          |        |          |      |          |        |          |   |         | 76,131  |         
|                                                         | Transfer of loan to other real estate owned                                           |                                                                 |          |        |          |      |          | 3,606   |          |   |         |        |         
|                                                         | Transfer of auto loans to repossessed autos                                           |                                                                 |          | 794     |          |      |          | 1,464   |          |   |         | 730     |         

See accompanying notes to consolidated financial
statements.

49



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|        |                                               
|------- | ----------------------------------------------
|Note 1. | Summary of Significant Accounting
    Policies

The consolidated financial statements include the
accounts of First Oak Brook Bancshares, Inc. (the
Company) and its wholly-owned subsidiaries, Oak
Brook Bank (the Bank), FOBB Statutory Trust I,
FOBB Statutory Trust II, and FOBB Statutory Trust III.
Also included are the accounts of Oak Real Estate Development
Corporation, West Erie, LLC, and OBB Real Estate Holdings, LLC,
wholly-owned subsidiaries of the Bank. All intercompany accounts
and transactions have been eliminated in consolidation. The
accounting and reporting policies of the Company and its
subsidiaries conform to accounting principles generally accepted
in the United States of America and to general practice within
the banking industry.

The Company, through the Bank, operates in a
single segment engaging in general retail and commercial banking
business, primarily in the Chicago Metropolitan area. The
services offered include demand, savings and time deposits,
corporate treasury management services, merchant credit card
processing, commercial lending products such as commercial
loans, construction loans, mortgages and letters of credit, and
personal lending products such as residential mortgages, home
equity lines and vehicle loans. The Bank has a full service
investment management and trust department and newly formed
investment sales division. The investment sales division
executes customer investment transactions in U.S. Treasury,
U.S. Government agency, corporate and municipal securities
primarily for commercial businesses, not-for-profit
organizations, governmental entities and high net worth families.

The Company formed a wholly-owned subsidiary in
2003, FOBB Statutory Trust III, for the sole purpose of
participating in a Pooled Trust Preferred Program. See
Note 8 to the financial statements for further discussion
regarding this program.

The Bank formed two new companies in 2003, OBB
Real Estate Holdings, LLC and OBB Real Estate Investments, LLC.
These subsidiaries were established as part of an initiative to
enhance earnings by reducing expenses and to provide alternative
methods of raising capital in the future. OBB Real Estate
Investments, LLC owns all of the Companys performing
residential mortgage and home equity loans.

The Bank formed a wholly-owned real estate
subsidiary in 2002, West Erie, LLC, for the sole purpose of
developing and selling a luxury 24 unit condominium project
in Chicago acquired by the Bank by agreement in lieu of
foreclosure. The subsidiary has a construction loan with the
Bank to fund the development of the property. See Note 6 to
the financial statements for further discussion.

Use of Estimates:The preparation of the consolidated financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.

Investment
Securities:Securities are classified
as held-to-maturity, available-for-sale or trading at the time
of purchase. The majority of the Companys securities are
classified as available-for-sale and stated at fair value, with
the unrealized gains and losses, net of tax, reported as a
separate component of shareholders equity. Securities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.

The Company purchases securities for trading
purposes only within the investment sales division. These
securities are typically purchased with the purpose of selling
them in the near term to a specified buyer. Trading securities
are recorded at fair value, with the unrealized gains and losses
included in earnings.

The amortized cost of securities classified as
held-to-maturity or available-for-sale is adjusted for
amortization of premiums to the earlier of maturity or call
date, and accretion of discounts to maturity, or in the case of
mortgage-backed securities, over the estimated life of the
security. Any remaining discount on a security that is called is
immediately accreted into income. The cost of a security sold is
based on the specific identification method.

50



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


The Company reviews the investment portfolio on a
regular basis for other than temporary security impairments. In
the event a specific security is determined to be other than
temporarily impaired, the Company will reduce the carrying value
of that security for the amount of the impairment.

Loans:Loans are
carried at the principal amount outstanding, net of unearned
discount, including certain net deferred loan origination fees.
Residential real estate loans that are originated for sale are
carried at lower of aggregate cost or market and are typically
sold within 60 days. Interest income on loans is accrued
based on principal amounts outstanding.

Loan Fees and Related
Costs:Loan origination and commitment
fees and certain direct loan origination costs are deferred and
accreted or amortized to earnings as an adjustment of the
related loans yield over the contractual life or the
estimated life of the loan using the level-yield method. When a
loan is paid in full prior to maturity, any unamortized fees are
recorded in interest income at payoff. Fees, such as prepayment
penalties and fees assessed for unused commitments on lines, are
recorded in interest income when received.

Allowance for Loan
Losses:The allowance for loan losses
is maintained at a level believed adequate by management to
absorb estimated probable loan losses. Managements
periodic evaluation of the adequacy of the allowance is based on
the Companys past loan loss experience, known and inherent
risks in the portfolio, composition of the loan portfolio,
current economic conditions, historical losses experienced by
the industry, value of the underlying collateral and other
relevant factors. Loans which are determined to be uncollectible
are charged off against the allowance for loan losses and
recoveries of loans that were previously charged off are
credited to the allowance.

The Companys charge-off policy varies with
respect to the category of and specific circumstances
surrounding each loan under consideration. The Company records
commercial loan charge-offs on the basis of managements
ongoing evaluation of collectibility. Consumer loans are charged
off at the earlier of the time management can quantify a loss or
when the loan becomes 180 days past due with the exception
of a pending insurance claim or the pending resolution of a
Chapter 13 bankruptcy payment plan.

The Company records specific valuation allowances
on commercial, commercial mortgage and construction loans when a
loan is considered to be impaired. A loan is impaired when,
based on an evaluation of current information and events, it is
probable that the Company will not be able to collect all
amounts due (principal and interest) pursuant to the original
contractual terms. The Company measures impairment based upon
the present value of expected future cash flows discounted at
the loans original effective interest rate or the fair
value of the collateral if the loan is collateral dependent.
Large groups of homogeneous loans, such as residential mortgage,
home equity, indirect vehicle and consumer loans, are
collectively evaluated for impairment and are not subject to
impaired loan disclosures. Interest income on impaired loans is
recognized using the cash basis method.

Commercial, syndicated and real estate loans are
placed on nonaccrual status when the collectibility of the
contractual principal or interest is deemed doubtful by
management or when the loan becomes 90 days or more past
due and is not well secured or in the process of collection.

Premises and
Equipment:Premises, leasehold
improvements and equipment are stated at cost less accumulated
depreciation and amortization. For financial reporting purposes,
depreciation is charged to expense by the straight-line method
over the estimated useful life of the asset. Leasehold
improvements are amortized over a period not exceeding the term
of the lease, including renewal option periods.

Other Real Estate
Owned:Other Real Estate Owned
(OREO) is initially recorded at the net realizable
value at the date title is obtained. Costs relating to
development and improvement of property are capitalized, whereas
costs relating to holding property are expensed. Valuations are
periodically performed by management and a provision for
impairment is recorded through a charge to operations if the
carrying value of a property exceeds its net realizable value.

51



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


Brokered Deposits:The Company utilizes brokered deposits as a liquidity and asset
liability management tool in the normal course of business. Upon
issuance of brokered deposits, the Company recognizes a deferred
broker commission that reflects the fees paid to brokers for
raising the funds in the retail market. The deferred broker
commissions are amortized to interest expense as an adjustment
to the brokered deposit yield over its contractual maturity.

Derivative Financial
Instruments:The Company accounts for
derivative financial instruments according to Statement of
Financial Accounting Standard (SFAS) No. 133
Accounting for Derivative Instruments and Related Hedging
Activities and its related amendments. All derivatives are
recognized on the Balance Sheets at fair value, with changes in
fair value recorded through earnings or other comprehensive
income depending on whether certain hedge criteria are met.

Income Taxes:The
Company and its subsidiaries file consolidated income tax
returns. The Bank provides for income taxes on a separate return
basis and remits to the Company amounts determined to be
currently payable. Under this method, deferred tax assets and
liabilities are determined based on temporary differences
between the recognition of income and expenses for financial
statement and income tax purposes. Such differences are measured
using the enacted tax rates and laws that are applicable to
periods in which the differences are expected to affect taxable
income. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.

Earnings Per Share:Basic earnings per share (EPS) is computed by
dividing net income by the weighted average number of common
shares outstanding for the period. Diluted EPS is computed by
dividing net income by the weighted average number of common
shares adjusted for the dilutive effect of outstanding stock
options.

Stock-Based
Compensation:The Company accounts for
stock-based compensation in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). Under APB 25, if
the exercise price of the Companys employee stock options
equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.

Comprehensive
Income:Comprehensive income consists
of net income and the change in net unrealized gains (losses) on
available-for-sale securities and is presented in the
Consolidated Statements of Changes in Shareholders Equity.

Cash and Cash
Equivalents:For purposes of the
Consolidated Statements of Cash Flows, cash and cash equivalents
include cash and due from banks, Fed funds sold and
interest-bearing deposits with banks with original maturities of
90 days or less.

Reclassifications:Certain amounts in the 2002 and 2001 consolidated financial
statements have been reclassified to conform to their 2003
presentation. All share and per share data has been restated to
give effect to the three-for-two stock split effective in August
2003.

New Accounting
Standards:In 2002, the FASB issued
SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities
(SFAS No. 146) which supercedes Emerging
Issues Task Force (EITF) No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 requires that a
liability for costs associated with an exit or disposal activity
be recognized when the liability is incurred rather than when a
company commits to such an activity and also establishes fair
value as the objective for initial measurement of the liability.
The provisions of SFAS No. 146 were effective for exit
or disposal activities initiated after December 31, 2002.
The adoption of SFAS No. 146 had no impact on the
Companys results of operations, financial position or cash
flows.

In 2002, the FASB issued SFAS No. 148,
Accounting for Stock-Based CompensationTransition
and Disclosure which amends SFAS No. 123
Accounting for Stock-Based Compensation. This
statement amends the disclosure requirements of
SFAS No. 123 and provides three alternative transition
methods for

52



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


companies that choose to adopt the fair value
measurement provisions of SFAS No. 123. The Company
adopted the disclosure provision SFAS No. 148 on
December 31, 2002 and these disclosures are included in the
notes to these consolidated financial statements.

In 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN No. 45) which
requires additional disclosures by a guarantor about its
obligations under certain guarantees that it has issued. FIN
No. 45 also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the
guarantee. The most significant instruments impacted for the
Company are financial and performance standby letters of credit.
The required FIN No. 45 disclosures for 2003 have been
incorporated into Note 17 Commitments and Financial
Instruments with Off Balance Sheet Risk. The accounting
requirements of FIN No. 45 were effective for the Company
on January 1, 2003, on a prospective basis. The impact of
adoption did not have a material impact on the Companys
results of operations, financial position or cash flows.

In 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity
(SFAS No. 150) which requires that certain
financial instruments be classified as a liability in the
statement of financial position as the instrument embodies an
obligation of the issuing company. SFAS No. 150 also
clarifies which classes of financial instruments are applicable
to the requirements of this statement. The Company adopted
SFAS No. 150 on July 1, 2003 with no impact on
the Companys results of operations, financial position or
cash flows.

In 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest
Entities (FIN No. 46), which provides new
accounting guidance on when to consolidate a variable interest
entity. A variable interest entity exists when either the total
equity investment at risk is not sufficient to permit the entity
to finance its activities by itself, or the equity investors
lack one of three characteristics associated with owning a
controlling financial interest. Those characteristics include
the direct or indirect ability to make decisions about an
entitys activities through voting rights or similar
rights, the obligation to absorb the expected losses of an
entity if they occur, and the right to receive the expected
residual returns of the entity if they occur. The accounting
requirements of FIN No. 46 are effective for the Company on
December 31, 2003, on a prospective basis. The impact of
adoption did not have an impact on the consolidated financial
statements of the Company.

In 2003, the FASB issued Interpretation
No. 46 (revised), Consolidation of Variable Interest
Entities (FIN No. 46R), which provides
further guidance on the accounting for variable interest
entities. FIN No. 46R replaces FIN No. 46, which was
issued earlier in 2003. As permitted by FIN No. 46R, the
Company applied the provisions of FIN No. 46 as of
December 31, 2003. The Company adopted the provisions of
FIN No. 46R in the first quarter of 2004. The adoption of
FIN No. 46R resulted in the deconsolidation of the three
statutory trust subsidiaries of the Holding Company. This
deconsolidation will not have a material effect on the
consolidated financial statements of the Company.

In November 2003, the FASB ratified a consensus
reached by the Emerging Issues Task Force (EITF) in
EITF 03-1, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments, which is
effective for fiscal years ending after December 15, 2003.
The consensus requires certain quantitative and qualitative
disclosures for debt and marketable equity securities classified
as available-for-sale or held-to-maturity under SFAS No.
115, Accounting for Certain Investments in Debt and Equity
Securities for which an other-than-temporary impairment
has not been recognized. These disclosures are contained in
Note 3 of these consolidated financial statements.

Note 2.     Cash
and Due From Banks

Cash and due from banks include reserve balances
that the Bank is required to maintain in either vault cash or
with the Federal Reserve Bank of Chicago. These required
reserves are based principally on deposits outstanding. The
average reserves required for 2003 and 2002 were $3,830,000 and
$1,899,000, respectively.

53



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




|        |                      
|------- | ---------------------
|Note 3. | Investment Securities

The aggregate amortized cost and fair value of
securities, and gross unrealized gains and losses at
December 31 follow:

|     |                                |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |   |         | 
|---- | ------------------------------ | ------------------------------------------------ |  | ---------- | ------- | ---------- |  | ----- | ------ |  |  | - | ------ | - |  | - | ------- | 
|     |                                | Amortized                                        |  | Unrealized |         | Unrealized |  | Fair 
|     |                                | Cost                                             |  | Gains      |         | Losses     |  | Value
|     |                                |                                                  |  |            |         |            |  |      
|     |                                |                                                 
|     |                                | (Dollars in thousands)                          
|2003 |                                |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |  
|     | Securities available-for-sale: |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |   |        
|     |                                | U.S. Treasury                                    |  | $          | 63,658  |            |  | $     | 88     |  |  | $ | (2,001 | ) |  | $ | 61,745  | 
|     |                                | U.S. Government agencies                         |  |            | 557,357 |            |  |       | 5,996  |  |  |   | (4,852 | ) |  |   | 558,501 | 
|     |                                | Agency mortgage-backed securities                |  |            | 47,392  |            |  |       | 103    |  |  |   | (140   | ) |  |   | 47,355  | 
|     |                                | Agency collateralized mortgage obligations       |  |            | 173     |            |  |       | 17     |  |  |   |       |   |  |   | 190     | 
|     |                                | Obligations of states and political subdivisions |  |            | 26,679  |            |  |       | 1,352  |  |  |   | (160   | ) |  |   | 27,871  | 
|     |                                | Corporate and other securities                   |  |            | 72,361  |            |  |       | 2,082  |  |  |   | (60    | ) |  |   | 74,383  | 
|     |                                |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |  
|     |                                | Total securities available-for-sale              |  | $          | 767,620 |            |  | $     | 9,638  |  |  | $ | (7,213 | ) |  | $ | 770,045 | 
|     |                                |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |  
|     | Securities held-to-maturity:   |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |   |        
|     |                                | Agency mortgage-backed securities                |  | $          | 29      |            |  | $     | 2      |  |  | $ |       |   |  | $ | 31      | 
|     |                                | Obligations of states and political subdivisions |  |            | 12,897  |            |  |       | 377    |  |  |   | (63    | ) |  |   | 13,211  | 
|     |                                | Corporate and other securities                   |  |            | 500     |            |  |       |       |  |  |   |       |   |  |   | 500     | 
|     |                                |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |  
|     |                                | Total securities held-to-maturity                |  | $          | 13,426  |            |  | $     | 379    |  |  | $ | (63    | ) |  | $ | 13,742  | 
|     |                                |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |  
|2002 |                                |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |  
|     | Securities available-for-sale: |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |   |        
|     |                                | U.S. Treasury                                    |  | $          | 26,488  |            |  | $     | 316    |  |  | $ | (368   | ) |  | $ | 26,436  | 
|     |                                | U.S. Government agencies                         |  |            | 370,742 |            |  |       | 11,570 |  |  |   | (38    | ) |  |   | 382,274 | 
|     |                                | Agency mortgage-backed securities                |  |            | 4,761   |            |  |       | 118    |  |  |   | (37    | ) |  |   | 4,842   | 
|     |                                | Agency collateralized mortgage obligations       |  |            | 301     |            |  |       | 34     |  |  |   |       |   |  |   | 335     | 
|     |                                | Obligations of states and political subdivisions |  |            | 31,004  |            |  |       | 1,882  |  |  |   |       |   |  |   | 32,886  | 
|     |                                | Corporate and other securities                   |  |            | 50,016  |            |  |       | 730    |  |  |   | (61    | ) |  |   | 50,685  | 
|     |                                |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |  
|     |                                | Total securities available-for-sale              |  | $          | 483,312 |            |  | $     | 14,650 |  |  | $ | (504   | ) |  | $ | 497,458 | 
|     |                                |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |  
|     | Securities held-to-maturity:   |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |   |        
|     |                                | Agency mortgage-backed securities                |  | $          | 269     |            |  | $     | 8      |  |  | $ |       |   |  | $ | 277     | 
|     |                                | Obligations of states and political subdivisions |  |            | 9,258   |            |  |       | 650    |  |  |   |       |   |  |   | 9,908   | 
|     |                                | Corporate and other securities                   |  |            | 500     |            |  |       |       |  |  |   |       |   |  |   | 500     | 
|     |                                |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |  
|     |                                | Total securities held-to-maturity                |  | $          | 10,027  |            |  | $     | 658    |  |  | $ |       |   |  | $ | 10,685  | 
|     |                                |                                                  |  |            |         |            |  |       |        |  |  |   |        |   |  |  

The Company held no securities classified as
trading at December 31, 2003 or 2002.

At December 31, 2003, U.S. Government
agencies include $75 million of securities purchased as
part of a balance sheet arbitrage initiated to lock in a
favorable spread on a Federal Home Loan Bank
(FHLB) of Chicago borrowing. The coupon on these
callable securities floats based upon a spread over the 3-month
LIBOR (135 basis points over on $50 million and
151 basis points over on $25 million), while the
coupon on the FHLB of Chicago advance floats quarterly at
12 basis points over the 3-month LIBOR.

54



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


At December 31, 2003, corporate and other
securities include $37,347,000 in FHLB of Chicago stock;
$25,613,000 in Trust Preferred Capital Securities
(TRUPS); $9,175,000 in Fannie Mae preferred stock;
$2,145,000 in corporate securities; $500,000 in foreign bonds,
and $103,000 in money market funds.

At December 31, 2002, corporate and other
securities include $20,563,000 in TRUPS; $2,644,000 in corporate
bonds; $1,117,000 in equity securities; $6,361,000 in FHLB of
Chicago stock; $15,000,000 in mutual funds holding
U.S. Government agency securities; $5,000,000 in Fannie Mae
preferred stock; and $500,000 in foreign bonds.

The unrealized losses by investment type at
December 31, 2003 are shown below. The investment
securities are shown at their fair value (rather than carrying
value) and segregated by those securities that have been in an
unrealized loss position for less than twelve months and those
securities that have been in an unrealized loss position for
twelve months or more.

|                                                     |  |                     |         |                     |  |       |        |            |  |       |       |            |  |   |     |   |  |   |         |  |  |   |        |  
|---------------------------------------------------- |  | ------------------- | ------- | ------------------- |  | ----- | ------ | ---------- |  | ----- | ----- | ---------- |  | - | --- | - |  | - | ------- |  |  | - | ------ | -
|                                                     |  |                     |         |                     |  |      
|                                                     |  | Less than 12 months |         | 12 months or longer |  | Total
|                                                     |  |                     |         |                     |  |      
|                                                     |  | Fair                |         | Unrealized          |  | Fair  |        | Unrealized |  | Fair  |       | Unrealized
|                                                     |  | Value               |         | Losses              |  | Value |        | Losses     |  | Value |       | Losses    
|                                                     |  |                     |         |                     |  |       |        |            |  |       |       |           
|U.S. Treasury                                        |  | $                   | 56,538  |                     |  | $     | (2,001 | )          |  | $     |      |            |  | $ |    |   |  | $ | 56,538  |  |  | $ | (2,001 | )
|U.S. Government agencies                             |  |                     | 226,781 |                     |  |       | (4,852 | )          |  |       |      |            |  |   |    |   |  |   | 226,781 |  |  |   | (4,852 | )
|Agency mortgage-backed securities                    |  |                     | 22,627  |                     |  |       | (140   | )          |  |       |      |            |  |   |    |   |  |   | 22,627  |  |  |   | (140   | )
|Obligations of states and political
    subdivisions |  |                     | 6,210   |                     |  |       | (206   | )          |  |       | 1,488 |            |  |   | (17 | ) |  |   | 7,698   |  |  |   | (223   | )
|Corporate and other securities                       |  |                     | 6,140   |                     |  |       | (60    | )          |  |       |      |            |  |   |    |   |  |   | 6,140   |  |  |   | (60    | )
|                                                     |  |                     |         |                     |  |       |        |            |  |       |       |            |  |   |     |   |  |   |         |  |  |   |        |  
|Total temporarily impaired
    securities            |  | $                   | 318,296 |                     |  | $     | (7,259 | )          |  | $     | 1,488 |            |  | $ | (17 | ) |  | $ | 319,784 |  |  | $ | (7,276 | )
|                                                     |  |                     |         |                     |  |       |        |            |  |       |       |            |  |   |     |   |  |   |         |  |  |   |        |  

At December 31, 2003, gross unrealized
losses for the investment portfolio totaled $7,276,000,
consisting of 56 securities. Of these securities, five are
U.S. Treasury securities, 26 are U.S. Government
agencies (including mortgage-backed securities), 23 are state
and municipal obligations, and two are corporate and other
securities. The unrealized loss positions are primarily the
result of the volatile low interest-rate environment experienced
during 2003. The investment portfolio is reviewed by management
on a regular basis for other than temporary security
impairments. In the event the unrealized loss position is
determined to be other than temporary, management reduces the
carrying value of the security for the amount of the impairment.
At December 31, 2003, management asserts that all
unrealized losses are temporary in nature and no reduction in
carrying value is deemed necessary.

The amortized cost and fair value of investment
securities at December 31, 2003, by contractual maturity,
are shown below. Agency mortgage-backed securities and
collateralized mortgage obligations are presented in the table
based on their estimated average lives, which will differ from
contractual maturities due to principal prepayments. Actual
maturities of the securities may differ from that reflected in
the table due to securities with call features. Such securities
are assumed to be held to contractual maturity for maturity
distribution purposes.

55



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


Included in other securities are the FHLB of
Chicago stock, Fannie Mae preferred stock and money market
funds, which have no stated maturity.

|                               |                                               |                        |         |         |  |   |         |         | 
|------------------------------ | --------------------------------------------- | ---------------------- | ------- | ------- |  | - | ------- | ------- | 
|                               |                                               |                       
|                               |                                               | December 31, 2003     
|                               |                                               |                       
|                               |                                               | Amortized              |         | Fair   
|                               |                                               | Cost                   |         | Value  
|                               |                                               |                        |         |        
|                               |                                               |                       
|                               |                                               | (Dollars in thousands)
|Securities available-for-sale: |                                               |                        |         |         |  |   |         |        
|                               | Due in one year or less                       |                        | $       | 8,119   |  |   | $       | 8,238   | 
|                               | Due after one year through five years         |                        |         | 160,669 |  |   |         | 164,956 | 
|                               | Due after five years through ten years        |                        |         | 527,949 |  |   |         | 524,083 | 
|                               | Due over ten years                            |                        |         | 24,233  |  |   |         | 26,143  | 
|                               | Other securities with no stated maturity date |                        |         | 46,650  |  |   |         | 46,625  | 
|                               |                                               |                        |         |         |  |   |         |        
|                               |                                               | $                      | 767,620 |         |  | $ | 770,045 |        
|                               |                                               |                        |         |         |  |   |         |        
|Securities held-to-maturity:   |                                               |                        |         |         |  |   |         |        
|                               | Due in one year or less                       |                        | $       | 2,251   |  |   | $       | 2,251   | 
|                               | Due after one year through five years         |                        |         | 5,160   |  |   |         | 5,423   | 
|                               | Due after five years through ten years        |                        |         | 5,963   |  |   |         | 6,015   | 
|                               | Due over ten years                            |                        |         | 52      |  |   |         | 53      | 
|                               |                                               |                        |         |         |  |   |         |        
|                               |                                               | $                      | 13,426  |         |  | $ | 13,742  |        
|                               |                                               |                        |         |         |  |   |         |        

At December 31, 2003, investment securities
with a book value of $654,388,000 were pledged as collateral to
secure certain deposits, securities sold under agreements to
repurchase and FHLB of Chicago borrowings.

Proceeds from sales of available-for-sale
investments in debt and equity securities during 2003, 2002 and
2001 were $173,456,000, $102,509,000 and $29,932,000,
respectively. Gross gains of $821,000 and gross losses of
$604,000 were realized in 2003. Gross gains of $547,000 and
gross losses of $233,000 were realized in 2002. Gross gains of
$259,000 and no losses were realized in 2001.

Periodically, the Company will sell options to
securities dealers for the dealers right to purchase
certain U.S. Treasury or U.S. Government agency
securities held within the investment portfolio. These
transactions are designed primarily as yield enhancements to
increase the total return associated with holding the securities
as earning assets. The option premium income generated by these
transactions is recognized as other noninterest income when
received. There were no call options outstanding at
December 31, 2003 or 2002.

56



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




|        |      
|------- | -----
|Note 4. | Loans

Loans outstanding at December 31 follow:

|                        |                                                |                        |        |         |  |   |        |         | 
|----------------------- | ---------------------------------------------- | ---------------------- | ------ | ------- |  | - | ------ | ------- | 
|                        |                                                | 2003                   |        | 2002   
|                        |                                                |                        |        |        
|                        |                                                |                       
|                        |                                                | (Dollars in thousands)
|Commercial loans        |                                                | $                      | 95,761 |         |  | $ | 96,681 |        
|Syndicated loans        |                                                |                        | 33,088 |         |  |   | 39,285 |        
|Real estate loans      |                                                |                        |        |         |  |   |        |        
|                        | Construction, land acquisition and development |                        |        | 40,493  |  |   |        | 60,805  | 
|                        | Commercial mortgage                            |                        |        | 234,967 |  |   |        | 245,099 | 
|                        | Residential mortgage                           |                        |        | 101,133 |  |   |        | 100,840 | 
|                        | Home equity                                    |                        |        | 139,926 |  |   |        | 123,531 | 
|Indirect vehicle loans |                                                |                        |        |         |  |   |        |        
|                        | Auto                                           |                        |        | 226,866 |  |   |        | 206,557 | 
|                        | Harley Davidson motorcycle                     |                        |        | 35,957  |  |   |        | 29,552  | 
|Consumer loans          |                                                |                        | 7,487  |         |  |   | 9,731  |        
|                        |                                                |                        |        |         |  |   |        |        
|                        | Total loans, net of unearned discount          |                        | $      | 915,678 |  |   | $      | 912,081 | 
|                        |                                                |                        |        |         |  |   |        |        

The Company originates commercial, real estate
and consumer loans primarily within the Chicago Metropolitan
area except as discussed below.

The commercial loan portfolio is substantially
secured by business assets and is comprised of approximately 20%
new car dealers; 9% insurance premium receivables; 8%
physicians practices; 7% electrical contractors; 4%
medical equipment manufacturers; and 52% of various other
industries in which the Company has no significant concentration.

Syndicated loans represent the Banks
participation in certain larger national credits. These loans
are generally secured by business assets, however, the
Companys portfolio includes $7.5 million in unsecured
loans to companies that are rated investment grade. Total
exposure to nationally syndicated loans (including unfunded
commitments) was $76.8 million and $72.1 million at
December 31, 2003 and 2002, respectively. There is no
concentration of these loans in any region of the United States.

The Companys construction, land acquisition
and development loans are comprised of approximately 73%
construction of 1-4 family detached homes, condominiums and
townhomes in the Chicago area; 21% multi-family residential
projects; and 6% retail developments at December 31, 2003.

The Companys commercial real estate
portfolio is comprised of approximately 43% multi-family
residential properties; 27% retail properties; 18% owner
occupied office and industrial properties; and 12% non-owner
occupied office and industrial properties at December 31,
2003.

The Companys indirect auto loan portfolio
consists of approximately 14,300 loans originated in the
Chicagoland area, of which 80% are new and 20% are used
vehicles. Management continually monitors the indirect vehicle
dealer relationships to ensure the Company is not dependent on
any one dealer as a source of such loans. The Company does not
have any sub-prime loan programs.

The Companys Harley Davidson motorcycle
loans consist of approximately 3,100 loans generated in thirteen
states as part of a national marketing initiative, of which 63%
were originated in Illinois and Wisconsin.

Loans secured by residential real estate are
expected to be paid by the borrowers cash flows or
proceeds from the sale or refinancing of the underlying real
estate. Such loans are primarily secured by senior or junior
liens on real estate within the Chicago Metropolitan area.
Performance of these loans may be affected by

57



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


conditions influencing the local economy and real
estate market. Substantially all of the Companys combined
portfolio of residential mortgages and home equity loans have
loan to value ratios at or below eighty percent of the appraised
value.

The balance of residential mortgage loans
includes loans held for sale of $296,000 and $2,975,000, at
December 31, 2003 and 2002, respectively. These loans are
typically sold servicing released within 60 days of
origination.

An analysis of the allowance for loan losses
follows:

|                             |  |                        |        |      |  |      |         |   |  |   |       |  
|---------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ----- | -
|                             |  | 2003                   |        | 2002 |  | 2001
|                             |  |                        |        |      |  |     
|                             |  |                       
|                             |  | (Dollars in thousands)
|Balance at beginning of year |  | $                      | 7,351  |      |  | $    | 6,982   |   |  | $ | 5,682 |  
|Provision for loan losses    |  |                        | 1,600  |      |  |      | 14,650  |   |  |   | 1,550 |  
|Recoveries                   |  |                        | 724    |      |  |      | 230     |   |  |   | 73    |  
|Charge-offs                  |  |                        | (1,306 | )    |  |      | (14,511 | ) |  |   | (323  | )
|                             |  |                        |        |      |  |      |         |   |  |   |       |  
|Balance at end of year       |  | $                      | 8,369  |      |  | $    | 7,351   |   |  | $ | 6,982 |  
|                             |  |                        |        |      |  |      |         |   |  |   |       |  

The Company has $293,000 and $821,000 of
nonaccrual loans at December 31, 2003 and 2002,
respectively. None of the nonaccrual loans were considered
impaired at December 31, 2003. Included in the nonaccrual
balance at December 31, 2002 was one loan for $820,000 that
was classified as impaired. The average balance of impaired
loans was $189,000, $8,794,000 and $555,000 for 2003, 2002 and
2001, respectively. The average balance of impaired loans during
2002 includes a loan on a construction property charged off
during 2002 that is now carried as OREO (See Note 6 for
additional information). The Company did not recognize any
interest income associated with impaired loans while the loans
were considered impaired during 2003, 2002 or 2001. If interest
had been accrued at its original rate, such income would have
approximated $55,000 in 2003, $1,043,000 in 2002 and $106,000 in
2001.



|        |                       
|------- | ----------------------
|Note 5. | Premises and Equipment

A summary of premises and equipment at
December 31 follows:

|                                                              |  |                        |         |      |  |   |         |  
|------------------------------------------------------------- |  | ---------------------- | ------- | ---- |  | - | ------- | -
|                                                              |  | 2003                   |         | 2002
|                                                              |  |                        |         |     
|                                                              |  |                       
|                                                              |  | (Dollars in thousands)
|Land                                                          |  | $                      | 6,872   |      |  | $ | 6,431   |  
|Buildings and improvements                                    |  |                        | 30,373  |      |  |   | 24,468  |  
|Leasehold improvements                                        |  |                        | 1,429   |      |  |   | 1,042   |  
|Data processing equipment, office equipment and
    furniture |  |                        | 19,121  |      |  |   | 16,635  |  
|                                                              |  |                        |         |      |  |   |         |  
|                                                              |  |                        | 57,795  |      |  |   | 48,576  |  
|Less accumulated depreciation and amortization                |  |                        | (24,334 | )    |  |   | (22,046 | )
|                                                              |  |                        |         |      |  |   |         |  
|Premises and equipment, net                                   |  | $                      | 33,461  |      |  | $ | 26,530  |  
|                                                              |  |                        |         |      |  |   |         |  

58



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


The Company has entered into a number of
non-cancelable operating lease agreements for certain of the
Banks office premises. The minimum annual net rental
commitments under these leases, which extend until 2013, are as
follows:

|                    |  |                        |       | 
|------------------- |  | ---------------------- | ----- | 
|                    |  | (Dollars in thousands)
|2004                |  | $                      | 422   | 
|2005                |  |                        | 401   | 
|2006                |  |                        | 400   | 
|2007                |  |                        | 379   | 
|2008                |  |                        | 324   | 
|2009 and thereafter |  |                        | 619   | 
|                    |  |                        |       | 
|                    |  | $                      | 2,545 | 
|                    |  |                        |       | 

Total rental expense for 2003, 2002, and 2001 was
approximately $526,000, $401,000 and $395,000 respectively,
which included payment of certain occupancy expenses as defined
in the lease agreements.

The Companys aggregate future minimum net
rentals to be received under a non-cancelable lease from a third
party tenant which expires in 2006 is as follows:

|     |  |                        |     | 
|---- |  | ---------------------- | --- | 
|     |  | (Dollars in thousands)
|2004 |  | $                      | 181 | 
|2005 |  |                        | 186 | 
|2006 |  |                        | 175 | 
|     |  |                        |     | 
|     |  | $                      | 542 | 
|     |  |                        |     | 

The Company also receives reimbursement from its
tenants for certain occupancy expenses including taxes,
insurance and operational expenses, as defined in the lease
agreements.

Note 6.     Other
Real Estate Owned

At December 31, 2003, Other Real Estate
Owned totaled $16.130 million and consisted of a
24 unit luxury condominium construction project with 53
deeded parking spaces. The property has been substantially
completed within budget. As of December 31, 2003, four
units and 16 parking spaces had been sold, closed, and occupied.
There were sales contracts on two additional units and four
parking spaces; earnest money had been received on both of these
units.

Title to the property was acquired in November
2002 and recorded at its then net realizable value. The
repayment of the Banks investment in the project is
dependent on the strength of the Chicago luxury condominium
market; as a result, the Company recorded a provision for
impairment of $1.4 million during 2003. At
December 31, 2003, the property is recorded at its net
realizable value and management will continue to evaluate the
property quarterly for impairment and make additional valuation
adjustments as deemed necessary.

59



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


A schedule of activity in the OREO for 2003 and
2002 is shown in the following table:

|                                         |                        |                        |        |        |  |   |       |       | 
|---------------------------------------- | ---------------------- | ---------------------- | ------ | ------ |  | - | ----- | ----- | 
|                                         |                        | 2003                   |        | 2002  
|                                         |                        |                        |        |       
|                                         |                        |                       
|                                         |                        | (Dollars in thousands)
|Beginning Balance                        |                        | $                      | 7,944  |        |  | $ |      |      
|Transfer of net realizable value to OREO |                        |                        |       |        |  |   | 3,606 |      
|Funding towards project                  |                        |                        | 12,135 |        |  |   | 4,338 |      
|Sales proceeds, net                      |                        |                        | (2,534 | )      |  |   |      |      
|Provision for OREO                       |                        |                        | (1,415 | )      |  |   |      |      
|                                         |                        |                        |        |        |  |   |       |      
|                                         | Balance at December 31 |                        | $      | 16,130 |  |   | $     | 7,944 | 
|                                         |                        |                        |        |        |  |   |       |      



|        |         
|------- | --------
|Note 7. | Deposits

As of December 31, 2003, the scheduled
maturities of time deposits are as follows:

|                    |       |             |         |         | 
|------------------- | ----- | ----------- | ------- | ------- | 
|                    |       | (Dollars in
|                    |       | thousands) 
|2004                |       | $           | 667,250 |        
|2005                |       |             | 121,786 |        
|2006                |       |             | 8,039   |        
|2007                |       |             | 9,398   |        
|2008                |       |             | 3,528   |        
|2009 and thereafter |       |             | 103     |        
|                    |       |             |         |        
|                    | Total |             | $       | 810,104 | 
|                    |       |             |         |        

Included in the total balance are brokered time
deposits of $35,019,000 and $10,095,000 at December 31,
2003 and 2002, respectively.



|        |           
|------- | ----------
|Note 8. | Borrowings

The Companys borrowings at
December 31, 2003 and 2002 consisted of short-term
borrowings, FHLB of Chicago borrowings and TRUPS.

Short-term borrowings consist of Fed funds
purchased; securities sold under agreements to repurchase
(repos); treasury, tax and loan demand notes; and
draws on the Companys revolving line of credit.

Information related to short-term borrowings at
December 31 is summarized as follows:

|                                               |  |                        |        |      |  |      |         |   |  |   |         |  
|---------------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                               |  | 2003                   |        | 2002 |  | 2001
|                                               |  |                        |        |      |  |     
|                                               |  |                       
|                                               |  | (Dollars in thousands)
|Securities sold under agreements to repurchase |  | $                      | 54,487 |      |  | $    | 71,602  |   |  | $ | 80,788  |  
|Fed funds purchased                            |  |                        |       |      |  |      |        |   |  |   |        |  
|Treasury, tax and loan demand notes            |  |                        | 15,423 |      |  |      | 13,035  |   |  |   | 20,000  |  
|Draws on line of credit                        |  |                        |       |      |  |      |        |   |  |   | 1,225   |  
|                                               |  |                        |        |      |  |      |         |   |  |   |         |  
|Total                                          |  | $                      | 69,910 |      |  | $    | 84,637  |   |  | $ | 102,013 |  
|                                               |  |                        |        |      |  |      |         |   |  |   |         |  
|Average during the year                        |  | $                      | 78,779 |      |  | $    | 94,350  |   |  | $ | 96,675  |  
|Maximum month-end balance                      |  |                        | 94,607 |      |  |      | 218,099 |   |  |   | 192,702 |  
|Average rate at year-end                       |  |                        | 0.74   | %    |  |      | 1.35    | % |  |   | 2.68    | %
|Average rate during the year                   |  |                        | 1.05   | %    |  |      | 1.69    | % |  |   | 4.27    | %

60



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


The Fed funds purchased generally represent one
day borrowings obtained from correspondent banks. The repos
represent borrowings which generally have maturities within one
year and are secured by U.S. Treasury and
U.S. Government agency securities. The treasury, tax and
loan demand notes are generally repaid within 90 days from
the transaction date and are secured by municipal securities and
commercial loans.

The Company has a revolving line of credit
arrangement with an unaffiliated third party bank for
$15 million which matures on April 1, 2004 and is
expected to be renewed annually. The interest rate is determined
at the time of each individual draw. There was no outstanding
balance on this line at December 31, 2003 and 2002.

Federal Home Loan Bank borrowings at
December 31:

|                     |  |                        |         |      |  |        |      |      |  |   |         |  |  |  |      |  
|-------------------- |  | ---------------------- | ------- | ---- |  | ------ | ---- | ---- |  | - | ------- |  |  |  | ---- | -
|                     |  |                        |         |     
|                     |  | 2003                   |         | 2002
|                     |  |                        |         |     
|Maturity             |  | Amount                 |         | Rate |  | Amount |      | Rate
|                     |  |                        |         |      |  |        |      |     
|                     |  |                       
|                     |  | (Dollars in thousands)
|February 5, 2003     |  | $                      |        |      |  |        |     | %    |  | $ | 1,000   |  |  |  | 5.59 | %
|February 19, 2003    |  |                        |        |      |  |        |     |      |  |   | 10,000  |  |  |  | 5.84 |  
|October 30, 2003     |  |                        |        |      |  |        |     |      |  |   | 5,000   |  |  |  | 1.76 |  
|November 20, 2003    |  |                        |        |      |  |        |     |      |  |   | 1,500   |  |  |  | 5.43 |  
|November 24, 2003    |  |                        |        |      |  |        |     |      |  |   | 8,000   |  |  |  | 6.50 |  
|January 7, 2004      |  |                        | 6,000   |      |  |        | 5.49 |      |  |   | 6,000   |  |  |  | 5.49 |  
|February 9, 2004     |  |                        | 5,000   |      |  |        | 6.76 |      |  |   | 5,000   |  |  |  | 6.76 |  
|February 17, 2004    |  |                        | 5,000   |      |  |        | 1.63 |      |  |   |        |  |  |  |     |  
|November 1, 2004     |  |                        | 5,000   |      |  |        | 2.24 |      |  |   | 5,000   |  |  |  | 2.24 |  
|February 7, 2005     |  |                        | 1,500   |      |  |        | 5.74 |      |  |   | 1,500   |  |  |  | 5.74 |  
|February 19, 2005    |  |                        | 10,000  |      |  |        | 5.97 |      |  |   | 10,000  |  |  |  | 5.97 |  
|February 22, 2005    |  |                        | 5,000   |      |  |        | 2.13 |      |  |   |        |  |  |  |     |  
|March 21, 2005(1)    |  |                        | 5,000   |      |  |        | 6.53 |      |  |   | 5,000   |  |  |  | 6.53 |  
|March 21, 2005(1)    |  |                        | 5,000   |      |  |        | 6.20 |      |  |   | 5,000   |  |  |  | 6.20 |  
|March 21, 2005       |  |                        | 5,000   |      |  |        | 7.14 |      |  |   | 5,000   |  |  |  | 7.14 |  
|May 3, 2005          |  |                        | 6,000   |      |  |        | 4.37 |      |  |   | 6,000   |  |  |  | 4.37 |  
|October 31, 2005     |  |                        | 5,000   |      |  |        | 2.75 |      |  |   | 5,000   |  |  |  | 2.75 |  
|February 5, 2007     |  |                        | 2,000   |      |  |        | 5.83 |      |  |   | 2,000   |  |  |  | 5.83 |  
|January 12, 2008     |  |                        | 15,000  |      |  |        | 5.23 |      |  |   | 15,000  |  |  |  | 5.23 |  
|February 19, 2008    |  |                        | 6,000   |      |  |        | 6.04 |      |  |   | 6,000   |  |  |  | 6.04 |  
|December 30, 2008(2) |  |                        | 75,000  |      |  |        | 1.29 |      |  |   |        |  |  |  |     |  
|                     |  |                        |         |      |  |        |      |      |  |   |         |  |  |  |      |  
|Total/ Average rate  |  | $                      | 161,500 |      |  |        | 3.27 | %    |  | $ | 102,000 |  |  |  | 5.34 | %
|                     |  |                        |         |      |  |        |      |      |  |   |         |  |  |  |      |  



---

|    |                                                                                                   
|--- | --------------------------------------------------------------------------------------------------
|(1) | Callable March 20, 2004 and quarterly
    thereafter.                                             
|(2) | Interest floats quarterly to 3-month LIBOR plus
    12 basis points. Prepayable without penalties.

Callable borrowings have the potential to be
called in whole or in part at the discretion of the FHLB of
Chicago. With the exception of the borrowing due
December 30, 2008, these borrowings have a fixed interest
rate for the term of the debt and can be prepaid only if
approved by the FHLB of Chicago and a penalty assessed.

The Bank has entered into a collateral pledge
agreement whereby the Bank has agreed to keep on hand, at all
times, free of all other pledges, liens, and encumbrances, a
portfolio of first mortgage residential loans as collateral for
the outstanding borrowings from the FHLB of Chicago. In
addition, the Bank specifically pledged certain multi-family
loans and U.S. Government agency securities to the FHLB of
Chicago which

61



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


increases the Companys borrowing capacity.
All stock in the FHLB of Chicago, totaling $37,347,000 and
$6,361,000 at December 31, 2003 and 2002, respectively, is
pledged as additional collateral for these borrowings.

At December 31, 2003, the Company has
$23 million of TRUPS outstanding that were issued as part
of three separate Pooled Trust Preferred offerings distributed
through institutional private placements. The TRUPS are recorded
in the consolidated balance sheets as long term borrowings and
included as Tier 1 capital for regulatory purposes.
Interest on the securities is currently tax deductible. Terms of
the three specific issues are detailed below.

The Company established statutory trusts in 2003,
2002, and 2000 for the purpose of issuing TRUPS as part of three
Pooled Trust Preferred Offerings distributed in institutional
private placements. The following table summarizes the
outstanding TRUPS issued by each trust as of December 31,
2003:

|                         |  |                   |  |                        |         |          |  |                    |  |                         |  |   |        | 
|------------------------ |  | ----------------- |  | ---------------------- | ------- | -------- |  | ------------------ |  | ----------------------- |  | - | ------ | 
|                         |  |                   |  |                        |         |          |  |                    |  | Balance                
|Trust Name               |  | Month of Issuance |  | Pool Amount            |         | Maturity |  | Interest Rate      |  | Outstanding            
|                         |  |                   |  |                        |         |          |  |                    |  |                        
|                         |  |                   |  | (Dollars in thousands) |         |          |  |                    |  |                        
|FOBB Statutory Trust I   |  | September 2000    |  | $                      | 300,000 |          |  | September 2030 (1) |  | 10.6%                   |  | $ | 6,000  | 
|FOBB Statutory Trust II  |  | June 2002         |  | $                      | 520,000 |          |  | June 2032(2)       |  | 90-day LIBOR plus 3.45% |  | $ | 12,000 | 
|FOBB Statutory Trust III |  | December 2003     |  | $                      | 348,600 |          |  | December 2033 (2)  |  | 90-day LIBOR plus 2.80% |  | $ | 5,000  | 
|                         |  |                   |  |                        |         |          |  |                    |  |                         |  |   |        | 
|                         |  |                   |  |                        |         |          |  |                    |  |                         |  | $ | 23,000 | 
|                         |  |                   |  |                        |         |          |  |                    |  |                         |  |   |        | 



---

|    |                                                                                                  
|--- | -------------------------------------------------------------------------------------------------
|(1) | Non-callable for ten years, after which the
    securities have a declining 10 year premium call.
|(2) | Non-callable for five years, after which callable
    at par.                                    



|        |             
|------- | ------------
|Note 9. | Income Taxes

The components of income tax expense for the
years ended December 31 follow:

|                             |  |                        |       |      |  |      |       |   |  |   |       |  
|---------------------------- |  | ---------------------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                             |  | 2003                   |       | 2002 |  | 2001
|                             |  |                        |       |      |  |     
|                             |  |                       
|                             |  | (Dollars in thousands)
|Current provision            |  | $                      | 8,311 |      |  | $    | 4,637 |   |  | $ | 6,802 |  
|Deferred provision (benefit) |  |                        | (183  | )    |  |      | (631  | ) |  |   | (570  | )
|                             |  |                        |       |      |  |      |       |   |  |   |       |  
|Total income tax expense     |  | $                      | 8,128 |      |  | $    | 4,006 |   |  | $ | 6,232 |  
|                             |  |                        |       |      |  |      |       |   |  |   |       |  

62



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


The net deferred tax assets at December 31
consisted of the following:

|                                |                                                   |                                      |   |       |       |  |   |       |        |  
|------------------------------- | ------------------------------------------------- | ------------------------------------ | - | ----- | ----- |  | - | ----- | ------ | -
|                                |                                                   | 2003                                 |   | 2002 
|                                |                                                   |                                      |   |      
|                                |                                                   |                                     
|                                |                                                   | (Dollars in thousands)              
|Gross deferred tax assets:      |                                                   |                                      |   |       |       |  |   |      
|                                | Book over tax loan loss reserve                   |                                      | $ | 2,929 |       |  | $ | 2,916 |       
|                                | Retirement plan                                   |                                      |   | 510   |       |  |   | 462   |       
|                                | Deferred compensation plans                       |                                      |   | 922   |       |  |   | 783   |       
|                                | State net operating loss carryforward             |                                      |   | 237   |       |  |   | 204   |       
|                                | Other, net                                        |                                      |   | 20    |       |  |   | 19    |       
|                                |                                                   |                                      |   |       |       |  |   |      
|                                |                                                   | Total gross deferred tax assets      |   |       | 4,618 |  |   |       | 4,384  |  
|                                | Less valuation allowance                          |                                      |   | (237  | )     |  |   | (204  | )     
|                                |                                                   |                                      |   |       |       |  |   |      
|                                |                                                   | Deferred tax assets                  |   |       | 4,381 |  |   |       | 4,180  |  
|Gross deferred tax liabilities: |                                                   |                                      |   |       |       |  |   |      
|                                | Unrealized gains on securities available-for-sale |                                      |   | 848   |       |  |   | 5,612 |       
|                                | Accretion of discount on securities               |                                      |   | 116   |       |  |   | 218   |       
|                                | Depreciation                                      |                                      |   | 899   |       |  |   | 613   |       
|                                | Book over tax basis of land                       |                                      |   | 241   |       |  |   | 273   |       
|                                | FHLB of Chicago stock dividends                   |                                      |   | 756   |       |  |   | 469   |       
|                                | Deferred loan costs                               |                                      |   | 596   |       |  |   | 666   |       
|                                | Other, net                                        |                                      |   | 215   |       |  |   | 200   |       
|                                |                                                   |                                      |   |       |       |  |   |      
|                                |                                                   | Total gross deferred tax liabilities |   | $     | 3,671 |  |   | $     | 8,051  |  
|                                |                                                   |                                      |   |       |       |  |   |      
|                                |                                                   | Net deferred tax asset (liability)   |   | $     | 710   |  |   | $     | (3,871 | )
|                                |                                                   |                                      |   |       |       |  |   |      

At December 31, 2003, the Company has a
state net operating loss carry forward of approximately
$5,078,000. Of this amount, $1,286,000 will expire in 2015 and
$3,792,000 will expire in 2022. Realization of deferred tax
assets is dependent upon the generation of future taxable income
by the Company within the allowable net operating carry forward
period. In consideration of net losses incurred, management has
provided a valuation allowance to reduce the net carrying value
of deferred tax assets. The amount of this valuation allowance
is subject to adjustment by management in future periods based
upon its assessment of evidence supporting the degree of
probability that deferred tax assets will be realized.

63



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


The effective tax rates for 2003, 2002, and 2001
were 30.6%, 27.6%, and 31.3%, respectively. Income tax expense
was less than the amount computed by applying the Federal
statutory rate of 35% for 2003, 2002 and 2001 due to the
following:

|                                             |                                                                                                                            |                          |       |      |   |      |       |      |   |   |       |      |  
|-------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | ------------------------ | ----- | ---- | - | ---- | ----- | ---- | - | - | ----- | ---- | -
|                                             |                                                                                                                            |                         
|                                             |                                                                                                                            | Years Ended December 31,
|                                             |                                                                                                                            |                         
|                                             |                                                                                                                            | 2003                     |       | 2002 |   | 2001
|                                             |                                                                                                                            |                          |       |      |   |     
|                                             |                                                                                                                            |                         
|                                             |                                                                                                                            | (Dollars in thousands)  
|Tax expense at statutory rate                |                                                                                                                            | $                        | 9,297 |      |   | $    | 5,077 |      |   | $ | 6,958 |     
|Increase (decrease) in taxes resulting from: |                                                                                                                            |                          |       |      |   |      |       |      |   |   |       |     
|                                             | Income from obligations of states and political
    subdivisions and certain loans not subject to Federal income
    taxes |                          |       | (624 | ) |      |       | (675 | ) |   |       | (948 | )
|                                             | State income taxes                                                                                                         |                          |       |      |   |      |       |     |   |   |       | 76   |  
|                                             | Effect of marginal tax rate                                                                                                |                          |       |     |   |      |       | (100 | ) |   |       |     |  
|                                             | Bank owned life insurance                                                                                                  |                          |       | (290 | ) |      |       | (64  | ) |   |       |     |  
|                                             | Other miscellaneous, net                                                                                                   |                          |       | (255 | ) |      |       | (232 | ) |   |       | 146  |  
|                                             |                                                                                                                            |                          |       |      |   |      |       |      |   |   |       |     
|Total income tax expense                     |                                                                                                                            | $                        | 8,128 |      |   | $    | 4,006 |      |   | $ | 6,232 |     
|                                             |                                                                                                                            |                          |       |      |   |      |       |      |   |   |       |     



|         |                     
|-------- | --------------------
|Note 10. | Shareholders Equity

At December 31, 2003, the Company has
reserved for issuance 948,464 shares of Common Stock for
the Stock Option Plan, 134,040 shares for the Employee
Stock Purchase Plan and 36,044 shares for the Deferred
Directors Stock Plan.

Payment of dividends by the Bank is subject to
both Federal and state banking laws and regulations that limit
the amount of dividends that can be paid by the Bank without
prior regulatory approval. At December 31, 2003,
$32,275,000 of undistributed earnings was available for the
payment of dividends by the Bank without prior regulatory
approval.



|         |                   
|-------- | ------------------
|Note 11. | Regulatory Capital

The Company and the Bank are subject to various
regulatory capital requirements administered by the Federal
banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Companys financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank
must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices.
Capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors. Regulations require the Company
and the Bank to maintain minimum amounts of total and
Tier 1 capital, minimum ratios of total and Tier 1
capital to risk-weighted assets, and a minimum ratio of
Tier 1 capital to average assets to ensure capital
adequacy. Management believes, as of December 31, 2003 and
2002, that the Company and the Bank met all capital adequacy
requirements to which they are subject.

The Company and the Banks actual capital
amounts and ratios are presented in the following table. As of
December 31, 2003 and 2002, the most recent regulatory
notification categorized the Bank as well capitalized.

64



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


At December 31, 2003, there are no
conditions or events since that notification that management
believes have changed the institutions category.

|                                            |                |                        |   |             |  |                        |  |       |   |        |   |        |  |  |  |   |   |  |   |         |  |  |  |    |  
|------------------------------------------- | -------------- | ---------------------- | - | ----------- |  | ---------------------- |  | ----- | - | ------ | - | ------ |  |  |  | - | - |  | - | ------- |  |  |  | -- | -
|                                            |                |                        |   |             |  |                       
|                                            |                |                        |   |             |  | Capital Required To Be
|                                            |                |                        |   |             |  |                       
|                                            |                |                        |   |             |  |                        |  |      
|                                            |                |                        |   | Adequately  |  |                       
|                                            |                | Actual                 |   | Capitalized |  | Well Capitalized      
|                                            |                |                        |   |             |  |                       
|                                            |                | Amount                 |   | Ratio       |  | Amount                 |  | Ratio |   | Amount |   | Ratio 
|                                            |                |                        |   |             |  |                        |  |       |   |        |   |       
|                                            |                |                       
|                                            |                | (Dollars in thousands)
|As of December 31, 2003:                    |                |                        |   |             |  |                        |  |       |   |        |   |        |  |  |  |   |   |  |   |         |  |  |  |   
|Total Capital (to Risk Weighted
    Assets) |                |                        |   |             |  |                        |  |       |   |        |   |        |  |  |  |   |   |  |   |         |  |  |  |   
|                                            | Consolidated   |                        | $ | 150,798     |  |                        |  | 13.26 | % |        | $ | 90,990 |  |  |  | 8 | % |  | $ | 113,738 |  |  |  | 10 | %
|                                            | Oak Brook Bank |                        |   | 138,657     |  |                        |  | 12.26 |   |        |   | 90,513 |  |  |  | 8 |   |  |   | 113,142 |  |  |  | 10 |  
|Tier 1 Capital (to Risk Weighted Assets)    |                |                        |   |             |  |                        |  |       |   |        |   |        |  |  |  |   |   |  |   |         |  |  |  |   
|                                            | Consolidated   |                        | $ | 142,429     |  |                        |  | 12.52 | % |        | $ | 45,495 |  |  |  | 4 | % |  | $ | 68,243  |  |  |  | 6  | %
|                                            | Oak Brook Bank |                        |   | 130,288     |  |                        |  | 11.52 |   |        |   | 45,257 |  |  |  | 4 |   |  |   | 67,885  |  |  |  | 6  |  
|Tier 1 Capital (to Average Assets)          |                |                        |   |             |  |                        |  |       |   |        |   |        |  |  |  |   |   |  |   |         |  |  |  |   
|                                            | Consolidated   |                        | $ | 142,429     |  |                        |  | 8.11  | % |        | $ | 70,271 |  |  |  | 4 | % |  | $ | 87,838  |  |  |  | 5  | %
|                                            | Oak Brook Bank |                        |   | 130,288     |  |                        |  | 7.44  |   |        |   | 70,002 |  |  |  | 4 |   |  |   | 87,502  |  |  |  | 5  |  
|As of December 31, 2002:                    |                |                        |   |             |  |                        |  |       |   |        |   |        |  |  |  |   |   |  |   |         |  |  |  |   
|Total Capital (to Risk Weighted
    Assets) |                |                        |   |             |  |                        |  |       |   |        |   |        |  |  |  |   |   |  |   |         |  |  |  |   
|                                            | Consolidated   |                        | $ | 128,770     |  |                        |  | 11.73 | % |        | $ | 87,795 |  |  |  | 8 | % |  | $ | 109,744 |  |  |  | 10 | %
|                                            | Oak Brook Bank |                        |   | 121,956     |  |                        |  | 11.16 |   |        |   | 87,429 |  |  |  | 8 |   |  |   | 109,286 |  |  |  | 10 |  
|Tier 1 Capital (to Risk Weighted Assets)    |                |                        |   |             |  |                        |  |       |   |        |   |        |  |  |  |   |   |  |   |         |  |  |  |   
|                                            | Consolidated   |                        | $ | 121,419     |  |                        |  | 11.06 | % |        | $ | 43,898 |  |  |  | 4 | % |  | $ | 65,846  |  |  |  | 6  | %
|                                            | Oak Brook Bank |                        |   | 114,605     |  |                        |  | 10.49 |   |        |   | 43,714 |  |  |  | 4 |   |  |   | 65,572  |  |  |  | 6  |  
|Tier 1 Capital (to Average Assets)          |                |                        |   |             |  |                        |  |       |   |        |   |        |  |  |  |   |   |  |   |         |  |  |  |   
|                                            | Consolidated   |                        | $ | 121,419     |  |                        |  | 7.74  | % |        | $ | 62,735 |  |  |  | 4 | % |  | $ | 78,418  |  |  |  | 5  | %
|                                            | Oak Brook Bank |                        |   | 114,605     |  |                        |  | 7.33  |   |        |   | 62,558 |  |  |  | 4 |   |  |   | 78,198  |  |  |  | 5  |  



|         |                   
|-------- | ------------------
|Note 12. | Earnings Per Share

The following table sets forth the computation
for basic and diluted earnings per share for the years ended
December 31, 2003, 2002 and 2001:

|                                                                                 |                                                     |      |            |         |  |      |            |         |  |   |            |         | 
|-------------------------------------------------------------------------------- | --------------------------------------------------- | ---- | ---------- | ------- |  | ---- | ---------- | ------- |  | - | ---------- | ------- | 
|                                                                                 |                                                     | 2003 |            | 2002    |  | 2001
|                                                                                 |                                                     |      |            |         |  |     
|Net income                                                                       |                                                     | $    | 18,435,000 |         |  | $    | 10,501,000 |         |  | $ | 13,648,000 |        
|                                                                                 |                                                     |      |            |         |  |      |            |         |  |   |            |        
|Denominator for basic earnings per share-weighted
    average shares outstanding |                                                     |      | 9,618,815  |         |  |      | 9,504,638  |         |  |   | 9,498,900  |        
|Effect of dilutive securities:                                                   |                                                     |      |            |         |  |      |            |         |  |   |            |        
|                                                                                 | Stock options issued to employees and
    directors |      |            | 255,343 |  |      |            | 260,949 |  |   |            | 163,044 | 
|                                                                                 |                                                     |      |            |         |  |      |            |         |  |   |            |        
|Denominator for diluted earnings per share                                       |                                                     |      | 9,874,158  |         |  |      | 9,765,587  |         |  |   | 9,661,944  |        
|                                                                                 |                                                     |      |            |         |  |      |            |         |  |   |            |        
|Earnings per share:                                                              |                                                     |      |            |         |  |      |            |         |  |   |            |        
|                                                                                 | Basic                                               |      |            | $1.92   |  |      |            | $1.10   |  |   |            | $1.44   | 
|                                                                                 | Diluted                                             |      |            | $1.87   |  |      |            | $1.08   |  |   |            | $1.41   | 
|                                                                                 |                                                     |      |            |         |  |      |            |         |  |   |            |        

Weighted average options outstanding that were
not included in the denominator for diluted earnings per share
totaled 695 for 2003; 6,786 for 2002; and 12,000 for 2001
because their effect would be antidilutive.

65



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)




|         |              
|-------- | -------------
|Note 13. | Contingencies

The Company and the Bank are not subject to any
material pending or threatened legal actions as of
December 31, 2003.

The Company was a party to a revenue sharing
agreement in connection with the sale in 1997 of the
Companys credit card portfolio. Under this agreement, the
Company shared the revenue from the sold portfolio for each of
the five twelve month periods beginning July, 1997, subject to a
maximum annual payment of $900,000. Income recognized in
accordance with the revenue sharing agreement amounted to zero
in 2003 and $450,000 in 2002 and $900,000 in 2001. This
agreement expired on June 30, 2002.



|         |                         
|-------- | ------------------------
|Note 14. | Stock-Based Compensation

The Company has a nonqualified stock option plan
for officers and directors. Options may be granted at a price
not less than the market value on the date of grant, are subject
to various vesting schedules and are exercisable, in part,
beginning on the date of grant and no later than ten years from
the date of grant. No compensation expense was recognized in the
consolidated financial statements with respect to this plan.

A summary of the Companys stock option
activity, and related information for the years ended
December 31 follows:

|                                         |  |         |          |           |  |         |       |           |  |         |         |           |  |   |       |  |  |  |         |   |  |   |       | 
|---------------------------------------- |  | ------- | -------- | --------- |  | ------- | ----- | --------- |  | ------- | ------- | --------- |  | - | ----- |  |  |  | ------- | - |  | - | ----- | 
|                                         |  |         |          |           |  |        
|                                         |  | 2003    |          | 2002      |  | 2001   
|                                         |  |         |          |           |  |        
|                                         |  |         |          | Weighted- |  |         |       | Weighted- |  |         |         | Weighted-
|                                         |  |         |          | Average   |  |         |       | Average   |  |         |         | Average  
|                                         |  |         |          | Exercise  |  |         |       | Exercise  |  |         |         | Exercise 
|                                         |  | Options |          | Price     |  | Options |       | Price     |  | Options |         | Price    
|                                         |  |         |          |           |  |         |       |           |  |         |         |          
|Outstanding at the beginning of the year |  |         | 830,267  |           |  | $       | 10.81 |           |  |         | 728,325 |           |  | $ | 9.49  |  |  |  | 677,775 |   |  | $ | 9.10  | 
|Granted                                  |  |         | 90,750   |           |  |         | 20.51 |           |  |         | 140,732 |           |  |   | 18.43 |  |  |  | 94,950  |   |  |   | 12.13 | 
|Exercised                                |  |         | (189,605 | )         |  |         | 7.87  |           |  |         | (30,601 | )         |  |   | 13.39 |  |  |  | (23,520 | ) |  |   | 6.79  | 
|Forfeited                                |  |         | (12,150  | )         |  |         | 20.58 |           |  |         | (8,189  | )         |  |   | 14.00 |  |  |  | (20,880 | ) |  |   | 12.00 | 
|                                         |  |         |          |           |  |         |       |           |  |         |         |           |  |   |       |  |  |  |         |   |  |   |       | 
|Outstanding at the end of the year       |  |         | 719,262  |           |  | $       | 12.64 |           |  |         | 830,267 |           |  | $ | 10.81 |  |  |  | 728,325 |   |  | $ | 9.49  | 
|                                         |  |         |          |           |  |         |       |           |  |         |         |           |  |   |       |  |  |  |         |   |  |   |       | 
|Exercisable at the end of the year       |  |         | 478,622  |           |  | $       | 10.39 |           |  |         | 579,767 |           |  | $ | 8.96  |  |  |  | 502,365 |   |  | $ | 8.34  | 
|                                         |  |         |          |           |  |         |       |           |  |         |         |           |  |   |       |  |  |  |         |   |  |   |       | 

Exercise prices for options outstanding as of
December 31, 2003 ranged from $5.50 to $24.00 per
share.

Using a range of exercise prices, the following
table summarizes the number and weighted-average exercise price
for options outstanding and separately for options exercisable.
In addition, weighted-average contractual life is disclosed on
options outstanding at December 31, 2003.

|                |  |                     |         |                     |  |                  |     |             |  |                  |       |  |  |  |         |  |  |   |       | 
|--------------- |  | ------------------- | ------- | ------------------- |  | ---------------- | --- | ----------- |  | ---------------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                |  |                     |         |                    
|                |  | Options Outstanding |         | Options Exercisable
|                |  |                     |         |                    
|                |  |                     |         | Weighted-Average    |  |                  |     |            
|                |  | Number              |         | Remaining           |  | Weighted-Average |     | Number      |  | Weighted-Average
|Range of        |  | Outstanding         |         | Contractual Life    |  | Exercise Price   |     | Exercisable |  | Exercise Price  
|Exercise Prices |  |                     |         |                     |  |                  |     |             |  |                 
|$ 5.50  10.00  |  |                     | 203,800 |                     |  |                  | 2.1 | years       |  | $                | 6.75  |  |  |  | 203,800 |  |  | $ | 6.75  | 
|10.01  15.00   |  |                     | 307,262 |                     |  |                  | 5.6 |             |  |                  | 12.23 |  |  |  | 236,322 |  |  |   | 12.36 | 
|15.01  20.00   |  |                     | 115,950 |                     |  |                  | 7.7 |             |  |                  | 17.78 |  |  |  | 36,750  |  |  |   | 17.32 | 
|20.01  24.00   |  |                     | 92,250  |                     |  |                  | 9.1 |             |  |                  | 20.60 |  |  |  | 1,750   |  |  |   | 21.98 | 
|                |  |                     |         |                     |  |                  |     |             |  |                  |       |  |  |  |         |  |  |   |       | 
|Total           |  |                     | 719,262 |                     |  |                  | 5.4 |             |  | $                | 12.64 |  |  |  | 478,622 |  |  | $ | 10.39 | 
|                |  |                     |         |                     |  |                  |     |             |  |                  |       |  |  |  |         |  |  |   |       | 

In 2002 the Company began an Employee Stock
Purchase Plan (ESPP) that allows eligible employees
to withhold up to 15% of their salary up to $23,250 for the
purchase of the Companys Common Stock. Ineligible
employees include those who own 5% or greater of the
Companys stock and seasonal employees. Amounts withheld
are maintained by the Bank as a noninterest-bearing liability
and used to purchase stock at

66



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


a discounted price of up to 10% of the lower of
the fair market value of the common stock on the first day or
the last day of the six-month offering period. During 2003 and
2002, the Company issued 10,779 and 5,181 shares at a
discount of 7%. No compensation expense was recognized in the
consolidated financial statements with respect to this plan.

Pro forma information regarding net income and
earnings per share is required by SFAS No. 123
Accounting for Stock-Based Compensation as amended
by SFAS No. 148 Accounting for Stock-Based
Compensation-Transition and Disclosure and has been
determined as if the Company had accounted for its stock-based
compensation plans under the fair value method of that
Statement. The fair value is estimated at each grant date using
a Black-Scholes valuation model.

The Black-Scholes valuation model was developed
for use in estimating the fair value of traded options which
have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly
subjective assumptions including expected stock price
volatility. Because the Companys stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in
managements opinion, the existing models do not
necessarily provide a reliable single measure of the fair value
of its stock options.

The Company grants stock options at various times
of the year and has granted the purchase rights for the ESPP
every six months since inception. The following table outlines
the weighted average assumptions input into the Black-Scholes
valuation model to calculate fair value for both the stock
option plan and the ESPP. The weighted average assumptions used
in the Black-Scholes model are as follows:

|                              |                                                 |      |   |        |   |      |   |         |   |  |   |        |  
|----------------------------- | ----------------------------------------------- | ---- | - | ------ | - | ---- | - | ------- | - |  | - | ------ | -
|                              |                                                 | 2003 |   | 2002   |   | 2001
|                              |                                                 |      |   |        |   |     
|Stock Option Plan:            |                                                 |      |   |        |   |      |   |         |   |  |   |       
|                              | Total number of options granted during the year |      |   | 90,750 |   |      |   | 140,732 |   |  |   | 94,950 |  
|                              | Risk-free interest rate                         |      |   | 3.38   | % |      |   | 3.47    | % |  |   | 4.26   | %
|                              | Expected life, in years                         |      |   | 6.48   |   |      |   | 6.16    |   |  |   | 5.00   |  
|                              | Expected volatility                             |      |   | 28.5   | % |      |   | 31.2    | % |  |   | 31.3   | %
|                              | Expected dividend yield                         |      |   | 3.0    | % |      |   | 3.0     | % |  |   | 3.1    | %
|                              | Estimated fair value per option                 |      | $ | 5.16   |   |      | $ | 4.79    |   |  | $ | 3.07   |  
|Employee Stock Purchase Plan: |                                                 |      |   |        |   |      |   |         |   |  |   |       
|                              | Risk-free interest rate                         |      |   | 1.07   | % |      |   | 1.31    | % |  |   |       |  
|                              | Expected life, in years                         |      |   | 0.5    |   |      |   | 0.5     |   |  |   |       |  
|                              | Expected volatility                             |      |   | 25.0   | % |      |   | 24.6    | % |  |   |       |  

67



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


For the purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over
the options vesting period. The Companys pro forma
information follows:

|                                                                                                   |                              |                          |            |          |      |      |            |          |      |   |            |          |      | 
|-------------------------------------------------------------------------------------------------- | ---------------------------- | ------------------------ | ---------- | -------- | ---- | ---- | ---------- | -------- | ---- | - | ---------- | -------- | ---- | 
|                                                                                                   |                              |                         
|                                                                                                   |                              | Years Ended December 31,
|                                                                                                   |                              |                         
|                                                                                                   |                              | 2003                     |            | 2002     |      | 2001
|                                                                                                   |                              |                          |            |          |      |     
|Net income as reported                                                                             |                              | $                        | 18,435,000 |          |      | $    | 10,501,000 |          |      | $ | 13,648,000 |         
|Deduct stock-based compensation expense
    determined under fair value based methods, net of tax: |                              |                          |            |          |      |      |            |          |      |   |            |         
|                                                                                                   | Stock option plan            |                          |            | (249,000 | )    |      |            | (215,000 | )    |   |            | (193,000 | )   
|                                                                                                   | Employee stock purchase plan |                          |            | (21,000  | )    |      |            | (2,000   | )    |   |            |         |     
|                                                                                                   |                              |                          |            |          |      |      |            |          |      |   |            |         
|Pro forma net income                                                                               |                              | $                        | 18,165,000 |          |      | $    | 10,284,000 |          |      | $ | 13,455,000 |         
|                                                                                                   |                              |                          |            |          |      |      |            |          |      |   |            |         
|Earnings per share as reported:                                                                    |                              |                          |            |          |      |      |            |          |      |   |            |         
|                                                                                                   |                              | Basic                    |            | $        | 1.92 |      |            | $        | 1.10 |   |            | $        | 1.44 | 
|                                                                                                   |                              | Diluted                  |            | $        | 1.87 |      |            | $        | 1.08 |   |            | $        | 1.41 | 
|Pro forma earnings per share:                                                                      |                              |                          |            |          |      |      |            |          |      |   |            |         
|                                                                                                   |                              | Basic                    |            | $        | 1.89 |      |            | $        | 1.08 |   |            | $        | 1.42 | 
|                                                                                                   |                              | Diluted                  |            | $        | 1.84 |      |            | $        | 1.05 |   |            | $        | 1.39 | 



|         |                       
|-------- | ----------------------
|Note 15. | Employee Benefit Plans

The Company has a 401(k) savings plan that allows
eligible employees to defer a percentage of their salary, not to
exceed 25%. The Company matches dollar for dollar up to 4% of
the employees eligible salary. All participant and
employer contributions are 100% vested. For 2003, 2002 and 2001,
the Companys expense for this plan was $541,000, $502,000,
and $423,000, respectively.

The Company also has a profit sharing plan, under
which the Company, at its discretion, could contribute up to the
maximum amount deductible for the year. For 2003, 2002 and 2001,
the Companys expense for this plan was $322,000, $149,000
and $247,000, respectively.

The Company has an executive deferred
compensation plan. The purpose of this non-qualified plan is to
allow certain executive officers the opportunity to maximize
their elective contributions to the 401(k) savings plan and
provide contributions notwithstanding certain restrictions or
limitations in the Internal Revenue Code. The Company has both
an asset and an offsetting liability recorded in the
consolidated financial statements totaling $1,840,000 and
$1,331,000 at December 31, 2003 and 2002, respectively. For
2003, 2002 and 2001, the Companys expense for this plan
was $152,000, $28,000 and $165,000, respectively.

The Company has entered into supplemental pension
agreements with certain executive officers. Under these
agreements, the Company is obligated to provide at a prescribed
retirement date, a supplemental pension based upon a percentage
of the executive officers final base salary. The
Companys liability recorded for this plan totaled
$1,456,000 and $1,165,000 at December 31, 2003 and 2002,
respectively. The Companys expense for this plan was
$291,000 in 2003 and $202,000 in 2001. No expense was required
in 2002 as determined by a review of the plan by independent
actuaries.



|         |                           
|-------- | --------------------------
|Note 16. | Related Party Transactions

The Bank has made, and expects in the future to
continue to make, loans to the directors, executive officers and
affiliates of the Bank and the Company. Related party loans are
made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable
transactions with unrelated parties and do not involve more than
normal risk of collectibility. The aggregate amount of these
loans was $5,037,000 and $5,877,000 at December 31, 2003
and 2002, respectively. During 2003, new related

68



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


party loans totaled $8,462,000 and repayments
totaled $9,276,000. During 2003, a loan of $26,000 was removed
due to the employee no longer being defined as an executive
officer.

Certain principal shareholders of the Company are
also principal shareholders of Amalgamated Investments Company,
parent of Amalgamated Bank of Chicago. The Bank periodically
enters into loan participations with Amalgamated Bank of
Chicago. The Company had no participations purchased from
Amalgamated Bank of Chicago at December 31, 2003. At
December 31, 2002 the Company had one loan participation
purchased from Amalgamated Bank of Chicago totaling $820,000.



|         |                                                                      
|-------- | ---------------------------------------------------------------------
|Note 17. | Commitments and Financial Instruments With Off
    Balance Sheet Risk

In the normal course of business, there are
various outstanding commitments and contingent liabilities,
including commitments to extend credit, standby letters of
credit and commercial letters of credit (collectively
commitments) that are not reflected in the
consolidated financial statements.

The Companys exposure to credit loss in the
event of nonperformance by the other party to the commitments is
limited to their contractual amount. Many commitments expire
without being used. Therefore, the amounts stated below do not
necessarily represent future cash commitments. Commitments to
extend credit are agreements to lend funds to a customer as long
as there is no violation of any condition established in the
contract. Performance standby letters of credit are conditional
commitments issued by the Company to guarantee the performance
of a customer to a third party. Financial standby letters of
credit are conditional guarantees of payment to a third party on
behalf of a customer of the Company. These commitments are
subject to the same credit policies followed for loans recorded
in the financial statements. A summary of these commitments to
extend credit at December 31 follows:

|                                       |                                                          |                        |         |         |  |   |         |         | 
|-------------------------------------- | -------------------------------------------------------- | ---------------------- | ------- | ------- |  | - | ------- | ------- | 
|                                       |                                                          | 2003                   |         | 2002   
|                                       |                                                          |                        |         |        
|                                       |                                                          |                       
|                                       |                                                          | (Dollars in thousands)
|Commercial loans                       |                                                          | $                      | 50,064  |         |  | $ | 59,603  |        
|Syndicated loans                       |                                                          |                        | 41,958  |         |  |   | 28,913  |        
|Real estate:                           |                                                          |                        |         |         |  |   |         |        
|                                       | Construction, land acquisition and development
    loans |                        |         | 41,034  |  |   |         | 71,886  | 
|                                       | Commercial Mortgage                                      |                        |         | 855     |  |   |         | 1,317   | 
|                                       | Home equity loans                                        |                        |         | 134,031 |  |   |         | 127,001 | 
|                                       | Residential mortgage                                     |                        |         | 127     |  |   |         | 833     | 
|Check credit                           |                                                          |                        | 766     |         |  |   | 835     |        
|Consumer                               |                                                          |                        | 114     |         |  |   | 109     |        
|Performance standby letters of credit  |                                                          |                        | 8,656   |         |  |   | 7,486   |        
|Financial standby letters of credit(1) |                                                          |                        | 4,082   |         |  |   | 7,477   |        
|                                       |                                                          |                        |         |         |  |   |         |        
|Total commitments                      |                                                          | $                      | 281,687 |         |  | $ | 305,460 |        
|                                       |                                                          |                        |         |         |  |   |         |        



---



|    |                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Included in the total financial standby letters
    of credit are syndicated loans of $1,800 and $3,962 at
    December 31, 2003 and 2002, respectively.

There were no amounts outstanding against the
standby letters of credit as of December 31, 2003 or 2002.
Of these guarantees, 73% have terms of less than one year; 15%
have terms of one to three years; 11% have terms of three to
five years; and 1% have terms of five years or more. The
Companys exposure to loss on the guarantee is minimal as
each letter of credit is fully collateralized.



|         |                                    
|-------- | -----------------------------------
|Note 18. | Fair Value of Financial Instruments

Statement of Financial Accounting Standards
No. 107, Disclosures about Fair Value of Financial
Instruments, requires the disclosure of the fair value of
certain financial instruments. Fair value of a financial

69



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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between
willing parties other than in a forced liquidation sale. The
following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and cash
    equivalents:The carrying amounts
    reported on the balance sheet for cash, short-term instruments
    and interest-bearing deposits with banks approximate fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | Investment
    securities:Fair values for investment
    securities are based on quoted market prices.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Loans:For variable
    rate loans that reprice frequently and with no significant
    change in credit risk, fair values are based on carrying
    amounts. The fair value for all other loans is estimated using
    discounted cash flow analyses, which uses interest rates
    currently being offered for similar loans of similar credit
    quality. The fair value does not include potential premiums
    available in a portfolio sale.                                                                                                                                                                                                              
|
| | Cash surrender value of Bank Owned Life
    Insurance (BOLI):The cash
    surrender value of BOLI is carried at fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Accrued interest
    receivable:The carrying amounts of
    accrued interest receivable approximate fair value as it is
    short-term in nature and does not present unanticipated credit
    concerns.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | Deposit liabilities:The fair values for certain deposits (e.g., noninterest-bearing
    demand deposits, savings deposits, NOW and money market
    accounts) are, by definition, equal to the amount payable on
    demand. The fair value estimates do not include the intangible
    value of the existing customer base. The carrying amounts for
    variable rate money market accounts approximate their fair
    values. Fair values for time deposits are estimated using a
    discounted cash flow calculation that applies interest rates
    currently being offered on time deposits to a schedule of
    aggregated expected monthly maturities.
|
| | Short-term debt:The
    carrying amounts of Fed funds purchased, overnight repurchase
    agreements and treasury, tax and loan demand notes approximate
    their fair values. The fair values of term repurchase agreements
    are estimated using a discounted cash flow calculation that
    utilizes interest rates currently being offered for similar
    maturities.                                                                                                                                                                                                                                                                                  
|
| | FHLB of Chicago
    borrowings:The fair value of the FHLB
    of Chicago borrowings is estimated using a discounted cash flow
    calculation that utilizes interest rates currently being offered
    for similar maturities.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | Trust Preferred Capital
    Securities:The fair value of the
    TRUPS is estimated using a discounted cash flow calculation that
    utilizes interest rates currently being offered for similar
    maturities.                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | Accrued interest
    payable:The carrying amounts of
    accrued interest payable approximate fair value as it is
    short-term in nature and does not present unanticipated credit
    concerns.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | Off-balance sheet
    instruments:Fair values for the
    Companys off-balance sheet instruments (letters of credit
    and lending commitments) are generally based on fees currently
    charged to enter into similar agreements.                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Limitations:The
    assumptions and estimates used in the fair value determination
    process are subjective in nature and involve uncertainties and
    significant judgment and, therefore, fair values cannot be
    determined with precision. Changes in assumptions could
    significantly affect these estimated values.                                                                                                                                                                                                                                                                                                                              

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


The estimated fair values of the Companys
significant financial instruments as of December 31, 2003
and 2002, are as follows:

|                              |                                       |          |   |                        |  |          |   |         |  |  |   |         |  |  |   |         | 
|----------------------------- | ------------------------------------- | -------- | - | ---------------------- |  | -------- | - | ------- |  |  | - | ------- |  |  | - | ------- | 
|                              |                                       |          |   |                       
|                              |                                       | 2003     |   | 2002                  
|                              |                                       |          |   |                       
|                              |                                       | Carrying |   |                        |  | Carrying |   | Fair   
|                              |                                       | Amount   |   | Fair Value             |  | Amount   |   | Value  
|                              |                                       |          |   |                        |  |          |   |        
|                              |                                       |          |   |                        |  |         
|                              |                                       |          |   | (Dollars in thousands) |  |         
|Financial Assets              |                                       |          |   |                        |  |          |   |         |  |  |   |         |  |  |   |        
|                              | Cash and cash equivalents             |          | $ | 66,316                 |  |          | $ | 66,316  |  |  | $ | 116,510 |  |  | $ | 116,510 | 
|                              | Investment securities                 |          |   | 783,471                |  |          |   | 783,787 |  |  |   | 507,485 |  |  |   | 508,143 | 
|                              | Loans                                 |          |   | 915,678                |  |          |   | 917,368 |  |  |   | 912,081 |  |  |   | 933,984 | 
|                              | Cash surrender value of BOLI          |          |   | 21,011                 |  |          |   | 21,011  |  |  |   | 15,184  |  |  |   | 15,184  | 
|                              | Accrued interest receivable           |          |   | 8,416                  |  |          |   | 8,416   |  |  |   | 8,599   |  |  |   | 8,599   | 
|Financial Liabilities         |                                       |          |   |                        |  |          |   |         |  |  |   |         |  |  |   |        
|                              | Time deposits                         |          |   | 810,104                |  |          |   | 812,725 |  |  |   | 698,966 |  |  |   | 700,972 | 
|                              | Other deposits                        |          |   | 648,398                |  |          |   | 648,398 |  |  |   | 565,765 |  |  |   | 565,765 | 
|                              | Short-term debt                       |          |   | 69,910                 |  |          |   | 69,897  |  |  |   | 84,637  |  |  |   | 84,632  | 
|                              | FHLB of Chicago borrowings            |          |   | 161,500                |  |          |   | 165,020 |  |  |   | 102,000 |  |  |   | 111,039 | 
|                              | Trust Preferred Capital Securities    |          |   | 23,000                 |  |          |   | 23,540  |  |  |   | 18,000  |  |  |   | 18,480  | 
|                              | Accrued interest payable              |          |   | 3,310                  |  |          |   | 3,310   |  |  |   | 3,060   |  |  |   | 3,060   | 
|Off-balance sheet commitments |                                       |          |   |                        |  |          |   |         |  |  |   |         |  |  |   |        
|                              | Performance standby letters of credit |          |   |                       |  |          |   | 87      |  |  |   |        |  |  |   | 75      | 
|                              | Financial standby letters of credit   |          |   |                       |  |          |   | 41      |  |  |   |        |  |  |   | 75      | 
|                              | Home equity                           |          |   |                       |  |          |   | 121     |  |  |   |        |  |  |   | 108     | 
|                              | Check credit                          |          |   |                       |  |          |   | 20      |  |  |   |        |  |  |   | 22      | 

71



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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


Note 19.     Parent
Company Only Financial Information

Following are the condensed balance sheets,
statements of income and cash flows for First Oak Brook
Bancshares, Inc.:

Balance Sheets (Parent Company Only)

|                                     |                                                          |                                            |   |         |         |  |   |         |         | 
|------------------------------------ | -------------------------------------------------------- | ------------------------------------------ | - | ------- | ------- |  | - | ------- | ------- | 
|                                     |                                                          |                                           
|                                     |                                                          | December 31,                              
|                                     |                                                          |                                           
|                                     |                                                          | 2003                                       |   | 2002   
|                                     |                                                          |                                            |   |        
|                                     |                                                          |                                           
|                                     |                                                          | (Dollars in thousands)                    
|Assets                              
|                                     | Cash and cash equivalents on deposit with
    subsidiary |                                            | $ | 10,262  |         |  | $ | 6,149   |        
|                                     | Investment in subsidiaries                               |                                            |   | 132,267 |         |  |   | 123,663 |        
|                                     | Securities available-for-sale, at fair value             |                                            |   | 3,398   |         |  |   | 1,117   |        
|                                     | Due from subsidiaries                                    |                                            |   | 837     |         |  |   | 859     |        
|                                     | Equipment, net                                           |                                            |   | 87      |         |  |   | 75      |        
|                                     | Other assets                                             |                                            |   | 1,983   |         |  |   | 1,363   |        
|                                     |                                                          |                                            |   |         |         |  |   |        
|                                     |                                                          | Total Assets                               |   | $       | 148,834 |  |   | $       | 133,226 | 
|                                     |                                                          |                                            |   |         |         |  |   |        
|                                    
|Liabilities and Shareholders Equity
|                                     | Trust Preferred Capital Securities                       |                                            | $ | 23,000  |         |  | $ | 18,000  |        
|                                     | Other liabilities                                        |                                            |   | 4,942   |         |  |   | 3,284   |        
|                                     |                                                          |                                            |   |         |         |  |   |        
|                                     |                                                          | Total Liabilities                          |   |         | 27,942  |  |   |         | 21,284  | 
|                                     | Shareholders Equity                                     |                                            |   | 120,892 |         |  |   | 111,942 |        
|                                     |                                                          |                                            |   |         |         |  |   |        
|                                     |                                                          | Total Liabilities and Shareholders Equity |   | $       | 148,834 |  |   | $       | 133,226 | 
|                                     |                                                          |                                            |   |         |         |  |   |        

Statements of Income (Parent Company
Only)

|                                                                                             |                                                    |                          |        |        |        |      |        |        |        |   |        |        |       | 
|-------------------------------------------------------------------------------------------- | -------------------------------------------------- | ------------------------ | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ----- | 
|                                                                                             |                                                    |                         
|                                                                                             |                                                    | Years Ended December 31,
|                                                                                             |                                                    |                         
|                                                                                             |                                                    | 2003                     |        | 2002   |        | 2001
|                                                                                             |                                                    |                          |        |        |        |     
|                                                                                             |                                                    |                         
|                                                                                             |                                                    | (Dollars in thousands)  
|Income:                                                                                      |                                                    |                          |        |        |        |      |        |        |        |   |        |       
|                                                                                             | Dividends from subsidiaries                        |                          | $      | 8,946  |        |      | $      | 10,692 |        |   | $      | 309    |      
|                                                                                             | Other income                                       |                          |        | 1,130  |        |      |        | 1,007  |        |   |        | 795    |      
|                                                                                             | Investment securities gains, net                   |                          |        | 288    |        |      |        | 233    |        |   |        |       |      
|                                                                                             |                                                    |                          |        |        |        |      |        |        |        |   |        |       
|                                                                                             |                                                    | Total income             |        |        | 10,364 |      |        |        | 11,932 |   |        |        | 1,104 | 
|                                                                                             |                                                    |                          |        |        |        |      |        |        |        |   |        |       
|Expenses:                                                                                    |                                                    |                          |        |        |        |      |        |        |        |   |        |       
|                                                                                             | Interest on short-term debt                        |                          |        |       |        |      |        | 4      |        |   |        | 11     |      
|                                                                                             | Interest on Trust Preferred Capital Securities     |                          |        | 1,247  |        |      |        | 998    |        |   |        | 642    |      
|                                                                                             | Other expenses                                     |                          |        | 3,541  |        |      |        | 2,216  |        |   |        | 3,098  |      
|                                                                                             |                                                    |                          |        |        |        |      |        |        |        |   |        |       
|                                                                                             |                                                    | Total expenses           |        |        | 4,788  |      |        |        | 3,218  |   |        |        | 3,751 | 
|                                                                                             |                                                    |                          |        |        |        |      |        |        |        |   |        |       
|Income (loss) before income taxes and equity in
    undistributed net income of subsidiaries |                                                    |                          | 5,576  |        |        |      | 8,714  |        |        |   | (2,647 | )     
|                                                                                             | Income tax expense (benefit)                       |                          |        | 1,187  |        |      |        | 683    |        |   |        | (1,015 | )    
|                                                                                             |                                                    |                          |        |        |        |      |        |        |        |   |        |       
|Income (loss) before equity in undistributed net
    income of subsidiaries                  |                                                    |                          | 6,763  |        |        |      | 9,397  |        |        |   | (1,632 | )     
|                                                                                             | Equity in undistributed net income of subsidiaries |                          |        | 11,672 |        |      |        | 1,104  |        |   |        | 15,280 |      
|                                                                                             |                                                    |                          |        |        |        |      |        |        |        |   |        |       
|Net income                                                                                   |                                                    | $                        | 18,435 |        |        | $    | 10,501 |        |        | $ | 13,648 |       
|                                                                                             |                                                    |                          |        |        |        |      |        |        |        |   |        |       

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)


Statements of Cash Flows (Parent Company
Only)

|                                      |                                                          |                                                                                       |                                                                 |        |        |         |   |       |        |        |   |        |        |         |  
|------------------------------------- | -------------------------------------------------------- | ------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------ | ------ | ------- | - | ----- | ------ | ------ | - | ------ | ------ | ------- | -
|                                      |                                                          |                                                                                      
|                                      |                                                          | Years Ended December 31,                                                             
|                                      |                                                          |                                                                                      
|                                      |                                                          | 2003                                                                                  |                                                                 | 2002   |        | 2001   
|                                      |                                                          |                                                                                       |                                                                 |        |        |        
|                                      |                                                          |                                                                                      
|                                      |                                                          | (Dollars in thousands)                                                               
|Cash flows from operating activities: |                                                          |                                                                                       |                                                                 |        |        |         |   |       |        |        |   |       
|                                      |                                                          | Net income                                                                            |                                                                 | $      | 18,435 |         |   | $     | 10,501 |        |   | $      | 13,648 |        
|                                      |                                                          | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                 |        |        |         |   |       |        |        |   |        |        |        
|                                      |                                                          |                                                                                       | Depreciation                                                    |        |        | 26      |   |       |        | 16     |   |        |        | 16      |  
|                                      |                                                          |                                                                                       | Discount accretion                                              |        |        | 7       |   |       |        |       |   |        |        |        |  
|                                      |                                                          |                                                                                       | Investment securities gains, net                                |        |        | (288    | ) |       |        | (233   | ) |        |        |        |  
|                                      |                                                          |                                                                                       | Stock dividend                                                  |        |        |        |   |       |        | (8     | ) |        |        |        |  
|                                      |                                                          |                                                                                       | Increase in other assets                                        |        |        | (620    | ) |       |        | (247   | ) |        |        | (237    | )
|                                      |                                                          |                                                                                       | Increase (decrease) in other liabilities                        |        |        | 2,542   |   |       |        | (655   | ) |        |        | 1,048   |  
|                                      |                                                          |                                                                                       | Decrease (increase) in due from subsidiaries                    |        |        | 22      |   |       |        | (779   | ) |        |        | 677     |  
|                                      |                                                          |                                                                                       | Equity in undistributed net income of subsidiaries              |        |        | (11,672 | ) |       |        | (1,104 | ) |        |        | (15,280 | )
|                                      |                                                          |                                                                                       |                                                                 |        |        |         |   |       |        |        |   |       
|                                      | Net cash provided by (used in) operating
    activities  |                                                                                       |                                                                 | 8,452  |        |         |   | 7,491 |        |        |   | (128   | )     
|                                      | Cash flows from investing activities:                    |                                                                                       |                                                                 |        |        |         |   |       |        |        |   |        |       
|                                      |                                                          |                                                                                       | Purchases of available-for-sale securities                      |        |        | (5,042  | ) |       |        | (1,164 | ) |        |        |        |  
|                                      |                                                          |                                                                                       | Sales of available-for-sale securities                          |        |        | 3,313   |   |       |        | 570    |   |        |        |        |  
|                                      |                                                          |                                                                                       | Purchases of equipment                                          |        |        | (38     | ) |       |        |       |   |        |        | (5      | )
|                                      |                                                          |                                                                                       |                                                                 |        |        |         |   |       |        |        |   |       
|                                      | Net cash used in investing activities                    |                                                                                       |                                                                 | (1,767 | )      |         |   | (594  | )      |        |   | (5     | )     
|                                      | Cash flows from financing activities:                    |                                                                                       |                                                                 |        |        |         |   |       |        |        |   |        |       
|                                      |                                                          |                                                                                       | (Decrease) increase in short-term debt                          |        |        |        |   |       |        | (1,225 | ) |        |        | 1,225   |  
|                                      |                                                          |                                                                                       | Proceeds from Trust Preferred Capital Securities                |        |        | 5,000   |   |       |        | 12,000 |   |        |        |        |  
|                                      |                                                          |                                                                                       | Exercise of stock options                                       |        |        | 1,169   |   |       |        | 399    |   |        |        | 160     |  
|                                      |                                                          |                                                                                       | Payment (issuance) of notes receivable on
    exercised options |        |        | 100     |   |       |        | (300   | ) |        |        |        |  
|                                      |                                                          |                                                                                       | Issuance of common stock for employee stock
    purchase plan   |        |        | 211     |   |       |        | 102    |   |        |        |        |  
|                                      |                                                          |                                                                                       | Purchase of treasury stock                                      |        |        | (149    | ) |       |        |       |   |        |        | (1,035  | )
|                                      |                                                          |                                                                                       | Cash dividends                                                  |        |        | (4,747  | ) |       |        | (3,463 | ) |        |        | (2,905  | )
|                                      |                                                          |                                                                                       | Capital contribution to subsidiary                              |        |        | (4,156  | ) |       |        | (8,372 | ) |        |        | (1,000  | )
|                                      |                                                          |                                                                                       |                                                                 |        |        |         |   |       |        |        |   |       
|                                      | Net cash used in financing activities                    |                                                                                       |                                                                 | (2,572 | )      |         |   | (859  | )      |        |   | (3,555 | )     
|                                      |                                                          |                                                                                       |                                                                 |        |        |         |   |       |        |        |   |       
|                                      | Net increase (decrease) in cash and cash
    equivalents |                                                                                       |                                                                 | 4,113  |        |         |   | 6,038 |        |        |   | (3,688 | )     
|                                      | Cash and cash equivalents at beginning of year           |                                                                                       |                                                                 | 6,149  |        |         |   | 111   |        |        |   | 3,799  |       
|                                      |                                                          |                                                                                       |                                                                 |        |        |         |   |       |        |        |   |       
|                                      | Cash and cash equivalents at end of year                 |                                                                                       | $                                                               | 10,262 |        |         | $ | 6,149 |        |        | $ | 111    |       
|                                      |                                                          |                                                                                       |                                                                 |        |        |         |   |       |        |        |   |       

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INDEPENDENT AUDITORS REPORT

The Board of Directors

First Oak Brook Bancshares:


We have audited the accompanying consolidated
balance sheets of First Oak Brook Bancshares, Inc. and
subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of income, changes in
shareholders equity and cash flows for each of the years
in the three-year period ended December 31, 2003. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. 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 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of First Oak Brook Bancshares,
Inc. and subsidiaries as of December 31, 2003 and 2002, and
the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2003
in conformity with accounting principles generally accepted in
the United States of America.

(KPMGLLP SIG)

Chicago, Illinois

February 18, 2004


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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In And Disagreements With
    Accountants On Accounting And Financial Disclosure

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

As of the end of the period covered by this
report, the Companys Chief Executive Officer and Chief
Financial Officer carried out an evaluation under their
supervision, 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. Based upon, and as of the date of, that
evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that the Companys disclosure
controls and procedures were effective, in all material
respects, to ensure that information required to be disclosed by
the Company in the reports filed or submitted by it under the
Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the
SEC, and include controls and procedures designed to ensure that
information required to be disclosed by the Company in such
reports is accumulated and communicated to the Companys
management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions
regarding required disclosures.

In the fourth quarter of 2003, there has been no
change in the Companys internal control over financial
reporting that has materially affected, or is reasonably likely
to affect, the Companys internal control over financial
reporting.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|ITEM 10. | Directors And Executive Officers Of The
    Registrant

See information under the caption Directors
and Executive Officers regarding the director and
executive officers of the Company in the Companys Proxy
Statement for its 2004 Annual Meeting to be filed on or about
April 1, 2004, which is incorporated herein by reference.

See information regarding the Companys
Audit Committee of its Board of Directors and its Audit
Committee Financial Expert under the caption Board
of Directors, Meetings, Committees, Functions, Membership and
Compensation in the Companys Proxy Statement for its
2004 Annual Meeting to be filed on or about April 1, 2004,
which is incorporated herein by reference.

See information under the caption
Section 16(a) Beneficial Ownership Reporting
Compliance in the Companys Proxy Statement for its
2004 Annual Meeting to be filed on or about April 1, 2004,
which is incorporated herein by reference.

Code of Ethics

The Company has adopted a Code of Ethics as
required by Nasdaq listing standards and the rules of the SEC.
The Code of Ethics applies to all of the Companys
directors, officers, including the Companys Chief
Executive Officer and Chief Financial Officer, and employees.
The Code of Ethics is publicly available on the website at
www.firstoakbrook.com. If the Company makes substantive
amendments to the Code of Ethics or grants any waiver, including
any implicit waiver, that applies to any director or executive
officer of the Company, it will disclose the nature of such
amendment or waiver on the website or in a report on
Form 8-K in accordance with applicable Nasdaq and SEC rules.






|         |                       
|-------- | ----------------------
|ITEM 11. | Executive Compensation

See information under the captions
Compensation Committee Interlocks and Insider
Participation, Report of Compensation Committee and
Stock Option Advisory Committee on Executive Compensation and
Other Compensation Matters, Summary Compensation
Table, Summary Compensation Table Footnotes,
Transitional Employment and Other Agreements with
Executive Officers, Option Grants Table,
Aggregated Option Exercises in Last Fiscal Year and
Year-End Option Values, and Five Year

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Performance Comparison included in the
Companys Proxy Statement for its 2004 Annual Meeting to be
filed on or about April 1, 2004, which is incorporated
herein by reference.







|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|ITEM 12. | Security Ownership Of Certain Beneficial
    Owners And Management And Related Shareholder
    Matters

See information under the caption
Information Concerning Security Ownership of Certain
Beneficial Owners and Management included in the
Companys Proxy Statement for its 2004 Annual Meeting to be
filed on or about April 1, 2004, which is incorporated
herein by reference.

See information under the caption Equity
Compensation Plan Information included in the
Companys Proxy Statement for its 2004 Annual Meeting to be
filed on or about April 1, 2004, which is incorporated
herein by reference.






|         |                                                   
|-------- | --------------------------------------------------
|ITEM 13. | Certain Relationships And Related
    Transactions

See information under the caption
Transactions with Related Persons included in the
Companys Proxy Statement for its 2004 Annual Meeting to be
filed on or about April 1, 2004, which is incorporated
herein by reference.






|         |                                           
|-------- | ------------------------------------------
|ITEM 14. | Principal Accountant Fees and
    Services

See information under the caption Principal
Accountant Fees and Services in the Companys Proxy
Statement for its 2004 Annual Meeting to be filed on or about
April 1, 2004, which is incorporated herein by reference.




PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|ITEM 15. | Exhibits, Financial Statement Schedules And
    Reports On Form 8-K



|    |                                
|--- | -------------------------------
|(a) | 1.     FINANCIAL
    STATEMENTS

The following consolidated financial statements
are filed as part of this document under Item 8:

|                                                                                                                                     |  |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------ |  |  |  | 
|Consolidated Balance
    SheetsDecember 31, 2003 and 2002                                                                           |  |  |  | 
|Consolidated Statements of Income for each of the
    three years in the period ended December 31, 2003                              |  |  |  | 
|Consolidated Statements of Changes in
    Shareholders Equity for each of the three years in the
    period ended December 31, 2003 |  |  |  | 
|Consolidated Statements of Cash Flows for each of
    the three years in the period ended December 31, 2003                          |  |  |  | 
|Notes to Consolidated Financial Statements                                                                                           |  |  |  | 
|Independent Auditors Report                                                                                                         |  |  |  | 



|   |                              
|-- | -----------------------------
|2. | FINANCIAL STATEMENT SCHEDULES

All schedules have been included in the
consolidated financial statements or the notes thereto or are
either not applicable or not significant.



|    |                    
|--- | -------------------
|(b) | REPORTS ON FORM 8-K

A report on Form 8-K was filed with the SEC
on October 22, 2003 and provided the Companys third
quarter earnings release dated October 21, 2003.

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|    |         
|--- | --------
|(c) | EXHIBITS

Documents indicated by * are filed
with this Form 10-K.

|                |  |                                                                                                                                                                                                                                                                                                          
|--------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit (3.1)   |  | Restated Certificate of Incorporation of the
    Company (Exhibit 3.1 to the Companys Amendment
    No. 1 to Registration Statement on Form 8-A filed
    May 6, 1999, incorporated herein by reference).                                                                                               
|Exhibit (3.2)   |  | Amended and Restated By-Laws of the Company
    (Exhibit 3.2 to the Companys Amendment No. 1 to
    Registration Statement on Form 8-A filed May 6, 1999,
    incorporated herein by reference).                                                                                                        
|Exhibit (4.1)   |  | Form of Common Stock Certificate
    (Exhibit 4.1 to the Companys Form 10-Q Quarterly
    Report for the period ended June 30, 1999, incorporated
    herein by reference).                                                                                                                             
|Exhibit (4.2)   |  | Rights Agreement, dated as of May 4, 1999
    between the Company and Oak Brook Bank, as Rights Agent
    (Exhibit 4.1 to the Companys Registration Statement
    on Form 8-A filed May 21, 1999, incorporated herein by
    reference).                                                                
|Exhibit (4.3)   |  | Certificate of Designations Preferences and
    Rights of Series A Preferred Stock (Exhibit A to
    Exhibit 4.1 to the Companys Registration Statement on
    Form 8-A filed May 21, 1999, incorporated herein by
    reference).                                                                      
|Exhibit (4.4)   |  | Form of Rights Certificate (Exhibit B to
    Exhibit 4.1 to the Companys Registration Statement on
    Form 8-A filed May 21, 1999, incorporated herein by
    reference).                                                                                                                              
|Exhibit (10.1)  |  | Eleventh Amendment to Revolving Credit Agreement
    between First Oak Brook Bancshares, Inc. and LaSalle Bank
    National Association dated April 1, 2003.
    (Exhibit 10.1 to the Companys Form 10-Q
    Quarterly Report for the period ended June 30, 2003,
    incorporated herein by reference).
|Exhibit (10.2)  |  | First Oak Brook Bancshares, Inc. Executive
    Deferred Compensation Plan effective November 1, 1997.
    (Exhibit 10.3 to the Companys Form 10-K Annual
    Report for the year ended December 31, 1997, incorporated
    herein by reference).                                                        
|Exhibit (10.3)  |  | First Oak Brook Bancshares, Inc. 2001 Stock
    Incentive Plan effective January 23, 2001. (Appendix A
    to the Companys Proxy and Notice of Annual Meeting of
    Shareholders filed April 2, 2001, incorporated herein by
    reference).                                                           
|Exhibit (10.4)  |  | License Agreement, between Jack Henry &
    Associates, Inc. and First Oak Brook Bancshares, Inc. dated
    March 10, 1993. (Exhibit 10.8 to the Companys
    Form 10-K Annual Report for the year ended
    December 31, 1994, incorporated herein by reference).                                      
|Exhibit (10.5)  |  | Form of Transitional Employment Agreement for
    Eugene P. Heytow, Richard M. Rieser, Jr. and Frank M.
    Paris. (Exhibit 10.9 to the Companys Form 10-K
    Annual Report for the year ended December 31, 1998,
    incorporated herein by reference).                                               
|Exhibit (10.6)  |  | Form of Transitional Employment Agreement for
    Senior Officers. (Exhibit 10.10 to the Companys
    Form 10-K Annual Report for the year ended
    December 31, 1998, incorporated herein by reference).                                                                                              
|Exhibit (10.7)  |  | Form of Agreement Regarding Post-Employment
    Restrictive Covenants for Eugene P. Heytow, Richard M. Rieser,
    Jr. and Frank M Paris. (Exhibit 10.11 to the Companys
    Form 10-K Annual Report for the year ended
    December 31, 1994, incorporated herein by reference).                       
|Exhibit (10.8)  |  | Form of Supplemental Pension Benefit Agreement
    for Eugene P. Heytow. (Exhibit 10.12 to the Companys
    Form 10-K Annual Report for the year ended
    December 31, 1994, incorporated herein by reference).                                                                                        
|Exhibit (10.9)  |  | Form of Supplemental Pension Benefit Agreement
    for Richard M. Rieser, Jr. (Exhibit 10.13 to the
    Companys Form 10-K Annual Report for the year ended
    December 31, 1994, incorporated herein by reference).                                                                                   
|Exhibit (10.10) |  | Senior Executive Insurance Plan.
    (Exhibit 10.14 to the Companys Form 10-K Annual
    Report for the year ended December 31, 1995, incorporated
    herein by reference).                                                                                                                            

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|                |  |                                                                                                                                                                                                                                                  
|--------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit (10.11) |  | First Oak Brook Bancshares, Inc. Annual
    Performance Bonus Plan effective January 1, 2001.
    (Appendix B to the Companys Proxy and Notice of
    Annual Meeting of Shareholders filed April 2, 2001,
    incorporated herein by reference).
|Exhibit (10.12) |  | First Oak Brook Bancshares, Inc. Directors Stock
    Plan (Form S-8 filed October 25, 1999, incorporated
    herein by reference).                                                                                                               
|Exhibit (21)    |  | Subsidiaries of the Registrant.*                                                                                                                                                                                                                 
|Exhibit (23)    |  | Consent of KPMG LLP.*                                                                                                                                                                                                                            
|Exhibit (31.1)  |  | Certification pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002 of Eugene P. Heytow, Chief Executive
    Officer.*                                                                                                                   
|Exhibit (31.2)  |  | Certification pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002 of Rosemarie Bouman, Chief Financial
    Officer.*                                                                                                                   
|Exhibit (32.1)  |  | Certification pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002 of Eugene P. Heytow, Chief Executive
    Officer.*                                                                                                                   
|Exhibit (32.2)  |  | Certification pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002 of Rosemarie Bouman, Chief Financial
    Officer.*                                                                                                                   

Exhibits 10.2, 10.3 and 10.5 through 10.12
are management contracts or compensatory plans or arrangements
required to be filed as an Exhibit to this Form 10-K
pursuant to Item 15I hereof.

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##### Table of Contents






SIGNATURES

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

| |                                                       
| | ------------------------------------------------------
| | FIRST OAK BROOK BANCSHARES, INC.                      
| | (Registrant)                                          
|
| | By: /s/ EUGENE P. HEYTOW                              
| |                                                       
| | (Eugene P. Heytow,                                    
| | Chairman of the Board and Chief Executive
    Officer)
|
| | DATE: March 8, 2004                                   



| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 and on the dates indicated.

|                                                     |  |                                                        |  |               |  | 
|---------------------------------------------------- |  | ------------------------------------------------------ |  | ------------- |  | 
|                                                     |  |                                                        |  |              
|Signature                                            |  | Title                                                  |  | Date         
|                                                     |  |                                                        |  |              
|                                                    
|                                                    
|/s/ EUGENE P. HEYTOWEugene P. Heytow                 |  | Chairman of the Board and
    Chief  Executive Officer |  | March 8, 2004
|                                                    
|/s/ FRANK M. PARISFrank M. Paris                     |  | Vice Chairman of the Board                             |  | March 8, 2004
|                                                    
|                                                    
|/s/ RICHARD M. RIESER, JR.Richard M. Rieser, Jr.     |  | President, Assistant Secretary,
    and  Director      |  | March 8, 2004
|                                                    
|/s/ MIRIAM LUTWAK FITZGERALDMiriam Lutwak Fitzgerald |  | Director                                               |  | March 8, 2004
|                                                    
|/s/ GEOFFREY R. STONEGeoffrey R. Stone               |  | Director                                               |  | March 8, 2004
|                                                    
|/s/ MICHAEL L. STEINMichael L. Stein                 |  | Director                                               |  | March 8, 2004
|                                                    
|/s/ STUART I. GREENBAUMStuart I. Greenbaum           |  | Director                                               |  | March 8, 2004
|                                                    
|/s/ JOHN W. BALLANTINEJohn W. Ballantine             |  | Director                                               |  | March 8, 2004
|                                                    
|/s/ CHARLES J. GRIESCharles J. Gries                 |  | Director                                               |  | March 8, 2004
|                                                    
|                                                    
|/s/ ROSEMARIE BOUMANRosemarie Bouman                 |  | Vice President and Chief  Financial
    Officer        |  | March 8, 2004
|                                                    
|/s/ JILL D. WACHHOLZJill D. Wachholz                 |  | Chief Accounting Officer                               |  | March 8, 2004

79