##### Table of Contents





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CENTRUE FINANCIAL CORPORATION



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2004 ANNUAL REPORT



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##### 





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CORPORATE


PROFILE &


TABLE OF CONTENTS







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CORPORATE PROFILE

Centrue Financial Corporation (the
Company) is the holding company for Centrue Bank
(the Bank). As a community-oriented financial
institution, the Bank operates nineteen retail banking offices
and provides comprehensive financial services to families and
local businesses residing in Kankakee, Champaign, Clinton,
Grundy, Iroquois, Livingston and St. Clair counties, and
portions of Will County in Illinois.


Beginning on February 25, 2005, the common
stock of the Company has been publicly traded on the Nasdaq
National Market System under the symbol TRUE. Prior
to February 25, 2005, it was traded on the American Stock
Exchange under the symbol CFF.






TABLE OF CONTENTS

|                                                                                          |  |  |    | 
|----------------------------------------------------------------------------------------- |  |  | -- | 
|Letter to Stockholders                                                                    |  |  | 2  | 
|Financial Highlights                                                                      |  |  | 4  | 
|Managements Discussion
    and Analysis of Financial Condition and Results of Operations |  |  | 5  | 
|Report of Independent
    Registered Public Accounting Firm                               |  |  | 29 | 
|Consolidated Financial
    Statements                                                     |  |  | 30 | 
|Notes to Consolidated
    Financial Statements                                            |  |  | 36 | 
|Corporate Information                                                                     |  |  | 63 | 
|Directors and Officers                                                                    |  |  | 65 | 
|Office Locations/ Map                                                                     |  |  | 66 | 



Factors That May Affect Future Results This publication contains statements concerning
earnings, revenues, operating margins, growth and other
financial measurements; new business and business opportunities;
acquisitions; and other aspects of future operating or financial
performance. These statements are based on assumptions currently
believed to be valid and may be forward-looking
statements under the securities laws, as further detailed
on pages 27 and 28 of this Annual Report. Various factors could
materially affect actual results. These include, among other
things, changes in general economic or market conditions,
government regulation and competition. For additional
information about these factors, see our report on
Form 10-K for 2004 and reports on Forms 10-Q and 8-K
filed with the Securities and Exchange Commission.


1




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##### Table of Contents





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LETTER TO


STOCKHOLDERS









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The mission of Centrue Financial
Corporation is to be the premier bank serving central Illinois,
southern Illinois, western Indiana and metropolitan St. Louis,
Missouri with a return on equity within the upper quartile of
our peer group. Our regional banking philosophy is to support
and empower our employees to provide superior customer
service.


Dear Stockholder,

We are pleased to provide this 2004 annual report
reflecting the results for our first full year of operations
since Centrue Financial Corporation was formed in October 2003
through the merger of Kankakee Bancorp, Inc. and Aviston
Financial Corporation. The strategic initiatives that we
implemented following the merger have allowed us to
significantly improve our financial performance during 2004. For
the year ended December 31, 2004, we reported net income of
$4.9 million, a significant increase compared to
$1.4 million in 2003. Earnings per share tripled to $1.95
per share in 2004. Our return on average assets and average
stockholders equity for the year also improved to 0.80%
and 10.96% respectively.

As evidenced by our financial results, we placed
a high priority on improving our profitability during 2004,
although our assets did grow slightly as well. Our net interest
income benefited from our increasing emphasis on commercial
loans along with the growth in our investment securities
portfolio. We have also become much more disciplined with our
deposit pricing, and our net interest margin consequently
improved to 3.42% in 2004 from 3.16% in 2003. Our deposit mix
changed significantly as we reduced certificates of deposit by
$16.9 million, or 6%, during the year. At the same time we
increased non-interest checking accounts by $9.6 million,
or 22%, and also began offering sweep accounts with the balances
in these accounts having already grown to $8.6 million by
year end.

We also took action to enhance our fee income
which increased $1.5 million, or 52%, in 2004, primarily
through the implementation of an overdraft protection product
and restructured fee schedules. During the last year, we also
formed strategic alliances to deliver brokerage, trust and
credit card products. Our customers will benefit from enhanced
products, and we will be able to deliver these products more
cost efficiently.

We have assembled a talented group of officers
and employees, with the majority of our senior officers having
joined Centrue within the last two years. We continue to add
experienced bankers in positions throughout our organization,
both from acquisitions and by attracting them from other banks
within our markets. Our bankers enjoy an atmosphere where they
are empowered to make decisions and to meet the needs of our
customers. One of our primary initiatives for 2005 is our True
Blue program which is being undertaken to reinforce the culture
to provide superior customer service.

We are not satisfied with our current level of
classified assets and continue working diligently to reduce
problem assets and improve our overall asset quality. During
2004, we hired a commercial banker with over twenty years of
experience as our Chief Credit Officer. This position is
responsible for all credit administration functions and for the
independent review and monitoring of our loan portfolio. We
believe that the creation of this new position has strengthened
the internal controls over our lending functions and will allow
us to reduce our classified assets while prudently expanding our
commercial loan portfolio.

We continue to maximize the use of the capital
entrusted to us, and in 2004 we repurchased 232,706 shares, or
9%, of our common stock. Over the last three years we have
repurchased 899,470 shares of our stock at an average price of
$21 per share. We completed the transfer of our stock listing on
February 25, 2005 and are now traded on Nasdaq under the
symbol TRUE. We believe that our listing on Nasdaq
will provide more liquidity and visibility for our Centrue
stockholders.

2




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LETTER TO


STOCKHOLDERS







---



On December 31, 2004, we announced the
proposed acquisition of Illinois Community Bancorp, Inc. and its
subsidiary bank in Effingham, Illinois. This acquisition will
allow us to expand our geographic coverage between our existing
locations in Champaign and Metro East St. Louis. Illinois
Community Bancorp has assets of $33 million, and the
acquisition is expected to close in the second quarter of 2005,
subject to regulatory and stockholder approvals.

During 2005, we will continue to focus on
long-term profitability as we also search for opportunities
within our market area to expand our geographic footprint, both
through acquisitions and internally. We look forward to the
opening of our newly constructed facility in Fairview Heights,
Illinois scheduled for the second quarter of 2005. We have also
entered into an agreement with a third party vendor to improve
our data processing and item processing services. We believe
that the transition to this new relationship in 2005 will allow
us to improve customer service, as well as our productivity.

We appreciate the continued loyalty and support
of our shareholders, customers and employees, and we are
committed to making 2005 another successful year for Centrue.

Sincerely,

|                                              |  |                                       
|--------------------------------------------- |  | --------------------------------------
|LOGO                                          |  | LOGO                                  
|Michael A. Griffith
    Chairman of the Board |  | Thomas A. Daiber
    President and CEO

3




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##### Table of Contents





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FINANCIAL


HIGHLIGHTS







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FINANCIAL HIGHLIGHTS




|                                           |                                                         |                                               |           |        |  |      |           |        |  |      |           |        |  |   |           |        |  |   |           |        | 
|------------------------------------------ | ------------------------------------------------------- | --------------------------------------------- | --------- | ------ |  | ---- | --------- | ------ |  | ---- | --------- | ------ |  | - | --------- | ------ |  | - | --------- | ------ | 
|                                           |                                                         |                                              
|                                           |                                                         | Years Ended December 31,                     
|                                           |                                                         |                                              
|                                           |                                                         | 2004                                          |           | 2003   |  | 2002 |           | 2001   |  | 2000
|                                           |                                                         |                                               |           |        |  |      |           |        |  |     
|                                           |                                                         |                                              
|                                           |                                                         | (Dollars in thousands, except per share data)
|Selected Financial Condition Data:         |                                                         |                                               |           |        |  |      |           |        |  |      |           |        |  |   |           |        |  |   |           |       
|Total assets                               |                                                         | $                                             | 611,853   |        |  | $    | 609,411   |        |  | $    | 546,404   |        |  | $ | 490,280   |        |  | $ | 459,894   |       
|Loans, net, including loans held for sale  |                                                         |                                               | 419,379   |        |  |      | 426,043   |        |  |      | 384,517   |        |  |   | 394,744   |        |  |   | 338,998   |       
|Investment securities held-to-maturity (1) |                                                         |                                               | 149       |        |  |      | 942       |        |  |      | 1,143     |        |  |   | 1,554     |        |  |   | 2,066     |       
|Investment securities available-for-sale   |                                                         |                                               | 124,763   |        |  |      | 87,712    |        |  |      | 82,638    |        |  |   | 46,391    |        |  |   | 73,221    |       
|Deposits                                   |                                                         |                                               | 495,777   |        |  |      | 496,257   |        |  |      | 431,964   |        |  |   | 415,279   |        |  |   | 387,679   |       
|Total borrowings                           |                                                         |                                               | 49,661    |        |  |      | 54,396    |        |  |      | 59,700    |        |  |   | 30,000    |        |  |   | 29,000    |       
|Trust preferred securities                 |                                                         |                                               | 20,000    |        |  |      | 10,000    |        |  |      | 10,000    |        |  |   |          |        |  |   |          |       
|Stockholders equity                       |                                                         |                                               | 43,176    |        |  |      | 45,643    |        |  |      | 41,107    |        |  |   | 41,191    |        |  |   | 39,289    |       
|Shares outstanding (3)                     |                                                         |                                               | 2,380,666 |        |  |      | 2,606,022 |        |  |      | 2,331,762 |        |  |   | 2,432,716 |        |  |   | 2,526,216 |       
|For the period:                            |                                                         |                                               |           |        |  |      |           |        |  |      |           |        |  |   |           |        |  |   |           |       
|                                           | Net interest income after provision for loan
    losses |                                               | $         | 17,548 |  |      | $         | 11,358 |  |      | $         | 12,037 |  |   | $         | 13,528 |  |   | $         | 12,852 | 
|                                           | Net income                                              |                                               |           | 4,889  |  |      |           | 1,363  |  |      |           | 2,233  |  |   |           | 3,261  |  |   |           | 2,584  | 
|Per common share (3):                      |                                                         |                                               |           |        |  |      |           |        |  |      |           |        |  |   |           |        |  |   |           |       
|                                           | Book value per share
    outstanding                    |                                               | $         | 18.14  |  |      | $         | 17.51  |  |      | $         | 17.63  |  |   | $         | 16.93  |  |   | $         | 15.56  | 
|                                           | Tangible book value per share outstanding (2)           |                                               |           | 12.16  |  |      |           | 12.66  |  |      |           | 15.81  |  |   |           | 15.11  |  |   |           | 13.65  | 
|                                           | Basic earnings per share                                |                                               |           | 1.96   |  |      |           | 0.65   |  |      |           | 0.94   |  |   |           | 1.34   |  |   |           | 1.03   | 
|                                           | Diluted earnings per share                              |                                               |           | 1.95   |  |      |           | 0.65   |  |      |           | 0.93   |  |   |           | 1.31   |  |   |           | 1.00   | 
|Financial ratios:                          |                                                         |                                               |           |        |  |      |           |        |  |      |           |        |  |   |           |        |  |   |           |       
|                                           | Stockholders equity to total assets                    |                                               |           | 7.06%  |  |      |           | 7.49%  |  |      |           | 7.52%  |  |   |           | 8.40%  |  |   |           | 8.54%  | 
|                                           | Non-performing assets to total assets                   |                                               |           | 1.64%  |  |      |           | 1.00%  |  |      |           | 2.03%  |  |   |           | 0.45%  |  |   |           | 0.76%  | 
|                                           | Net charge-offs to average
    loans                    |                                               |           | 0.77%  |  |      |           | 1.53%  |  |      |           | 0.01%  |  |   |           | 0.02%  |  |   |           | 0.02%  | 
|                                           | Net interest margin                                     |                                               |           | 3.42%  |  |      |           | 3.16%  |  |      |           | 3.22%  |  |   |           | 3.16%  |  |   |           | 3.25%  | 
|                                           | Efficiency ratio (5)                                    |                                               |           | 67.90% |  |      |           | 72.77% |  |      |           | 65.40% |  |   |           | 70.97% |  |   |           | 74.42% | 
|                                           | Return on average assets                                |                                               |           | 0.80%  |  |      |           | 0.25%  |  |      |           | 0.42%  |  |   |           | 0.69%  |  |   |           | 0.60%  | 
|                                           | Return on average stockholders equity                  |                                               |           | 10.96% |  |      |           | 4.00%  |  |      |           | 5.42%  |  |   |           | 8.20%  |  |   |           | 6.95%  | 
|                                           | Average equity to average
    assets                    |                                               |           | 7.31%  |  |      |           | 6.33%  |  |      |           | 7.70%  |  |   |           | 8.41%  |  |   |           | 8.70%  | 
|                                           | Dividend payout Ratio (4)                               |                                               |           | 3.83%  |  |      |           | 46.15% |  |      |           | 30.32% |  |   |           | 18.32% |  |   |           | 24.12% | 



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|    |                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes certificates of deposit.                                                                                                  
|   
|(2) | Calculated by subtracting goodwill and other
    intangible assets from stockholders equity.                                      
|   
|(3) | All share and per share information for years
    prior to 2003 have been restated for the 2 for 1 stock split in
    October 2003.
|   
|(4) | Calculated by dividing dividends per share by
    earnings per share.                                                              
|   
|(5) | Calculated by net interest income plus
    noninterest income excluding securities gains divided by
    noninterest expense.       

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##### Table of Contents





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MANAGEMENTS


DISCUSSION AND


ANALYSIS







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MANAGEMENTS DISCUSSION AND ANALYSIS OF








Centrue Financial Corporation (the
Company) is the holding company for Centrue Bank,
(the Bank). All references to the Company in the
following discussion include the Bank and the Banks
wholly-owned service corporation, Centrue Service Corporation
(CSC), unless indicated otherwise. In October 2003,
Kankakee Bancorp, Inc. merged with Aviston Financial Corporation
(Aviston Financial) and subsequent to the merger,
the remaining corporation changed its name to Centrue Financial
Corporation. At the time of the merger, Aviston Financial had
approximately $98 million in total assets. The subsidiary
banks were merged to form Centrue Bank, a state-chartered
commercial bank. On March 5, 2004, the Company acquired
Parish Bank and Trust Co. (Parish) located in
Momence, Illinois. At the time of the acquisition, Parish had
approximately $21 million in total assets. On
December 31, 2004, the Company announced its intent to
acquire Illinois Community Bancorp, Inc., located in Effingham,
Illinois with total assets of approximately $33 million.
The proposed acquisition, which is expected to close in the
second quarter of 2005, is subject to regulatory approval as
well as approval by Illinois Communitys stockholders. The
Company continues to explore opportunities to expand its
geographic scope into targeted markets and to increase its
presence in existing markets through mergers and acquisitions,
as well as de novo branching opportunities.


The Company had its first full year as Centrue
Financial in 2004. Since the 2003 merger, a new experienced
management team has been assembled by Thomas A. Daiber, who
joined the Company as CEO. Senior officer positions filled with
new executives since 2003 included the Chief Financial Officer,
Chief Credit Officer, new Regional Presidents for three of our
four Banking regions (each of these Presidents is also a
commercial lender with more than 15 years of experience), a
new Corporate Controller and three other seasoned commercial
lenders. While operating as one significant business unit,
management has reorganized the Company into four operating
regions and is working to improve operations and profitability
throughout the branch system, while it continues to clean up the
asset quality issues it inherited.

Net income increased 258.7% to $4.9 million
in 2004 compared to $1.4 million in 2003. Assets grew 0.4%
from $609.4 million at the end of 2003 to
$611.9 million at the end of 2004. During 2004, the Company
divested $20.2 million of long-term fixed rate 1-4 family
mortgage loans in order to improve the interest rate risk
profile. Without the mortgage loan sales, total assets would
have increased by $22.7 million or 3.7%.

The Company has had an aggressive capital
management plan over the last three years. As part of this
strategy, the Company made open market purchases of its own
stock, repurchasing 167,224 common shares at a total cost of
$3.2 million ($19.15 per share) in 2002, 466,540 shares of
stock at a total cost of $9.3 million ($19.95 per share) in
2003 and an additional 232,706 shares of stock at a total cost
of $6.5 million ($27.99 per share) in 2004. The Company
executed a 2 for 1 stock split in the form of a dividend during
October of 2003. All references in this discussion to the prices
and number of shares have been adjusted for this split. In
addition, the Company is continuously evaluating balance sheet
opportunities to augment and leverage its capital base to
maximize stockholders return on equity. The Company will
continue to evaluate opportunities in 2005 in an effort to
continue a positive earnings trend.

The Companys results of operations are
dependent primarily on net interest income, which is the
difference, or spread, between the interest income
earned on its loans and investments and its cost of funds,
consisting of interest paid on its deposits and on borrowed
funds. The Companys operating expenses principally consist
of employee compensation and benefits, occupancy, marketing and
other general and administrative expenses. The Companys
results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in
market interest rates, government policies and actions of
regulatory authorities.

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##### Table of Contents





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MANAGEMENTS


DISCUSSION AND


ANALYSIS







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Mission and Goals

The Companys mission is to be the premier
bank serving central Illinois, southern Illinois, western
Indiana and metropolitan St. Louis, Missouri with a return on
equity within the upper quartile of our peer group. Our regional
banking philosophy is to support and empower our employees to
provide superior customer service.


In seeking to accomplish this mission, management
has adopted a business strategy designed to accomplish a number
of goals, including:



| |   |                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |  | increase return on equity and increase
    stockholders value;                                                                  
|
| |  | maintain the Banks capital at a level that
    exceeds regulatory requirements;                                                 
|
| |  | attain a high level of asset quality;                                                                                            
|
| |  | manage the Companys exposure to changes in
    market interest rates;                                                           
|
| |  | increase the Companys net interest margin;
    and                                                                              
|
| |  | to the extent available, take advantage of loan
    and deposit growth opportunities in the Companys principal
    market areas.

The Company has attempted to achieve these goals
by focusing on a number of areas, including:



| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | management of the Companys capital to
    enhance stockholders value;                                                                                                                                  
|
| |  | employment of experienced and dedicated officers
    and employees;                                                                                                                                      
|
| |  | establishment of regional banking centers with a
    local regional president;                                                                                                                           
|
| |  | expansion of the Companys geographic
    presence through strategic acquisitions and de novo branches;                                                                                                  
|
| |  | the origination of commercial real estate,
    consumer, commercial business, and, multi-family and
    construction loans;                                                                              
|
| |  | forming strategic alliances for ancillary banking
    services such as trust, brokerage and credit card services
    designed to enhance product offerings for customers while
    increasing efficiency;
|
| |  | providing high quality service to enhance
    customer loyalty; and                                                                                                                                      
|
| |  | offering a variety of financial products and
    services to serve as comprehensively as practicable the
    financial needs of families and community businesses in its
    market areas.               

Critical Accounting Policies

In the ordinary course of business, the Company
has made a number of estimates and assumptions relating to the
reporting of results of operations and financial condition in
preparing its financial statements in conformity with accounting
principles generally accepted in the United States of America.
Actual results could differ significantly from those estimates
under different assumptions and conditions. The Company believes
the following discussion, including the allowance for loan
losses, goodwill, real estate held for sale and mortgage
servicing rights, addresses the Companys most critical
accounting policies, which are those that are most important to
the portrayal of the Companys financial condition and
results and require managements most difficult, subjective
and complex judgments, often as a result of the need to make
estimates about the effect of matters that are inherently
uncertain.


Allowance for Loan Losses The allowance for loan losses is a
material estimate that is particularly susceptible to
significant changes in the near term and is established through
a provision for loan losses. The allowance is based upon past
loan experience and other factors which, in managements
judgment, deserve current recognition in estimating loan losses.
The evaluation includes a review of all loans on which full
collectibility may not be reasonably

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MANAGEMENTS


DISCUSSION AND


ANALYSIS







---



assured. Other factors considered by management
include the size and character of the loan portfolio,
concentrations of loans to specific borrowers or industries,
existing economic conditions and historical losses on each
portfolio category. In connection with the determination of the
allowance for loan losses, management obtains independent
appraisals for significant properties, which collateralize
loans. Management believes it uses the best information
available to make such determinations. If circumstances differ
substantially from the assumptions used in making
determinations, future adjustments to the allowance for loan
losses may be necessary and results of operations could be
affected. While the Company believes it has established its
existing allowance for loan loses in conformity with accounting
principles generally accepted in the United States of America,
there can be no assurance that regulators, in reviewing the
Banks loan portfolio, will not request an increase in the
allowance for loan losses. Because future events affecting
borrowers and collateral cannot be predicted with certainty,
there can be no assurance that increases to the allowance will
not be necessary if loan quality deteriorates.

Goodwill Costs in excess of the estimated fair
value of identified net assets acquired through purchase
transactions are recorded as an asset by the Company. This
amount was originally amortized into expense on a straight-line
basis assuming a life of twenty years. Effective January 1,
2002, the Company ceased amortization in accordance with newly
adopted accounting standards generally accepted in the United
States of America. The Company performed an initial impairment
assessment as of January 1, 2002 and annual impairment
assessments as of September 30, 2002, 2003 and 2004. No
impairment of goodwill was identified as a result of these
tests. In making these impairment assessments, management must
make subjective assumptions regarding the fair value of the
Companys assets and liabilities. It is possible that these
judgments may change over time as market conditions or Company
strategies change, and these changes may cause the Company to
record impairment charges to adjust the goodwill to its
estimated fair value.

Real Estate Held for Sale Real estate held for sale is recorded
at the lower of the propertys fair value at the date of
foreclosure or cost. Initial valuation adjustments, if any, are
charged against the allowance for loan losses. Property is
evaluated to ensure the recorded amount is supported by its
current fair value. Subsequent declines in estimated fair value
are charged to expense when incurred.

Mortgage Servicing Rights The Company recognizes as a separate
asset the rights to service mortgage loans for others. The value
of mortgage servicing rights is amortized in relation to the
servicing revenue expected to be earned. Mortgage servicing
rights are periodically evaluated for impairment based upon the
fair value of those rights. Estimating the fair value of the
mortgage servicing rights involves judgment, particularly of
estimated prepayment speeds of the underlying mortgages
serviced. Net income could be affected if managements
assumptions and estimates differ from actual prepayments.

The above listing is not intended to be a
comprehensive list of all the Companys accounting
policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by accounting
principles generally accepted in the United States of America,
with no need for managements judgment in their
application. There are also areas in which managements
judgment in selecting any available alternative would not
produce a materially different result.

Economic Climate

During 2004, the Federal Open Market Committee
(the FOMC) began increasing the federal funds target
from a low of 1.00% at the beginning of the year, up to 2.25% at
the end of the year. Additionally, the Wall Street Journal prime
rate increased from 4.00% to 5.25% by the end of 2004. In
February 2005, the FOMC increased the federal funds rate an
additional 25 basis points, which in turn caused a 25 basis
point increase in the prime rate. The federal funds rate is the
rate at which financial institutions borrow from each other,
while the prime rate is the rate at which banks lend money to
their customers. Of the Companys commercial loans at
December 31,


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MANAGEMENTS


DISCUSSION AND


ANALYSIS







---



2004, approximately 36% are tied to the prime
rate and immediately reprice. The increase in rates should have
a positive impact on the Banks ability to generate
interest income on commercial loans. The Company expects to see
tightening of key net interest margin drivers due to the fact
that long-term rates have not increased while short-term rates
have increased 125%.

Results of Operations

The Companys results of operations depend
primarily on the level of its net interest and non-interest
income and its control of operating expenses. Net interest
income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned from
or paid on them.


8




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##### Table of Contents





---



MANAGEMENTS


DISCUSSION AND


ANALYSIS







---



Net Interest Income Analysis

The following table presents for the periods
indicated the total dollar amount of interest income from
average interest-earning assets and resultant yields, as well as
the interest expense on average interest-bearing liabilities,
expressed both in dollars and rates. All average balances are
monthly average balances. Non-accruing loans have been included
in the table as loans carrying a zero yield.


|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |      |  
|--------------------------------------------------------------------------- | -------------------------------- | ---------------------------- | ------- | ---------------------------- |  | ---------------------------- | ------ | ----------- |  | -------- | ---- | ------ | - | ----------- | ------- | -------- |  | ------ | ------ | ------ |  |  | ---- | ---- | - | - | ------- | ------- |  | - | ------ | ------ |  |  | ---- | ---- | -
|                                                                            |                                  |                              |         |                              |  |                             
|                                                                            |                                  | Year Ended December 31, 2004 |         | Year Ended December 31, 2003 |  | Year Ended December 31, 2002
|                                                                            |                                  |                              |         |                              |  |                             
|                                                                            |                                  | Average                      |         | Interest                     |  |                              |        | Average     |  | Interest |      |        |   | Average     |         | Interest |  |       
|                                                                            |                                  | Outstanding                  |         | Earned/                      |  | Yield/                       |        | Outstanding |  | Earned/  |      | Yield/ |   | Outstanding |         | Earned/  |  | Yield/
|                                                                            |                                  | Balance                      |         | Paid                         |  | Rate                         |        | Balance     |  | Paid     |      | Rate   |   | Balance     |         | Paid     |  | Rate  
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |       
|                                                                            |                                  |                             
|                                                                            |                                  | (Dollars in thousands)      
|Interest-earning assets:                                                    |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|                                                                            | Loans receivable (1)             |                              | $       | 433,406                      |  |                              | $      | 24,955      |  |          |      | 5.76   | % |             | $       | 366,305  |  |        | $      | 23,523 |  |  |      | 6.42 | % |   | $       | 394,523 |  |   | $      | 27,615 |  |  |      | 7.00 | %
|                                                                            | Investment securities (2)        |                              |         | 108,825                      |  |                              |        | 4,424       |  |          |      | 4.07   | % |             |         | 75,088   |  |        |        | 3,554  |  |  |      | 4.73 | % |   |         | 72,869  |  |   |        | 3,842  |  |  |      | 5.27 | %
|                                                                            | Other interest-earning assets    |                              |         | 12,037                       |  |                              |        | 119         |  |          |      | 0.99   | % |             |         | 49,296   |  |        |        | 313    |  |  |      | 0.63 | % |   |         | 28,082  |  |   |        | 518    |  |  |      | 1.84 | %
|                                                                            | FHLB stock                       |                              |         | 3,462                        |  |                              |        | 214         |  |          |      | 6.18   | % |             |         | 2,929    |  |        |        | 195    |  |  |      | 6.66 | % |   |         | 2,634   |  |   |        | 139    |  |  |      | 5.28 | %
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Total interest-earning assets                                               |                                  |                              | 557,730 |                              |  |                              | 29,712 |             |  |          | 5.33 | %      |   |             | 493,618 |          |  |        | 27,585 |        |  |  | 5.59 | %    |   |   | 498,108 |         |  |   | 32,114 |        |  |  | 6.45 | %   
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Other assets                                                                |                                  |                              | 52,308  |                              |  |                              |        |             |  |          |      |        |   |             | 45,080  |          |  |        |        |        |  |  |      |      |   |   | 37,185  |         |  |   |        |        |  |  |      |     
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Total assets                                                                |                                  | $                            | 610,038 |                              |  |                              |        |             |  |          |      |        |   | $           | 538,698 |          |  |        |        |        |  |  |      |      |   | $ | 535,293 |         |  |   |        |        |  |  |      |     
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Interest-bearing liabilities:                                               |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|                                                                            | Time deposits                    |                              | $       | 261,473                      |  |                              |        | 6,467       |  |          |      | 2.47   | % |             | $       | 243,629  |  |        |        | 7,564  |  |  |      | 3.10 | % |   | $       | 254,239 |  |   |        | 10,412 |  |  |      | 4.10 | %
|                                                                            | Savings deposits                 |                              |         | 90,580                       |  |                              |        | 560         |  |          |      | 0.62   | % |             |         | 78,450   |  |        |        | 860    |  |  |      | 1.10 | % |   |         | 72,196  |  |   |        | 1,397  |  |  |      | 1.94 | %
|                                                                            | Interest Bearing Demand deposits |                              |         | 92,698                       |  |                              |        | 780         |  |          |      | 0.84   | % |             |         | 83,001   |  |        |        | 792    |  |  |      | 0.95 | % |   |         | 73,312  |  |   |        | 1,485  |  |  |      | 2.03 | %
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|                                                                            | Total interest bearing deposits  |                              |         | 444,751                      |  |                              |        | 7,807       |  |          |      | 1.76   | % |             |         | 405,080  |  |        |        | 9,216  |  |  |      | 2.28 | % |   |         | 399,747 |  |   |        | 13,294 |  |  |      | 3.33 | %
|                                                                            | Borrowings                       |                              |         | 63,991                       |  |                              |        | 2,843       |  |          |      | 4.44   | % |             |         | 62,115   |  |        |        | 2,780  |  |  |      | 4.48 | % |   |         | 63,038  |  |   |        | 2,793  |  |  |      | 4.43 | %
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Total interest-bearing liabilities                                          |                                  |                              | 508,742 |                              |  |                              | 10,650 |             |  |          | 2.09 | %      |   |             | 467,194 |          |  |        | 11,996 |        |  |  | 2.57 | %    |   |   | 462,785 |         |  |   | 16,087 |        |  |  | 3.48 | %   
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Non-Interest Bearing Demand Deposits                                        |                                  |                              | 52,654  |                              |  |                              |        |             |  |          |      |        |   |             | 33,719  |          |  |        |        |        |  |  |      |      |   |   | 27,133  |         |  |   |        |        |  |  |      |     
|Other liabilities                                                           |                                  |                              | 4,039   |                              |  |                              |        |             |  |          |      |        |   |             | 3,700   |          |  |        |        |        |  |  |      |      |   |   | 4,170   |         |  |   |        |        |  |  |      |     
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Total liabilities                                                           |                                  |                              | 565,435 |                              |  |                              |        |             |  |          |      |        |   |             | 504,614 |          |  |        |        |        |  |  |      |      |   |   | 494,088 |         |  |   |        |        |  |  |      |     
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Stockholders equity                                                        |                                  |                              | 44,603  |                              |  |                              |        |             |  |          |      |        |   |             | 34,084  |          |  |        |        |        |  |  |      |      |   |   | 41,205  |         |  |   |        |        |  |  |      |     
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Total liabilities and stockholders equity                                  |                                  | $                            | 610,038 |                              |  |                              |        |             |  |          |      |        |   | $           | 538,698 |          |  |        |        |        |  |  |      |      |   | $ | 535,293 |         |  |   |        |        |  |  |      |     
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Net interest income                                                         |                                  |                              |         |                              |  | $                            | 19,062 |             |  |          |      |        |   |             |         |          |  | $      | 15,589 |        |  |  |      |      |   |   |         |         |  | $ | 16,027 |        |  |  |      |     
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Net interest rate spread                                                    |                                  |                              |         |                              |  |                              |        |             |  |          | 3.24 | %      |   |             |         |          |  |        |        |        |  |  | 3.02 | %    |   |   |         |         |  |   |        |        |  |  | 2.97 | %   
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Net earning assets                                                          |                                  | $                            | 48,988  |                              |  |                              |        |             |  |          |      |        |   | $           | 26,424  |          |  |        |        |        |  |  |      |      |   | $ | 35,323  |         |  |   |        |        |  |  |      |     
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Net yield on average interest-earning assets (net
    interest margin)      |                                  |                              |         |                              |  |                              |        |             |  |          | 3.42 | %      |   |             |         |          |  |        |        |        |  |  | 3.16 | %    |   |   |         |         |  |   |        |        |  |  | 3.22 | %   
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     
|Average interest-earning assets to average
    interest-bearing liabilities |                                  |                              |         |                              |  |                              | 109.63 | %           |  |          |      |        |   |             |         |          |  |        | 105.66 | %      |  |  |      |      |   |   |         |         |  |   | 107.63 | %      |  |  |      |     
|                                                                            |                                  |                              |         |                              |  |                              |        |             |  |          |      |        |   |             |         |          |  |        |        |        |  |  |      |      |   |   |         |         |  |   |        |        |  |  |      |     



---



|    |                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Calculated on a tax-equivalent basis assuming a
    34% tax rate, including loans held for sale, and net of deferred
    loan fees, loan discounts, loans in process and the allowance
    for loan losses. Includes net loan fees of $276, $142, and $45
    for 2004, 2003, and 2002, respectively.
|   
|(2) | Calculated on a tax-equivalent basis assuming a
    34% tax rate.                                                                                                                                                                                                                                    

The following schedule presents the dollar amount
of changes in interest income and interest expense for major
components of interest-earning assets and interest-bearing
liabilities. It distinguishes between the increase related to
higher outstanding balances and that due to the levels of
interest rates. For each category of interest-earning assets and
interest-bearing liabilities,

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##### Table of Contents





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DISCUSSION AND


ANALYSIS







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information is provided on changes attributable
to: (i) changes in volume (i.e., changes in volume
multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume).

For purposes of this table, changes attributable
to both rate and volume, which cannot be segregated have been
allocated proportionately to the change due to volume and the
change due to rate.

|                              |                               |                                    |   |                         |       |                     |   |          |        |      |       |            |        |   |   |        |        |   |   |        |        |   |      |        |        |  
|----------------------------- | ----------------------------- | ---------------------------------- | - | ----------------------- | ----- | ------------------- | - | -------- | ------ | ---- | ----- | ---------- | ------ | - | - | ------ | ------ | - | - | ------ | ------ | - | ---- | ------ | ------ | -
|                              |                               |                                    |   |                        
|                              |                               | Year Ended December 31,            |   | Year Ended December 31,
|                              |                               | 2004 vs. 2003                      |   | 2003 vs. 2002          
|                              |                               |                                    |   |                        
|                              |                               |                                    |   |                         |       |                     |   |         
|                              |                               | Increase (Decrease)                |   |                         |       | Increase (Decrease) |   |         
|                              |                               | Due to                             |   | Total                   |       | Due to              |   | Total   
|                              |                               |                                    |   | Increase                |       |                     |   | Increase
|                              |                               | Volume                             |   | Rate                    |       | (Decrease)          |   | Volume   |        | Rate |       | (Decrease)
|                              |                               |                                    |   |                         |       |                     |   |          |        |      |       |           
|                              |                               |                                   
|                              |                               | (Dollars in thousands)            
|Interest earning assets:      |                               |                                    |   |                         |       |                     |   |          |        |      |       |            |        |   |   |        |        |   |   |        |        |   |      |       
|                              | Loans receivable              |                                    | $ | 4,024                   |       |                     | $ | (2,595   | )      |      | $     | 1,429      |        |   | $ | (1,899 | )      |   | $ | (2,193 | )      |   | $    | (4,092 | )     
|                              | Investment securities         |                                    |   | 1,425                   |       |                     |   | (555     | )      |      |       | 870        |        |   |   | 114    |        |   |   | (402   | )      |   |      | (288   | )     
|                              | Other interest-earning assets |                                    |   | (315                    | )     |                     |   | 124      |        |      |       | (191       | )      |   |   | 254    |        |   |   | (459   | )      |   |      | (205   | )     
|                              | Federal Home Loan Bank stock  |                                    |   | 33                      |       |                     |   | (14      | )      |      |       | 19         |        |   |   | 17     |        |   |   | 39     |        |   |      | 56     |       
|                              |                               |                                    |   |                         |       |                     |   |          |        |      |       |            |        |   |   |        |        |   |   |        |        |   |      |       
|                              |                               | Total interest-earning assets      |   | $                       | 5,167 |                     |   | $        | (3,040 | )    |       | $          | 2,127  |   |   | $      | (1,514 | ) |   | $      | (3,015 | ) |      | $      | (4,529 | )
|                              |                               |                                    |   |                         |       |                     |   |          |        |      |       |            |        |   |   |        |        |   |   |        |        |   |      |       
|Interest bearing liabilities: |                               |                                    |   |                         |       |                     |   |          |        |      |       |            |        |   |   |        |        |   |   |        |        |   |      |       
|                              | Certificate accounts          |                                    | $ | 530                     |       |                     | $ | (1,627   | )      |      | $     | (1,097     | )      |   | $ | (422   | )      |   | $ | (2,426 | )      |   | $    | (2,848 | )     
|                              | Savings deposits              |                                    |   | 118                     |       |                     |   | (418     | )      |      |       | (300       | )      |   |   | 112    |        |   |   | (649   | )      |   |      | (537   | )     
|                              | Interest Bearing Deposits     |                                    |   | 87                      |       |                     |   | (99      | )      |      |       | (12        | )      |   |   | 176    |        |   |   | (869   | )      |   |      | (693   | )     
|                              | Borrowings                    |                                    |   | 83                      |       |                     |   | (20      | )      |      |       | 63         |        |   |   | (41    | )      |   |   | 28     |        |   |      | (13    | )     
|                              |                               |                                    |   |                         |       |                     |   |          |        |      |       |            |        |   |   |        |        |   |   |        |        |   |      |       
|                              |                               | Total interest-bearing liabilities |   | $                       | 818   |                     |   | $        | (2,164 | )    |       | $          | (1,346 | ) |   | $      | (175   | ) |   | $      | (3,916 | ) |      | $      | (4,091 | )
|                              |                               |                                    |   |                         |       |                     |   |          |        |      |       |            |        |   |   |        |        |   |   |        |        |   |      |       
|Net interest income           |                               |                                    |   |                         |       |                     |   |          |        | $    | 3,473 |            |        |   |   |        |        |   |   |        |        | $ | (438 | )     
|                              |                               |                                    |   |                         |       |                     |   |          |        |      |       |            |        |   |   |        |        |   |   |        |        |   |      |       

Comparison of Operating Results for 2004 to 2003

General

Net income was $4.9 million, or $1.95 per
share (diluted), for the year ended December 31, 2004
compared to $1.4 million, or $0.65 per share (diluted), for
the year ended December 31, 2003. The 258.7% increase in
net income occurred primarily due to an increase in net interest
income of $3.3 million, a decrease of $2.9 million in
provision for loan losses, and an increase in noninterest income
of $301,000 offset by an increase in noninterest expenses of
$1.4 million, as well as an increase in income taxes of
$1.6 million.


Net Interest Income

Net interest income was $18.7 million for
the year ended December 31, 2004, an increase of
$3.3 million, or 21.1%, during 2004 compared to 2003. Net
interest income increased primarily due to an increase in
interest income of $1.9 million or 7.0% as well as a
decrease in interest expense of $1.3 million or 11.2%. The
increase in interest income resulted from an increase in the
average balance of interest-earning assets of
$64.1 million, partially offset by a decrease of 26 basis
points in the average rate of interest on interest earning
assets. The decrease in interest expense resulted primarily from
the decrease in the average rate of interest on interest-bearing
liabilities of 48 basis points, which was partially offset by an
increase in the average balance of interest-bearing liabilities
of $41.5 million. As discussed previously, during 2004 the
interest rate environment shifted higher beginning at the end of
the second quarter of the year and continued


10




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##### Table of Contents





---



MANAGEMENTS


DISCUSSION AND


ANALYSIS







---



higher throughout the end of 2004. This increase
raised short-term interest rates as well as the prime rate and
had a positive effect on net interest income during the second
half of 2004.

Interest Income

Tax equivalent interest income totaled
$29.7 million for the year ended December 31, 2004, an
increase of $2.1 million or 7.7%, as compared to
$27.6 million for 2003. This resulted from a
$64.1 million increase in average interest-earning assets
from $493.6 million during 2003 to $557.7 million
during 2004, partially offset by a decrease in the yield earned
on interest-earning assets from 5.59% during 2003 to 5.33%
during 2004.


Tax equivalent interest on loans was
$25.0 million for 2004, an increase of $1.5 million,
or 6.1%, as compared to 2003. This was primarily attributable to
an increase of $67.1 million in average outstanding loans
as well as a decrease in the yield on loans from 6.42% during
2003 to 5.76% during 2004. The decrease in yields on loans
resulted from loans repricing to lower interest rates during
2003 and early 2004.

Tax equivalent interest earned on investment
securities and other interest-earning assets and dividends on
Federal Home Loan Bank of Chicago (FHLB) stock
totaled $4.8 million for 2004, compared to
$4.1 million for 2003. This represented an increase of
17.2% during 2004. This was primarily due to an increase in
average yield on these assets from 3.19% in 2003 to 3.83% in
2004, which was partially offset by a decrease in the average
balance of these assets from $127.3 million in 2003 to
$124.3 million in 2004. The overall increase in average
yields was primarily due to the Company shifting lower yielding
federal funds sold to higher yielding investment securities.

Interest Expense

Interest expense was $10.7 million for 2004,
$1.3 million or 11.2% less than in 2003. This was due to a
decrease in average rates to 2.09% for 2004 from 2.57% for 2003,
which was partially offset by an increase of $41.5 million
in the average balance of interest-bearing liabilities to
$508.7 million for 2004 compared to $467.2 million for
2003.


During 2004, average interest bearing deposits
increased by $39.7 million, to $444.8 million for
2004, compared to $405.1 million for 2003. The rate paid on
interest bearing deposits decreased 52 basis points to 1.76%
from 2.28%. The decrease in the average cost of deposits was due
to the lower interest rate environment as well as a continued
focus by the Company to shift to lower yielding deposits. The
increase in average balances was primarily due to the Aviston
Financial merger that occurred in October of 2003 and the Parish
acquisition that occurred in March of 2004.

During both 2004 and 2003, $2.8 million of
the Companys interest expense related to borrowings. While
interest expense on borrowed funds remained constant, the
average balance of borrowed funds increased $1.9 million
from $62.1 million in 2003 to $64.0 million in 2004.
The increase in the average balance was partially offset by a
decrease of four basis points in the average interest rate on
borrowed funds to 4.44% in 2004 from 4.48% in 2003.

Provision for Loan Losses

The Company recorded a $1.2 million
provision for loan losses during 2004 compared to a
$4.1 million provision during 2003. Charge-offs during 2004
decreased to $3.6 million from $6.2 million during
2003. Recoveries during 2004 decreased to $295,000 from $632,000
in 2003. The ratio of net charge-offs to average outstanding
loans was 0.77% in 2004 and 1.53% in 2003. The decrease in the
provision for loan losses was primarily due to the higher amount
of net charge-offs taken during 2003 compared to 2004. The
majority of the charge-offs taken in 2004 had previously been
reserved for during 2003 and prior years. Additionally, the
Company has implemented a new asset quality program in an effort
to ensure that the Company is adequately


11




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##### Table of Contents





---



MANAGEMENTS


DISCUSSION AND


ANALYSIS







---



reserved for loan losses. In line with the asset
quality program, it was determined that the Company could lower
the provision for loan losses for 2004.

The allowance for loan losses is maintained at a
level believed adequate by management to absorb probable losses
in the loan portfolio. Managements methodology to
determine the adequacy of the allowance for loan losses
considers specific credit reviews, past loan loss experience,
current economic conditions and trends, and the volume, growth
and composition of the loan portfolio. Based upon the
Companys quarterly analysis of the adequacy of the
allowance for loan losses, considering remaining collateral of
loans with more than a normal degree of risk, historical loan
loss percentages and economic conditions, it is
managements belief that the $5.5 million allowance
for loan losses at December 31, 2004 is adequate. However,
there can be no assurance that the allowance for loan losses
will be adequate to cover all future losses.

Each credit on the Companys internal loan
watch list is evaluated periodically to estimate
potential losses. In addition, minimum loss estimates for each
category of watch list credits are provided for based on
managements judgment which considers past loan loss
experience and other factors. For installment and real estate
mortgage loans, specific allocations are based on past loss
experience adjusted for recent portfolio growth and economic
trends. The total of the estimated loss exposure resulting from
the analysis is considered the allocated portion of the
allowance for loan losses. The amounts specifically provided for
individual loans and pools of loans are supplemented by an
unallocated portion of the allowance for loan losses. This
unallocated amount is determined based on managements
judgment which considers, among other things, the risk of error
in the specific allocations, other potential exposure in the
loan portfolio, economic conditions and trends, and other
factors. Further information is included in the asset quality
section of this report on page 19.

The allowance for loan losses is charged when
management determines that the prospects of recovery of the
principal of a loan have significantly diminished. Subsequent
recoveries, if any, are credited to the allowance for loan
losses. All other installment loans that are 90 to 120 days
past due are charged off monthly unless the loans are insured
for credit loss or where scheduled payments are being received.
Real estate mortgage loans are written down to fair value upon
foreclosure. Commercial and other loan charge-offs are made
based on managements on-going evaluation of non-performing
loans.

The following is a summary of loan loss
experience and nonperforming assets for the years ended
December 31, 2004 and 2003:

|                                                          |  |                        |         |      |  |   |         |  
|--------------------------------------------------------- |  | ---------------------- | ------- | ---- |  | - | ------- | -
|                                                          |  | 2004                   |         | 2003
|                                                          |  |                        |         |     
|                                                          |  |                       
|                                                          |  | (Dollars in thousands)
|Total loans                                               |  | $                      | 424,854 |      |  | $ | 433,514 |  
|Total assets                                              |  |                        | 611,853 |      |  |   | 609,411 |  
|Allowance for loan losses                                 |  |                        | 5,475   |      |  |   | 7,471   |  
|Net loan charge-offs                                      |  |                        | 3,352   |      |  |   | 5,610   |  
|Nonperforming loans                                       |  |                        | 6,991   |      |  |   | 5,480   |  
|Nonperforming assets                                      |  |                        | 10,035  |      |  |   | 6,080   |  
|Net loan charge-offs as a percentage of average
    loans |  |                        | 0.77    | %    |  |   | 1.53    | %
|Nonperforming assets to total assets                      |  |                        | 1.64    | %    |  |   | 1.00    | %
|Allowance for loan losses to gross loans                  |  |                        | 1.29    | %    |  |   | 1.72    | %
|Allowance for loan losses to nonperforming loans          |  |                        | 78.31   | %    |  |   | 136.34  | %

The Company will continue to improve the
reporting and monitoring of the adequacy of the allowance for
loan losses based on managements analysis of its loan
portfolio and general economic conditions.

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DISCUSSION AND


ANALYSIS







---



Noninterest Income

Noninterest income increased $301,000 for 2004 to
$6.0 million, compared to $5.7 million for 2003. The
5.3% increase in noninterest income was the result of an
increase of $1.5 million in fee income, offset by decreases
of $385,000 in gain on sales of loans, $478,000 in gain on sale
of branch, and a $247,000 decrease in other income. The increase
in fee income during 2004 was the result of an overall
restructuring of fees to be more competitive with other local
banks as well as the implementation of a new overdraft
protection program that began in June of 2004. The decrease in
the gain on sale of loans was primarily due to the large amount
of mortgage refinancing that took place in 2003 as a result of
the low interest rate environment. The gain on sale of loans for
2004 was primarily generated from new mortgage loan
originations. The gain on sale of branch in 2003 was due to the
Company selling a branch in Hoopeston, Illinois. The decrease in
other income was due to several immaterial changes.


Noninterest Expenses

Noninterest expenses were $16.8 million for
2004, as compared to $15.4 million for 2003. This
represented an increase of $1.4 million or 8.7%. The
increase in noninterest expenses primarily resulted from
increases in compensation and benefits of $801,000, furniture
and equipment of $425,000, and other expenses of $201,000. These
increases were partially offset by a decrease in legal and
professional fees of $224,000.. The increases in compensation
and benefits, furniture and equipment, and other expenses were
primarily due to additional personnel and locations resulting
from the Aviston Financial merger which occurred in October
2003. Legal and professional fees decreased due to legal costs
incurred in 2003 relating to the Companys name change and
fees relating to merger and acquisition activity which were not
allowed to be capitalized.


Income Taxes

Income tax expense was $1.9 million for
2004, as compared to $290,000 for 2003. The Companys
effective tax rate was 28.2% for 2004 and 17.5% for 2003. These
increases were the result of the increase in pre-tax income,
partially offset by an increase in non-taxable income resulting
from an increase in municipal investment income as well as the
reduction in the valuation allowance for deferred taxes. The
valuation allowance for deferred taxes was reduced due to the
Companys belief that net operating losses for state income
taxes will be realized prior to their expiration date. A summary
of the significant tax components is provided in Note 12 of
the Notes to Consolidated Financial Statements included later in
this report.


Comparison of Operating Results for 2003 to 2002

General

Consolidated net income was $1.4 million, or
$0.65 per share (diluted), for the year ended
December 31, 2003 compared to $2.2 million, or
$0.93 per share (diluted), for the year ended
December 31, 2002. The 39% decrease in net income occurred
primarily due to a decrease in net interest income of $547,000,
an increase of $132,000 in provision for loan losses, and an
increase in noninterest expenses of $2.0 million offset by
an increase in noninterest income of $1.2 million as well
as a decrease in income taxes of $593,000.


Net Interest Income

Net interest income was $15.5 million for
the year ended December 31, 2003, a decrease of $547,000,
or 3.4%, during 2003 compared to 2002. Net interest income
decreased primarily due to a decrease in interest income of
$4.6 million or 14.4% partially offset by a decrease in
interest expense of $4.1 million or 25.4%. The decrease in
interest income resulted from the decrease of 86 basis
points in the average rate of interest on interest earning
assets, as well as a decrease in the average balance of
interest-earning assets of $4.5 million. The decrease in
interest expense resulted primarily from the decrease in the
average rate of interest on interest-bearing liabilities of 91
basis points, which was partially offset by an increase in the
average balance of interest-


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DISCUSSION AND


ANALYSIS







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bearing liabilities of $4.4 million. During
2003, the interest rate environment shifted slightly lower
during the beginning of the year and remained low throughout the
end of 2003. This decrease reduced all interest rates and had a
negative effect on net interest income during 2003.

Interest Income

Tax equivalent interest income totaled
$27.6 million for the year ended December 31, 2003, a
decrease of $4.5 million or 14.1%, as compared to
$32.1 million for 2002. This resulted from a decrease in
the yield earned on assets from 6.45% during 2002 to 5.59%
during 2003, as well as a $4.5 million decrease in average
interest-earning assets from $498.1 million during 2002 to
$493.6 million during 2003.


Tax equivalent interest on loans was
$23.5 million for 2003, a decrease of $4.1 million, or
14.8%, as compared to 2002. This was primarily attributable to
the effect of a decrease in the yield on loans from 7.00% during
2002 to 6.42% during 2003, as well as a decrease of
$28.2 million in average outstanding loans. The decrease in
interest earned on loans resulted from loans repricing to lower
interest rates during 2003 as well as a decrease in average
balances.

Tax equivalent interest earned on investment
securities and other interest-earning assets and dividends on
Federal Home Loan Bank of Chicago (FHLB) stock
totaled $4.1 million for 2003, compared to
$4.5 million for 2002. This represented a decrease of 9.7%
during 2003. This was primarily due to a decrease in average
yield on these assets from 4.34% in 2002 to 3.19% in 2003, which
was partially offset by an increase in the average balance of
these assets from $103.6 million in 2002 to
$127.3 million in 2003. The increase in these assets was
funded primarily by an increase in total deposits.

Interest Expense

Interest expense was $12.0 million for 2003
or $4.1 million (25.4%) less than in 2002. This was due to
a decrease in average rates to 2.57% for 2003 from 3.48% for
2002, which was partially offset by an increase of
$4.4 million in the average balance of interest-bearing
liabilities to $467.2 million for 2003 compared to
$462.8 million for 2002.


During 2003, average interest bearing deposits
increased by $5.3 million, to $405.1 million for 2003,
compared to $399.7 million for 2002. The rate paid on
interest bearing deposits decreased 105 basis points to
2.28% from 3.33%. The decrease in the average cost of deposits
was due to the lower interest rate environment as well as a
continued focus by the Company to shift to lower yielding
deposits. The increase in average balances was primarily due to
the Aviston Financial merger, partially offset by the sale of
the Hoopeston branch.

During 2003 and 2002, $2.8 million of the
Companys interest expense related to borrowed money. While
interest expense on borrowed funds remained constant, the
average balance of borrowed funds decreased $923,000 from
$63.0 million in 2002 to $62.1 million in 2003. The
decrease in average balance was offset against an increase of
five basis points in the average interest rate on borrowed funds
to 4.48% in 2003 from 4.43% in 2002. The increase in rates was
due to the maturity of lower rate borrowings.

Provision for Loan Losses

The Company recorded a $4.1 million
provision for loan losses during 2003 compared to a
$4.0 provision during 2002. Charge-offs during 2003
increased to $6.2 million from $81,000 during 2002.
Recoveries during 2003 increased to $632,000 from $33,000 in
2002. The ratio of net charge-offs to average outstanding loans
was 1.53% in 2003 and 0.01% in 2002. A substantial portion of
the 2002 provision for loan losses related to commercial real
estate and real estate development loans. Real estate
development loans relate to land acquisition, development
planning, land improvements, such as streets and utilities, and
either building construction or sales of developed parcels. Two
principal sets of problem loans were made, in one case, to a
group of related borrowers and, in the other case, to an
individual borrower. The lead borrower of the


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MANAGEMENTS


DISCUSSION AND


ANALYSIS







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group filed a petition for bankruptcy protection
under Chapter 11 on October 18, 2002. The majority of
the problem loans that were provided for in 2002 were
charged-off in 2003. The provision for loan losses for 2003 was
increased as part of the Companys asset quality program in
an effort to ensure that the Company is adequately reserved for
loan losses.

Noninterest Income

Noninterest income increased $1.2 million
for 2003 to $5.7 million, compared to $4.6 million for
2002. The 26.5% increase in noninterest income was the result of
increases of $201,000 in gain on sale of real estate, $155,000
in gain on sales of loans, $478,000 in gain on sale of branch,
and a $339,000 increase in fee income. The increase in the gain
on the sale of real estate was due to deferred gains from
previous sales being recognized during 2003. The increase in
gains on sales of loans was the result of a continued increase
in refinancing during the first nine months of 2003. The gain on
sale of branch was due to the Company selling a branch in
Hoopeston, Illinois during 2003. The increase in fee income was
primarily the result of an overall restructuring of fees to be
more competitive with other local banks.


Noninterest Expenses

Noninterest expenses were $15.4 million for
2003, as compared to $13.4 million for 2002. This
represented an increase of $2.0 million or 14.7%. The
increase in noninterest expenses primarily resulted from
increases in compensation and benefits of $635,000, occupancy
expenses of $149,000, furniture and equipment of $333,000,
advertising of $115,000, and other of $423,000. The increase in
compensation and benefits was partially the result of $297,000
of severance payments associated with the departure of three
executive officers and severance payments associated with
reorganizational reductions of workforce, as well as normal
merit and inflationary increases to both salaries and benefits.
Additional personnel resulting from the Aviston Financial merger
also contributed to the increase in compensation and benefits.
The increase in occupancy costs was primarily the result of an
increase in repair and maintenance work during the year. The
increase in furniture and equipment expenses was primarily due
to increased maintenance costs associated with new equipment.
The increase in other expenses was primarily due to
non-recurring expenses relating to the merger of Aviston
Financial and the Companys name change as well as other
miscellaneous non-recurring expenses of $169,000.


Income Taxes

Income tax expense was $290,000 for 2003, as
compared to $883,000 for 2002. This decrease was the result of
the decrease in pre-tax income and to an increase in non-taxable
income resulting from an increase in the cash surrender value of
life insurance. The Companys effective tax rate was 17.5%
for 2003 and 28.4% for 2002. A summary of the significant tax
components is provided in Note 12 of the Notes to
Consolidated Financial Statements included later in this report.


Financial Condition

Total assets increased by $2.4 million or
0.4% to $611.9 million at December 31, 2004, from
$609.4 million at December 31, 2003. The increase in
total assets was due to increases in investment securities of
$36.2 million, real estate held for sale of
$2.7 million, office properties and equipment of
$1.2 million and, goodwill of $1.0 million, offset by
decreases in cash and cash equivalents of $32.3 million and
net loans of $7.1 million. During 2004, the Company
divested $20.2 million of long-term fixed rate 1-4 family
mortgage loans in order to improve the interest rate risk
profile. Without the mortgage loan sales, total loans would have
increased by $13.1 million and total assets would have
increased by $22.6 million.


Lending Activities

General. The
principal lending activity of the Company is to offer financial
services to our commercial, consumer and residential customers
located in our primary market areas. These


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MANAGEMENTS


DISCUSSION AND


ANALYSIS







---



financial services include 1-4 family
residential, multi-family, commercial business, commercial real
estate, consumer loans and all types of construction loans. In
addition, to increase overall profitability and portfolio mix,
we continue to focus our loan growth rate on commercial lending
which will move us to be more in line with our commercial
banking peers. From time to time, the Company has also utilized
loan purchases to supplement loan originations.

Net loans decreased by $7.1 million or 1.7%
to $418.9 million at December 31, 2004 from
$426.0 million at December 31, 2003. Loans held for
sale were $416,000 at December 31, 2004. There were no
loans held for sale at December 31, 2003. The decrease in
net loans was primarily attributable to the sale of
$20.2 million of long-term fixed rate 1-4 family mortgage
loans in order to improve the Companys interest rate risk
profile. Without the mortgage loan sales, net loans would have
increased by $13.1 million. During the course of the year
in 2004, market rates increased marginally following a
significant decrease in the preceding two years. The Company has
re-focused its loan efforts on the commercial portfolio and as a
result experienced a high volume of commercial loan origination.
The Company expects to continue to focus on increasing the
commercial loan portfolio during 2005.

Loan Composition.The following table provides
information concerning the composition of the Companys
loan portfolio in dollar amounts and in percentages (before
deductions for loans in process, deferred fees and discounts and
allowances for loan losses) as of the dates indicated. Loans
held for sale are included in one-to-four family real estate
loans.

|                   |                              |                        |   |         |         |        |  |         |   |        |   |         |         |        |  |         |   |        |   |         |         |  |  |        |   |  |   |         |         |  |  |        |   |  |   |         |         |  |  |        |   | 
|------------------ | ---------------------------- | ---------------------- | - | ------- | ------- | ------ |  | ------- | - | ------ | - | ------- | ------- | ------ |  | ------- | - | ------ | - | ------- | ------- |  |  | ------ | - |  | - | ------- | ------- |  |  | ------ | - |  | - | ------- | ------- |  |  | ------ | - | 
|                   |                              |                       
|                   |                              | December 31,          
|                   |                              |                       
|                   |                              |                        |   |         |         |        |  |         |   |       
|                   |                              | 2004                   |   | 2003    |         | 2002   |  | 2001    |   | 2000  
|                   |                              |                        |   |         |         |        |  |         |   |       
|                   |                              | Amount                 |   | Percent |         | Amount |  | Percent |   | Amount |   | Percent |         | Amount |  | Percent |   | Amount |   | Percent
|                   |                              |                        |   |         |         |        |  |         |   |        |   |         |         |        |  |         |   |        |   |        
|                   |                              |                       
|                   |                              | (Dollars in thousands)
|Real Estate Loans: |                              |                        |   |         |         |        |  |         |   |        |   |         |         |        |  |         |   |        |   |         |         |  |  |        |   |  |   |         |         |  |  |        |   |  |   |         |         |  |  |       
|                   | One-to-four family           |                        | $ | 175,640 |         |        |  | 41.09   | % |        | $ | 212,578 |         |        |  | 48.70   | % |        | $ | 228,623 |         |  |  | 58.24  | % |  | $ | 247,435 |         |  |  | 61.79  | % |  | $ | 211,891 |         |  |  | 61.47  | %
|                   | Multi-family                 |                        |   | 15,655  |         |        |  | 3.66    |   |        |   | 16,461  |         |        |  | 3.77    |   |        |   | 13,672  |         |  |  | 3.48   |   |  |   | 11,983  |         |  |  | 2.99   |   |  |   | 11,608  |         |  |  | 3.37   |  
|                   | Commercial                   |                        |   | 101,516 |         |        |  | 23.75   |   |        |   | 77,142  |         |        |  | 17.67   |   |        |   | 56,589  |         |  |  | 14.41  |   |  |   | 48,543  |         |  |  | 12.12  |   |  |   | 39,564  |         |  |  | 11.48  |  
|                   | Construction and Development |                        |   | 31,014  |         |        |  | 7.26    |   |        |   | 28,640  |         |        |  | 6.56    |   |        |   | 21,286  |         |  |  | 5.42   |   |  |   | 22,555  |         |  |  | 5.63   |   |  |   | 17,797  |         |  |  | 5.16   |  
|                   |                              |                        |   |         |         |        |  |         |   |        |   |         |         |        |  |         |   |        |   |         |         |  |  |        |   |  |   |         |         |  |  |        |   |  |   |         |         |  |  |       
|                   | Total real estate loans      |                        |   | 323,825 |         |        |  | 75.76   |   |        |   | 334,821 |         |        |  | 76.70   |   |        |   | 320,170 |         |  |  | 81.55  |   |  |   | 330,516 |         |  |  | 82.53  |   |  |   | 280,860 |         |  |  | 81.48  |  
|                   |                              |                        |   |         |         |        |  |         |   |        |   |         |         |        |  |         |   |        |   |         |         |  |  |        |   |  |   |         |         |  |  |        |   |  |   |         |         |  |  |       
|                   | Commercial loans             |                        |   | 61,090  |         |        |  | 14.29   |   |        |   | 58,235  |         |        |  | 13.34   |   |        |   | 33,301  |         |  |  | 8.48   |   |  |   | 31,255  |         |  |  | 7.80   |   |  |   | 23,750  |         |  |  | 6.89   |  
|                   |                              |                        |   |         |         |        |  |         |   |        |   |         |         |        |  |         |   |        |   |         |         |  |  |        |   |  |   |         |         |  |  |        |   |  |   |         |         |  |  |       
|Consumer Loans:    |                              |                        |   |         |         |        |  |         |   |        |   |         |         |        |  |         |   |        |   |         |         |  |  |        |   |  |   |         |         |  |  |        |   |  |   |         |         |  |  |       
|                   | Home equity                  |                        |   | 28,188  |         |        |  | 6.60    |   |        |   | 24,305  |         |        |  | 5.57    |   |        |   | 22,560  |         |  |  | 5.75   |   |  |   | 18,407  |         |  |  | 4.60   |   |  |   | 17,815  |         |  |  | 5.17   |  
|                   | All other consumer           |                        |   | 14,303  |         |        |  | 3.35    |   |        |   | 19,185  |         |        |  | 4.39    |   |        |   | 16,558  |         |  |  | 4.22   |   |  |   | 20,288  |         |  |  | 5.07   |   |  |   | 22,262  |         |  |  | 6.46   |  
|                   |                              |                        |   |         |         |        |  |         |   |        |   |         |         |        |  |         |   |        |   |         |         |  |  |        |   |  |   |         |         |  |  |        |   |  |   |         |         |  |  |       
|                   | Total consumer loans         |                        |   | 42,491  |         |        |  | 9.95    |   |        |   | 43,490  |         |        |  | 9.96    |   |        |   | 39,118  |         |  |  | 9.97   |   |  |   | 38,695  |         |  |  | 9.67   |   |  |   | 40,077  |         |  |  | 11.63  |  
|                   |                              |                        |   |         |         |        |  |         |   |        |   |         |         |        |  |         |   |        |   |         |         |  |  |        |   |  |   |         |         |  |  |        |   |  |   |         |         |  |  |       
|                   | Total loans                  |                        |   | 427,406 |         |        |  | 100.00  | % |        |   | 436,546 |         |        |  | 100.00  | % |        |   | 392,589 |         |  |  | 100.00 | % |  |   | 400,466 |         |  |  | 100.00 | % |  |   | 344,687 |         |  |  | 100.00 | %
|                   |                              |                        |   |         |         |        |  |         |   |        |   |         |         |        |  |         |   |        |   |         |         |  |  |        |   |  |   |         |         |  |  |        |   |  |   |         |         |  |  |       
|Less:              |                              |                        |   |         |         |        |  |         |   |        |   |         |         |        |  |         |   |        |   |         |         |  |  |        |   |  |   |         |         |  |  |        |   |  |   |         |         |  |  |       
|                   | Loans in process             |                        |   | 2,283   |         |        |  |         |   |        |   | 2,467   |         |        |  |         |   |        |   | 1,043   |         |  |  |        |   |  |   | 2,671   |         |  |  |        |   |  |   | 3,341   |         |  |  |        |  
|                   | Deferred fees and discounts  |                        |   | 269     |         |        |  |         |   |        |   | 565     |         |        |  |         |   |        |   | 505     |         |  |  |        |   |  |   | 470     |         |  |  |        |   |  |   | 192     |         |  |  |        |  
|                   | Allowance for loan losses    |                        |   | 5,475   |         |        |  |         |   |        |   | 7,471   |         |        |  |         |   |        |   | 6,524   |         |  |  |        |   |  |   | 2,582   |         |  |  |        |   |  |   | 2,156   |         |  |  |        |  
|                   |                              |                        |   |         |         |        |  |         |   |        |   |         |         |        |  |         |   |        |   |         |         |  |  |        |   |  |   |         |         |  |  |        |   |  |   |         |         |  |  |       
|                   |                              | Total loans, net       |   | $       | 419,379 |        |  |         |   |        |   | $       | 426,043 |        |  |         |   |        |   | $       | 384,517 |  |  |        |   |  |   | $       | 394,743 |  |  |        |   |  |   | $       | 338,998 |  |  |        |   | 
|                   |                              |                        |   |         |         |        |  |         |   |        |   |         |         |        |  |         |   |        |   |         |         |  |  |        |   |  |   |         |         |  |  |        |   |  |   |         |         |  |  |       

As of December 31, 2004, the total amount of
loans due after December 31, 2005, which had predetermined
interest rates was $249.4 million, while the total amount
of loans due after such date which had floating or adjustable
interest rates was $111.2 million.

As a state chartered commercial bank, the amount
of loans the Bank is permitted to make to any one borrower is
generally limited to 25% of the Banks unimpaired capital
and surplus. At

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DISCUSSION AND


ANALYSIS







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December 31, 2004, the Banks
regulatory loan-to-one borrower limit was $12.7 million.
Additionally, as part of the Banks loan policy and
strategic plan the Bank sets guidelines on the percentage of
each type of loan for the loans portfolio. The
concentrations of loans by type are regularly reviewed by the
chief credit officer and loan committee. As of December 31,
2004, the Bank did not have any concentrations in loan types
that are not already disclosed.

Investment Activities

Investment securities available-for-sale
increased $37.1 million to $124.8 million at
December 31, 2004 compared to $87.7 million at
December 31, 2003. The Company realigned short-term
investments such as Federal funds sold into higher yielding
investment securities during 2004 in an effort to increase the
overall net interest margin.


The composition and maturities of the investment
securities portfolio at December 31, 2004, are indicated in
the following table, at amortized cost which excludes unrealized
gains (losses) on securities available for sale.

|                                               |       |                        |       |       |  |        |      |       |   |         |        |        |  |         |      |       |   |        |        |        |  |  |      |      |   |   |        |        |  |  |      |      |   |   |        |         |  |  |      |      |  
|---------------------------------------------- | ----- | ---------------------- | ----- | ----- |  | ------ | ---- | ----- | - | ------- | ------ | ------ |  | ------- | ---- | ----- | - | ------ | ------ | ------ |  |  | ---- | ---- | - | - | ------ | ------ |  |  | ---- | ---- | - | - | ------ | ------- |  |  | ---- | ---- | -
|                                               |       |                       
|                                               |       | At December 31, 2004  
|                                               |       |                       
|                                               |       | Less Than              |       |       |  | 1 to 5 |      |       |   | 5 to 10 |        |        |  | Over 10 |      |      
|                                               |       | 1 Year                 |       |       |  | Years  |      |       |   | Years   |        |        |  | Years   |      |       |   | Total  |        |       
|                                               |       | Amount                 |       | Yield |  | Amount |      | Yield |   | Amount  |        | Yield  |  | Amount  |      | Yield |   | Amount |        | Yield 
|                                               |       |                        |       |       |  |        |      |       |   |         |        |        |  |         |      |       |   |        |        |       
|                                               |       |                       
|                                               |       | (Dollars in thousands)
|Securities available for sale                  |       |                        |       |       |  |        |      |       |   |         |        |        |  |         |      |       |   |        |        |        |  |  |      |      |   |   |        |        |  |  |      |      |   |   |        |         |  |  |      |     
|U.S. Treasury and government agency securities |       | $                      | 2,072 |       |  |        | 5.30 | %     |   | $       | 67,372 |        |  |         | 4.15 | %     |   | $      | 1,500  |        |  |  | 4.45 | %    |   | $ |       |        |  |  |     |      |   | $ | 70,944 |         |  |  | 4.19 | %   
|Municipal bonds                                |       |                        | 566   |       |  |        | 6.76 |       |   |         | 3,866  |        |  |         | 5.67 |       |   |        | 19,150 |        |  |  | 4.77 |      |   |   |       |        |  |  |     |      |   |   | 23,582 |         |  |  | 4.97 |     
|Corporate bonds                                |       |                        |      |       |  |        |     |       |   |         | 2,076  |        |  |         | 4.26 |       |   |        |       |        |  |  |     |      |   |   |       |        |  |  |     |      |   |   | 2,076  |         |  |  | 4.26 |     
|Mortgage backed securities                     |       |                        | 136   |       |  |        | 4.50 |       |   |         | 3,510  |        |  |         | 4.27 |       |   |        | 572    |        |  |  | 5.43 |      |   |   | 19,178 |        |  |  | 4.82 | %    |   |   | 23,396 |         |  |  | 4.75 |     
|Other securities                               |       |                        |      |       |  |        |     |       |   |         |       |        |  |         |     |       |   |        |       |        |  |  |     |      |   |   | 4,720  |        |  |  | 4.69 |      |   |   | 4,720  |         |  |  | 4.69 |     
|                                               |       |                        |       |       |  |        |      |       |   |         |        |        |  |         |      |       |   |        |        |        |  |  |      |      |   |   |        |        |  |  |      |      |   |   |        |         |  |  |      |     
|                                               | Total |                        | $     | 2,774 |  |        |      | 5.56  | % |         | $      | 76,824 |  |         |      | 4.23  | % |        | $      | 21,222 |  |  |      | 4.77 | % |   | $      | 23,898 |  |  |      | 4.80 | % |   | $      | 124,718 |  |  |      | 4.46 | %
|                                               |       |                        |       |       |  |        |      |       |   |         |        |        |  |         |      |       |   |        |        |        |  |  |      |      |   |   |        |        |  |  |      |      |   |   |        |         |  |  |      |     

Office properties and equipment increased
$1.2 million to $18.3 million at December 31,
2004 compared to $17.1 million at December 31, 2003.
The increase was primarily attributable to the construction of a
new branch office in Fairview Heights, Illinois, as well as
various equipment upgrades.

Goodwill increased $1.0 million to
$12.4 million at December 31, 2004 compared to
$11.4 million at December 31, 2003. The increase in
goodwill was a result of the purchase of Parish Bank and
Trust Company and represented the full amount of goodwill
created in the transaction. Accounting for goodwill and the
measurement of impairment is discussed in more detail in
Note 1 of the Notes to Consolidated Financial Statements
included later in this report.

Real estate held for sale increased
$2.7 million to $3.0 million at December 31, 2004
compared to $319,000 at December 31, 2003. The increase in
real estate held for sale was primarily attributable to one
large commercial property that was transferred to the Company as
a deed in lieu of foreclosure in December of 2004. The Company
received an independent appraisal on this property in December
of 2004 which indicated the market value exceeded the carrying
value.

Deposits

Deposits decreased by $480,000 or 0.1% to
$495.8 million at December 31, 2004, from
$496.3 million at December 31, 2003. During 2004, the
Company also began a sweep repurchase program which totaled
$8.6 million at the end of 2004. While not considered
deposits, the sweep repurchase program allows business customers
to sweep their funds to interest bearing accounts


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ANALYSIS







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while maintaining collateralized balances. The
balances for the sweep repurchase program are included in
short-term borrowings. During 2004, the Company attempted to
reduce higher rate interest-bearing liabilities in the face of
intense competition in the various markets in which the Company
operates and was able to increase checking and sweep accounts
and decreased certificate of deposit accounts. In 2005, the
Company will continue to look for ways to reduce its overall
cost of funds, including pursuing lower rate deposits.

The following table sets forth the composition of
deposits and the percentage of each category to total deposits
for the periods presented.

|                                    |                |                        |         |                   |  |        |       |         |   |   |         |         |  |  |       |        |  
|----------------------------------- | -------------- | ---------------------- | ------- | ----------------- |  | ------ | ----- | ------- | - | - | ------- | ------- |  |  | ----- | ------ | -
|                                    |                |                        |         |                  
|                                    |                | December 31, 2004      |         | December 31, 2003
|                                    |                |                        |         |                  
|                                    |                | Amount                 |         | Percent           |  | Amount |       | Percent
|                                    |                |                        |         |                   |  |        |       |        
|                                    |                |                       
|                                    |                | (Dollars in thousands)
|Noninterest bearing demand deposits |                | $                      | 53,919  |                   |  |        | 10.88 | %       |   | $ | 44,305  |         |  |  | 8.93  | %     
|Interest bearing demand deposits    |                |                        | 48,495  |                   |  |        | 9.78  |         |   |   | 48,411  |         |  |  | 9.76  |       
|Savings and money market deposits   |                |                        | 134,876 |                   |  |        | 27.20 |         |   |   | 128,203 |         |  |  | 25.83 |       
|Time deposits $100,000 or more      |                |                        | 61,274  |                   |  |        | 12.36 |         |   |   | 39,649  |         |  |  | 7.99  |       
|Time deposits less than $100,000    |                |                        | 197,213 |                   |  |        | 39.78 |         |   |   | 235,689 |         |  |  | 47.49 |       
|                                    |                |                        |         |                   |  |        |       |         |   |   |         |         |  |  |       |       
|                                    | Total deposits |                        | $       | 495,777           |  |        |       | 100.00  | % |   | $       | 496,257 |  |  |       | 100.00 | %
|                                    |                |                        |         |                   |  |        |       |         |   |   |         |         |  |  |       |       

Borrowings

The Company utilizes borrowings primarily for
three purposes. The first is to leverage the Companys
capital in order to generate additional net interest income. The
second is the management of short term cash requirements. The
third is to assist in funding acquisitions of other financial
institutions. The decision to borrow money to leverage capital
is based on several factors, including the current
asset/liability mix, the regulatory capital position of the Bank
and the adequacy of available interest rate spreads subject to
the limits established by the board of directors. Borrowings for
leveraging purposes are derived from securities sold under
agreements to repurchase and advances from the FHLB. Borrowings
related to short term cash management are in the form of
advances from the FHLB, customer repurchase agreements, and as
required, federal funds purchased. As a member of the FHLB, the
Bank is authorized to apply for advances from the FHLB. Each
FHLB credit program has its own interest rate, which may be
fixed or variable, and range of maturities. The FHLB may
prescribe the acceptable uses for these advances, as well as
limitations on the size of the advances and repayment
provisions. Borrowings related to funding acquisitions are in
the form of notes payable from other financial institutions.
Generally, these borrowings are short-term in nature.


Short-term borrowings increased
$12.8 million from $1.4 million in 2003 to
$14.2 million in 2004. Short-term borrowings consist of
overnight advances from the FHLB, customer repurchase
agreements, and federal funds purchased. The increase was due to
an increase of $8.6 million of customer repurchase
agreements and $3.5 million of federal funds purchased.

Long-term borrowings decreased $7.4 million
from $62.9 million in 2003 to $55.5 million in 2004.
Long-term borrowings consist of advances from the FHLB, notes
payable, funds from securities sold under agreements to
repurchase and junior subordinated debt owed to unconsolidated
trusts (trust preferred securities). Securities sold under
agreements to repurchase decreased $9.2 million and
borrowings from the FHLB decreased $8.2 million. These
decreases were partially offset by an increase of trust
preferred securities of $10 million.

Stockholders equity on a per share basis
increased by 3.6% from $17.51 at December 31, 2003, to
$18.14 at December 31, 2004. Total stockholders
equity decreased by $2.4 million or 5.3% to
$43.2 million at December 31, 2004. The decrease in
stockholders equity, as well as the increase

in stockholders equity on a per share
basis, was primarily due to the repurchase of 232,706 shares of
treasury stock for a total cost of $6.5 million.


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DISCUSSION AND


ANALYSIS







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Asset Quality

The Companys asset quality management
program, particularly with regard to loans, is designed to
analyze potential risk elements and to support the growth of a
profitable and high quality loan portfolio. The existing loan
portfolio is monitored in a number of ways, including through
the Companys loan rating system. The loan rating system is
also used to determine the adequacy of the allowance for loan
losses. The Companys loan analysis process proactively
identifies, monitors and works with borrowers for whom there are
indications of future repayment difficulties.


The Companys lending philosophy is to
invest in loans in the communities served by its banking centers
so it can effectively monitor and control risk. The majority of
the loan portfolio is comprised of retail loans and loans to
small-to-midsize businesses. The loan portfolio does not include
any loans to foreign countries.

Non-performing assets include foreclosed assets,
loans that have been placed on non-accrual status, loans
90 days or more past due that continue to accrue interest
and restructured troubled debt. During the year ended
December 31, 2004, total non-performing assets increased by
$3.9 million, or 63.9%, to $10.0 million from
$6.1 million at December 31, 2003. The increase in
nonperforming assets was primarily due to foreclosure on a
$2.9 million property which is now in foreclosed assets, as
well as an increase in non-performing loans of $1.4 million
due to one large commercial borrower that filed bankruptcy
during 2004.

The following table represents the amount of
loans that were on non-accrual, past due 90 days and still
accruing and forgone interest for each of the last five fiscal
years.

|                                                                                     |  |                        |       |      |  |      |       |      |  |      |       |  |  |   |     |  |  |   |       | 
|------------------------------------------------------------------------------------ |  | ---------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | --- |  |  | - | ----- | 
|                                                                                     |  |                       
|                                                                                     |  | December 31,          
|                                                                                     |  |                       
|                                                                                     |  | 2004                   |       | 2003 |  | 2002 |       | 2001 |  | 2000
|                                                                                     |  |                        |       |      |  |      |       |      |  |     
|                                                                                     |  |                       
|                                                                                     |  | (Dollars in thousands)
|Non-accrual loans                                                                    |  | $                      | 6,769 |      |  | $    | 3,248 |      |  | $    | 6,834 |  |  | $ | 730 |  |  | $ | 680   | 
|Loans past due 90 days and still accruing                                            |  |                        | 222   |      |  |      | 2,232 |      |  |      | 3,439 |  |  |   | 391 |  |  |   | 1,890 | 
|Troubled debt restructurings                                                         |  |                        | 42    |      |  |      | 281   |      |  |      | 480   |  |  |   | 611 |  |  |   | 439   | 
|Interest income recognized on non-accrual loans
    and troubled debt restructurings |  |                        |      |      |  |      | 199   |      |  |      | 70    |  |  |   |    |  |  |   |      | 
|Foregone interest on non-accrual loans                                               |  |                        | 520   |      |  |      | 525   |      |  |      | 387   |  |  |   | 33  |  |  |   | 32    | 

The Company recognized large loan loss provisions
of approximately 1% of total loans in both 2003 and 2002 on a
group of commercial real estate and real estate development
loans that were made in previous years. During 2003, the Company
adopted a new loan policy and implemented new loan approval,
documentation and monitoring processes. The Company also
recruited and employed an experienced commercial lending team
including three new regional presidents, each of which is an
experienced commercial lender, as well as three other seasoned
commercial lenders. In 2004, the Company recruited a Chief
Credit Officer to strengthen our monitoring of credit quality
and the overall loan portfolio. His duties include
responsibility for all credit administration activities and to
oversee an independent review of new and existing loans in the
portfolio. Company management performs a quarterly analysis of
the adequacy of the allowance for loan losses. Management
classifies problem loans into one of four categories: Special
Mention Substandard, Doubtful, and Loss. During the year ended
December 31, 2004, total classified loans decreased by
$5.7 million to $19.4 million from $25.1 million
at December 31, 2003. This decrease was due in part to the
Companys implementation of an ongoing comprehensive loan
review, as well as the adoption of a new comprehensive loan
policy that has identified problem loans in a more timely
manner. The new program was designed to assist management in
focusing collection efforts in problem areas and should result
in a lower charge-off ratio. Classified loans increased
dramatically during 2003 and have begun to decrease through
2004. The Company will continue to work at attempting to reduce
the volume of classified loans through 2005.

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DISCUSSION AND


ANALYSIS







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Certain loans may require frequent management
attention and are reviewed on a monthly or more frequent basis.
Although payments on these loans may be current or less than
90 days past due, the borrowers presently have or have had
a history of financial difficulties and management has a concern
as to the borrowers ability to comply with the present
loan payment terms. Management believes such loans present more
than the normal risk of collectibility. As such, these loans may
result in classification at some future point in time as
nonperforming. At December 31, 2004, such loans amounted to
approximately $12.4 million, as compared to
$14.3 million at December 31, 2003.

Analysis of Allowance for Loan Losses.The following table sets forth an
analysis of the Companys allowance for loan losses.

|                                                                                              |                        |                         |        |       |  |      |        |       |  |      |       |    |  |   |       |    |  |   |       |     | 
|--------------------------------------------------------------------------------------------- | ---------------------- | ----------------------- | ------ | ----- |  | ---- | ------ | ----- |  | ---- | ----- | -- |  | - | ----- | -- |  | - | ----- | --- | 
|                                                                                              |                        |                        
|                                                                                              |                        | Year Ended December 31,
|                                                                                              |                        |                        
|                                                                                              |                        | 2004                    |        | 2003  |  | 2002 |        | 2001  |  | 2000
|                                                                                              |                        |                         |        |       |  |      |        |       |  |     
|                                                                                              |                        |                        
|                                                                                              |                        | (Dollars in thousands) 
|Balance at beginning of period                                                                |                        | $                       | 7,471  |       |  | $    | 6,524  |       |  | $    | 2,582 |    |  | $ | 2,156 |    |  | $ | 2,171 |    
|Charge-offs:                                                                                  |                        |                         |        |       |  |      |        |       |  |      |       |    |  |   |       |    |  |   |       |    
|                                                                                              | One-to-four family     |                         |        |      |  |      |        |      |  |      |       | 2  |  |   |       |   |  |   |       |    | 
|                                                                                              | Commercial real estate |                         |        | 1,333 |  |      |        | 1,134 |  |      |       |   |  |   |       | 28 |  |   |       | 3   | 
|                                                                                              | Consumer               |                         |        | 235   |  |      |        | 144   |  |      |       | 79 |  |   |       | 61 |  |   |       | 124 | 
|                                                                                              | Commercial business    |                         |        | 2,079 |  |      |        | 4,964 |  |      |       |   |  |   |       | 14 |  |   |       | 8   | 
|                                                                                              |                        |                         |        |       |  |      |        |       |  |      |       |    |  |   |       |    |  |   |       |    
|                                                                                              |                        |                         | 3,647  |       |  |      | 6,242  |       |  |      | 81    |    |  |   | 103   |    |  |   | 135   |    
|                                                                                              |                        |                         |        |       |  |      |        |       |  |      |       |    |  |   |       |    |  |   |       |    
|Recoveries:                                                                                   |                        |                         |        |       |  |      |        |       |  |      |       |    |  |   |       |    |  |   |       |    
|                                                                                              | One-to-four family     |                         |        | 14    |  |      |        |      |  |      |       |   |  |   |       |   |  |   |       |    | 
|                                                                                              | Commercial real estate |                         |        | 110   |  |      |        | 583   |  |      |       |   |  |   |       | 1  |  |   |       | 28  | 
|                                                                                              | Consumer               |                         |        | 16    |  |      |        | 46    |  |      |       | 22 |  |   |       | 24 |  |   |       | 27  | 
|                                                                                              | Commercial business    |                         |        | 155   |  |      |        | 3     |  |      |       | 11 |  |   |       | 1  |  |   |       | 15  | 
|                                                                                              |                        |                         |        |       |  |      |        |       |  |      |       |    |  |   |       |    |  |   |       |    
|                                                                                              |                        |                         | 295    |       |  |      | 632    |       |  |      | 33    |    |  |   | 26    |    |  |   | 70    |    
|                                                                                              |                        |                         |        |       |  |      |        |       |  |      |       |    |  |   |       |    |  |   |       |    
|Net charge-offs                                                                               |                        |                         | (3,352 | )     |  |      | (5,610 | )     |  |      | (48   | )  |  |   | (77   | )  |  |   | (65   | )  
|Additions charged to operations                                                               |                        |                         | 1,200  |       |  |      | 4,122  |       |  |      | 3,990 |    |  |   | 503   |    |  |   | 50    |    
|Additions through acquisitions                                                                |                        |                         | 156    |       |  |      | 2,435  |       |  |      |      |    |  |   |      |    |  |   |      |    
|                                                                                              |                        |                         |        |       |  |      |        |       |  |      |       |    |  |   |       |    |  |   |       |    
|Balance at end of period                                                                      |                        | $                       | 5,475  |       |  | $    | 7,471  |       |  | $    | 6,524 |    |  | $ | 2,582 |    |  | $ | 2,156 |    
|                                                                                              |                        |                         |        |       |  |      |        |       |  |      |       |    |  |   |       |    |  |   |       |    
|Ratio of net charge-offs during the period to
    average loans outstanding during the period |                        |                         | 0.77   | %     |  |      | 1.53   | %     |  |      | 0.01  | %  |  |   | 0.02  | %  |  |   | 0.02  | %  
|                                                                                              |                        |                         |        |       |  |      |        |       |  |      |       |    |  |   |       |    |  |   |       |    
|Ratio of net charge-offs during the period to
    average non-performing assets               |                        |                         | 31.63  | %     |  |      | 110.06 | %     |  |      | 0.75  | %  |  |   | 3.07  | %  |  |   | 2.75  | %  
|                                                                                              |                        |                         |        |       |  |      |        |       |  |      |       |    |  |   |       |    |  |   |       |    

The balance in the allowance for loan losses and
the related amount charged to operations is based upon periodic
evaluations of the loan portfolio by management. These
evaluations consider several factors including, but not limited
to, general economic conditions, loan portfolio composition,
prior loan loss experience, and managements estimate of
future potential losses.

During 2003 and 2004, the Company undertook a
comprehensive review of its loan procedures and implemented a
new comprehensive loan policy. This process indicated the need
for additional allocations of commercial related loans during
2004. The allowance for loan losses is a material estimate that
is particularly susceptible to significant changes in the near
term and is established through a provision for loan losses. The
allowance is based upon past loan experience and other factors
which, in managements judgment, deserve current
recognition in estimating loan losses. The evaluation includes a
review of all loans on which full collectibility may not be
reasonably assured. Other factors considered by management
include the size and character of the loan

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MANAGEMENTS


DISCUSSION AND


ANALYSIS







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portfolio, concentrations of loans to specific
borrowers or industries, existing economic conditions and
historical losses on each portfolio category. In connection with
the determination of the allowance for loan losses, management
obtains independent appraisals for significant properties, which
collateralize loans. Management establishes historical loss
percentages and evaluates problem loans and adjusts allocations
as necessary. Management believes it uses the best information
available to make such determinations. If circumstances differ
substantially from the assumptions used in making
determinations, future adjustments to the allowance for loan
losses may be necessary and results of operations could be
affected. While the Company believes it has established its
existing allowance for loan loses in conformity with accounting
principles generally accepted in the United States of America,
there can be no assurance that regulators, in reviewing the
Banks loan portfolio, will not request an increase in the
allowance for loan losses. Because future events affecting
borrowers and collateral cannot be predicted with certainty,
there can be no assurance that increases to the allowance will
not be necessary if loan quality deteriorates. The following
table represents the allocation of the allowance for loan losses
by loan category.

|                             |       |                        |       |             |  |        |       |             |   |        |       |             |  |        |       |             |   |        |       |             |  |  |       |        |   |   |     |       |  |  |       |        |   |   |     |       |  |  |       |        |  
|---------------------------- | ----- | ---------------------- | ----- | ----------- |  | ------ | ----- | ----------- | - | ------ | ----- | ----------- |  | ------ | ----- | ----------- | - | ------ | ----- | ----------- |  |  | ----- | ------ | - | - | --- | ----- |  |  | ----- | ------ | - | - | --- | ----- |  |  | ----- | ------ | -
|                             |       |                       
|                             |       | December 31,          
|                             |       |                       
|                             |       |                        |       |             |  |        |       |             |   |       
|                             |       | 2004                   |       | 2003        |  | 2002   |       | 2001        |   | 2000  
|                             |       |                        |       |             |  |        |       |             |   |       
|                             |       |                        |       | Percent of  |  |        |       | Percent of  |   |        |       | Percent of  |  |        |       | Percent of  |   |        |       | Percent of 
|                             |       |                        |       | Each        |  |        |       | Each        |   |        |       | Each        |  |        |       | Each        |   |        |       | Each       
|                             |       |                        |       | Category to |  |        |       | Category to |   |        |       | Category to |  |        |       | Category to |   |        |       | Category to
|                             |       | Amount                 |       | Total Loans |  | Amount |       | Total Loans |   | Amount |       | Total Loans |  | Amount |       | Total Loans |   | Amount |       | Total Loans
|                             |       |                        |       |             |  |        |       |             |   |        |       |             |  |        |       |             |   |        |       |            
|                             |       |                       
|                             |       | (Dollars in thousands)
|One-to-four family           |       | $                      | 581   |             |  |        | 41.09 | %           |   | $      | 1,012 |             |  |        | 48.70 | %           |   | $      | 224   |             |  |  | 58.24 | %      |   | $ | 157 |       |  |  | 61.79 | %      |   | $ | 209 |       |  |  | 61.47 | %     
|Multi-family                 |       |                        | 76    |             |  |        | 3.66  |             |   |        | 197   |             |  |        | 3.77  |             |   |        | 7     |             |  |  | 3.48  |        |   |   | 6   |       |  |  | 2.99  |        |   |   | 24  |       |  |  | 3.37  |       
|Commercial real estate       |       |                        | 1,979 |             |  |        | 23.75 |             |   |        | 2,455 |             |  |        | 17.67 |             |   |        | 3,212 |             |  |  | 14.41 |        |   |   | 933 |       |  |  | 12.12 |        |   |   | 825 |       |  |  | 11.48 |       
|Construction and development |       |                        | 183   |             |  |        | 7.26  |             |   |        | 1,673 |             |  |        | 6.56  |             |   |        | 1,403 |             |  |  | 5.42  |        |   |   | 532 |       |  |  | 5.63  |        |   |   | 350 |       |  |  | 5.16  |       
|Commercial                   |       |                        | 2,194 |             |  |        | 14.29 |             |   |        | 1,454 |             |  |        | 13.34 |             |   |        | 1,434 |             |  |  | 8.48  |        |   |   | 729 |       |  |  | 7.80  |        |   |   | 581 |       |  |  | 6.89  |       
|Consumer                     |       |                        | 348   |             |  |        | 9.95  |             |   |        | 336   |             |  |        | 9.96  |             |   |        | 244   |             |  |  | 9.97  |        |   |   | 225 |       |  |  | 9.67  |        |   |   | 167 |       |  |  | 11.63 |       
|Unallocated                  |       |                        | 114   |             |  |        |      |             |   |        | 344   |             |  |        |      |             |   |        |      |             |  |  |      |        |   |   |    |       |  |  |      |        |   |   |    |       |  |  |      |       
|                             |       |                        |       |             |  |        |       |             |   |        |       |             |  |        |       |             |   |        |       |             |  |  |       |        |   |   |     |       |  |  |       |        |   |   |     |       |  |  |       |       
|                             | Total |                        | $     | 5,475       |  |        |       | 100.00      | % |        | $     | 7,471       |  |        |       | 100.00      | % |        | $     | 6,524       |  |  |       | 100.00 | % |   | $   | 2,582 |  |  |       | 100.00 | % |   | $   | 2,156 |  |  |       | 100.00 | %
|                             |       |                        |       |             |  |        |       |             |   |        |       |             |  |        |       |             |   |        |       |             |  |  |       |        |   |   |     |       |  |  |       |        |   |   |     |       |  |  |       |       

Asset/ Liability Management

In an attempt to manage its exposure to changes
in interest rates, management closely monitors the
Companys interest rate risk. The Bank has a funds
management committee that consists of the CEO and President,
Chief Financial Officer, a Regional President, a Senior Vice
President and the Corporate Controller. The committee meets
monthly and reviews the Banks interest rate risk position
and evaluates its current asset/liability pricing and
strategies. The committee adjusts pricing and strategies as
needed and makes recommendations to the Banks board of
directors regarding significant changes in strategy. In
addition, on a quarterly basis, the board reviews the
Banks asset/liability position, including simulations of
the effect on the Banks capital of various interest rate
scenarios.


The Companys exposure to market risk is
reviewed on a regular basis by the funds management committee.
Interest rate risk is the potential of economic losses due to
future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss
of current fair market values. The Funds Management Committee
generally uses three types of analysis in measuring and
reviewing the Companys interest rate sensitivity. These
are Static GAP analysis, Dynamic Interest Rate Risk Analysis and
Economic Value of Equity (EVE).

The Static GAP analysis consists of examining the
matching of assets and liabilities and the extent to which such
assets and liabilities are interest rate sensitive
and by monitoring an institutions interest rate
sensitivity gap. An asset or liability is said to be interest
rate sensitive within a specific time period if it will mature
or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount
of interest-earning assets

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anticipated, based upon certain assumptions, to
mature or reprice within a specific time period and the amount
of interest-bearing liabilities anticipated, based upon certain
assumptions, to mature or reprice within that same time period.
A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive
liabilities. A gap is considered negative when the amount of
interest rate sensitive liabilities exceeds the amount of
interest rate sensitive liabilities. During a period of rising
interest rates, a positive gap would tend to result in an
increase in net interest income while a negative gap would tend
to adversely affect net interest income. During a period of
falling interest rates, a positive gap would tend to adversely
affect net interest income while a negative gap would tend to
result in an increase in net interest income.

The following condensed GAP report summarizing
the Companys interest rate sensitivity sets forth the
interest rate sensitivity of the Banks assets and
liabilities at December 31, 2004. Except as stated below,
the amounts of assets and liabilities shown which reprice or
mature during a particular period are determined in accordance
with the earlier of the term to repricing or maturity of the
asset or liability. Based on the Companys historical
trends, interest bearing demand deposits, money market deposits,
and savings deposits have been proven to be a very stable source
of funds, even through interest rate fluctuations. Accordingly,
Company management believes these deposits are not 100% rate
sensitive within the three months or less time frame. As a
result, interest bearing demand and savings deposits have been
allocated between the five repricing categories as follows:
three months or less  20%, after three through twelve
months  20%, after one through three
years  20%, after three through five
years  20%, and after five years  20%.
Money market deposits have been allocated between the categories
as follows: after

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three through twelve months  50% and
after one through three years  50%. Certificate
accounts are assumed to reprice at the date of contractual
maturity.

|                                                                                                         |                                    |                       |         |          |  |          |          |          |  |        |          |         |  |   |          |         |  |   |         |         |  |   |         |         | 
|-------------------------------------------------------------------------------------------------------- | ---------------------------------- | --------------------- | ------- | -------- |  | -------- | -------- | -------- |  | ------ | -------- | ------- |  | - | -------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                                                         |                                    |                      
|                                                                                                         |                                    | Maturing or Repricing
|                                                                                                         |                                    |                      
|                                                                                                         |                                    |                       |         | 4 Months |  |         
|                                                                                                         |                                    | 1-3                   |         | to One   |  | Over 1-3 |          | Over 3-5 |  | Over 5 |          |        
|                                                                                                         |                                    | Months                |         | Year     |  | Years    |          | Years    |  | Years  |          | Total  
|                                                                                                         |                                    |                       |         |          |  |          |          |          |  |        |          |        
|                                                                                                         |                                    | Amount                |         | Amount   |  | Amount   |          | Amount   |  | Amount |          | Amount 
|                                                                                                         |                                    |                       |         |          |  |          |          |          |  |        |          |        
|Fixed rate one-to-four family (including
    commercial real estate and construction loans)              |                                    | $                     | 7,039   |          |  | $        | 5,627    |          |  | $      | 24,213   |         |  | $ | 23,034   |         |  | $ | 127,836 |         |  | $ | 187,749 |        
|Adjustable rate one-to-four family (including
    commercial real estate and construction loans)         |                                    |                       | 32,647  |          |  |          | 21,893   |          |  |        | 30,013   |         |  |   | 17,372   |         |  |   | 3,137   |         |  |   | 105,062 |        
|Construction & Development                                                                               |                                    |                       | 16,852  |          |  |          | 2,695    |          |  |        | 7,961    |         |  |   | 2,770    |         |  |   | 736     |         |  |   | 31,014  |        
|Commercial business loans                                                                                |                                    |                       | 30,561  |          |  |          | 4,992    |          |  |        | 14,762   |         |  |   | 8,539    |         |  |   | 2,236   |         |  |   | 61,090  |        
|Consumer loans                                                                                           |                                    |                       | 25,798  |          |  |          | 1,775    |          |  |        | 6,408    |         |  |   | 5,757    |         |  |   | 2,753   |         |  |   | 42,491  |        
|Investment securities and other                                                                          |                                    |                       | 1,563   |          |  |          | 1,210    |          |  |        | 29,541   |         |  |   | 47,393   |         |  |   | 45,056  |         |  |   | 124,763 |        
|Federal Funds Sold, interest bearing due from
    banks, money market funds, and certificates of deposit |                                    |                       | 2,625   |          |  |          | 50       |          |  |        |         |         |  |   |         |         |  |   |        |         |  |   | 2,675   |        
|                                                                                                         |                                    |                       |         |          |  |          |          |          |  |        |          |         |  |   |          |         |  |   |         |         |  |   |         |        
|                                                                                                         | Total interest-earning assets      |                       |         | 117,085  |  |          |          | 38,242   |  |        |          | 112,898 |  |   |          | 104,865 |  |   |         | 181,754 |  |   |         | 554,844 | 
|                                                                                                         |                                    |                       |         |          |  |          |          |          |  |        |          |         |  |   |          |         |  |   |         |         |  |   |         |        
|Savings deposits                                                                                         |                                    |                       | 17,598  |          |  |          | 17,598   |          |  |        | 17,598   |         |  |   | 17,598   |         |  |   | 17,598  |         |  |   | 87,990  |        
|Now and money market                                                                                     |                                    |                       | 9,699   |          |  |          | 33,142   |          |  |        | 33,142   |         |  |   | 9,699    |         |  |   | 9,699   |         |  |   | 95,381  |        
|Certificates under $100,000                                                                              |                                    |                       | 53,552  |          |  |          | 98,707   |          |  |        | 33,111   |         |  |   | 11,843   |         |  |   |        |         |  |   | 197,213 |        
|Certificates of $100,000 or more                                                                         |                                    |                       | 37,076  |          |  |          | 16,844   |          |  |        | 5,208    |         |  |   | 2,146    |         |  |   |        |         |  |   | 61,274  |        
|Borrowings                                                                                               |                                    |                       | 37,676  |          |  |          | 13,234   |          |  |        | 10,790   |         |  |   | 5,321    |         |  |   | 2,640   |         |  |   | 69,661  |        
|                                                                                                         |                                    |                       |         |          |  |          |          |          |  |        |          |         |  |   |          |         |  |   |         |         |  |   |         |        
|                                                                                                         | Total interest-bearing liabilities |                       |         | 155,601  |  |          |          | 179,525  |  |        |          | 98,849  |  |   |          | 46,607  |  |   |         | 29,937  |  |   |         | 511,519 | 
|                                                                                                         |                                    |                       |         |          |  |          |          |          |  |        |          |         |  |   |          |         |  |   |         |         |  |   |         |        
|Interest-earning assets less interest-bearing
    liabilities                                            |                                    | $                     | (38,516 | )        |  |          | (141,283 | )        |  |        | 13,049   |         |  | $ | 58,258   |         |  | $ | 151,817 |         |  | $ | 43,325  |        
|                                                                                                         |                                    |                       |         |          |  |          |          |          |  |        |          |         |  |   |          |         |  |   |         |         |  |   |         |        
|Cumulative interest-rate sensitivity gap                                                                 |                                    | $                     | (38,516 | )        |  | $        | (179,799 | )        |  | $      | (166,750 | )       |  | $ | (108,492 | )       |  | $ | 43,325  |         |  |   |         |        
|                                                                                                         |                                    |                       |         |          |  |          |          |          |  |        |          |         |  |   |          |         |  |   |         |         |  |   |         |        
|Cumulative interest-rate gap as a percentage of
    assets                                               |                                    |                       | (6.29   | )%       |  |          | (29.39   | )%       |  |        | (27.25   | )%      |  |   | (17.73   | )%      |  |   | 7.08    | %       |  |   |         |        
|                                                                                                         |                                    |                       |         |          |  |          |          |          |  |        |          |         |  |   |          |         |  |   |         |         |  |   |         |        

Certain shortcomings are inherent in the method
of analysis presented in the foregoing table. For example,
although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate
in advance of changes in market interest rates, while interest
rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARMs, have features which
restrict changes in interest rates on a short-term basis and
over the life of the asset. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels could
deviate significantly from those assumed in calculating the
table. Finally, the ability of many borrowers to service their
adjustable-rate debt may decrease in the event of an interest
rate increase.

The dynamic interest rate risk analysis
calculates risk to net interest income under three different
scenarios, including flat, upward and downward rate shifts. The
analysis assumes that rates change over a 12 month time
frame. The analysis calculates net interest spread, net interest
margin, loan to deposit, cost of funds, ratio of earning assets
and capital. The model assumes that as principal runs off,
principal is reinvested into the same category. Other
assumptions which are varied include: loan rates, investment
yields and growth rates. This is accomplished using a simulation
model. Modeling techniques encompass contractual maturity,
prepayment assumptions covering interest rate increases and
decreases and index-driven repricing characteristics. The model
projects

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changes in net interest income over a one-year
period should interest rates rise, fall or remain constant.
These effects are analyzed assuming interest rate increases or
decreases of 100, 200 and 300 basis points. The model also
incorporates key assumptions involving the Companys
ability to control and direct deposit rates, particularly on
non-maturity categories. As of December 31, 2004, the
simulation model indicated that over a twelve month horizon if
interest rates were to increase 100 basis points, net income
would increase $236,000. If interest rates were to decrease 100
basis points, net income would decrease $377,000.

The economic value of equity calculation uses
information about the Companys assets, liabilities and
off-balance sheet items, market interest rate levels and
assumptions about the behavior of the assets and liabilities, to
calculate the Companys equity value. The economic value of
equity is the market value of assets minus the market value of
liabilities, adjusted for off-balance sheet items divided by the
market value of assets. The economic value of equity is then
subjected to immediate and permanent upward changes of 300 basis
points in market interest rate levels, in 100 basis point
increments, and a downward change of 100 basis points. The
resulting changes in equity value and net interest income at
each increment are measured against pre-determined, minimum EVE
ratios for each incremental rate change, as approved by the
board in the interest rate risk policy.

The following table presents the Banks EVE
ratios for the various rate change levels at December 31,
2004 and 2003:

|                          |  |            |       |      |  |  |       | 
|------------------------- |  | ---------- | ----- | ---- |  |  | ----- | 
|                          |  |           
|                          |  | EVE Ratios
|                          |  |           
|Changes in Interest Rates |  | 2004       |       | 2003
|                          |  |            |       |     
|300 basis point rise      |  |            | 7.54% |      |  |  | 7.87% | 
|200 basis point rise      |  |            | 7.88% |      |  |  | 7.94% | 
|100 basis point rise      |  |            | 8.06% |      |  |  | 8.13% | 
|Base rate scenario        |  |            | 7.91% |      |  |  | 7.45% | 
|100 basis point decline   |  |            | 6.60% |      |  |  | 6.08% | 

The preceding table indicates that at
December 31, 2004, in the event of an immediate and
permanent 100 basis point increase in prevailing market interest
rates, the Banks EVE ratio, would be expected to increase
and that in the event of an immediate and permanent decrease in
prevailing market interest rates, the Banks EVE ratio
would be expected to decrease.

At December 31, 2004, the EVE increases in a
rising rate scenario because the Company is asset sensitive and
would have more interest earning assets repricing than
interest-bearing liabilities. This effect is increased by
periodic and lifetime limits on changes in rate on most
adjustable-rate, interest-earning assets. The EVE decreases in a
falling rate scenario because of the limits on the
Companys ability to decrease rates on some of its deposit
sources, such as money market accounts and NOW accounts, and by
the ability of borrowers to repay loans ahead of schedule and
refinance at lower rates.

The EVE ratio is calculated by the Companys
fixed income investment advisor, and reviewed by management, on
a quarterly basis utilizing information about the Companys
assets, liabilities and off-balance sheet items, which is
provided by the Company. The calculation is designed to estimate
the effects of hypothetical rate changes on the EVE, utilizing
projected cash flows, and is based on numerous assumptions,
including relative levels of market interest rates, loan
prepayments speeds and deposit decay rates. Actual changes in
the EVE, in the event of market interest rate changes of the
type and magnitude used in the calculation, could differ
significantly. Additionally, the calculation does not account
for possible actions taken by Funds Management to mitigate the
adverse effects of changes in market interest rates.

In managing its asset/liability mix, the Company,
at times, depending on the relationship between long-term and
short-term interest rates, market conditions and consumer
preferences, may place somewhat greater emphasis on maximizing
its net interest margin than on better matching the

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interest rate sensitivity of its assets and
liabilities in an effort to improve its net income. While the
Company does have some exposure to changing interest rates,
management believes that the Company is positioned to protect
earnings throughout changing interest rate environments. It
appears that the Companys market risk is reasonable at
this time.

The Company currently does not enter into
derivative financial instruments, including futures, forwards,
interest rate risk swaps, option contracts, or other financial
instruments with similar characteristics and the Company has no
market risk sensitive instruments held for trading purposes.
However, the Company is party to financial instruments with
off-balance sheet risk in the normal course of business to meet
the financing needs of its customers such as commitments to
extend credit and letters of credit. Commitments to extend
credit and letters of credit are not recorded as an asset by the
Company until the commitment is accepted and funded or the
letter of credit is exercised.

Liquidity and Capital Resources

The Companys primary sources of funds are
deposits, proceeds from principal and interest payments on loans
and on investment securities. While maturities and scheduled
amortization of loans and investment securities are a
predictable source of funds, deposit flows and mortgage loan
prepayments are greatly influenced by general interest rates,
economic conditions and competition. In a period of declining
interest rates, mortgage loan prepayments generally increase. As
a result, the proceeds from mortgage loan prepayments are
invested in lower yielding loans or other investments which have
the effect of reducing interest income. In a period of rising
interest rates, mortgage loan prepayments generally decrease and
the proceeds from such prepayments are invested in higher
yielding loans or investments which would have the effect of
increasing interest income.


The Companys liquidity, represented by cash
and cash equivalents, is a result of its operating, investing
and financing activities. The primary investing activities of
the Company are the origination of loans, the purchase of
investment securities, and, to a lesser extent, the purchase of
loans and loan participations. The Company manages the investing
activities primarily by investing in or selling loans and
investment securities. During 2004, the Company acquired Parish
Bank and Trust Company. This transaction was an investing
activity that was not part of the day to day operations of the
Company. All other transactions from the purchase of fixed
assets to the reinvestment of investment security maturities are
common activities of the Company.

The Companys investing activities have a
direct correlation to the financing activities. Factors that
influence the Companys financing activities involve the
collection of deposits and advances and repayments of
borrowings. The Company has the ability to borrow funds from the
FHLB. Additionally, the Company has approximately
$10 million available on a line of credit from a third
party financial institution. The issuance or purchase of stock
also has a direct effect on the Companys financing
activities. Additional financing activities that the Company
engages in on a regular basis include the purchase and issuance
of common stock, as well as, the payment of dividends on common
stock. During 2004, the Company repurchased 232,706 shares of
its common stock.

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The Company maintains a certain level of cash and
other liquid assets to fund normal volumes of loan commitments,
deposit withdrawals and other obligations. The following table
summarizes significant contractual obligations and other
commitments at December 31, 2004 (in thousands):

|                                                                        |  |          |         |                |  |       |        |  |  |   |         | 
|----------------------------------------------------------------------- |  | -------- | ------- | -------------- |  | ----- | ------ |  |  | - | ------- | 
|                                                                        |  | Time     |         | Long-term      |  |      
|Years Ended December 31,                                                |  | Deposits |         | Borrowings (1) |  | Total
|                                                                        |  |          |         |                |  |      
|2005                                                                    |  | $        | 206,179 |                |  | $     | 23,722 |  |  | $ | 229,901 | 
|2006                                                                    |  |          | 27,545  |                |  |       | 9,341  |  |  |   | 36,886  | 
|2007                                                                    |  |          | 10,774  |                |  |       | 11,449 |  |  |   | 22,223  | 
|2008                                                                    |  |          | 9,513   |                |  |       | 156    |  |  |   | 9,669   | 
|2009                                                                    |  |          | 4,476   |                |  |       | 10,165 |  |  |   | 14,641  | 
|thereafter                                                              |  |          |        |                |  |       | 640    |  |  |   | 640     | 
|                                                                        |  |          |         |                |  |       |        |  |  |   |         | 
|Total                                                                   |  | $        | 258,487 |                |  | $     | 55,473 |  |  | $ | 313,960 | 
|                                                                        |  |          |         |                |  |       |        |  |  |   |         | 
|Financial instruments whose contract amounts
    represent credit risk: |  |          |         |                |  |       |        |  |  |   |         | 
|Commitment to originate loans                                           |  |          |         |                |  |       |        |  |  | $ | 10,694  | 
|Commitments to extend credit                                            |  |          |         |                |  |       |        |  |  |   | 48,121  | 
|Standby letters of credit                                               |  |          |         |                |  |       |        |  |  |   | 2,750   | 
|                                                                        |  |          |         |                |  |       |        |  |  |   |         | 
|Total                                                                   |  |          |         |                |  |       |        |  |  | $ | 375,525 | 
|                                                                        |  |          |         |                |  |       |        |  |  |   |         | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Fixed rate callable borrowings are included in
    the period of their modified duration rather than in the period
    in which they are due. Borrowings include fixed rate callable
    advances of $5 million and $2 million maturing in
    fiscal year 2008 and 2011 which are callable in 2005. Trust
    preferred debentures of $10 million mature in both 2032 and
    2034, but are callable in 2007 and 2009.

The Companys most liquid assets are cash,
cash in banks and highly liquid, short-term investments. The
levels of these assets are dependent on the Companys
operating, financing, lending and investing activities during
any given period. Securities available-for-sale may also be
utilized to meet liquidity needs. At December 31, 2004 and
2003, these liquid assets totaled $13.3 million and
$45.6 million, respectively. The level of liquid assets at
December 31, 2003 was higher than usual due to a number of
factors, including sales of loans and higher than expected
prepayments on loans and investment securities. In addition, the
current interest rate environment has not presented many
opportunities for prudent investing.

Liquidity management for the Company is both a
daily and long-term function of the Companys management
strategy. Excess funds are generally invested in short-term
investments such as federal funds. In the event that the Company
should require funds beyond its ability to generate them
internally, additional sources of funds are available, including
FHLB advances. At December 31, 2004, the Company had
outstanding long-term borrowings totaling $55.5 million, of
which $25.0 million were advances from the FHLB,
$9.2 million were funds from reverse repurchase agreements,
$20.0 million were junior subordinated debt owed to
unconsolidated trusts, and $1.3 million were funds from
notes payable.

At December 31, 2004, the Company had
outstanding commitments to originate mortgage loans of
$10.7 million, of which 64.1% were at fixed interest rates.
These commitments provided that the loans would be secured by
properties located, for the most part, in the Companys
primary market areas. The Company anticipates that it will have
sufficient funds available to meet its current loan commitments.
Certificates of deposit that were scheduled to mature in one
year or less from December 31, 2004, totaled
$206.2 million. Based upon the historically stable nature
of the Companys deposit base, management believes that a
significant portion of such deposits will remain with the
Company. The Company also had unused lines of credit provided to
customers of $48.1 million at December 31, 2004.

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At December 31, 2004, the Company and Bank
met all capital requirements as set by federal and state
regulatory agencies. See Note 13 of the Notes to
Consolidated Financial Statements and the discussion of the
Companys financial condition above.

Dividends

The Federal Reserve Boards policy is that a
bank holding company should pay cash dividends only to the
extent that its net income for the past year is sufficient to
cover both the cash dividends and a rate of earnings retention
that is consistent with the holding companys capital
needs, asset quality an overall financial condition, an that it
is inappropriate for a bank holding company experiencing serious
financial problems to borrow funds to pay dividends.
Furthermore, under certain circumstances, the Federal Reserve
Board may prohibit a bank holding company from paying any
dividends if a bank subsidiary of the holding company is
classified under prompt corrective action as
undercapitalized.


The Companys primary source for cash
dividends is the dividends received from our subsidiary bank.
The Bank is subject to various regulatory policies and
requirements relating to the payment of dividends, including
requirements to maintain capital above regulatory minimums. The
Bank, in general, may not pay dividends in excess of its net
profits. The Bank declared and paid dividends totaling
$2.5 million, $1.9 million and $1.9 million to
the Company, its sole stockholder, during 2004, 2003 and 2002,
respectively.

Cash dividends in the total amount of $.075,
$.30, and $.29 per share were paid by the Company during 2004,
2003 and 2002, respectively. As previously announced, the
Company discontinued payment of its quarterly cash dividend in
2004. The payment of future dividends, if any, will depend
primarily upon the Companys earnings, financial condition
and need for funds, as well as restrictions imposed by
regulatory authorities regarding dividend payments and net worth
requirements.

Special Note Concerning Forward-Looking Statements

This document (including information incorporated
by reference) contains, and future oral and written statements
of the Company and its management may contain, forward-looking
statements, within the meaning of such term in the Private
Securities Litigation Reform Act of 1995, with respect to the
financial condition, results of operations, plans, objectives,
future performance and business of the Company. Forward-looking
statements, which may be based upon beliefs, expectations and
assumptions of the Companys management and on information
currently available to management, are generally identifiable by
the use of words such as believe,
expect, anticipate, plan,
intend, estimate, may,
will, would, could,
should or other similar expressions. Additionally,
all statements in this document, including forward-looking
statements, speak only as of the date they are made, and the
Company undertakes no obligation to update any statement in
light of new information or future events.


The Companys ability to predict results or
the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse effect on
the operations and future prospects of the Company and its
subsidiaries include, but are not limited to, the following:



| |   |                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The strength of the United States economy in
    general and the strength of the local economies in which the
    Company conducts its operations which may be less favorable than
    expected and may result in, among other things, a deterioration
    in the credit quality and value of the Companys assets.
|
| |  | The economic impact of past and any future
    terrorist threats and attacks, acts of war or threats thereof,
    and the response of the United States to any such threats and
    attacks.                                                                                                                       
|
| |  | The effects of, and changes in, federal, state
    and local laws, regulations and policies affecting banking,
    securities, insurance and monetary and financial matters.                                                                                                                                       

27




---



##### Table of Contents





---



MANAGEMENTS


DISCUSSION AND


ANALYSIS







---





| |   |                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The effects of changes in interest rates
    (including the effects of changes in the rate of prepayments of
    the Companys assets) and the policies of the Board of
    Governors of the Federal Reserve System.                                            
|
| |  | The ability of the Company to compete with other
    financial institutions as effectively as the Company currently
    intends due to increases in competitive pressures in the
    financial services sector.                                                 
|
| |  | The inability of the Company to obtain new
    customers and to retain existing customers.                                                                                                                                                                      
|
| |  | The timely development and acceptance of products
    and services, including products and services offered through
    alternative delivery channels such as the Internet.                                                                                     
|
| |  | Technological changes implemented by the Company
    and by other parties, including third party vendors, which may
    be more difficult or more expensive than anticipated or which
    may have unforeseen consequences to the Company and its
    customers.
|
| |  | The ability of the Company to develop and
    maintain secure and reliable electronic systems.                                                                                                                                                                  
|
| |  | The ability of the Company to retain key
    executives and employees and the difficulty that the Company may
    experience in replacing key executives and employees in an
    effective manner.                                                              
|
| |  | Consumer spending and saving habits which may
    change in a manner that affects the Companys business
    adversely.                                                                                                                                         
|
| |  | Business combinations and the integration of
    acquired businesses which may be more difficult or expensive
    than expected.                                                                                                                                
|
| |  | The costs, effects and outcomes of existing or
    future litigation.                                                                                                                                                                                           
|
| |  | Changes in accounting policies and practices, as
    may be adopted by state and federal regulatory agencies and the
    Financial Accounting Standards Board.                                                                                                  
|
| |  | The ability of the Company to manage the risks
    associated with the foregoing as well as anticipated.                                                                                                                                                        

These risks and uncertainties should be
considered in evaluating forward-looking statements and undue
reliance should not be placed on such statements. Additional
information concerning the Company and its business, including
other factors that could materially affect the Companys
financial results, is included in the Companys filings
with the Securities and Exchange Commission.

28




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##### Table of Contents



McGladrey & Pullen






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the Stockholders and Board of Directors

Centrue Financial Corporation


Kankakee, Illinois


We have audited the accompanying consolidated
balance sheets of Centrue Financial Corporation and Subsidiary
as of December 31, 2004 and 2003, and the related
consolidated statements of income, stockholders equity,
and cash flows for each of the years in the three-year period
ended December 31, 2004. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audits 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 consolidated financial position of Centrue
Financial Corporation and Subsidiary as of December 31,
2004 and 2003, and the results of their operations and their
cash flows for each of the years in the three year period ended
December 31, 2004, in conformity with accounting principles
generally accepted in the United States of America.



| |     
| | ----
| | LOGO

Champaign, Illinois


March 8, 2005




29




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##### Table of Contents









CONSOLIDATED BALANCE SHEETS








|                                                                                 |                                                                                             |                     |                                            |         |         |         |         |         |         |         | 
|-------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------- | ------------------------------------------ | ------- | ------- | ------- | ------- | ------- | ------- | ------- | 
|                                                                                 |                                                                                             | 2004                |                                            | 2003   
|                                                                                 |                                                                                             |                     |                                            |        
|                                                                                 |                                                                                             |                    
|                                                                                 |                                                                                             | (in thousands,     
|                                                                                 |                                                                                             | except share and   
|                                                                                 |                                                                                             | per share data)    
|Assets                                                                           |                                                                                             |                     |                                            |         |         |         |         |        
|Cash and due from banks                                                          |                                                                                             | $                   | 10,760                                     |         |         | $       | 13,558  |        
|Interest bearing due from banks and other                                        |                                                                                             |                     | 2,526                                      |         |         |         | 14,373  |        
|Federal funds sold                                                               |                                                                                             |                     |                                           |         |         |         | 17,216  |        
|Money market funds                                                               |                                                                                             |                     |                                           |         |         |         | 458     |        
|                                                                                 |                                                                                             |                     |                                            |         |         |         |         |        
|                                                                                 |                                                                                             |                     | Cash and cash equivalents                  |         |         | 13,286  |         |         |         | 45,605  | 
|                                                                                 |                                                                                             |                     |                                            |         |         |         |         |        
|Certificates of deposit                                                          |                                                                                             |                     | 149                                        |         |         |         | 50      |        
|Investment securities:                                                           |                                                                                             |                     |                                            |         |         |         |         |        
|                                                                                 | Available-for-sale, at fair value                                                           |                     |                                            | 124,763 |         |         |         | 87,712  |        
|                                                                                 | Held-to-maturity, at cost (fair value: 2004 $0;
    2003 $912)                              |                     |                                            |        |         |         |         | 892     |        
|Loans, net of allowance for loan losses of $5,475
    in 2004 and $7,471 in 2003 |                                                                                             |                     | 418,963                                    |         |         |         | 426,043 |        
|Loans held for sale                                                              |                                                                                             |                     | 416                                        |         |         |         |        |        
|Office properties and equipment                                                  |                                                                                             |                     | 18,267                                     |         |         |         | 17,113  |        
|Goodwill                                                                         |                                                                                             |                     | 12,446                                     |         |         |         | 11,433  |        
|Life insurance contracts                                                         |                                                                                             |                     | 9,110                                      |         |         |         | 8,752   |        
|Non-marketable equity securities                                                 |                                                                                             |                     | 4,211                                      |         |         |         | 3,298   |        
|Accrued interest receivable                                                      |                                                                                             |                     | 2,570                                      |         |         |         | 2,552   |        
|Intangible assets                                                                |                                                                                             |                     | 1,774                                      |         |         |         | 1,229   |        
|Real estate held for sale                                                        |                                                                                             |                     | 3,002                                      |         |         |         | 319     |        
|Other assets                                                                     |                                                                                             |                     | 2,896                                      |         |         |         | 4,413   |        
|                                                                                 |                                                                                             |                     |                                            |         |         |         |         |        
|                                                                                 |                                                                                             |                     | Total assets                               |         | $       | 611,853 |         |         | $       | 609,411 | 
|                                                                                 |                                                                                             |                     |                                            |         |         |         |         |        
|Liabilities and Stockholders Equity                                             |                                                                                             |                     |                                            |         |         |         |         |        
|Liabilities                                                                      |                                                                                             |                     |                                            |         |         |         |         |        
|                                                                                 | Deposits                                                                                    |                     |                                            |         |         |         |         |         |        
|                                                                                 |                                                                                             | Noninterest bearing |                                            | $       | 53,919  |         |         | $       | 44,305  |        
|                                                                                 |                                                                                             | Interest bearing    |                                            |         | 441,858 |         |         |         | 451,952 |        
|                                                                                 |                                                                                             |                     |                                            |         |         |         |         |        
|                                                                                 |                                                                                             |                     | Total deposits                             |         |         | 495,777 |         |         |         | 496,257 | 
|                                                                                 | Short-term borrowings                                                                       |                     |                                            | 14,188  |         |         |         | 1,448   |        
|                                                                                 | Long-term borrowings                                                                        |                     |                                            | 55,473  |         |         |         | 62,948  |        
|                                                                                 | Other liabilities                                                                           |                     |                                            | 3,239   |         |         |         | 3,115   |        
|                                                                                 |                                                                                             |                     |                                            |         |         |         |         |        
|                                                                                 |                                                                                             |                     | Total liabilities                          |         |         | 568,677 |         |         |         | 563,768 | 
|                                                                                 |                                                                                             |                     |                                            |         |         |         |         |        
|Commitments and Contingencies (Notes 15 and
    16)                              |                                                                                             |                     |                                            |         |         |         |         |        
|Stockholders Equity                                                             |                                                                                             |                     |                                            |         |         |         |         |        
|                                                                                 | Preferred stock, $.01 par value; authorized and
    unissued, 500,000 shares                |                     |                                            |        |         |         |         |        |        
|                                                                                 | Common stock, $.01 par value; 5,500,000 shares
    authorized; 4,200,300 shares issued      |                     |                                            | 42      |         |         |         | 42      |        
|                                                                                 | Additional paid-in capital                                                                  |                     |                                            | 28,998  |         |         |         | 28,929  |        
|                                                                                 | Retained income, partially restricted                                                       |                     |                                            | 43,925  |         |         |         | 39,231  |        
|                                                                                 | Accumulated other comprehensive income                                                      |                     |                                            | 27      |         |         |         | 1,088   |        
|                                                                                 | Unearned restricted stock (19,750 and 27,800
    shares in 2004 and 2003, respectively)     |                     |                                            | (512    | )       |         |         | (820    | )      
|                                                                                 | Treasury stock (1,819,634 and 1,594,278 shares in
    2004 and 2003, respectively), at cost |                     |                                            | (29,304 | )       |         |         | (22,827 | )      
|                                                                                 |                                                                                             |                     |                                            |         |         |         |         |        
|                                                                                 |                                                                                             |                     | Total stockholders equity                 |         |         | 43,176  |         |         |         | 45,643  | 
|                                                                                 |                                                                                             |                     |                                            |         |         |         |         |        
|                                                                                 |                                                                                             |                     | Total liabilities and stockholders equity |         | $       | 611,853 |         |         | $       | 609,411 | 
|                                                                                 |                                                                                             |                     |                                            |         |         |         |         |        

See Accompanying Notes to Consolidated Financial
Statements.

30




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##### Table of Contents






CONSOLIDATED STATEMENTS OF INCOME








|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |        |       |        | 
|----------------------------- | ---------------------------------------------------------------- | ---------------------- | ------------------------------------------------------- | ------ | ----- | ------ | ----- | ------ | ----- | ------ | ----- | ------ | ----- | ------ | 
|                              |                                                                  | 2004                   |                                                         | 2003   |       | 2002  
|                              |                                                                  |                        |                                                         |        |       |       
|                              |                                                                  |                       
|                              |                                                                  | (in thousands,        
|                              |                                                                  | except per share data)
|Interest and dividend income: |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|                              | Loans                                                            |                        | $                                                       | 24,884 |       |        | $     | 23,442 |       |        | $     | 27,615 |      
|                              | Investment securities:                                           |                        |                                                         |        |       |        |       |        |       |        |       |        |      
|                              |                                                                  | Taxable                |                                                         |        | 3,584 |        |       |        | 3,466 |        |       |        | 3,777 |       
|                              |                                                                  | Tax exempt             |                                                         |        | 597   |        |       |        | 60    |        |       |        | 65    |       
|                              | Deposits with banks and other                                    |                        |                                                         | 119    |       |        |       | 313    |       |        |       | 518    |      
|                              | FHLB dividends                                                   |                        |                                                         | 214    |       |        |       | 195    |       |        |       | 139    |      
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|                              |                                                                  |                        | Total interest and dividend income                      |        |       | 29,398 |       |        |       | 27,476 |       |        |       | 32,114 | 
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|Interest expense:             |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|                              | Deposits                                                         |                        |                                                         | 7,807  |       |        |       | 9,216  |       |        |       | 13,294 |      
|                              | Short-term borrowings                                            |                        |                                                         | 115    |       |        |       | 47     |       |        |       |       |      
|                              | Long-term borrowings                                             |                        |                                                         | 2,728  |       |        |       | 2,733  |       |        |       | 2,793  |      
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|                              |                                                                  |                        | Total interest expense                                  |        |       | 10,650 |       |        |       | 11,996 |       |        |       | 16,087 | 
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|                              |                                                                  |                        | Net interest income                                     |        |       | 18,748 |       |        |       | 15,480 |       |        |       | 16,027 | 
|Provision for loan losses     |                                                                  |                        | 1,200                                                   |        |       |        | 4,122 |        |       |        | 3,990 |       
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|                              |                                                                  |                        | Net interest income after provision for loan
    losses |        |       | 17,548 |       |        |       | 11,358 |       |        |       | 12,037 | 
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|Noninterest income:           |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|                              | Fee income                                                       |                        |                                                         | 4,357  |       |        |       | 2,874  |       |        |       | 2,535  |      
|                              | Net gain on sales of securities                                  |                        |                                                         | 85     |       |        |       | 8      |       |        |       |       |      
|                              | Net gain on sales of real estate held for sale                   |                        |                                                         | 104    |       |        |       | 253    |       |        |       | 52     |      
|                              | Net gain on sales of loans held for sale                         |                        |                                                         | 886    |       |        |       | 1,271  |       |        |       | 1,116  |      
|                              | Gain on sale of branch                                           |                        |                                                         |       |       |        |       | 478    |       |        |       |       |      
|                              | Increase in cash surrender value of life
    insurance contracts |                        |                                                         | 358    |       |        |       | 403    |       |        |       | 349    |      
|                              | Other                                                            |                        |                                                         | 217    |       |        |       | 419    |       |        |       | 459    |      
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|                              |                                                                  |                        | Total noninterest income                                |        |       | 6,007  |       |        |       | 5,706  |       |        |       | 4,511  | 
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|Noninterest expenses:         |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|                              | Compensation and benefits                                        |                        |                                                         | 8,587  |       |        |       | 7,786  |       |        |       | 7,151  |      
|                              | Occupancy                                                        |                        |                                                         | 1,435  |       |        |       | 1,398  |       |        |       | 1,249  |      
|                              | Furniture and equipment                                          |                        |                                                         | 1,370  |       |        |       | 945    |       |        |       | 612    |      
|                              | Advertising                                                      |                        |                                                         | 279    |       |        |       | 440    |       |        |       | 325    |      
|                              | Data processing services                                         |                        |                                                         | 615    |       |        |       | 514    |       |        |       | 417    |      
|                              | Telephone and postage                                            |                        |                                                         | 611    |       |        |       | 534    |       |        |       | 453    |      
|                              | Amortization of intangibles                                      |                        |                                                         | 229    |       |        |       | 147    |       |        |       | 184    |      
|                              | Legal and professional fees                                      |                        |                                                         | 670    |       |        |       | 894    |       |        |       | 711    |      
|                              | Other                                                            |                        |                                                         | 2,954  |       |        |       | 2,753  |       |        |       | 2,330  |      
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|                              |                                                                  |                        | Total noninterest expenses                              |        |       | 16,750 |       |        |       | 15,411 |       |        |       | 13,432 | 
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|                              |                                                                  |                        | Income before income taxes                              |        |       | 6,805  |       |        |       | 1,653  |       |        |       | 3,116  | 
|Income taxes                  |                                                                  |                        | 1,916                                                   |        |       |        | 290   |        |       |        | 883   |       
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|                              |                                                                  |                        | Net income                                              |        | $     | 4,889  |       |        | $     | 1,363  |       |        | $     | 2,233  | 
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|Basic Earnings Per Share      |                                                                  | $                      | 1.96                                                    |        |       | $      | 0.65  |        |       | $      | 0.94  |       
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|Diluted Earnings Per Share    |                                                                  | $                      | 1.95                                                    |        |       | $      | 0.65  |        |       | $      | 0.93  |       
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       
|Dividends Per Share           |                                                                  | $                      | 0.075                                                   |        |       | $      | 0.30  |        |       | $      | 0.29  |       
|                              |                                                                  |                        |                                                         |        |       |        |       |        |       |        |       |       

See Accompanying Notes to Consolidated Financial
Statements.

31




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##### Table of Contents






CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY








|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |        |       | 
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | -- | ---------- |  | -------- | ------ | ------------- |  | ---------- | ------ | -------- |  | ------------- | ----- | ------ | - | - | ---- | - |  | - | ------- | - |  | - | ------ | ------ | ----- | 
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        | Accumulated   |  |            |        |          |  |              
|                                                    |                                                                                                                 |                                                 |    | Additional |  |          |        | Other         |  | Unearned   |        |          |  | Total        
|                                                    |                                                                                                                 | Common                                          |    | Paid-In    |  | Retained |        | Comprehensive |  | Restricted |        | Treasury |  | Stockholders
|                                                    |                                                                                                                 | Stock                                           |    | Capital    |  | Income   |        | Income        |  | Stock      |        | Stock    |  | Equity       
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |              
|                                                    |                                                                                                                 |                                                
|                                                    |                                                                                                                 | (In thousands, except share and per share data)
|Balance, December 31, 2001                          |                                                                                                                 | $                                               | 36 |            |  | $        | 15,209 |               |  | $          | 36,964 |          |  | $             | 605   |        |   | $ |     |   |  | $ | (11,623 | ) |  | $ | 41,191 |       
|Comprehensive income:                               |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |       
|                                                    | Net income                                                                                                      |                                                 |    |           |  |          |        |              |  |            |        | 2,233    |  |               |       |       |   |   |      |  |  |   |         |  |  |   |        | 2,233  |      
|                                                    | Unrealized gain on securities available-for-sale
    arising during the period, net of tax of $529              |                                                 |    |           |  |          |        |              |  |            |        |         |  |               |       | 1,026  |   |   |      |  |  |   |         |  |  |   |        | 1,026  |      
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |       
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   | 1,026  |       
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |       
|                                                    |                                                                                                                 | Comprehensive income                            |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |        | 3,259 | 
|Purchase of 167,224 shares of treasury stock        |                                                                                                                 |                                                 |   |            |  |          |       |               |  |            |       |          |  |               |      |        |   |   |     |   |  |   | (3,202  | ) |  |   | (3,202 | )     
|Exercise of stock options                           |                                                                                                                 |                                                 |   |            |  |          | (187   | )             |  |            |       |          |  |               |      |        |   |   |     |   |  |   | 726     |   |  |   | 539    |       
|Dividends paid on common stock$.29 per share       |                                                                                                                 |                                                 |   |            |  |          |       |               |  |            | (680   | )        |  |               |      |        |   |   |     |   |  |   |        |   |  |   | (680   | )     
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |       
|Balance, December 31, 2002                          |                                                                                                                 |                                                 | 36 |            |  |          | 15,022 |               |  |            | 38,517 |          |  |               | 1,631 |        |   |   |     |   |  |   | (14,099 | ) |  |   | 41,107 |       
|Comprehensive income:                               |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |       
|                                                    | Net income                                                                                                      |                                                 |    |           |  |          |        |              |  |            |        | 1,363    |  |               |       |       |   |   |      |  |  |   |         |  |  |   |        | 1,363  |      
|                                                    | Unrealized gain (loss) on securities
    available-for-sale arising during the period, net of tax of
    $(326) |                                                 |    |           |  |          |        |              |  |            |        |         |  |               |       | (548   | ) |   |      |  |  |   |         |  |  |   |        | (548   | )    
|                                                    | Less: Reclassifications adjustment for gains
    included in net income, net of tax of $3                       |                                                 |    |           |  |          |        |              |  |            |        |         |  |               |       | 5      |   |   |      |  |  |   |         |  |  |   |        | 5      |      
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |       
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   | (553   | )     
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |       
|                                                    |                                                                                                                 | Comprehensive income                            |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |        | 810   | 
|Purchase of 466,540 shares of treasury stock        |                                                                                                                 |                                                 |   |            |  |          |       |               |  |            |       |          |  |               |      |        |   |   |     |   |  |   | (9,308  | ) |  |   | (9,308 | )     
|Exercise of stock options                           |                                                                                                                 |                                                 |   |            |  |          | 20     |               |  |            |       |          |  |               |      |        |   |   |     |   |  |   | 182     |   |  |   | 202    |       
|Restricted stock awards                             |                                                                                                                 |                                                 |   |            |  |          | 422    |               |  |            |       |          |  |               |      |        |   |   | (820 | ) |  |   | 398     |   |  |   |       |       
|Stock issued in acquisition (700,300 shares)        |                                                                                                                 |                                                 | 6  |            |  |          | 13,465 |               |  |            |       |          |  |               |      |        |   |   |     |   |  |   |        |   |  |   | 13,471 |       
|Dividends paid on common stock$.30 per share       |                                                                                                                 |                                                 |   |            |  |          |       |               |  |            | (649   | )        |  |               |      |        |   |   |     |   |  |   |        |   |  |   | (649   | )     
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |       
|Balance, December 31, 2003                          |                                                                                                                 |                                                 | 42 |            |  |          | 28,929 |               |  |            | 39,231 |          |  |               | 1,088 |        |   |   | (820 | ) |  |   | (22,827 | ) |  |   | 45,643 |       
|Comprehensive income:                               |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |       
|                                                    | Net income                                                                                                      |                                                 |    |           |  |          |        |              |  |            |        | 4,889    |  |               |       |       |   |   |      |  |  |   |         |  |  |   |        | 4,889  |      
|                                                    | Unrealized gain (loss) on securities
    available-for-sale arising during the period, net of tax of
    $(530) |                                                 |    |           |  |          |        |              |  |            |        |         |  |               |       | (1,114 | ) |   |      |  |  |   |         |  |  |   |        | (1,114 | )    
|                                                    | Less: Reclassifications adjustment for gains
    included in net income, net of tax of $32                      |                                                 |    |           |  |          |        |              |  |            |        |         |  |               |       | 53     |   |   |      |  |  |   |         |  |  |   |        | 53     |      
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |       
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   | (1,061 | )     
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |       
|                                                    |                                                                                                                 | Comprehensive income                            |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |        | 3,828 | 
|Purchase of 232,706 shares of treasury stock        |                                                                                                                 |                                                 |   |            |  |          |       |               |  |            |       |          |  |               |      |        |   |   |     |   |  |   | (6,514  | ) |  |   | (6,514 | )     
|Exercise of stock options                           |                                                                                                                 |                                                 |   |            |  |          | 41     |               |  |            |       |          |  |               |      |        |   |   |     |   |  |   | 148     |   |  |   | 189    |       
|Restricted stock awards                             |                                                                                                                 |                                                 |   |            |  |          | 28     |               |  |            |       |          |  |               |      |        |   |   | (66  | ) |  |   | 38      |   |  |   |       |       
|Forfeit of restricted stock                         |                                                                                                                 |                                                 |   |            |  |          |       |               |  |            |       |          |  |               |      |        |   |   | 149  |   |  |   | (149    | ) |  |   |       |       
|Amortization of restricted stock awards             |                                                                                                                 |                                                 |   |            |  |          |       |               |  |            |       |          |  |               |      |        |   |   | 225  |   |  |   |        |   |  |   | 225    |       
|Dividends paid on common stock $.075 per
    share |                                                                                                                 |                                                 |   |            |  |          |       |               |  |            | (195   | )        |  |               |      |        |   |   |     |   |  |   |        |   |  |   | (195   | )     
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |       
|Balance, December 31, 2004                          |                                                                                                                 | $                                               | 42 |            |  | $        | 28,998 |               |  | $          | 43,925 |          |  | $             | 27    |        |   | $ | (512 | ) |  | $ | (29,304 | ) |  | $ | 43,176 |       
|                                                    |                                                                                                                 |                                                 |    |            |  |          |        |               |  |            |        |          |  |               |       |        |   |   |      |   |  |   |         |   |  |   |        |       

See Accompanying Notes to Consolidated Financial
Statements.

32




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##### Table of Contents






CONSOLIDATED STATEMENTS OF CASH FLOWS








|                                     |                                                                                |                                                                  |                                   |                                           |         |       |         |         |         |        |        |         |         |       |         |  
|------------------------------------ | ------------------------------------------------------------------------------ | ---------------------------------------------------------------- | --------------------------------- | ----------------------------------------- | ------- | ----- | ------- | ------- | ------- | ------ | ------ | ------- | ------- | ----- | ------- | -
|                                     |                                                                                | 2004                                                             |                                   | 2003                                      |         | 2002 
|                                     |                                                                                |                                                                  |                                   |                                           |         |      
|                                     |                                                                                |                                                                 
|                                     |                                                                                | (in thousands)                                                  
|Cash Flows from Operating Activities |                                                                                |                                                                  |                                   |                                           |         |       |         |         |         |        |        |        
|                                     | Net income                                                                     |                                                                  | $                                 | 4,889                                     |         |       | $       | 1,363   |         |        | $      | 2,233   |        
|                                     | Adjustments to reconcile net income to net cash
    from operating activities: |                                                                  |                                   |                                           |         |       |         |         |         |        |        |         |        
|                                     |                                                                                | Provision for loan losses                                        |                                   |                                           | 1,200   |       |         |         | 4,122   |        |        |         | 3,990   |      
|                                     |                                                                                | Depreciation                                                     |                                   |                                           | 1,722   |       |         |         | 1,293   |        |        |         | 894     |      
|                                     |                                                                                | Amortization of investments, net                                 |                                   |                                           | 103     |       |         |         | 179     |        |        |         | 69      |      
|                                     |                                                                                | Amortization of intangibles                                      |                                   |                                           | 229     |       |         |         | 147     |        |        |         | 184     |      
|                                     |                                                                                | Amortization of restricted stock                                 |                                   |                                           | 225     |       |         |         |        |        |        |         |        |      
|                                     |                                                                                | Deferred income taxes                                            |                                   |                                           | 1,284   |       |         |         | 551     |        |        |         | (1,400  | )    
|                                     |                                                                                | Origination of loans held for sale                               |                                   |                                           | (31,008 | )     |         |         | (56,224 | )      |        |         | (58,865 | )    
|                                     |                                                                                | Proceeds from sales of loans held for sale                       |                                   |                                           | 51,651  |       |         |         | 57,623  |        |        |         | 60,698  |      
|                                     |                                                                                | Net gain on sales of loans held for sale                         |                                   |                                           | (886    | )     |         |         | (1,271  | )      |        |         | (1,116  | )    
|                                     |                                                                                | Net gain on sales of securities                                  |                                   |                                           | (85     | )     |         |         | (8      | )      |        |         |        |      
|                                     |                                                                                | Net gain on sales of real estate held for sale                   |                                   |                                           | (104    | )     |         |         | (253    | )      |        |         | (52     | )    
|                                     |                                                                                | Gain on sale of branch                                           |                                   |                                           |        |       |         |         | (478    | )      |        |         |        |      
|                                     |                                                                                | Increase in cash surrender value of life
    insurance contracts |                                   |                                           | (358    | )     |         |         | (403    | )      |        |         | (349    | )    
|                                     |                                                                                | Federal Home Loan Bank stock dividend                            |                                   |                                           | (213    | )     |         |         | (229    | )      |        |         | (133    | )    
|                                     |                                                                                | Changes in:                                                      |                                   |                                           |         |       |         |         |         |        |        |         |         |      
|                                     |                                                                                |                                                                  | Accrued interest receivable       |                                           |         | 86    |         |         |         | 559    |        |         |         | 27    |        
|                                     |                                                                                |                                                                  | Other assets and liabilities, net |                                           |         | 1,584 |         |         |         | (2,760 | )      |         |         | 1,159 |        
|                                     |                                                                                |                                                                  |                                   |                                           |         |       |         |         |         |        |        |        
|                                     |                                                                                |                                                                  |                                   | Net cash provided by operating activities |         |       | 30,319  |         |         |        | 4,211  |         |         |       | 7,339   |  
|                                     |                                                                                |                                                                  |                                   |                                           |         |       |         |         |         |        |        |        
|Cash Flow from Investing Activities  |                                                                                |                                                                  |                                   |                                           |         |       |         |         |         |        |        |        
|                                     | Purchases of available for sale securities                                     |                                                                  |                                   | (88,785                                   | )       |       |         | (37,784 | )       |        |        | (52,040 | )      
|                                     | Proceeds from sales of available for sale
    securities                       |                                                                  |                                   | 5,943                                     |         |       |         | 96      |         |        |        |        |        
|                                     | Proceeds from maturities of available for sale
    securities                  |                                                                  |                                   | 52,148                                    |         |       |         | 47,226  |         |        |        | 17,279  |        
|                                     | Purchases of held-to-maturity securities                                       |                                                                  |                                   |                                          |         |       |         |        |         |        |        | (195    | )      
|                                     | Proceeds from maturities of held-to-maturity
    securities                    |                                                                  |                                   | 242                                       |         |       |         | 201     |         |        |        | 604     |        
|                                     | Proceeds from maturities of certificates of
    deposit                        |                                                                  |                                   | 199                                       |         |       |         |        |         |        |        |        |        
|                                     | Proceeds from sales of real estate held for sale                               |                                                                  |                                   | 648                                       |         |       |         | 678     |         |        |        | 601     |        
|                                     | Cash paid for branch sale                                                      |                                                                  |                                   |                                          |         |       |         | (12,315 | )       |        |        |        |        
|                                     | Purchase of Aviston Financial Corporation, net of
    cash acquired            |                                                                  |                                   |                                          |         |       |         | 2,984   |         |        |        |        |        
|                                     | Purchase of Parish Bank &
    Trust Company, net of cash acquired              |                                                                  |                                   | 38                                        |         |       |         |        |         |        |        |        |        
|                                     | Net (increase) decrease in loans                                               |                                                                  |                                   | (10,205                                   | )       |       |         | 19,547  |         |        |        | 5,033   |        
|                                     | Purchases of office properties and equipment, net                              |                                                                  |                                   | (2,607                                    | )       |       |         | (6,767  | )       |        |        | (2,874  | )      
|                                     | Purchases of life insurance contracts                                          |                                                                  |                                   |                                          |         |       |         |        |         |        |        | (8,000  | )      
|                                     |                                                                                |                                                                  |                                   |                                           |         |       |         |         |         |        |        |        
|                                     |                                                                                |                                                                  |                                   | Net cash from investing activities        |         |       | (42,379 | )       |         |        | 13,866 |         |         |       | (39,592 | )
|                                     |                                                                                |                                                                  |                                   |                                           |         |       |         |         |         |        |        |        

(Continued)

33




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS








|                                                              |                                             |                             |                                                      |         |        |         |        |         |        |         |   |         |        |        | 
|------------------------------------------------------------- | ------------------------------------------- | --------------------------- | ---------------------------------------------------- | ------- | ------ | ------- | ------ | ------- | ------ | ------- | - | ------- | ------ | ------ | 
|                                                              |                                             | 2004                        |                                                      | 2003    |        | 2002   
|                                                              |                                             |                             |                                                      |         |        |        
|                                                              |                                             |                            
|                                                              |                                             | (in thousands)             
|Cash Flows from Financing Activities                          |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        
|                                                              | Net increase (decrease) in deposit accounts |                             |                                                      | (19,004 | )      |         |        | 1,355   |        |         |   | 16,660  |       
|                                                              | Proceeds from long-term borrowings          |                             |                                                      | 14,000  |        |         |        | 104     |        |         |   | 52,600  |       
|                                                              | Repayments of long-term borrowings          |                             |                                                      | (21,475 | )      |         |        | (12,400 | )      |         |   | (12,900 | )     
|                                                              | Change in short-term borrowings             |                             |                                                      | 12,740  |        |         |        | 798     |        |         |   |        |       
|                                                              | Proceeds from exercise of stock options     |                             |                                                      | 189     |        |         |        | 202     |        |         |   | 539     |       
|                                                              | Dividends paid                              |                             |                                                      | (195    | )      |         |        | (649    | )      |         |   | (680    | )     
|                                                              | Purchase of treasury stock                  |                             |                                                      | (6,514  | )      |         |        | (9,308  | )      |         |   | (3,202  | )     
|                                                              |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        
|                                                              |                                             |                             | Net cash from financing activities                   |         |        | (20,259 | )      |         |        | (19,898 | ) |         |        | 53,017 | 
|                                                              |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        
|                                                              |                                             |                             | Increase (decrease) in cash and cash
    equivalents |         |        | (32,319 | )      |         |        | (1,821  | ) |         |        | 20,764 | 
|Cash and cash equivalents:                                    |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        
|                                                              | Beginning of year                           |                             |                                                      | 45,605  |        |         |        | 47,426  |        |         |   | 26,662  |       
|                                                              |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        
|                                                              | End of year                                 |                             | $                                                    | 13,286  |        |         | $      | 45,605  |        |         | $ | 47,426  |       
|                                                              |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        
|Supplemental Disclosures of Cash Flow Information             |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        
|                                                              | Cash paid during the year for:              |                             |                                                      |         |        |         |        |         |        |         |   |         |       
|                                                              |                                             | Interest                    |                                                      | $       | 10,651 |         |        | $       | 12,017 |         |   | $       | 16,044 |       
|                                                              |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        
|                                                              |                                             | Income taxes                |                                                      | $       | 1,478  |         |        | $       | 1,104  |         |   | $       | 1,854  |       
|                                                              |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        
|Supplemental Disclosures of Noncash Investing
    Activities: |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        
|                                                              | Real estate acquired through foreclosure    |                             | $                                                    | 3,254   |        |         | $      | 428     |        |         | $ | 462     |       
|                                                              |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        
|Sale of Hoopeston Branch:                                     |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        
|                                                              | Assets disposed:                            |                             |                                                      |         |        |         |        |         |        |         |   |         |       
|                                                              |                                             | Loans                       |                                                      | $       |       |         |        | $       | (6,370 | )       |   | $       |       |       
|                                                              |                                             | Accrued interest receivable |                                                      |         |       |         |        |         | (24    | )       |   |         |       |       
|                                                              |                                             | Premises and equipment      |                                                      |         |       |         |        |         | (165   | )       |   |         |       |       
|                                                              |                                             | Other assets                |                                                      |         |       |         |        |         | (197   | )       |   |         |       |       
|                                                              | Liabilities assumed by buyer:               |                             |                                                      |         |        |         |        |         |        |         |   |         |       
|                                                              |                                             | Demand deposits             |                                                      |         |       |         |        |         | 2,162  |         |   |         |       |       
|                                                              |                                             | Certificates of deposit     |                                                      |         |       |         |        |         | 17,243 |         |   |         |       |       
|                                                              |                                             | Other liabilities           |                                                      |         |       |         |        |         | 144    |         |   |         |       |       
|                                                              | Gain on sale of branch                      |                             |                                                      |        |        |         |        | (478    | )      |         |   |        |       
|                                                              |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        
|Cash paid                                                     |                                             | $                           |                                                     |         |        | $       | 12,315 |         |        | $       |  |        
|                                                              |                                             |                             |                                                      |         |        |         |        |         |        |         |   |        

(Continued)

34




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS








|                                                |                      |                                 |                                 |       |        |        |   |         |         |        |   |   |   |   | 
|----------------------------------------------- | -------------------- | ------------------------------- | ------------------------------- | ----- | ------ | ------ | - | ------- | ------- | ------ | - | - | - | - | 
|                                                |                      | 2004                            |                                 | 2003  |        | 2002  
|                                                |                      |                                 |                                 |       |        |       
|                                                |                      |                                
|                                                |                      | (in thousands)                 
|Acquisition of Aviston Financial:               |                      |                                 |                                 |       |        |        |   |         |         |        |   |  
|                                                | Stock issued         |                                 | $                               |      |        |        | $ | (13,471 | )       |        | $ |  |  
|                                                | Cost incurred        |                                 |                                 |      |        |        |   | (601    | )       |        |   |  |  
|                                                | Assets acquired:     |                                 |                                 |       |        |        |   |         |         |        |   |   |  
|                                                |                      | Investments                     |                                 |       |       |        |   |         | 15,355  |        |   |   |  |  
|                                                |                      | Loans                           |                                 |       |       |        |   |         | 72,068  |        |   |   |  |  
|                                                |                      | Accrued interest receivable     |                                 |       |       |        |   |         | 339     |        |   |   |  |  
|                                                |                      | Premises and equipment          |                                 |       |       |        |   |         | 1,426   |        |   |   |  |  
|                                                |                      | Federal Home Loan Bank stock    |                                 |       |       |        |   |         | 329     |        |   |   |  |  
|                                                |                      | Goodwill                        |                                 |       |       |        |   |         | 8,367   |        |   |   |  |  
|                                                |                      | Intangible assets               |                                 |       |       |        |   |         | 358     |        |   |   |  |  
|                                                | Liabilities assumed: |                                 |                                 |       |        |        |   |         |         |        |   |   |  
|                                                |                      | Demand deposits                 |                                 |       |       |        |   |         | (31,568 | )      |   |   |  |  
|                                                |                      | Certificates of deposit         |                                 |       |       |        |   |         | (49,020 | )      |   |   |  |  
|                                                |                      | Borrowings                      |                                 |       |       |        |   |         | (6,194  | )      |   |   |  |  
|                                                |                      | Other liabilities               |                                 |       |       |        |   |         | (372    | )      |   |   |  |  
|                                                |                      |                                 |                                 |       |        |        |   |         |         |        |   |  
|                                                |                      |                                 | Cash paid, net of cash acquired |       | $      |       |   |         | $       | (2,984 | ) |   | $ |  | 
|                                                |                      |                                 |                                 |       |        |        |   |         |         |        |   |  
|Acquisition of Parish Bank &
    Trust Company: |                      |                                 |                                 |       |        |        |   |         |         |        |   |  
|                                                | Cash paid            |                                 | $                               | 4,400 |        |        | $ |        |         |        | $ |  |  
|                                                | Cost incurred        |                                 |                                 | 123   |        |        |   |        |         |        |   |  |  
|                                                |                      |                                 |                                 |       |        |        |   |         |         |        |   |  
|                                                |                      |                                 | Total cost                      |       | $      | 4,523  |   |         | $       |       |   |   | $ |  | 
|                                                |                      |                                 |                                 |       |        |        |   |         |         |        |   |  
|                                                | Assets acquired:     |                                 |                                 |       |        |        |   |         |         |        |   |   |  
|                                                |                      | Cash and cash equivalents       |                                 | $     | (4,561 | )      |   | $       |        |        |   | $ |  |  
|                                                |                      | Certificates of deposit         |                                 |       | (298   | )      |   |         |        |        |   |   |  |  
|                                                |                      | Investments                     |                                 |       | (8,616 | )      |   |         |        |        |   |   |  |  
|                                                |                      | Nonmarketable equity securities |                                 |       | (85    | )      |   |         |        |        |   |   |  |  
|                                                |                      | Loans                           |                                 |       | (7,342 | )      |   |         |        |        |   |   |  |  
|                                                |                      | Accrued interest receivable     |                                 |       | (104   | )      |   |         |        |        |   |   |  |  
|                                                |                      | Premises and equipment          |                                 |       | (269   | )      |   |         |        |        |   |   |  |  
|                                                |                      | Other assets                    |                                 |       | (72    | )      |   |         |        |        |   |   |  |  
|                                                |                      | Goodwill                        |                                 |       | (1,013 | )      |   |         |        |        |   |   |  |  
|                                                |                      | Intangible assets               |                                 |       | (774   | )      |   |         |        |        |   |   |  |  
|                                                | Liabilities assumed: |                                 |                                 |       |        |        |   |         |         |        |   |   |  
|                                                |                      | Non-interest bearing deposits   |                                 |       | 5,462  |        |   |         |        |        |   |   |  |  
|                                                |                      | Interest bearing deposits       |                                 |       | 13,062 |        |   |         |        |        |   |   |  |  
|                                                |                      | Other liabilities               |                                 |       | 87     |        |   |         |        |        |   |   |  |  
|                                                |                      |                                 |                                 |       |        |        |   |         |         |        |   |  
|                                                |                      |                                 | Net assets acquired             |       | $      | (4,523 | ) |         | $       |       |   |   | $ |  | 
|                                                |                      |                                 |                                 |       |        |        |   |         |         |        |   |  
|                                                |                      |                                 | Cash acquired, net of cash paid |       | $      | 38     |   |         | $       |       |   |   | $ |  | 
|                                                |                      |                                 |                                 |       |        |        |   |         |         |        |   |  

See Accompanying Notes to Consolidated Financial
Statements.

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FINANCIAL


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






Note 1. Summary of Significant Accounting Policies

Nature of Operations

Through Centrue Bank (the Bank),
Centrue Financial Corporation (the Company),
provides a full range of banking services to individual and
corporate customers through its nineteen locations throughout
Illinois. The Bank is subject to competition from other
financial institutions and nonfinancial institutions providing
financial products. Additionally, the Company and the Bank are
subject to the regulations of certain regulatory agencies and
undergo periodic examinations by those regulatory agencies.


Basis of Consolidation

The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, the
Bank and the Banks wholly-owned subsidiary, Centrue
Service Corporation. Significant intercompany accounts and
transactions have been eliminated in consolidation. Based on the
Companys approach to decision making, it has decided that
its business is comprised of a single business segment.


The consolidated financial statements of the
Company have been prepared in conformity with accounting
principles generally accepted in the United States of America
and conform to predominate practice within the banking industry.

Use of Estimates

In preparing the consolidated financial
statements in accordance with accounting principles generally
accepted in the United States of America, management is required
to make estimates and assumptions which significantly affect the
amounts reported in the consolidated financial statements.
Significant estimates which are particularly susceptible to
change in a short period of time include the determination of
the market value of investment securities, the allowance for
loan losses and valuation of mortgage servicing rights, goodwill
and real estate held for sale. Actual results could differ from
those estimates.


Comprehensive Income

Accounting principles generally require that
recognized revenue, expenses, gains and losses be included in
net income. Although certain changes in assets and liabilities,
such as unrealized gains and losses on available-for-sale
securities, are reported as a separate component of the equity
section of the balance sheet, such items, along with net income,
are components of comprehensive income.


Cash and Cash Equivalents

For reporting cash flows, cash and cash
equivalents represent highly liquid investments with maturities
of 90 days or less at the time of purchase and includes
cash on hand, due from bank accounts (including cash items in
process of clearing), money market funds and federal funds sold.
Cash flows from loans, deposits and short-term borrowings are
reported net.


Securities

Securities classified as held-to-maturity are
those securities the Company has both the positive intent and
ability to hold to maturity regardless of changes in market
conditions, liquidity needs or changes in general economic
conditions. These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed by
the interest method over their contractual lives.


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FINANCIAL


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Securities classified as available-for-sale are
those securities that the Company intends to hold for an
indefinite period of time, but not necessarily to maturity. Any
decision to sell a security classified as available-for-sale
would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the
Companys assets and liabilities, liquidity needs,
regulatory capital considerations and other similar factors.
Securities available-for-sale are carried at fair value. The
difference between fair value and cost, adjusted for
amortization of premium and accretion of discounts, results in
an unrealized gain or loss. Unrealized gains or losses are
reported as accumulated other comprehensive income (loss), net
of the related deferred tax effect. Gains or losses on the sale
of securities are determined on the basis of the specific
security sold and are included in earnings. Premiums and
discounts are recognized in interest income using the interest
method over their contractual lives.

Declines in the fair value of held-to-maturity
and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as
realized losses. In estimating other-than-temporary impairment
losses, management considers (1) the length of time and the
extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Company to
retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.

Loans

Loans originated or purchased are identified as
either held for sale or portfolio at origination or purchase.
Loans held for portfolio are originated or purchased with the
intent to hold them to maturity for the purpose of earning
interest income. Since the Bank has the ability to hold such
loans as intended, they are recorded at cost. Interest is
credited to income as earned using the simple interest method
applied to the daily balances of the principal outstanding.


The accrual of interest income on loans is
discontinued at the time the loan is 90 days past due or
earlier when, in the opinion of management, there is reasonable
doubt as to the borrowers ability to meet payments of
interest or principal when they become due. Interest income on
these loans is recognized to the extent interest payments are
received and the principal is considered fully collectible.

Loan origination fees and certain direct
origination costs are being amortized as an adjustment of the
yield over the contractual life of the related loan, adjusted
for prepayments, using the interest method.

Loans Held for Sale

Loans originated and intended for sale in the
secondary market are carried at the lower of aggregate cost or
fair value, as determined by aggregate outstanding commitments
from investors or current investor yield requirements. Net
unrealized losses are recognized through a valuation allowance
by charges to income.


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

Allowance for Loan Losses

The allowance for loan losses
(allowance) is established as losses are estimated
to have occurred through a provision for loan losses charged to
earnings. Loan losses are charged against the allowance when
management believes that the uncollectibility of a loan balance
is confirmed. Subsequent recoveries, if any, are credited to the
allowance.


The allowance is evaluated on a regular basis by
management and is based upon managements periodic review
of the collectibility of the loans in light of historical
experience, the nature and

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FINANCIAL


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volume of the loan portfolio, adverse situations
that may affect the borrowers ability to repay, estimated
values of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective, as it
requires estimates that are susceptible to significant revision
as more information becomes available.

While management uses the best information
available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in
economic conditions. In addition, various regulatory agencies
periodically review the allowance. These agencies may require
the Bank to make additions to the allowance based on their
judgments of collectibility based on information available to
them at the time of their examination.

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

Real Estate Held for Sale

Real estate acquired through foreclosure or deed
in lieu of foreclosure represents specific assets to which the
Company has acquired legal title in satisfaction of
indebtedness. Such real estate is recorded at the lower of the
propertys fair value at the date of foreclosure or cost.
Initial valuation adjustments, if any, are charged against the
allowance for loan losses. Property is evaluated regularly to
ensure the recorded amount is supported by its current fair
value. Subsequent declines in estimated fair value are charged
to expense when incurred. Revenues and expenses related to
holding and operating these properties are included in
operations.


Office Properties and Equipment

Office properties and equipment are stated at
cost less accumulated depreciation. Depreciation is computed on
the straight-line method over the estimated useful lives of the
assets. Estimated lives are 15 to 39 years for buildings
and leasehold improvements and 3 to 15 years for furniture
and equipment.


Non-Marketable Equity Securities

The Bank, as a member of the Federal Home Loan
Bank of Chicago (the FHLB), is required to maintain
an investment in capital stock of the FHLB in an amount equal to
1% of its outstanding home loans. No ready market exists for the
FHLB stock, and it has no quoted market value. For disclosure
purposes, such stock is assumed to have a market value which is
equal to cost.


Intangible Assets

Intangible assets consist of core deposit
intangibles from business acquisitions. This amount is amortized
into other expense on a straight-line basis using periods of 10
to 15 years. On a periodic basis, the Company reviews the
intangible assets for events or circumstances that may indicate
a change in recoverability of the underlying basis.


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FINANCIAL


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Goodwill

Goodwill resulted from the acquisition of Coal
City National Bank in 1998, Aviston Financial Corporation in
2003 and Parish Bank & Trust Company in 2004. The Coal
City amount was originally amortized into expense on a
straight-line basis assuming a life of twenty years. As more
fully explained in Note 4, the Company adopted Financial
Accounting Standard No. 142, Goodwill and Other
Intangible Assets, and ceased amortization of the goodwill
on January 1, 2002. The Company performed an initial
impairment assessment as of January 1, 2002 and performed
an annual impairment assessment on all goodwill as of
September 30, 2004, 2003 and 2002.


Loan Servicing

The cost of mortgage-servicing rights acquired is
amortized in proportion to, and over the period of, estimated
net servicing revenues. Impairment of mortgage-servicing rights
is assessed based on the fair value of those rights. Fair values
are estimated using discounted cash flows based on a current
market interest rate. For purposes of measuring impairment, the
rights are stratified based on the year of origination and
original life and compared to current market interest rates,
prepayment speeds and other relevant factors. The amount of
impairment recognized is the amount by which the capitalized
mortgage servicing rights for a stratum exceeds their fair value.


Income Taxes

Deferred income tax assets and liabilities are
computed for differences between the financial statement and tax
basis of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and
rates applicable to the periods in which the differences are
expected to affect taxable income. Deferred tax assets are also
recognized for operating loss and tax credit carryforwards.
Valuation allowances are established when necessary to reduce
deferred tax assets to an amount expected to be realized. Income
tax expense is the tax payable or refundable for the period plus
or minus the change during the period in deferred tax assets and
liabilities.


Earnings Per Share

Basic earnings per share are computed by dividing
net income for the year by the average number of shares
outstanding. Shares of unearned restricted stock are not
considered outstanding in this calculation.


Diluted earnings per share are determined by
dividing net income for the year by the average number of shares
of common stock and dilutive potential common shares
outstanding. Dilutive potential common shares assume exercise of
stock options and use of proceeds to purchase treasury stock at
the average market price for the period.

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FINANCIAL


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The following reflects earnings per share
calculations for basic and diluted methods:

|                                            |                          |              |           |        |  |          |           |       |  |   |           |       | 
|------------------------------------------- | ------------------------ | ------------ | --------- | ------ |  | -------- | --------- | ----- |  | - | --------- | ----- | 
|                                            |                          |             
|                                            |                          | December 31,
|                                            |                          |             
|                                            |                          | 2004         |           | 2003   |  | 2002 (1)
|                                            |                          |              |           |        |  |         
|Net income available to common shareholders |                          | $            | 4,889,000 |        |  | $        | 1,363,000 |       |  | $ | 2,233,000 |      
|                                            |                          |              |           |        |  |          |           |       |  |   |           |      
|Basic average shares outstanding            |                          |              | 2,490,789 |        |  |          | 2,098,386 |       |  |   | 2,387,110 |      
|Diluted potential common shares:            |                          |              |           |        |  |          |           |       |  |   |           |      
|                                            | Stock option equivalents |              |           | 11,847 |  |          |           | 2,891 |  |   |           | 8,740 | 
|                                            |                          |              |           |        |  |          |           |       |  |   |           |      
|Diluted average shares outstanding          |                          |              | 2,502,636 |        |  |          | 2,101,277 |       |  |   | 2,395,850 |      
|                                            |                          |              |           |        |  |          |           |       |  |   |           |      
|Basic earnings per share                    |                          | $            | 1.96      |        |  | $        | 0.65      |       |  | $ | 0.94      |      
|                                            |                          |              |           |        |  |          |           |       |  |   |           |      
|Diluted earnings per share                  |                          | $            | 1.95      |        |  | $        | 0.65      |       |  | $ | 0.93      |      
|                                            |                          |              |           |        |  |          |           |       |  |   |           |      






|    |                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The earnings per common share for the year ended
    December 31, 2002 have been adjusted to give retroactive
    effect to the two-for-one stock split (discussed in Note 2)
    effected in the form of a stock dividend on October 30,
    2003 as if the stock split had occurred on January 1, 2002.

Trust Assets

Assets of the trust department, other than trust
cash on deposit at the Bank, are not included in these financial
statements because they are not assets of the Company.


Stock-Based Employee Compensation

The Company has two stock-based employee
compensation plans which are more fully described in
Note 14. As permitted under accounting principles generally
accepted in the United States of America, grants of options
under the plan are accounted for under the recognition and
measurement principles of APB Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations.
Because options granted under the plan had an exercise price
equal to market value of the underlying common stock on the date
of the grant, no stock-based employee compensation cost is
included in determining net income. The following table
illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of
FASB Statement No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.


|                                                                                                                                        |          |                        |       |      |      |      |       |   |      |   |       |   |      | 
|--------------------------------------------------------------------------------------------------------------------------------------- | -------- | ---------------------- | ----- | ---- | ---- | ---- | ----- | - | ---- | - | ----- | - | ---- | 
|                                                                                                                                        |          | 2004                   |       | 2003 |      | 2002
|                                                                                                                                        |          |                        |       |      |      |     
|                                                                                                                                        |          |                       
|                                                                                                                                        |          | (in thousands,        
|                                                                                                                                        |          | except per share data)
|Net income, as reported                                                                                                                 |          | $                      | 4,889 |      |      | $    | 1,363 |   |      | $ | 2,233 |  
|Deduct total stock-based compensation expense
    determined under the fair value method for all awards, net of
    related tax effects |          |                        | (264  | )    |      |      | (328  | ) |      |   | (6    | )
|                                                                                                                                        |          |                        |       |      |      |      |       |   |      |   |       |  
|Pro forma net income                                                                                                                    |          | $                      | 4,625 |      |      | $    | 1,035 |   |      | $ | 2,227 |  
|                                                                                                                                        |          |                        |       |      |      |      |       |   |      |   |       |  
|Earnings per share:                                                                                                                     |          |                        |       |      |      |      |       |   |      |   |       |  
|                                                                                                                                        | Basic:   |                        |       |      |      |      |       |   |      |   |       |   |     
|                                                                                                                                        |          | As reported            |       | $    | 1.96 |      |       | $ | 0.65 |   |       | $ | 0.94 | 
|                                                                                                                                        |          | Pro forma              |       |      | 1.86 |      |       |   | 0.49 |   |       |   | 0.94 | 
|                                                                                                                                        | Diluted: |                        |       |      |      |      |       |   |      |   |       |   |     
|                                                                                                                                        |          | As reported            |       | $    | 1.95 |      |       | $ | 0.65 |   |       | $ | 0.93 | 
|                                                                                                                                        |          | Pro forma              |       |      | 1.84 |      |       |   | 0.49 |   |       |   | 0.93 | 

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The fair value of the stock options granted in
2004, 2003 and 2002 has been estimated using the Black-Scholes
option-pricing model with the following weighted average
assumptions. The Black-Scholes option-pricing model was
developed for use in estimating the fair value of traded options
which have no vesting restrictions. In addition, such models
require the use of subjective assumptions, including expected
stock price volatility. In managements opinion, such
valuation models may not necessarily provide the best single
measure of option value.

|                                                 |  |      |             |      |  |      |             |  |  |  |       | 
|------------------------------------------------ |  | ---- | ----------- | ---- |  | ---- | ----------- |  |  |  | ----- | 
|                                                 |  | 2004 |             | 2003 |  | 2002
|                                                 |  |      |             |      |  |     
|Number of options granted                        |  |      | 65,500      |      |  |      | 107,000     |  |  |  | 5,000 | 
|Risk-free interest rate                          |  |      | 4.04%-4.45% |      |  |      | 3.41%-4.27% |  |  |  | 1.44% | 
|Expected life, in years                          |  |      | 10          |      |  |      | 5-10        |  |  |  | 1     | 
|Expected volatility                              |  |      | 22%-23%     |      |  |      | 22%-25%     |  |  |  | 25%   | 
|Expected dividend yield                          |  |      | 0.00%-1.25% |      |  |      | 1.14%-1.29% |  |  |  | 1.62% | 
|Estimated weighted average fair value per option |  |      | $11.71      |      |  |      | $9.70       |  |  |  | $3.54 | 

Emerging Accounting Standards

In December 2004, the Financial Accounting
Standards Board (FASB) published FASB Statement
No. 123 (revised 2004), Share-Based Payment
(FAS 123r or the Statement).
FAS 123r requires that the compensation cost relating to
share-based payment transactions, including grants of employee
stock options, be recognized in financial statements. That cost
will be measured based on the fair value of the equity or
liability instruments issued. FAS 123r permits entities to use
any option-pricing model that meets the fair value objective in
the Statement. (Modifications of share-based payments will be
treated as replacement awards with the cost of the incremental
value recorded in the financial statements.)


The Statement is effective at the beginning of
the third quarter of 2005. The Company is currently evaluating
the allowable methods of applying the Standard.

The impact of this Statement on the Company in
2005 and beyond will depend upon various factors, among them
being the Companys future compensation strategy. The pro
forma compensation costs presented in the table above and in
prior filings for the Company have been calculated using a
Black-Scholes option pricing model and may not be indicative of
amounts which should be expected in future periods.

In December 2003, the Accounting Standards
Executive Committee of the AICPA issued Statement of Position
No. 03-3 (SOP 03-3), Accounting for
Certain Loansor Debt Securities Acquired in a
Transfer. SOP 03-3 addresses the accounting for
differences between contractual cash flows and the cash flows
expected to be collected from purchased loans or debt securities
if those differences are attributable, in part, to credit
quality. SOP 03-3 requires purchased loans and debt
securities to be recorded initially at fair value based on the
present value of the cash flows expected to be collected with no
carryover of any valuation allowance previously recognized by
the seller. Interest income should be recognized based on the
effective yield from the cash flows expected to be collected. To
the extent that the purchased loans or debt securities
experience subsequent deterioration in credit quality, a
valuation allowance would be established for any additional cash
flows that are not expected to be received. However, if more
cash flows subsequently are expected to be received than
originally estimated, the effective yield would be adjusted on a
prospective basis. SOP 03-3 will be effective for loans and debt
securities acquired after December 31, 2004. Management
does not expect the adoption of this statement to have a
material impact on the Companys consolidated financial
statements.

On September 30, 2004, the Financial
Accounting Standards Board (FASB) issued FASB Staff
Position (FSP) Emerging Issues Task Force
(EITF) Issue No. 03-1-1 delaying the effective
date of paragraphs 10-20 of EITF 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments, which provides guidance for determining the
meaning of other-than-temporarily impaired and its
application to certain debt and equity securities within

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the scope of SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities, and investments accounted for under the cost
method. The guidance requires that investments which have
declined in value due to credit concerns or solely due to
changes in interest rates must be recorded as
other-than-temporarily impaired unless the Company can assert
and demonstrate its intention to hold the security for a period
of time sufficient to allow for a recovery of fair value up to
or beyond the cost of the investment which might mean maturity.
The delay of the effective date of EITF 03-1 will be
superceded concurrent with the final issuance of proposed FSP
Issue 03-1-a. Proposed FSP Issue 03-1-a is intended to
provide implementation guidance with respect to all securities
analyzed for impairment under paragraphs 10-20 of
EITF 03-1. Management continues to closely monitor and
evaluate how the provisions of EITF 03-1 and proposed FSP
Issue 03-1-a will affect the Company.

In March 2004, the Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 105, Application of Accounting
Principles to Loan Commitments, which provides guidance
regarding loan commitments that are accounted for as derivative
instruments. In this SAB, the SEC determined that an interest
rate lock commitment should generally be valued at zero at
inception. The rate locks will continue to be adjusted for
changes in value resulting from changes in market interest
rates. This SAB did not have any effect on the Companys
financial position or results of operations.

Adoption of FASB Interpretation No. 46

The Company adopted FASB Interpretation
(FIN) No. 46, Consolidation of Variable Interest
Entities, an Interpretation of Accounting Research
Bulletin No. 51 (Revised December 2003) in
connection with its consolidated financial statements for the
year ended December 31, 2004. FIN 46 establishes
accounting guidance for consolidation of variable interest
entities (VIE) that function to support the activities of
the primary beneficiary. The primary beneficiary of a VIE entity
is the entity that absorbs a majority of the VIEs expected
losses, receives a majority of the VIEs expected residual
returns, or both, as a result of ownership, controlling
interest, contractual relationship or other business
relationship with a VIE. Prior to the implementation of
FIN 46, VIEs were generally consolidated by an enterprise
when the enterprise had a controlling financial interest through
ownership of a majority of voting interest in the entity. The
implementation of FIN 46, as revised, required the Company
to de-consolidate its investment in Kankakee Capital
Trust I as of January 1, 2004, because the Company is
not the primary beneficiary. The Companys prior financial
statements were not reclassified to de-consolidate the
Companys investment in the Trust. There was no impact on
shareholders equity or net income upon adoption of the standard.


Reclassification

Certain amounts in the 2003 and 2002 consolidated
financial statements have been reclassified to conform to the
2004 presentation. Such reclassifications have no effect on
previously reported net income or stockholders equity.


Note 2. Common Stock Split

On October 30, 2003, the Company issued
1,282,761 additional shares of common stock to effect a 2-for-1
common stock split. All share and per share amounts for the year
ended December 31, 2002 have been retroactively adjusted
for this split as if it occurred on January 1, 2002.


Note 3. Business Acquisitions

On October 9, 2003, the Company acquired for
stock all of the outstanding shares of Aviston Financial
Corporation (Aviston Financial) for a total cost of
$14.1 million. The acquisition has been accounted for using
the purchase method of accounting. As such, the results of
operations of the acquired entity are excluded from the
consolidated financial statements of income for the periods
prior to the acquisition date. The purchase price has been
allocated based on the fair


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values at the date of acquisition. This
allocation resulted in intangible assets of $358,000 and
goodwill of $8.4 million. The intangible assets are being
amortized over ten years. At closing, Aviston Financial had
assets of $96.5 million, deposits of $80.6 million and
stockholders equity of $9.3 million.

The following information presents a summary of
consolidated operations of unaudited pro forma results of
operations for the years ended December 31, 2003 and 2002
as though Aviston Financial had been acquired as of
January 1, 2002:

|                           |  |                       |        |      |  |   |        | 
|-------------------------- |  | --------------------- | ------ | ---- |  | - | ------ | 
|                           |  | 2003                  |        | 2002
|                           |  |                       |        |     
|                           |  |                      
|                           |  | (in thousands, except
|                           |  | per share data)      
|Interest income            |  | $                     | 31,738 |      |  | $ | 38,080 | 
|Interest expense           |  |                       | 13,625 |      |  |   | 18,943 | 
|Net income                 |  |                       | 1,388  |      |  |   | 3,369  | 
|Basic earnings per share   |  |                       | 0.66   |      |  |   | 1.09   | 
|Diluted earnings per share |  |                       | 0.66   |      |  |   | 1.09   | 

These unaudited pro forma results have been
prepared for comparative purposes only and include certain
adjustments, such as additional amortization expense as a result
of intangible assets and additional depreciation expense on the
revaluation of purchased assets. They do not purport to be
indicative of the results of operations that actually would have
resulted had the combination occurred on January 1, 2002 or
of future results of operations of the consolidated entities.

On March 5, 2004, the Company acquired for
cash all of the outstanding shares of Parish Bank and
Trust Company (Parish Bank) for a total cost of
$4.5 million, including related expenses of $123,000. The
acquisition was accounted for using the purchase method of
accounting. As such, the results of operations of the acquired
entity are excluded from the consolidated financial statements
of income for the periods prior to the acquisition date. The
purchase price has been allocated based on the fair values at
the date of acquisition. This allocation resulted in intangible
assets of $774,000 and goodwill of $1.0 million. The
intangible assets are being amortized over ten years. At
closing, Parish Bank had assets of $21.5 million, including
$7.3 million of loans, deposits of $18.5 million and
stockholders equity of $2.9 million. This acquisition
was not considered material to the Company as a whole and
therefore, proforma information is not included.

On December 31, 2004, the Company signed a
definitive agreement with Illinois Community Bancorp, Inc.
(ICBI) to acquire all of the outstanding stock of
ICBI for a total cost of $3.3 million of which 50% will be
in the form of cash and 50% will be in the form of common stock
of the Company. The proposed acquisition is expected to close in
the second quarter of 2005, subject to regulatory approval and
the approval of ICBI stockholders.

Note 4. Goodwill and Intangible Assets

On January 1, 2002, the Company implemented
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets. Under the
provisions of SFAS 142, goodwill is no longer subject to
amortization over its estimated useful life, but instead will be
subject to at least annual assessments for impairment by
applying a fair value based test. SFAS 142 also requires
that an acquired intangible asset should be separately
recognized if the benefit of the intangible asset is obtained
through contractual or other legal rights, or if the asset can
be sold, transferred, licensed, rented or exchanged, regardless
of the acquirers intent to do so. The Company determined
that no transitional impairment loss was required at
January 1, 2002.


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Goodwill and intangible asset disclosures are as
follows:

|                                |                                      |                         |        |              |     |  |   |       |  | 
|------------------------------- | ------------------------------------ | ----------------------- | ------ | ------------ | --- |  | - | ----- |  | 
|                                |                                      |                        
|                                |                                      | As of December 31, 2004
|                                |                                      |                        
|                                |                                      | Gross Carrying          |        | Accumulated 
|                                |                                      | Amount                  |        | Amortization
|                                |                                      |                         |        |             
|                                |                                      |                        
|                                |                                      | (in thousands)         
|Amortized intangible assets:    |                                      |                         |        |              |     |  |   |      
|                                | Core deposit intangible              |                         | $      | 2,990        |     |  | $ | 1,216 | 
|Aggregate amortization expense: |                                      |                         |        |              |     |  |   |      
|                                | For the year ended December 31, 2004 |                         | $      | 229          |     |  |   |       | 
|Estimated amortization expense: |                                      |                         |        |              |     |  |   |      
|                                | For the year ended:                  |                         |        |              |     |  |   |       | 
|                                |                                      | 2005                    |        | $            | 235 |  |   |       |  | 
|                                |                                      | 2006                    |        | $            | 235 |  |   |       |  | 
|                                |                                      | 2007                    |        | $            | 235 |  |   |       |  | 
|                                |                                      | 2008                    |        | $            | 235 |  |   |       |  | 
|                                |                                      | 2009                    |        | $            | 235 |  |   |       |  | 
|                                |                                      | Thereafter              |        | $            | 599 |  |   |       |  | 
|Goodwill:                       |                                      | $                       | 12,446 |              |     |  |   |      

Note 5. Investment Securities

Amortized costs and fair values of investment
securities are summarized as follows:


|                                       |       |                    |        |            |  |            |     |       |  |   |     |     |  |   |        |         | 
|-------------------------------------- | ----- | ------------------ | ------ | ---------- |  | ---------- | --- | ----- |  | - | --- | --- |  | - | ------ | ------- | 
|                                       |       |                   
|                                       |       | Available-for-Sale
|                                       |       |                   
|                                       |       |                    |        | Gross      |  | Gross      |     |      
|                                       |       | Amortized          |        | Unrealized |  | Unrealized |     | Fair 
|                                       |       | Cost               |        | Gains      |  | Losses     |     | Value
|                                       |       |                    |        |            |  |            |     |      
|                                       |       |                   
|                                       |       | (in thousands)    
|December 31, 2004                      |       |                    |        |            |  |            |     |       |  |   |     |     |  |   |        |        
|U. S. government and agency securities |       | $                  | 70,944 |            |  | $          | 263 |       |  | $ | 58  |     |  | $ | 71,149 |        
|Municipal bonds                        |       |                    | 23,582 |            |  |            | 47  |       |  |   | 278 |     |  |   | 23,351 |        
|Mortgage-backed securities             |       |                    | 23,396 |            |  |            | 291 |       |  |   | 157 |     |  |   | 23,530 |        
|Corporate bonds                        |       |                    | 2,076  |            |  |            |    |       |  |   | 76  |     |  |   | 2,000  |        
|Mutual funds                           |       |                    | 400    |            |  |            |    |       |  |   | 15  |     |  |   | 385    |        
|Other securities                       |       |                    | 4,320  |            |  |            | 28  |       |  |   |    |     |  |   | 4,348  |        
|                                       |       |                    |        |            |  |            |     |       |  |   |     |     |  |   |        |        
|                                       | Total |                    | $      | 124,718    |  |            | $   | 629   |  |   | $   | 584 |  |   | $      | 124,763 | 
|                                       |       |                    |        |            |  |            |     |       |  |   |     |     |  |   |        |        

|                                       |       |   |        |        |  |   |       |       |  |   |     |     |  |   |        |        | 
|-------------------------------------- | ----- | - | ------ | ------ |  | - | ----- | ----- |  | - | --- | --- |  | - | ------ | ------ | 
|December 31, 2003                      |       |   |        |        |  |   |       |       |  |   |     |     |  |   |        |       
|U. S. Treasury securities              |       | $ | 1,208  |        |  | $ |      |       |  | $ |    |     |  | $ | 1,208  |       
|U. S. government and agency securities |       |   | 53,289 |        |  |   | 1,119 |       |  |   | 27  |     |  |   | 54,381 |       
|Municipal bonds                        |       |   | 4,142  |        |  |   | 51    |       |  |   | 11  |     |  |   | 4,182  |       
|Mortgage-backed securities             |       |   | 26,864 |        |  |   | 540   |       |  |   | 116 |     |  |   | 27,288 |       
|Mutual funds                           |       |   | 400    |        |  |   |      |       |  |   | 21  |     |  |   | 379    |       
|Other securities                       |       |   | 250    |        |  |   | 24    |       |  |   |    |     |  |   | 274    |       
|                                       |       |   |        |        |  |   |       |       |  |   |     |     |  |   |        |       
|                                       | Total |   | $      | 86,153 |  |   | $     | 1,734 |  |   | $   | 175 |  |   | $      | 87,712 | 
|                                       |       |   |        |        |  |   |       |       |  |   |     |     |  |   |        |       

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|                  |  |                  |     |            |  |            |    |       |  |   |   |  |  |   |     | 
|----------------- |  | ---------------- | --- | ---------- |  | ---------- | -- | ----- |  | - | - |  |  | - | --- | 
|                  |  |                 
|                  |  | Held-to-Maturity
|                  |  |                 
|                  |  |                  |     | Gross      |  | Gross      |    |      
|                  |  | Amortized        |     | Unrealized |  | Unrealized |    | Fair 
|                  |  | Cost             |     | Gains      |  | Losses     |    | Value
|                  |  |                  |     |            |  |            |    |      
|                  |  |                 
|                  |  | (in thousands)  
|December 31, 2003 |  |                  |     |            |  |            |    |       |  |   |   |  |  |   |     | 
|Municipal bonds   |  | $                | 892 |            |  | $          | 20 |       |  | $ |  |  |  | $ | 912 | 
|                  |  |                  |     |            |  |            |    |       |  |   |   |  |  |   |     | 

During 2004, the Company reclassified their
remaining $650,000 of held-to-maturity securities to
available-for-sale. The decision to reclassify the securities
was due to all new purchases being classified as
available-for-sale and the belief that all current investments
should be classified as available for sale.

The amortized cost and fair value of securities
classified as available-for-sale at December 31, 2004, by
contractual maturity, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have
the right to prepay obligations without prepayment penalties,
and certain securities require principal repayments prior to
maturity. Therefore, these securities and mutual fund shares are
not included in the maturity categories in the following
maturity summary.

|                                 |       |                    |        |         |  |   |        |         | 
|-------------------------------- | ----- | ------------------ | ------ | ------- |  | - | ------ | ------- | 
|                                 |       |                   
|                                 |       | Available-for-Sale
|                                 |       |                   
|                                 |       | Amortized          |        | Fair   
|                                 |       | Cost               |        | Value  
|                                 |       |                    |        |        
|                                 |       |                   
|                                 |       | (in thousands)    
|Due within 1 year                |       | $                  | 2,638  |         |  | $ | 2,636  |        
|Due after 1 year through 5 years |       |                    | 73,314 |         |  |   | 73,455 |        
|Due after 5 through 10 years     |       |                    | 20,650 |         |  |   | 20,409 |        
|Due after 10 years               |       |                    |       |         |  |   |       |        
|Mortgage-backed securities       |       |                    | 23,396 |         |  |   | 23,530 |        
|Mutual fund shares               |       |                    | 400    |         |  |   | 385    |        
|Other securities                 |       |                    | 4,320  |         |  |   | 4,348  |        
|                                 |       |                    |        |         |  |   |        |        
|                                 | Total |                    | $      | 124,718 |  |   | $      | 124,763 | 
|                                 |       |                    |        |         |  |   |        |        

Investment securities available-for-sale with a
carrying value of approximately $70.5 million and
$34.4 million at December 31, 2004 and 2003,
respectively, were pledged to secure public deposit accounts and
for other purposes as required or permitted by law.

Unrealized losses and fair value, aggregated by
investment category and length of time that individual
securities have been in a continuous unrealized loss position,
as of December 31, 2004 and 2003 (in thousands), are
summarized as follows:

|                               |                                       |                     |        |                   |  |       |     |            |  |       |       |            |  |   |    |    |  |   |        |        |  |   |     |     | 
|------------------------------ | ------------------------------------- | ------------------- | ------ | ----------------- |  | ----- | --- | ---------- |  | ----- | ----- | ---------- |  | - | -- | -- |  | - | ------ | ------ |  | - | --- | --- | 
|                               |                                       |                    
|                               |                                       | December 31, 2004  
|                               |                                       |                    
|                               |                                       |                     |        |                   |  |      
|                               |                                       | Less than 12 Months |        | 12 Months or More |  | Total
|                               |                                       |                     |        |                   |  |      
|                               |                                       | Fair                |        | Unrealized        |  | Fair  |     | Unrealized |  | Fair  |       | Unrealized
|                               |                                       | Value               |        | Losses            |  | Value |     | Losses     |  | Value |       | Losses    
|                               |                                       |                     |        |                   |  |       |     |            |  |       |       |           
|Securities available for sale: |                                       |                     |        |                   |  |       |     |            |  |       |       |            |  |   |    |    |  |   |        |        |  |   |     |    
|                               | U.S. government and agency securities |                     | $      | 30,342            |  |       | $   | 58         |  |       | $     |           |  |   | $  |   |  |   | $      | 30,342 |  |   | $   | 58  | 
|                               | Municipal bonds                       |                     |        | 17,259            |  |       |     | 277        |  |       |       | 528        |  |   |    | 1  |  |   |        | 17,787 |  |   |     | 278 | 
|                               | Mortgage-backed securities            |                     |        | 5,312             |  |       |     | 104        |  |       |       | 4,343      |  |   |    | 53 |  |   |        | 9,655  |  |   |     | 157 | 
|                               | Corporate bonds                       |                     |        | 1,999             |  |       |     | 76         |  |       |       |           |  |   |    |   |  |   |        | 1,999  |  |   |     | 76  | 
|                               | Mutual funds                          |                     |        |                  |  |       |     |           |  |       |       | 385        |  |   |    | 15 |  |   |        | 385    |  |   |     | 15  | 
|                               |                                       |                     |        |                   |  |       |     |            |  |       |       |            |  |   |    |    |  |   |        |        |  |   |     |    
|                               |                                       | $                   | 54,912 |                   |  | $     | 515 |            |  | $     | 5,256 |            |  | $ | 69 |    |  | $ | 60,168 |        |  | $ | 584 |    
|                               |                                       |                     |        |                   |  |       |     |            |  |       |       |            |  |   |    |    |  |   |        |        |  |   |     |    

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|                               |                                       |                     |        |                   |  |       |     |            |  |       |   |            |  |   |   |   |  |   |        |       |  |   |     |     | 
|------------------------------ | ------------------------------------- | ------------------- | ------ | ----------------- |  | ----- | --- | ---------- |  | ----- | - | ---------- |  | - | - | - |  | - | ------ | ----- |  | - | --- | --- | 
|                               |                                       |                    
|                               |                                       | December 31, 2003  
|                               |                                       |                    
|                               |                                       |                     |        |                   |  |      
|                               |                                       | Less than 12 Months |        | 12 Months or More |  | Total
|                               |                                       |                     |        |                   |  |      
|                               |                                       | Fair                |        | Unrealized        |  | Fair  |     | Unrealized |  | Fair  |   | Unrealized
|                               |                                       | Value               |        | Losses            |  | Value |     | Losses     |  | Value |   | Losses    
|                               |                                       |                     |        |                   |  |       |     |            |  |       |   |           
|Securities available for sale: |                                       |                     |        |                   |  |       |     |            |  |       |   |            |  |   |   |   |  |   |        |       |  |   |     |    
|                               | U.S. government and agency securities |                     | $      | 3,872             |  |       | $   | 27         |  |       | $ |           |  |   | $ |  |  |   | $      | 3,872 |  |   | $   | 27  | 
|                               | Municipal bonds                       |                     |        | 663               |  |       |     | 11         |  |       |   |           |  |   |   |  |  |   |        | 663   |  |   |     | 11  | 
|                               | Mortgage-backed securities            |                     |        | 9,664             |  |       |     | 116        |  |       |   |           |  |   |   |  |  |   |        | 9,664 |  |   |     | 116 | 
|                               | Mutual funds                          |                     |        | 400               |  |       |     | 21         |  |       |   |           |  |   |   |  |  |   |        | 400   |  |   |     | 21  | 
|                               |                                       |                     |        |                   |  |       |     |            |  |       |   |            |  |   |   |   |  |   |        |       |  |   |     |    
|                               |                                       | $                   | 14,599 |                   |  | $     | 175 |            |  | $     |  |            |  | $ |  |   |  | $ | 14,599 |       |  | $ | 175 |    
|                               |                                       |                     |        |                   |  |       |     |            |  |       |   |            |  |   |   |   |  |   |        |       |  |   |     |    

Management evaluates securities for
other-than-temporary impairment at least on a quarterly basis,
and more frequently when economic or market concerns warrant
such evaluation. In estimating other-than-temporary impairment
losses, management considers (1) the length of time and the
extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the
issuer, and (3) the intent and ability of the Company to
retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.

The unrealized losses on investment securities
that have been in a continuous loss position for more than 12
consecutive months consist of three municipal securities with a
fair market value of $528,000, two mortgage backed securities
with a fair market value of $4.3 million and one mutual
fund security with a fair market value of $385,000. The
unrealized losses are generally due to changes in interest rates
and, as such, are considered to be temporary, by the Company.

Realized gains and losses were as follows:

|                |          |                         |    |      |  |      |   |   |  |   |   |   | 
|--------------- | -------- | ----------------------- | -- | ---- |  | ---- | - | - |  | - | - | - | 
|                |          |                        
|                |          | Year Ended December 31,
|                |          |                        
|                |          | 2004                    |    | 2003 |  | 2002
|                |          |                         |    |      |  |     
|                |          |                        
|                |          | (in thousands)         
|Realized gains  |          | $                       | 90 |      |  | $    | 8 |   |  | $ |  |  
|Realized losses |          |                         | (5 | )    |  |      |  |   |  |   |  |  
|                |          |                         |    |      |  |      |   |   |  |   |   |  
|                | Net gain |                         | $  | 85   |  |      | $ | 8 |  |   | $ |  | 
|                |          |                         |    |      |  |      |   |   |  |   |   |  

The tax expense applicable to these net realized
gains and losses amounted to $32,000, $3,000, and $0,
respectively.

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Note 6. Loans

Loans consisted of the following:


|                            |                                      |                |         |         |  |   |         |         | 
|--------------------------- | ------------------------------------ | -------------- | ------- | ------- |  | - | ------- | ------- | 
|                            |                                      |               
|                            |                                      | December 31,  
|                            |                                      |               
|                            |                                      | 2004           |         | 2003   
|                            |                                      |                |         |        
|                            |                                      |               
|                            |                                      | (in thousands)
|Real estate mortgage loans: |                                      |                |         |         |  |   |         |        
|                            | One-to-four family                   |                | $       | 175,224 |  |   | $       | 212,578 | 
|                            | Multifamily                          |                |         | 15,655  |  |   |         | 16,461  | 
|                            | Commercial                           |                |         | 101,516 |  |   |         | 77,142  | 
|                            | Construction and development         |                |         | 31,014  |  |   |         | 28,640  | 
|                            |                                      |                |         |         |  |   |         |        
|                            |                                      |                | 323,409 |         |  |   | 334,821 |        
|                            |                                      |                |         |         |  |   |         |        
|Commercial loans            |                                      |                | 61,090  |         |  |   | 58,235  |        
|                            |                                      |                |         |         |  |   |         |        
|Consumer loans:             |                                      |                |         |         |  |   |         |        
|                            | Home equity loans                    |                |         | 28,188  |  |   |         | 24,305  | 
|                            | All other consumer loans             |                |         | 14,303  |  |   |         | 19,185  | 
|                            |                                      |                |         |         |  |   |         |        
|                            |                                      |                | 42,491  |         |  |   | 43,490  |        
|                            |                                      |                |         |         |  |   |         |        
|Gross loans                 |                                      |                | 426,990 |         |  |   | 436,546 |        
|Less:                       |                                      |                |         |         |  |   |         |        
|                            | Deferred loan fees, net              |                |         | 269     |  |   |         | 565     | 
|                            | Undisbursed portion of loan proceeds |                |         | 2,283   |  |   |         | 2,467   | 
|                            | Allowance for loan losses            |                |         | 5,475   |  |   |         | 7,471   | 
|                            |                                      |                |         |         |  |   |         |        
|                            |                                      | $              | 418,963 |         |  | $ | 426,043 |        
|                            |                                      |                |         |         |  |   |         |        

The Companys opinion as to the ultimate
collectibility of these loans is subject to estimates regarding
the future cash flows from operations and the value of property,
real and personal, pledged as collateral. These estimates are
affected by changing economic conditions and the economic
prospects of the borrowers.

Changes in the allowance for loan losses were as
follows:

|                             |                           |                         |       |        |   |      |       |        |   |   |       |       |  
|---------------------------- | ------------------------- | ----------------------- | ----- | ------ | - | ---- | ----- | ------ | - | - | ----- | ----- | -
|                             |                           |                        
|                             |                           | Year Ended December 31,
|                             |                           |                        
|                             |                           | 2004                    |       | 2003   |   | 2002
|                             |                           |                         |       |        |   |     
|                             |                           |                        
|                             |                           | (in thousands)         
|Balance at beginning of year |                           | $                       | 7,471 |        |   | $    | 6,524 |        |   | $ | 2,582 |      
|                             | Provision for loan losses |                         |       | 1,200  |   |      |       | 4,122  |   |   |       | 3,990 |  
|                             | Purchased allowance       |                         |       | 156    |   |      |       | 2,435  |   |   |       |      |  
|                             | Charge-offs               |                         |       | (3,647 | ) |      |       | (6,242 | ) |   |       | (81   | )
|                             | Recoveries                |                         |       | 295    |   |      |       | 632    |   |   |       | 33    |  
|                             |                           |                         |       |        |   |      |       |        |   |   |       |      
|Balance at end of year       |                           | $                       | 5,475 |        |   | $    | 7,471 |        |   | $ | 6,524 |      
|                             |                           |                         |       |        |   |      |       |        |   |   |       |      

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Information about impaired loans and non-accrual
loans as of and for the years ended December 31, 2004, 2003
and 2002 is as follows:

|                                                                            |                      |                |       |       |  |      |       |       |  |   |       |       | 
|--------------------------------------------------------------------------- | -------------------- | -------------- | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|                                                                            |                      |               
|                                                                            |                      | December 31,  
|                                                                            |                      |               
|                                                                            |                      | 2004           |       | 2003  |  | 2002
|                                                                            |                      |                |       |       |  |     
|                                                                            |                      |               
|                                                                            |                      | (in thousands)
|Impaired loans with a valuation allowance                                   |                      | $              | 4,934 |       |  | $    | 4,545 |       |  | $ | 4,820 |      
|Impaired loans without a valuation allowance                                |                      |                | 906   |       |  |      |      |       |  |   | 350   |      
|                                                                            |                      |                |       |       |  |      |       |       |  |   |       |      
|                                                                            | Total impaired loans |                | $     | 5,840 |  |      | $     | 4,545 |  |   | $     | 5,170 | 
|                                                                            |                      |                |       |       |  |      |       |       |  |   |       |      
|Related valuation allowance                                                 |                      | $              | 1,348 |       |  | $    | 2,524 |       |  | $ | 3,162 |      
|Non-accrual loans, excluding impaired loans                                 |                      | $              | 1,176 |       |  | $    | 1,438 |       |  | $ | 1,664 |      
|Loans past due ninety days or more and still
    accruing                   |                      | $              | 222   |       |  | $    | 2,232 |       |  | $ | 3,439 |      
|Average monthly balance of impaired loans (based
    on month-end balances) |                      | $              | 6,512 |       |  | $    | 5,097 |       |  | $ | 3,027 |      
|Interest income recognized on impaired loans                                |                      | $              |      |       |  | $    | 199   |       |  | $ | 70    |      
|Interest income recognized on a cash basis on
    impaired loans            |                      | $              |      |       |  | $    | 199   |       |  | $ | 70    |      

At December 31, 2004 and 2003, one-to-four
family real estate mortgage loans of approximately
$181.8 million and $157.1 million, respectively, were
pledged to secure advances from the Federal Home Loan Bank of
Chicago.

Note 7. Loan Servicing

Mortgage loans serviced for others are not
included in the accompanying consolidated balance sheets. The
unpaid principal balances of these loans at December 31 are
summarized as follows:


|                                       |             |                |         |         |  |   |         |         | 
|-------------------------------------- | ----------- | -------------- | ------- | ------- |  | - | ------- | ------- | 
|                                       |             |               
|                                       |             | December 31,  
|                                       |             |               
|                                       |             | 2004           |         | 2003   
|                                       |             |                |         |        
|                                       |             |               
|                                       |             | (in thousands)
|Mortgage loan portfolios serviced for: |             |                |         |         |  |   |         |        
|                                       | Freddie Mac |                | $       | 136,433 |  |   | $       | 104,606 | 
|                                       | Fannie Mae  |                |         | 1,383   |  |   |         | 1,885   | 
|                                       |             |                |         |         |  |   |         |        
|                                       |             | $              | 137,816 |         |  | $ | 106,491 |        
|                                       |             |                |         |         |  |   |         |        

Custodial escrow balances maintained in
connection with the foregoing loan servicing, and included in
deposits, were approximately $1.1 million and $809,000 at
December 31, 2004 and 2003, respectively.

A summary of the changes in the balance of
mortgage servicing rights in 2004 and 2003 is as follows:

|                                            |  |                |       |      |  |   |      |  
|------------------------------------------- |  | -------------- | ----- | ---- |  | - | ---- | -
|                                            |  |               
|                                            |  | December 31,  
|                                            |  |               
|                                            |  | 2004           |       | 2003
|                                            |  |                |       |     
|                                            |  |               
|                                            |  | (in thousands)
|Balance, beginning                          |  | $              | 822   |      |  | $ | 725  |  
|Servicing assets recognized during the year |  |                | 372   |      |  |   | 485  |  
|Amortization of servicing assets            |  |                | (138  | )    |  |   | (388 | )
|                                            |  |                |       |      |  |   |      |  
|Balance, ending                             |  | $              | 1,056 |      |  | $ | 822  |  
|                                            |  |                |       |      |  |   |      |  

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The aggregate changes in the valuation allowances
for mortgage servicing rights in 2004 and 2003 were as follows:

|                   |  |                |     |      |  |   |      |  
|------------------ |  | -------------- | --- | ---- |  | - | ---- | -
|                   |  |               
|                   |  | December 31,  
|                   |  |               
|                   |  | 2004           |     | 2003
|                   |  |                |     |     
|                   |  |               
|                   |  | (in thousands)
|Balance, beginning |  | $              | 206 |      |  | $ | 169  |  
|Additions          |  |                |    |      |  |   | 506  |  
|Reductions         |  |                | (50 | )    |  |   | (469 | )
|                   |  |                |     |      |  |   |      |  
|Balance, ending    |  | $              | 156 |      |  | $ | 206  |  
|                   |  |                |     |      |  |   |      |  

Note 8. Office Properties and Equipment

Office properties and equipment consisted of:


|                                                |  |                |        |      |  |   |        | 
|----------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                                                |  |               
|                                                |  | December 31,  
|                                                |  |               
|                                                |  | 2004           |        | 2003
|                                                |  |                |        |     
|                                                |  |               
|                                                |  | (in thousands)
|Land                                            |  | $              | 5,984  |      |  | $ | 4,963  | 
|Buildings and improvements                      |  |                | 12,445 |      |  |   | 11,851 | 
|Construction in progress                        |  |                | 2,179  |      |  |   |       | 
|Land acquired for future use                    |  |                | 126    |      |  |   | 1,438  | 
|Furniture and equipment                         |  |                | 9,561  |      |  |   | 9,326  | 
|                                                |  |                |        |      |  |   |        | 
|                                                |  |                | 30,295 |      |  |   | 27,578 | 
|Less: Accumulated depreciation and amortization |  |                | 12,028 |      |  |   | 10,465 | 
|                                                |  |                |        |      |  |   |        | 
|                                                |  | $              | 18,267 |      |  | $ | 17,113 | 
|                                                |  |                |        |      |  |   |        | 

Depreciation and amortization expense amounted to
$1.7 million, $1.3 million and $894,000 for the years
ended December 31, 2004, 2003 and 2002, respectively.

The Company has a signed contract to construct a
facility in Fairview Heights, Illinois for a total cost of
approximately $4.3 million exclusive of $1.1 million
for land already purchased, with an estimated completion date
during the second quarter of 2005.

Note 9. Deposits

The composition of deposits is as follows:


|                                    |                           |                |         |         |  |   |         |         | 
|----------------------------------- | ------------------------- | -------------- | ------- | ------- |  | - | ------- | ------- | 
|                                    |                           |               
|                                    |                           | December 31,  
|                                    |                           |               
|                                    |                           | 2004           |         | 2003   
|                                    |                           |                |         |        
|                                    |                           |               
|                                    |                           | (in thousands)
|Demand depositsnoninterest bearing |                           | $              | 53,919  |         |  | $ | 44,305  |        
|                                    |                           |                |         |         |  |   |         |        
|Savings                             |                           |                | 87,990  |         |  |   | 84,816  |        
|NOW                                 |                           |                | 48,495  |         |  |   | 48,411  |        
|Money market                        |                           |                | 46,886  |         |  |   | 43,387  |        
|Time deposits, $100,000 or more     |                           |                | 61,274  |         |  |   | 39,649  |        
|Other time deposits                 |                           |                | 197,213 |         |  |   | 235,689 |        
|                                    |                           |                |         |         |  |   |         |        
|                                    | Interest bearing deposits |                |         | 441,858 |  |   |         | 451,952 | 
|                                    |                           |                |         |         |  |   |         |        
|                                    | Total deposits            |                | $       | 495,777 |  |   | $       | 496,257 | 
|                                    |                           |                |         |         |  |   |         |        

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As of December 31, 2004, time deposits had
scheduled maturity dates as follows:

|                 |  |                |         | 
|---------------- |  | -------------- | ------- | 
|Year of Maturity |  | Amount        
|                 |  |               
|                 |  | (in thousands)
|2005             |  | $              | 206,179 | 
|2006             |  |                | 27,545  | 
|2007             |  |                | 10,774  | 
|2008             |  |                | 9,513   | 
|2009             |  |                | 4,476   | 
|                 |  |                |         | 
|                 |  | $              | 258,487 | 
|                 |  |                |         | 

Note 10. Short-Term Borrowings

Short-term borrowings consisted of:


|                                            |                             |              |       |        |  |   |       |       | 
|------------------------------------------- | --------------------------- | ------------ | ----- | ------ |  | - | ----- | ----- | 
|                                            |                             |             
|                                            |                             | December 31,
|                                            |                             |             
|                                            |                             | 2004         |       | 2003  
|                                            |                             |              |       |       
|Federal funds purchased                     |                             | $            | 3,500 |        |  | $ |      |      
|Securities sold under repurchase agreements |                             |              | 8,563 |        |  |   |      |      
|Line of credit                              |                             |              | 2,125 |        |  |   | 1,448 |      
|                                            |                             |              |       |        |  |   |       |      
|                                            | Total short-term borrowings |              | $     | 14,188 |  |   | $     | 1,448 | 
|                                            |                             |              |       |        |  |   |       |      

Securities sold under agreements to repurchase,
which are classified as secured borrowings, mature daily.
Securities sold under agreements to repurchase are reflected at
the amount of cash received in connection with the transaction.

The securities underlying the agreements to
repurchase are under the control of the Bank.

Note 11. Long-Term Borrowings

Long-term borrowings consisted of:


|                                                           |  |                |        |      |  |   |        | 
|---------------------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                                                           |  |               
|                                                           |  | December 31,  
|                                                           |  |               
|                                                           |  | 2004           |        | 2003
|                                                           |  |                |        |     
|                                                           |  |               
|                                                           |  | (in thousands)
|Reverse repurchase agreements                              |  | $              | 9,200  |      |  | $ | 18,400 | 
|Other borrowings                                           |  |                | 1,318  |      |  |   | 1,392  | 
|Junior subordinated debt owed to unconsolidated
    trusts |  |                | 20,000 |      |  |   | 10,000 | 
|Federal Home Loan Bank advances                            |  |                | 24,955 |      |  |   | 33,156 | 
|                                                           |  |                |        |      |  |   |        | 
|Total                                                      |  | $              | 55,473 |      |  | $ | 62,948 | 
|                                                           |  |                |        |      |  |   |        | 

At December 31, 2004, reverse repurchase
agreements of $9.2 million are due in March 2005 and bear
an interest rate of 4.63%. At December 31, 2003, reverse
purchase agreements of $18.4 million were due in the amount
of $9.2 million each in March 2004 and March 2005.

At December 31, 2004 and 2003, other
borrowings of $1.3 and $1.4 million, respectively,
consisted of a note payable to an individual. The note payable
bears an imputed rate of interest of 5.25% and matures in 2012
with semi-annual payments of $100,000.

Securities available-for-sale with a carrying
value of approximately $9.2 million were pledged to
collateralize the repurchase agreements as of December 31,
2004. The advances from the FHLB are collateralized by
one-to-four family residential mortgages.

The weighted average maturity date of Federal
Home Loan Bank advances was approximately 25 months and
33 months and the weighted average interest rates were
approximately 4.16% and 4.00% at December 31, 2004 and
2003, respectively.

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The Company issued $10.0 million in each of
April 2002 and April 2004 in cumulative trust preferred
securities through newly formed special-purpose trusts, Kankakee
Capital Trust I (Trust I) and Centrue Statutory
Trust II (Trust II). The proceeds of the offerings
were invested by the trusts in junior subordinated deferrable
interest debentures of Trust I and Trust II.
Trust I and Trust II are wholly-owned unconsolidated
subsidiaries of the Company, and their sole assets are the
junior subordinated deferrable interest debentures.
Distributions are cumulative and are payable quarterly at a
variable rate of 3.70% and 2.65% over the LIBOR rate,
respectively, (at a rate of 6.0% and 5.15% at December 31,
2004) per annum of the stated liquidation amount of $1,000 per
preferred security. Interest expense on the trust preferred
securities was $851,000, $558,000 and $452,000 for the years
ended December 31, 2004, 2003 and 2002, respectively. The
obligations of the trusts are fully and unconditionally
guaranteed, on a subordinated basis, by the Company. The trust
preferred securities for Trust I are mandatorily redeemable
upon the maturity of the debentures on April 7, 2032, or to
the extent of any earlier redemption of any debentures by the
Company, and are callable beginning April 7, 2007. The
trust preferred securities for Trust II are mandatorily
redeemable upon the maturity of the debentures on April 22,
2034, or to the extent of any earlier redemption of any
debentures by the Company, and are callable beginning
April 22, 2009. Holders of the capital securities have no
voting rights, are unsecured, and rank junior in priority of
payment to all of the Companys indebtedness and senior to
the Companys capital stock. For regulatory purposes, the
trust preferred securities qualify as Tier I capital
subject to certain provisions.

On March 1, 2005, the Board of Governors of
the Federal Reserve System issued a final rule regarding the
continued inclusion of trust preferred securities in the
Tier 1 capital of bank holding companies, subject to
stricter standards effective March 31, 2009. As a result of
the final rule, the Federal Reserve will limit the aggregate
amount of a bank holding companys cumulative perpetual
preferred stock, trust preferred securities and other minority
interests to 25% of a companys core capital elements, net
of goodwill. Regulations in place at the time the Company placed
its currently outstanding trust preferred securities did not
require the deduction of goodwill. The final rule also provides
that amounts of qualifying trust preferred securities and
certain minority interests in excess of the 25% limit may be
included in Tier 2 capital but will be limited, together
with subordinated debt and limited-life preferred stock, to 50%
of Tier 1 capital. The final rule provides a five-year
transition period for bank holding companies to meet these
quantitative limitations. While management does not anticipate
that the final rule will have an impact on the Company when the
five-year transition period expires, it is not possible to
predict the final impact of the rule on the Company.

Future payments at December 31, 2004, for
all long-term borrowings were as follows:

|           |       |                |        |        | 
|---------- | ----- | -------------- | ------ | ------ | 
|Year Ended |       | Amount        
|           |       |               
|           |       | (in thousands)
|2005       |       | $              | 16,722 |       
|2006       |       |                | 9,341  |       
|2007       |       |                | 1,449  |       
|2008       |       |                | 5,156  |       
|2009       |       |                | 165    |       
|Thereafter |       |                | 22,640 |       
|           |       |                |        |       
|           | Total |                | $      | 55,473 | 
|           |       |                |        |       

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Note 12. Income Taxes

Income taxes consisted of:


|         |  |                         |       |      |  |      |      |   |  |   |        |  
|-------- |  | ----------------------- | ----- | ---- |  | ---- | ---- | - |  | - | ------ | -
|         |  |                        
|         |  | Year Ended December 31,
|         |  |                        
|         |  | 2004                    |       | 2003 |  | 2002
|         |  |                         |       |      |  |     
|         |  |                        
|         |  | (in thousands)         
|Current  |  | $                       | 632   |      |  | $    | (261 | ) |  | $ | 2,283  |  
|Deferred |  |                         | 1,284 |      |  |      | 551  |   |  |   | (1,400 | )
|         |  |                         |       |      |  |      |      |   |  |   |        |  
|         |  | $                       | 1,916 |      |  | $    | 290  |   |  | $ | 883    |  
|         |  |                         |       |      |  |      |      |   |  |   |        |  

The Companys income tax expense differed
from the maximum statutory federal rate of 35% as follows:

|                      |                                                             |                         |       |      |   |      |     |      |   |   |       |      |  
|--------------------- | ----------------------------------------------------------- | ----------------------- | ----- | ---- | - | ---- | --- | ---- | - | - | ----- | ---- | -
|                      |                                                             |                        
|                      |                                                             | Year Ended December 31,
|                      |                                                             |                        
|                      |                                                             | 2004                    |       | 2003 |   | 2002
|                      |                                                             |                         |       |      |   |     
|                      |                                                             |                        
|                      |                                                             | (in thousands)         
|Expected income taxes |                                                             | $                       | 2,382 |      |   | $    | 579 |      |   | $ | 1,091 |     
|Income tax effect of: |                                                             |                         |       |      |   |      |     |      |   |   |       |     
|                      | State income tax (carryforward), net of federal
    benefit |                         |       |     |   |      |     |     |   |   |       | (180 | )
|                      | Income taxed at lower rate                                  |                         |       | (68  | ) |      |     | (16  | ) |   |       | (31  | )
|                      | Increase in cash surrender value of life insurance          |                         |       | (125 | ) |      |     | (137 | ) |   |       | (122 | )
|                      | Tax exempt interest, net                                    |                         |       | (237 | ) |      |     | (80  | ) |   |       | (106 | )
|                      | Utilization of state net operating loss
    carryforwards   |                         |       |     |   |      |     |     |   |   |       | 180  |  
|                      | Reduction in valuation allowance for deferred
    taxes     |                         |       | (169 | ) |      |     |     |   |   |       |     |  
|                      | Other                                                       |                         |       | 133  |   |      |     | (56  | ) |   |       | 51   |  
|                      |                                                             |                         |       |      |   |      |     |      |   |   |       |     
|                      |                                                             | $                       | 1,916 |      |   | $    | 290 |      |   | $ | 883   |     
|                      |                                                             |                         |       |      |   |      |     |      |   |   |       |     

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Significant components of the deferred tax
liabilities and assets, included in other assets, were as
follows:

|                          |                                                   |                                                           |       |       |        |   |       |       |        |  
|------------------------- | ------------------------------------------------- | --------------------------------------------------------- | ----- | ----- | ------ | - | ----- | ----- | ------ | -
|                          |                                                   |                                                          
|                          |                                                   | December 31,                                             
|                          |                                                   |                                                          
|                          |                                                   | 2004                                                      |       | 2003 
|                          |                                                   |                                                           |       |      
|                          |                                                   |                                                          
|                          |                                                   | (in thousands)                                           
|Deferred tax assets:      |                                                   |                                                           |       |       |        |   |       |      
|                          | Allowance for loan losses                         |                                                           | $     | 2,075 |        |   | $     | 2,900 |       
|                          | State net operating loss carryforwards            |                                                           |       | 245   |        |   |       | 169   |       
|                          | Federal net operating loss carryforwards          |                                                           |       | 691   |        |   |       |      |       
|                          | Accrued benefits                                  |                                                           |       | 204   |        |   |       | 164   |       
|                          | OREO                                              |                                                           |       |      |        |   |       | 20    |       
|                          | Premises and equipment                            |                                                           |       |      |        |   |       | 581   |       
|                          | Other                                             |                                                           |       | 104   |        |   |       | 35    |       
|                          |                                                   |                                                           |       |       |        |   |       |      
|                          |                                                   | Total deferred tax assets                                 |       |       | 3,319  |   |       |       | 3,869  |  
|                          | Less: Valuation allowance for deferred tax assets |                                                           |       |      |        |   |       | 169   |       
|                          |                                                   |                                                           |       |       |        |   |       |      
|                          |                                                   | Total deferred tax assets, net of valuation
    allowance |       |       | 3,319  |   |       |       | 3,700  |  
|                          |                                                   |                                                           |       |       |        |   |       |      
|Deferred tax liabilities: |                                                   |                                                           |       |       |        |   |       |      
|                          | Unrealized gain on securities available-for-sale  |                                                           |       | (13   | )      |   |       | (511  | )     
|                          | Deferred loan costs (fees)                        |                                                           |       | (344  | )      |   |       | (404  | )     
|                          | Stock dividend on FHLB stock                      |                                                           |       | (386  | )      |   |       | (297  | )     
|                          | Premises and equipment                            |                                                           |       | (467  | )      |   |       |      |       
|                          | Mortgage servicing rights                         |                                                           |       | (350  | )      |   |       | (239  | )     
|                          | Intangible assets                                 |                                                           |       | (501  | )      |   |       | (278  | )     
|                          | Basis in acquired assets                          |                                                           |       | (193  | )      |   |       | (120  | )     
|                          |                                                   |                                                           |       |       |        |   |       |      
|                          |                                                   | Total deferred tax liabilities                            |       |       | (2,254 | ) |       |       | (1,849 | )
|                          |                                                   |                                                           |       |       |        |   |       |      
|Net deferred tax assets   |                                                   | $                                                         | 1,065 |       |        | $ | 1,851 |      
|                          |                                                   |                                                           |       |       |        |   |       |      

Retained earnings at December 31, 2004 and
2003 included approximately $9.0 million of the tax reserve
which accumulated prior to 1988, for which no deferred income
tax liability has been recognized. This amount represents an
allocation of income to bad debt deductions for tax purposes
only. Reduction of amounts so allocated for purposes other than
tax bad debt losses or adjustments arising from carryback of net
operating losses would create income for tax purposes only,
which would be subject to the then-current corporate income tax
rate. The unrecorded deferred income tax liability on the above
amounts was approximately $3.1 million as of
December 31, 2004 and 2003.

As of December 31, 2004, the Company had
Illinois net operating loss carryforwards of approximately
$3.4 million for income tax purposes. The difference
between book and tax net operating income results from interest
income from certain investments which is exempt from income tax
for state income tax purposes. The net operating loss
carryforwards expire through 2015.

At December 31, 2004, the Company also had
Federal net operating loss carryforwards of approximately
$2.3 million for income tax purposes which expire through
2023.

Note 13. Stockholders Equity and Regulatory Capital

The Company (on a consolidated basis) and the
Bank are subject to various regulatory capital requirements
administered by the federal and state 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 and the


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Bank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. The Company and the
Banks capital amounts and classifications are also subject
to qualitative judgments by the regulators about components,
risk weightings, and other factors.

Quantitative measures established by regulation
to ensure capital adequacy require the Company and the Bank to
maintain minimum amounts and ratios (set forth in the table
below) of Tier 1 capital (as defined by the regulations) to
average assets (as defined) and Total and Tier I capital
(as defined) to risk-weighted assets (as defined). Management
believes, as of December 31, 2004, that the Company and the
Bank meet all capital adequacy requirements to which it is
subject.

As of December 31, 2004, the most recent
notification from the Banks primary regulators,
categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as
well capitalized, the Bank must maintain minimum total
risk-based, Tier I risk-based and Tier I leverage
ratios as set forth in the table below. There are no conditions
or events since that notification that management believes have
changed the Banks category.

|                                       |                   |                        |   |                   |  |                   |  |                   |   |            |   |        |  |  |  |      |   |  |   |        |  |  |  |       |  
|-------------------------------------- | ----------------- | ---------------------- | - | ----------------- |  | ----------------- |  | ----------------- | - | ---------- | - | ------ |  |  |  | ---- | - |  | - | ------ |  |  |  | ----- | -
|                                       |                   |                        |   |                   |  |                   |  |                   |   |           
|                                       |                   |                        |   |                   |  |                   |  |                   |   | To be Well
|                                       |                   |                        |   |                   |  |                   |  | Capitalized Under
|                                       |                   |                        |   | For Capital       |  | Prompt Corrective
|                                       |                   | Actual                 |   | Adequacy Purposes |  | Action Provisions
|                                       |                   |                        |   |                   |  |                  
|                                       |                   | Amount                 |   | Ratio             |  | Amount            |  | Ratio             |   | Amount     |   | Ratio 
|                                       |                   |                        |   |                   |  |                   |  |                   |   |            |   |       
|                                       |                   |                       
|                                       |                   | (Dollars in thousands)
|As of December 31, 2004                |                   |                        |   |                   |  |                   |  |                   |   |            |   |        |  |  |  |      |   |  |   |        |  |  |  |      
|Tier 1 Capital to Average Assets      
|                                       | Centrue Financial |                        | $ | 43,312            |  |                   |  | 7.32              | % |            | $ | 23,674 |  |  |  | 4.00 | % |  |   | N/A    |  |  |  |       |  
|                                       | Centrue Bank      |                        |   | 45,656            |  |                   |  | 7.81              | % |            |   | 23,382 |  |  |  | 4.00 | % |  | $ | 29,227 |  |  |  | 5.00  | %
|Tier I Capital to Risk Weighted Assets
|                                       | Centrue Financial |                        |   | 43,312            |  |                   |  | 11.01             | % |            |   | 15,742 |  |  |  | 4.00 | % |  |   | N/A    |  |  |  |       |  
|                                       | Centrue Bank      |                        |   | 45,656            |  |                   |  | 11.32             | % |            |   | 16,136 |  |  |  | 4.00 | % |  |   | 24,204 |  |  |  | 6.00  | %
|Total Capital to Risk Weighted Assets 
|                                       | Centrue Financial |                        |   | 53,857            |  |                   |  | 13.69             | % |            |   | 31,483 |  |  |  | 8.00 | % |  |   | N/A    |  |  |  |       |  
|                                       | Centrue Bank      |                        |   | 50,703            |  |                   |  | 12.57             | % |            |   | 32,272 |  |  |  | 8.00 | % |  |   | 40,340 |  |  |  | 10.00 | %

|                                       |                   |  |   |        |  |  |  |       |   |  |   |        |  |  |  |      |   |  |   |        |  |  |  |       |  
|-------------------------------------- | ----------------- |  | - | ------ |  |  |  | ----- | - |  | - | ------ |  |  |  | ---- | - |  | - | ------ |  |  |  | ----- | -
|As of December 31, 2003                |                   |  |   |        |  |  |  |       |   |  |   |        |  |  |  |      |   |  |   |        |  |  |  |      
|Tier 1 Capital to Average Assets      
|                                       | Centrue Financial |  | $ | 41,893 |  |  |  | 7.26  | % |  | $ | 23,090 |  |  |  | 4.00 | % |  |   | N/A    |  |  |  |       |  
|                                       | Centrue Bank      |  |   | 43,944 |  |  |  | 7.63  | % |  |   | 23,038 |  |  |  | 4.00 | % |  | $ | 28,797 |  |  |  | 5.00  | %
|Tier I Capital to Risk Weighted Assets
|                                       | Centrue Financial |  |   | 41,893 |  |  |  | 9.90  | % |  |   | 16,925 |  |  |  | 4.00 | % |  |   | N/A    |  |  |  |       |  
|                                       | Centrue Bank      |  |   | 43,944 |  |  |  | 10.46 | % |  |   | 16,802 |  |  |  | 4.00 | % |  |   | 25,203 |  |  |  | 6.00  | %
|Total Capital to Risk Weighted Assets 
|                                       | Centrue Financial |  |   | 47,173 |  |  |  | 11.14 | % |  |   | 33,850 |  |  |  | 8.00 | % |  |   | N/A    |  |  |  |       |  
|                                       | Centrue Bank      |  |   | 49,201 |  |  |  | 11.71 | % |  |   | 33,604 |  |  |  | 8.00 | % |  |   | 42,006 |  |  |  | 10.00 | %

A liquidation account in the amount of
$17.7 million was established for the benefit of eligible
deposit account holders who continue to maintain their deposit
accounts in the Bank after the December 30, 1992 conversion
from a mutual savings and loan association to a stock savings
bank. In the unlikely event of a complete liquidation of the
Bank, each eligible deposit account holder would be entitled to
receive a liquidation distribution from the liquidation account,
in the proportionate amount of the then-current adjusted balance
for deposit accounts held, before any distribution may be made
with respect to the Banks capital stock. The Bank may not
declare or pay a cash dividend to the Company on, or repurchase
any of, its capital stock if the effect

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thereof would cause the net worth of the Bank to
be reduced below the amount required for the liquidation
account. Due to various natural events, such as death,
relocation and general attrition of accounts, the balance in the
liquidation account has been reduced to $1.1 million as of
December 31, 2004.

Federal and state banking regulations place
certain restrictions on dividends paid by the Bank to the
Company. At December 31, 2004, the Banks retained
earnings available for payment of dividends was
$4.8 million. In addition, dividends paid by the Bank to
the Company would be prohibited if the effect thereof would
cause the Banks capital to be reduced below applicable
minimum capital requirements.

Note 14. Officer, Director and Employee Plans



The Bank sponsors a qualified, tax-exempt
deferred contribution plan qualifying under section 401(k) of
the Internal Revenue Code (the 401(k) Plan).
Virtually all employees are eligible to participate after
meeting certain age and service requirements. Eligible employees
are permitted to contribute 1% to 50% of their compensation to
the 401(k) Plan. The Company also has the option to contribute
discretionary profit sharing contributions. Expense related to
the 401(k) Plan, including plan administration, amounted to
approximately $108,000, $309,000 and $322,000, for the years
ended December 31, 2004, 2003 and 2002, respectively.


The Company formerly had an Employee Stock
Ownership (the ESOP) plan which during 2004, was
merged into the Companys 401(k) Plan. All participant
balances were considered 100% vested upon the merger. During
2003 and 2002, the Company made a direct cash contribution
totaling $120,000, to the ESOP. Costs related to the merger of
the ESOP into the 401(k) during 2004 amounted to approximately
$17,000.

Stock Option Plan

In 1992, the Company adopted an incentive stock
option plan for the benefit of directors, officers, and
employees of the Company or the Bank (the 1992 Stock
Option Plan). The number of shares of common stock
authorized under the 1992 Stock Option Plan is 350,000. The
option exercise price of an incentive stock option must be at
least equal to the fair market value per share of the common
stock on the date of grant. The 1992 Stock Option Plan also
provides for the issuance of nonqualified stock options,
restricted stock and stock appreciation rights and limited stock
appreciation rights. All options available under the Plan have
been granted.


In 2003, the Company adopted an incentive stock
option plan for the benefit of directors, officers, and
employees of the Company or the Bank (the 2003 Stock
Option Plan). The number of shares of common stock
authorized under the 2003 Stock Option Plan is 400,000. The
option exercise price of an incentive stock option must be at
least equal to the fair market value per share of the common
stock on the date of grant. The 2003 Stock Option Plan also
provides for the issuance of nonqualified stock options,
restricted stock and stock appreciation rights and limited stock
appreciation rights.

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Activity in the stock option plan was as follows:

|                                                                   |  |        |         |           |  |        |        |           |  |        |         |           |  |   |        |  |  |  |         |   |  |   |        | 
|------------------------------------------------------------------ |  | ------ | ------- | --------- |  | ------ | ------ | --------- |  | ------ | ------- | --------- |  | - | ------ |  |  |  | ------- | - |  | - | ------ | 
|                                                                   |  |        |         |           |  |       
|                                                                   |  | 2004   |         | 2003      |  | 2002  
|                                                                   |  |        |         |           |  |       
|                                                                   |  |        |         | Weighted- |  |        |        | Weighted- |  |        |         | Weighted-
|                                                                   |  |        |         | Average   |  |        |        | Average   |  |        |         | Average  
|                                                                   |  |        |         | Exercise  |  |        |        | Exercise  |  |        |         | Exercise 
|                                                                   |  | Shares |         | Price     |  | Shares |        | Price     |  | Shares |         | Price    
|Fixed Options                                                      |  |        |         |           |  |        |        |           |  |        |         |          
|Outstanding at beginning of year                                   |  |        | 101,800 |           |  | $      | 22.690 |           |  |        | 9,500   |           |  | $ | 14.632 |  |  |  | 70,770  |   |  | $ | 5.859  | 
|Granted                                                            |  |        | 65,500  |           |  |        | 27.234 |           |  |        | 107,000 |           |  |   | 22.666 |  |  |  | 5,000   |   |  |   | 18.575 | 
|Exercised                                                          |  |        | (10,000 | )         |  |        | 19.000 |           |  |        | (12,700 | )         |  |   | 15.988 |  |  |  | (66,270 | ) |  |   | 5.561  | 
|Forfeited                                                          |  |        | (10,000 | )         |  |        | 26.000 |           |  |        | (2,000  | )         |  |   | 26.250 |  |  |  |        |   |  |   |       | 
|                                                                   |  |        |         |           |  |        |        |           |  |        |         |           |  |   |        |  |  |  |         |   |  |   |        | 
|Outstanding at end of year                                         |  |        | 147,300 |           |  |        | 24.720 |           |  |        | 101,800 |           |  |   | 22.690 |  |  |  | 9,500   |   |  |   | 14.632 | 
|                                                                   |  |        |         |           |  |        |        |           |  |        |         |           |  |   |        |  |  |  |         |   |  |   |        | 
|Options exercisable at year-end                                    |  |        | 65,800  |           |  |        |        |           |  |        | 46,800  |           |  |   |        |  |  |  | 9,500   |   |  |   |        | 
|                                                                   |  |        |         |           |  |        |        |           |  |        |         |           |  |   |        |  |  |  |         |   |  |   |        | 
|Weighted-average fair value of options granted
    during the year |  |        |         |           |  | $      | 11.71  |           |  |        |         |           |  | $ | 9.70   |  |  |  |         |   |  | $ | 3.54   | 
|                                                                   |  |        |         |           |  |        |        |           |  |        |         |           |  |   |        |  |  |  |         |   |  |   |        | 

|               |        |                     |  |                     |         |          |  |              |     |          |  |   |        |  |  |  |        |  |  |   |        | 
|-------------- | ------ | ------------------- |  | ------------------- | ------- | -------- |  | ------------ | --- | -------- |  | - | ------ |  |  |  | ------ |  |  | - | ------ | 
|               |        |                     |  |                    
|               |        | Options Outstanding |  | Options Exercisable
|               |        |                     |  |                    
|               |        | Outstanding         |  | Weighted            |         | Weighted |  | Outstanding  |     | Weighted
|               |        | as of               |  | Average             |         | Average  |  | as of        |     | Average 
|               |        | December 31,        |  | Contractual         |         | Exercise |  | December 31, |     | Exercise
|               |        | 2004                |  | Life (in Years)     |         | Price    |  | 2004         |     | Price   
|Exercise Price |        |                     |  |                     |         |          |  |              |     |         
|$              | 18.575 |                     |  |                     | 5,000   |          |  |              | 7.9 |          |  | $ | 18.575 |  |  |  | 5,000  |  |  | $ | 18.575 | 
|               | 19.000 |                     |  |                     | 11,800  |          |  |              | 8.3 |          |  |   | 19.000 |  |  |  | 11,800 |  |  |   | 19.000 | 
|               | 20.250 |                     |  |                     | 20,000  |          |  |              | 8.4 |          |  |   | 20.250 |  |  |  | 20,000 |  |  |   | 20.250 | 
|               | 23.185 |                     |  |                     | 15,000  |          |  |              | 8.5 |          |  |   | 23.185 |  |  |  | 3,000  |  |  |   | 23.185 | 
|               | 26.250 |                     |  |                     | 30,000  |          |  |              | 8.8 |          |  |   | 26.250 |  |  |  | 6,000  |  |  |   | 26.250 | 
|               | 26.500 |                     |  |                     | 20,000  |          |  |              | 9.4 |          |  |   | 26.500 |  |  |  | 20,000 |  |  |   | 26.500 | 
|               | 27.500 |                     |  |                     | 40,000  |          |  |              | 9.8 |          |  |   | 27.500 |  |  |  |       |  |  |   |       | 
|               | 27.970 |                     |  |                     | 5,500   |          |  |              | 9.1 |          |  |   | 27.970 |  |  |  |       |  |  |   |       | 
|               |        |                     |  |                     |         |          |  |              |     |          |  |   |        |  |  |  |        |  |  |   |        | 
|               |        |                     |  |                     | 147,300 |          |  |              | 9.0 |          |  | $ | 24.720 |  |  |  | 65,800 |  |  | $ | 22.479 | 
|               |        |                     |  |                     |         |          |  |              |     |          |  |   |        |  |  |  |        |  |  |   |        | 

Stockholders Rights Plan

On May 14, 1999, the Companys Board of
Directors adopted a Stockholders Rights Plan. The Plan
provided for the distribution of one Right on June 15,
1999, for each share of the Companys outstanding common
stock as of May 24, 1999. The Rights have no immediate
economic value to stockholders because they cannot be exercised
unless and until a person, group or entity acquires 15% or more
of the Companys common stock or announces a tender offer.
The Plan also permits the Companys Board of Directors to
redeem each Right for one cent under various circumstances.


In general, the Rights Plan provides that if a
person, group or entity acquires a 15% or larger stake in the
Company or announces a tender offer, and the Companys
Board chooses not to redeem the Rights, all holders of Rights,
other than the 15% stockholder or the tender offeror, will be
able to purchase a certain amount of the Companys common
stock for half of its market price.

Restricted Stock Awards

During 2004 and 2003, the Company issued
restricted stock awards to certain employees and directors. The
shares vest from one to five-year periods. As the shares vest,
they will be charged


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to compensation expense at the market price at
date of grant. During 2004, 5,400 restricted shares vested to
participants and 5,050 restricted shares were forfeited.

|                                     |  |                  |        |      |  |      |        |  |  |  |   | 
|------------------------------------ |  | ---------------- | ------ | ---- |  | ---- | ------ |  |  |  | - | 
|                                     |  |                 
|                                     |  | Number of Shares
|                                     |  |                 
|                                     |  | 2004             |        | 2003 |  | 2002
|                                     |  |                  |        |      |  |     
|Under restriction, beginning of year |  |                  | 27,800 |      |  |      |       |  |  |  |  | 
|Granted                              |  |                  | 2,400  |      |  |      | 27,800 |  |  |  |  | 
|Restrictions released                |  |                  | (5,400 | )    |  |      |       |  |  |  |  | 
|Forfeited and reissuable             |  |                  | (5,050 | )    |  |      |       |  |  |  |  | 
|                                     |  |                  |        |      |  |      |        |  |  |  |   | 
|Under restriction, end of year       |  |                  | 19,750 |      |  |      | 27,800 |  |  |  |  | 
|                                     |  |                  |        |      |  |      |        |  |  |  |   | 

Compensation expense is recognized for financial
statement purposes over the period of performance. Compensation
expense of $225,000 was recognized for the year ended
December 31, 2004. No compensation expense was recognized
for the year ended December 31, 2003 or 2002.

Directors Deferred Compensation Plan

The Company has a deferred compensation plan for
nonemployee directors of the Company in which a participating
director may defer directors fees in the form of
phantom stock units. For directors electing to
participate in the plan, a deferred compensation account,
included in other liabilities on the consolidated balance sheet,
is credited with phantom stock units. Phantom stock units shall
also be increased by any dividends or stock splits declared by
the Company. At December 31, 2004 and 2003, the liability
for deferred compensation was $101,000 and $43,000 which
represented approximately 3,585 and 1,770 phantom stock units,
respectively.


Note 15. Commitments and Contingencies

In the normal course of business, there are
outstanding various contingent liabilities such as claims and
legal actions, which are not reflected in the consolidated
financial statements. In the opinion of management, the ultimate
resolution of these matters is not expected to have a material
effect on the financial position or on the results of operations
of the Company and its subsidiary.


Note 16. Financial Instruments

The Bank is party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit, standby
letters of credit, and financial guarantees. Those instruments
involve, to varying degrees, elements of credit and interest
rate risk. The contract or notional amounts of those instruments
reflect the extent of involvement the Bank has in particular
classes of financial instruments.


The Banks exposure to credit loss, in the
event of nonperformance by the other party to the financial
instruments for commitments to extend credit and standby letters
of credit, is represented by the contractual notional amount of
those instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments.

Financial instruments whose contract amount
represent credit risk follows:

|                                   |  |                |        |      |  |   |        | 
|---------------------------------- |  | -------------- | ------ | ---- |  | - | ------ | 
|                                   |  |               
|                                   |  | December 31,  
|                                   |  |               
|                                   |  | 2004           |        | 2003
|                                   |  |                |        |     
|                                   |  |               
|                                   |  | (in thousands)
|Commitments to originate new loans |  | $              | 10,694 |      |  | $ | 13,803 | 
|Commitments to extend credit       |  |                | 48,121 |      |  |   | 46,451 | 
|Standby letters of credit          |  |                | 2,750  |      |  |   | 2,506  | 

Such commitments are recorded in the financial
statements when they are funded or related fees are incurred or
received. These commitments are principally at variable interest
rates.

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Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements.

Standby letters of credit written are conditional
commitments issued by the bank to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued
to support public and private borrowing arrangements, including
commercial paper, bond financing, and similar transactions. The
credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to
customers. In the event the customer does not perform in
accordance with the terms of the agreement with the third party,
the Bank would be required to fund the commitment. The maximum
potential amount of future payments the Bank could be required
to make is represented by the contractual amount shown in the
summary above. If the commitment is funded, the Bank would be
entitled to seek recovery from the customer. At
December 31, 2004 and 2003, no amounts have been recorded
as liabilities for the Banks potential obligations under
these guarantees.

The Company and the Bank do not engage in the use
of interest rate swaps, futures, forwards, or option contracts.

Note 17. Fair Value of Financial Instruments

The following table reflects a comparison of
carrying amounts and the fair values of the financial
instruments:


|             |                                 |                |   |            |  |          |   |            |  |  |   |         |  |  |   |         | 
|------------ | ------------------------------- | -------------- | - | ---------- |  | -------- | - | ---------- |  |  | - | ------- |  |  | - | ------- | 
|             |                                 |               
|             |                                 | December 31,  
|             |                                 |               
|             |                                 |                |   |           
|             |                                 | 2004           |   | 2003      
|             |                                 |                |   |           
|             |                                 | Carrying       |   |            |  | Carrying |   |           
|             |                                 | Amount         |   | Fair Value |  | Amount   |   | Fair Value
|             |                                 |                |   |            |  |          |   |           
|             |                                 |               
|             |                                 | (in thousands)
|Assets:      |                                 |                |   |            |  |          |   |            |  |  |   |         |  |  |   |        
|             | Cash and cash equivalents       |                | $ | 13,286     |  |          | $ | 13,286     |  |  | $ | 45,605  |  |  | $ | 45,605  | 
|             | Certificates of deposit         |                |   | 149        |  |          |   | 149        |  |  |   | 50      |  |  |   | 50      | 
|             | Investment securities           |                |   | 124,763    |  |          |   | 124,763    |  |  |   | 88,604  |  |  |   | 88,624  | 
|             | Loans, gross                    |                |   | 424,438    |  |          |   | 428,198    |  |  |   | 433,311 |  |  |   | 445,733 | 
|             | Loans held for sale             |                |   | 416        |  |          |   | 416        |  |  |   |        |  |  |   |        | 
|             | Nonmarketable equity securities |                |   | 4,211      |  |          |   | 4,211      |  |  |   | 3,298   |  |  |   | 3,298   | 
|             | Accrued interest receivable     |                |   | 2,570      |  |          |   | 2,570      |  |  |   | 2,552   |  |  |   | 2,552   | 
|Liabilities: |                                 |                |   |            |  |          |   |            |  |  |   |         |  |  |   |        
|             | Deposits                        |                | $ | 495,777    |  |          | $ | 497,657    |  |  | $ | 496,257 |  |  | $ | 498,772 | 
|             | Short-term borrowings           |                |   | 14,188     |  |          |   | 14,188     |  |  |   | 1,448   |  |  |   | 1,448   | 
|             | Long-term borrowings            |                |   | 55,473     |  |          |   | 55,725     |  |  |   | 62,948  |  |  |   | 63,875  | 
|             | Accrued interest payable        |                |   | 568        |  |          |   | 568        |  |  |   | 451     |  |  |   | 451     | 

The fair values utilized in the table were
derived using the information described below for the group of
instruments listed. It should be noted that the fair values
disclosed in this table do not represent market values of all
assets and liabilities of the Company and, thus, should not be
interpreted to represent a market or liquidation value for the
Company.

The following methods and assumptions were used
by the Company in estimating the fair value disclosures for
financial instruments:

Cash and cash equivalents and certificates of
deposit:The carrying amounts reported
in the balance sheet for cash and short-term instruments
approximate those assets fair values.

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Investment
securities:Fair values for securities
are based on quoted market prices, where available. If quoted
market prices are not available, fair values are based on quoted
market prices of comparable instruments. The carrying amounts of
accrued interest approximate their fair values.

Nonmarketable equity
securities:Those securities are
carried at cost, as fair values are not readily determinable.

Loans:For
variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on
carrying values. The fair values for fixed-rate loans are
estimated using discounted cash flow analyses using interest
rates currently being offered for loans with similar terms to
borrowers of similar credit quality. The carrying amounts of
accrued interest approximate their fair value.

Loans held for sale:Fair values are based on quoted market price.

Off-balance-sheet
instruments:Fair values for the
Banks off-balance-sheet instruments (guarantees and loan
commitments) are based on fees currently charged to enter into
similar agreements, taking into account the remaining terms of
the agreements and the counterparties credit standing. The
fair value for such commitments is nominal.

Deposits:The fair
values disclosed for demand deposits are, by definition, equal
to the amount payable on demand at the balance sheet date. The
carrying amounts for variable-rate, fixed-term money market
accounts approximate their fair values at the balance sheet
date. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time
deposits. The carrying amounts of advance payments by borrowers
for taxes and insurance approximate their fair value.

Short-term
borrowings:The carrying amounts of
federal funds purchased, securities sold under repurchase
agreements, and other short-term borrowings maturing within
ninety days approximate their fair values.

Long-term
borrowings:Rates currently available
to the Company for debt with similar terms and remaining
maturities are used to estimate fair value of existing debt. The
Trust Preferred Debentures are privately held; therefore
the carrying amount approximates fair value.

Accrued interest
payable:The carrying amounts of
accrued interest payable approximate their fair value.

Note 18. Sale of Branch

On February 14, 2003, the Company sold its
Hoopeston bank branch at a premium resulting in a gain of
$478,000. The branch had approximately $6.4 million in
loans and $19.4 million in deposits.


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Note 19. Condensed Parent Company Only Financial Statements

|                                      |                                           |                |        |         |   |   |        |         |  
|------------------------------------- | ----------------------------------------- | -------------- | ------ | ------- | - | - | ------ | ------- | -
|                                      |                                           |               
|                                      |                                           | December 31,  
|                                      |                                           |               
|                                      |                                           | 2004           |        | 2003   
|Statements of financial condition     |                                           |                |        |        
|                                      |                                           |               
|                                      |                                           | (in thousands)
|Assets:                               |                                           |                |        |         |   |   |        |        
|                                      | Cash and cash equivalents                 |                | $      | 370     |   |   | $      | 76      |  
|                                      | Certificate of deposit                    |                |        | 50      |   |   |        | 50      |  
|                                      | Investment securities, available-for-sale |                |        | 6,450   |   |   |        | 379     |  
|                                      | Equity in net assets of Centrue Bank      |                |        | 59,916  |   |   |        | 57,715  |  
|                                      | Investment in Capital Trusts              |                |        | 620     |   |   |        | 310     |  
|                                      | Other assets                              |                |        | 1,103   |   |   |        | 803     |  
|                                      |                                           |                |        |         |   |   |        |        
|                                      |                                           | $              | 68,509 |         |   | $ | 59,333 |        
|                                      |                                           |                |        |         |   |   |        |        
|Liabilities and stockholders equity: |                                           |                |        |         |   |   |        |        
|                                      | Long-term borrowings                      |                | $      | 23,443  |   |   | $      | 12,840  |  
|                                      | Other liabilities                         |                |        | 1,890   |   |   |        | 850     |  
|                                      | Common stock                              |                |        | 42      |   |   |        | 42      |  
|                                      | Additional paid-in capital                |                |        | 28,998  |   |   |        | 28,929  |  
|                                      | Retained income                           |                |        | 43,925  |   |   |        | 39,231  |  
|                                      | Accumulated comprehensive income          |                |        | 27      |   |   |        | 1,088   |  
|                                      | Unearned restricted stock                 |                |        | (512    | ) |   |        | (820    | )
|                                      | Treasury stock                            |                |        | (29,304 | ) |   |        | (22,827 | )
|                                      |                                           |                |        |         |   |   |        |        
|                                      |                                           | $              | 68,509 |         |   | $ | 59,333 |        
|                                      |                                           |                |        |         |   |   |        |        

|                                                 |                                  |                          |       |       |  |      |       |       |  |   |       |       | 
|------------------------------------------------ | -------------------------------- | ------------------------ | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|                                                 |                                  |                         
|                                                 |                                  | Years Ended December 31,
|                                                 |                                  |                         
|                                                 |                                  | 2004                     |       | 2003  |  | 2002
|Statements of income                             |                                  |                          |       |       |  |     
|                                                 |                                  |                         
|                                                 |                                  | (in thousands)          
|Dividends from subsidiary                        |                                  | $                        | 2,596 |       |  | $    | 1,894 |       |  | $ | 1,875 |      
|Interest income                                  |                                  |                          | 198   |       |  |      | 41    |       |  |   | 141   |      
|Net gain (loss) on sale of investments           |                                  |                          | (5    | )     |  |      | 8     |       |  |   |      |      
|                                                 |                                  |                          |       |       |  |      |       |       |  |   |       |      
|                                                 | Operating income                 |                          |       | 2,789 |  |      |       | 1,943 |  |   |       | 2,016 | 
|                                                 |                                  |                          |       |       |  |      |       |       |  |   |       |      
|Equity in undistributed earnings of Centrue Bank |                                  |                          | 3,271 |       |  |      | 415   |       |  |   | 1,177 |      
|Interest expense                                 |                                  |                          | 1,057 |       |  |      | 611   |       |  |   | 452   |      
|Other expenses                                   |                                  |                          | 739   |       |  |      | 983   |       |  |   | 986   |      
|                                                 |                                  |                          |       |       |  |      |       |       |  |   |       |      
|                                                 | Income before income tax benefit |                          |       | 4,264 |  |      |       | 764   |  |   |       | 1,755 | 
|Income tax benefit                               |                                  |                          | 625   |       |  |      | 599   |       |  |   | 478   |      
|                                                 |                                  |                          |       |       |  |      |       |       |  |   |       |      
|                                                 | Net income                       |                          | $     | 4,889 |  |      | $     | 1,363 |  |   | $     | 2,233 | 
|                                                 |                                  |                          |       |       |  |      |       |       |  |   |       |      

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|                                                 |                                                                                       |                                                  |                                                         |        |        |        |        |        |      |        |       |        |        |       |  
|------------------------------------------------ | ------------------------------------------------------------------------------------- | ------------------------------------------------ | ------------------------------------------------------- | ------ | ------ | ------ | ------ | ------ | ---- | ------ | ----- | ------ | ------ | ----- | -
|                                                 |                                                                                       |                                                 
|                                                 |                                                                                       | Years Ended December 31,                        
|                                                 |                                                                                       |                                                 
|                                                 |                                                                                       | 2004                                             |                                                         | 2003   |        | 2002  
|Statements of cash flows                         |                                                                                       |                                                  |                                                         |        |        |       
|                                                 |                                                                                       |                                                 
|                                                 |                                                                                       | (in thousands)                                  
|Operating activities:                            |                                                                                       |                                                  |                                                         |        |        |        |        |        |      |        |       |       
|                                                 | Net income                                                                            |                                                  | $                                                       | 4,889  |        |        | $      | 1,363  |      |        | $     | 2,233  |       
|                                                 | Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                  |                                                         |        |        |        |        |        |      |        |       |        |       
|                                                 |                                                                                       | Gain (loss) on sale of securities                |                                                         |        | 5      |        |        |        | (8   | )      |       |        |       |      
|                                                 |                                                                                       | Equity in undistributed earnings of Centrue Bank |                                                         |        | (3,271 | )      |        |        | (415 | )      |       |        | (1,177 | )    
|                                                 |                                                                                       | Compensation expense for restricted stock        |                                                         |        | 225    |        |        |        |     |        |       |        |       |      
|                                                 |                                                                                       | Other                                            |                                                         |        | 363    |        |        |        | (772 | )      |       |        | (68    | )    
|                                                 |                                                                                       |                                                  |                                                         |        |        |        |        |        |      |        |       |       
|                                                 |                                                                                       |                                                  | Net cash provided by operating activities               |        |        | 2,211  |        |        |      | 168    |       |        |        | 988   |  
|                                                 |                                                                                       |                                                  |                                                         |        |        |        |        |        |      |        |       |       
|Investing activities:                            |                                                                                       |                                                  |                                                         |        |        |        |        |        |      |        |       |       
|                                                 | Available-for-sale investment securities:                                             |                                                  |                                                         |        |        |        |        |        |      |        |       |        |       
|                                                 |                                                                                       | Proceeds from sale of securities                 |                                                         |        | 1,996  |        |        |        | 96   |        |       |        |       |      
|                                                 |                                                                                       | Purchases                                        |                                                         |        | (8,996 | )      |        |        | (14  | )      |       |        | (22    | )    
|                                                 |                                                                                       | Maturities of securities                         |                                                         |        | 1,000  |        |        |        |     |        |       |        |       |      
|                                                 | Purchase of State Bank of Aviston                                                     |                                                  |                                                         |       |        |        |        | 20     |      |        |       |       |       
|                                                 |                                                                                       |                                                  |                                                         |        |        |        |        |        |      |        |       |       
|                                                 |                                                                                       |                                                  | Net cash provided by (used in) investing
    activities |        |        | (6,000 | )      |        |      | 102    |       |        |        | (22   | )
|                                                 |                                                                                       |                                                  |                                                         |        |        |        |        |        |      |        |       |       
|Financing activities:                            |                                                                                       |                                                  |                                                         |        |        |        |        |        |      |        |       |       
|                                                 | Purchase of treasury stock                                                            |                                                  |                                                         | (6,514 | )      |        |        | (9,308 | )    |        |       | (3,202 | )     
|                                                 | Dividends paid                                                                        |                                                  |                                                         | (195   | )      |        |        | (649   | )    |        |       | (680   | )     
|                                                 | Proceeds from issuance of junior subordinated
    debentures                          |                                                  |                                                         | 10,000 |        |        |        |       |      |        |       | 10,000 |       
|                                                 | Proceeds from borrowings                                                              |                                                  |                                                         | 2,603  |        |        |        | 933    |      |        |       |       |       
|                                                 | Payments on borrowings                                                                |                                                  |                                                         | (2,000 | )      |        |        | (100   | )    |        |       |       |       
|                                                 | Proceeds from exercise of stock options                                               |                                                  |                                                         | 189    |        |        |        | 202    |      |        |       | 539    |       
|                                                 |                                                                                       |                                                  |                                                         |        |        |        |        |        |      |        |       |       
|                                                 |                                                                                       |                                                  | Net cash provided by (used in) financing
    activities |        |        | 4,083  |        |        |      | (8,922 | )     |        |        | 6,657 |  
|                                                 |                                                                                       |                                                  |                                                         |        |        |        |        |        |      |        |       |       
|Increase (decrease) in cash and cash equivalents |                                                                                       |                                                  | 294                                                     |        |        |        | (8,652 | )      |      |        | 7,623 |       
|Cash and cash equivalents:                       |                                                                                       |                                                  |                                                         |        |        |        |        |        |      |        |       |       
|                                                 | Beginning of period                                                                   |                                                  |                                                         | 76     |        |        |        | 8,728  |      |        |       | 1,105  |       
|                                                 |                                                                                       |                                                  |                                                         |        |        |        |        |        |      |        |       |       
|                                                 | End of period                                                                         |                                                  | $                                                       | 370    |        |        | $      | 76     |      |        | $     | 8,728  |       
|                                                 |                                                                                       |                                                  |                                                         |        |        |        |        |        |      |        |       |       

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NOTES TO


CONSOLIDATED


FINANCIAL


STATEMENTS







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Note 20. Quarterly Results of Operations (Unaudited)

|                           |                                                         |                                       |       |              |  |         |       |          |  |   |       |       |  |   |       |       | 
|-------------------------- | ------------------------------------------------------- | ------------------------------------- | ----- | ------------ |  | ------- | ----- | -------- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                           |                                                         |                                      
|                           |                                                         | Year Ended December 31, 2004         
|                           |                                                         |                                      
|                           |                                                         |                                      
|                           |                                                         | Three Months Ended                   
|                           |                                                         | December 31                           |       | September 30 |  | June 30 |       | March 31
|                           |                                                         |                                       |       |              |  |         |       |         
|                           |                                                         |                                      
|                           |                                                         | (in thousands, except per share data)
|Interest income            |                                                         | $                                     | 7,402 |              |  | $       | 7,358 |          |  | $ | 7,273 |       |  | $ | 7,365 |      
|Interest expense           |                                                         |                                       | 2,653 |              |  |         | 2,602 |          |  |   | 2,603 |       |  |   | 2,792 |      
|                           |                                                         |                                       |       |              |  |         |       |          |  |   |       |       |  |   |       |      
|                           | Net interest income                                     |                                       |       | 4,749        |  |         |       | 4,756    |  |   |       | 4,670 |  |   |       | 4,573 | 
|Provision for loan losses  |                                                         |                                       | 300   |              |  |         | 300   |          |  |   | 300   |       |  |   | 300   |      
|                           |                                                         |                                       |       |              |  |         |       |          |  |   |       |       |  |   |       |      
|                           | Net interest income after provision for loan
    losses |                                       |       | 4,449        |  |         |       | 4,456    |  |   |       | 4,370 |  |   |       | 4,273 | 
|Other income               |                                                         |                                       | 1,666 |              |  |         | 1,589 |          |  |   | 1,503 |       |  |   | 1,249 |      
|Other expense              |                                                         |                                       | 3,984 |              |  |         | 4,310 |          |  |   | 4,147 |       |  |   | 4,309 |      
|                           |                                                         |                                       |       |              |  |         |       |          |  |   |       |       |  |   |       |      
|                           | Income before income taxes                              |                                       |       | 2,131        |  |         |       | 1,735    |  |   |       | 1,726 |  |   |       | 1,213 | 
|Income taxes               |                                                         |                                       | 502   |              |  |         | 502   |          |  |   | 544   |       |  |   | 368   |      
|                           |                                                         |                                       |       |              |  |         |       |          |  |   |       |       |  |   |       |      
|                           | Net income                                              |                                       | $     | 1,629        |  |         | $     | 1,233    |  |   | $     | 1,182 |  |   | $     | 845   | 
|                           |                                                         |                                       |       |              |  |         |       |          |  |   |       |       |  |   |       |      
|Basic earnings per share   |                                                         | $                                     | 0.66  |              |  | $       | 0.50  |          |  | $ | 0.47  |       |  | $ | 0.33  |      
|                           |                                                         |                                       |       |              |  |         |       |          |  |   |       |       |  |   |       |      
|Diluted earnings per share |                                                         | $                                     | 0.66  |              |  | $       | 0.50  |          |  | $ | 0.46  |       |  | $ | 0.33  |      
|                           |                                                         |                                       |       |              |  |         |       |          |  |   |       |       |  |   |       |      

|                                  |                                                                |                                       |       |              |  |         |       |          |  |   |        |        |   |   |       |       | 
|--------------------------------- | -------------------------------------------------------------- | ------------------------------------- | ----- | ------------ |  | ------- | ----- | -------- |  | - | ------ | ------ | - | - | ----- | ----- | 
|                                  |                                                                |                                      
|                                  |                                                                | Year Ended December 31, 2003         
|                                  |                                                                |                                      
|                                  |                                                                |                                      
|                                  |                                                                | Three Months Ended                   
|                                  |                                                                | December 31                           |       | September 30 |  | June 30 |       | March 31
|                                  |                                                                |                                       |       |              |  |         |       |         
|                                  |                                                                |                                      
|                                  |                                                                | (in thousands, except per share data)
|Interest income                   |                                                                | $                                     | 7,164 |              |  | $       | 6,339 |          |  | $ | 6,641  |        |   | $ | 7,333 |      
|Interest expense                  |                                                                |                                       | 2,980 |              |  |         | 2,696 |          |  |   | 2,979  |        |   |   | 3,342 |      
|                                  |                                                                |                                       |       |              |  |         |       |          |  |   |        |        |   |   |       |      
|                                  | Net interest income                                            |                                       |       | 4,184        |  |         |       | 3,643    |  |   |        | 3,662  |   |   |       | 3,991 | 
|Provision for loan losses         |                                                                |                                       | 101   |              |  |         | 272   |          |  |   | 3,683  |        |   |   | 66    |      
|                                  |                                                                |                                       |       |              |  |         |       |          |  |   |        |        |   |   |       |      
|                                  | Net interest income (loss) after provision
    for loan losses |                                       |       | 4,083        |  |         |       | 3,371    |  |   |        | (21    | ) |   |       | 3,925 | 
|Other income                      |                                                                |                                       | 1,315 |              |  |         | 1,534 |          |  |   | 1,116  |        |   |   | 1,741 |      
|Other expense                     |                                                                |                                       | 4,633 |              |  |         | 3,508 |          |  |   | 3,601  |        |   |   | 3,669 |      
|                                  |                                                                |                                       |       |              |  |         |       |          |  |   |        |        |   |   |       |      
|                                  | Income (loss) before income taxes                              |                                       |       | 765          |  |         |       | 1,397    |  |   |        | (2,506 | ) |   |       | 1,997 | 
|Income taxes                      |                                                                |                                       | 93    |              |  |         | 574   |          |  |   | (1,003 | )      |   |   | 626   |      
|                                  |                                                                |                                       |       |              |  |         |       |          |  |   |        |        |   |   |       |      
|                                  | Net income (loss)                                              |                                       | $     | 672          |  |         | $     | 823      |  |   | $      | (1,503 | ) |   | $     | 1,371 | 
|                                  |                                                                |                                       |       |              |  |         |       |          |  |   |        |        |   |   |       |      
|Basic earnings (loss) per share   |                                                                | $                                     | 0.27  |              |  | $       | 0.44  |          |  | $ | (0.80  | )      |   | $ | 0.64  |      
|                                  |                                                                |                                       |       |              |  |         |       |          |  |   |        |        |   |   |       |      
|Diluted earnings (loss) per share |                                                                | $                                     | 0.26  |              |  | $       | 0.44  |          |  | $ | (0.80  | )      |   | $ | 0.64  |      
|                                  |                                                                |                                       |       |              |  |         |       |          |  |   |        |        |   |   |       |      

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CORPORATE


INFORMATION







---



CORPORATE INFORMATION



Corporate Headquarters

Centrue Financial Corporation


310 South Schuyler Avenue


P.O. Box 552


Kankakee, Illinois 60901-0552


(815) 937-4440


(815) 937-3674 FAX


Special Counsel

Barack Ferrazzano Kirschbaum Perlman &
Nagelberg LLP


333 West Wacker Drive


Suite 2700


Chicago, Illinois 60606


(312) 984-3100


Transfer Agent and Registrar

The Companys transfer agent, LaSalle Bank
N.A., maintains all stockholder records and can assist with
stock transfer and registration, address changes, corrections in
social security or tax identification numbers and 1099 tax
reporting questions. If you have any questions, please contact
the stock transfer agent at the address below:


LaSalle Bank N.A.

135 S. LaSalle Street, Suite 1960


Chicago, Illinois 60603


Attn: Shareholder Services


(312) 904-2458


Independent Registered Public Accounting Firm

McGladrey & Pullen, LLP


1806 Fox Drive


Champaign, Illinois 61820


WEB SITE ACCESS TO UNITED STATES SECURITIES AND
EXCHANGE COMMISSION FILINGS

All reports filed electronically by the Company
with the United Stated Securities Exchange Commission (the
SEC), including the annual report on Form 10-K,
quarterly reports on Form 10-Q, and current events reports
on Form 8-K, as well as any amendments to those reports are
accessible at no cost on our internet site at www.centrue.com
and on the SECs web site at www.sec.gov. We will also
provide you with a copy free of charge by contacting:

Centrue Financial Corporation

310 South Schuyler Avenue


P.O. Box 552


Kankakee, Illinois 60901-0552


(815) 937-4440


CORPORATE GOVERNANCE

The Companys corporate governance practices
are described in the following documents, which are available on
the Companys Web site at www.centrue.com or which may be
obtained in print form from us at the above address:


 Audit
Committee charter

 Executive
Committee charter


 Code of
Conduct


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CORPORATE


INFORMATION







---



Quarterly Press Releases

Copies of Centrue Financial Corporations
quarterly press releases and other public information are
available upon request, without charge by contacting our
Corporate Secretary at the above address


Annual Meeting

The annual meeting of stockholders will be held
at 10:00 a.m. on Friday, April 22, 2005, at the
offices of Barack Ferrazzano Kirschbaum Perlman &
Nagelberg LLP, located at 333 West Wacker Drive,
Suite 2700, Chicago, Illinois.


Common Stock  Market and Dividend
Information

Beginning on February 25, 2005, the common
stock of the Company has been trading on the Nasdaq National
Market System under the symbol TRUE. Prior to that
time, the common stock was traded on the American Stock Exchange
under the symbol CFF. At March 4, 2005, there
were 2,377,501 shares of the Companys common stock
issued and outstanding and there were approximately 603 holders
of record.


The price range of the Companys common
stock from January 1, 2003 through March 4, 2005, is
set forth in the following table:

|                                       |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|                                       |  |      |       |     
|                                       |  | 2004 |       | 2003
|                                       |  |      |       |     
|                                       |  | High |       | Low  |  | High |       | Low
|                                       |  |      |       |      |  |      |       |    
|1st Quarter                            |  | $    | 28.24 |      |  | $    | 27.45 |     |  | $ | 19.70 |  |  | $ | 17.90 | 
|2nd Quarter                            |  |      | 28.01 |      |  |      | 25.76 |     |  |   | 23.10 |  |  |   | 18.20 | 
|3rd Quarter                            |  |      | 28.05 |      |  |      | 27.30 |     |  |   | 28.30 |  |  |   | 23.00 | 
|4th Quarter                            |  |      | 28.21 |      |  |      | 27.15 |     |  |   | 32.30 |  |  |   | 25.70 | 
|January 1, 2005, through March 4, 2005 |  |      | 30.00 |      |  |      | 27.80 |     |  |   |       |  |  |   |       | 

The Company paid its first cash dividend since
becoming a public company during the first quarter of 1995. Cash
dividends in the total amount of $.075 per share and $.30 per
share were paid during 2004 and 2003, respectively. As
previously announced, the Company discontinued payment of its
quarterly cash dividend in 2004. The payment of future
dividends, if any, will depend primarily upon the Companys
earnings, financial condition and need for funds, as well as
restrictions imposed by regulatory authorities regarding
dividend payments and net worth requirements. See Note 13
of the Notes to Consolidated Financial Statements for additional
information regarding restrictions on the payment of dividends
by the Bank to the Company.

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DIRECTORS AND


OFFICERS







---





DIRECTORS AND OFFICERS

As of March 1, 2005


Centrue Financial Corporation Directors

Chairman of the Board, Centrue Financial
Corporation and Chief Executive Officer, GPD Pharma,Michael A. Griffith

President and Chief Executive Officer, Centrue
Financial Corporation, Thomas A. Daiber


President, Gundaker Commercial Group, Inc., Michael J. Hejna


President, Smith, Koelling, Dykstra & Ohm,
PC, Mark L. Smith


Retired; Former Executive Director, Kankakee
YMCA, Wesley E. Walker


Centrue Financial Corporation Officers

President and Chief Executive Officer,Thomas A. Daiber

Chief Financial Officer, James M. Lindstrom


Secretary, Lynn
OBrien


Centrue Bank, Directors and Officers

Chairman of the Board,Michael A. Griffith

Directors, Mark L. Smith, Michael J. Hejna, Wesley E. Walker,
Thomas A. Daiber


President and Chief Executive Officer, Thomas A. Daiber


Chief Financial Officer, James M. Lindstrom


Chief Credit Officer, Keith A. Francis


President, Centrue North, Michael A. OGorman


President, Centrue South, Rick R. Parks


President, Centrue West, Keith M. Roseland


Senior Vice President, Carol S. Hoekstra


Vice Presidents: John A. Betts, Gary L. Buesinger,
Hollice Clark, Anna D. Hollenbeck,
John N. Kempen, Bobbi J. Kinkade,
John C. Kirts, Cynthia T. Knebel,
Marsha S. Lloyd, Christopher W. Maschoff,
Larry J. Nona, Stephen N. Parrish,
Terry L. Ralston, Mitchell L. Swim,
Lynda L. Tite


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OFFICE LOCATIONS







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(CENTRUEBANK LOGO)