U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  FORM 10-KSB

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

                  For the fiscal year ended December 31, 2001
                                       OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT
                                    OF 1934

           For the transition period from ----------  to  ----------

                         Commission file number 0-18599

                            BLACKHAWK BANCORP, INC.
                 (Name of small business issuer in its charter)
                 WISCONSIN                          39-1659424
              (State of Incorporation)           (IRS Employer ID No.)

                   400 Broad Street, Beloit, Wisconsin 53511
                    (Address of principal executive offices)
                    Issuer's Telephone Number (608) 364-8911

         Securities Registered Under Section 12(b) of the Exchange Act:
                                      NONE

         Securities Registered Under Section 12(g) of the Exchange Act:
                         COMMON STOCK, $ .01 PAR VALUE

 Check whether the issuer (1) filed all reports required to be filed by Section
 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
  subject to such filing requirements for the past 90 days.  Yes  X    No    .
                                                                 ---      ---

Check if there is no disclosure of delinquent filers in response to Item 405 of
    Regulation S-B is not contained in this form, and no disclosure will be
    contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
                  or any amendment to this Form 10-KSB. [ X ]

        State issuer's revenues for its most recent fiscal year. $25,244,970

As of March 18, 2002, 2,405,838 shares of common stock were outstanding and the
aggregate market value (based on the bid price at March 18, 2002) of the shares
   held by non-affiliates (excludes shares reported or beneficially owned by
 directors and officers - does not constitute an admission to affiliate status)
                         was approximately $16,839,000.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of Blackhawk Bancorp, Inc.' s definitive proxy statement for its Annual
    Meeting of Stockholders, to be held on May 15, 2002, are incorporated by
                        reference into Part III hereof.

 Transitional Small Business Disclosure Format (check one): Yes [   ]  No [ X ]

                         Index of Exhibits on Page 29.

                            BLACKHAWK BANCORP, INC.

                        FORM 10-KSB - TABLE OF CONTENTS

PART I                                                                     PAGE

Item  1   Description of Business                                            3

Item  2   Description of Property                                            9

Item  3   Legal Proceedings                                                  9

Item  4   Submission of Matters to a Vote of
          Security Holders                                                   9

PART II

Item  5   Market for the Registrant's Common Stock and
          Related Stockholder Matters                                        9

Item  6   Management's Discussion and Analysis of
          Financial Condition and Results of
          Operations                                                        10

Item  7   Financial Statements and Supplemental Data                        17

Item  8   Changes In and Disagreements with
          Accountants on Accounting and Financial
          Disclosure.                                                       26

PART III

Item  9   Directors, Executive Officers, Promoters and Control Persons
          of the Registrant; Section 16(a) Beneficial Ownership
          Reporting Compliance                                              27

Item 10   Executive Compensation                                            27

Item 11   Security Ownership Of Certain Beneficial
          Owners and Management.                                            27

Item 12   Certain Relationships and Related
          Transactions                                                      27

PART IV

Item 13   Exhibits and Reports on Form 8-K                                  27

Signatures                                                                  28

                                    PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL.  Blackhawk  Bancorp, Inc. (the  "Company") was  incorporated under  the
laws of the state of Wisconsin in November 1989.  The Company owns and  operates
a subsidiary financial institution, Blackhawk State Bank ("Bank")  headquartered
in Beloit, Wisconsin.

The Bank is a Wisconsin-chartered commercial bank operating four branches in the
Greater Beloit Area consisting of three  free-standing branches and an  in-store
branch.   Six additional  free-standing branches  are located  in the  following
cities in Illinois: Belvidere  (2), Oregon (1), Rochelle  (1), Rockford (1)  and
Roscoe (1).  The Bank has three wholly-owned subsidiaries.  Nevahawk Investment,
Inc. ("Nevahawk")  is an  investment subsidiary  located in  Las Vegas,  Nevada.
RSL, Inc.  is  the second  subsidiary  which  in turn  owns  Midland  Acceptance
Corporation ("MAC").  First  Financial  Services, Inc.  ("FFSI")  is  the  third
subsidiary. FFSI owns the Bank's North  State Street location in Belvidere,  IL.
MAC was primarily inactive for the year ended December 31, 2001.

On April 30, 1997, the Company completed the purchase of all of the  outstanding
shares of  Rochelle  Bancorp,  Inc.  ("Rochelle")  of  Rochelle,  Illinois,  for
approximately $4.2  million  in  cash.    Rochelle's  wholly  owned  subsidiary,
Rochelle Savings Bank S.B.,  was an Illinois state  chartered savings bank  with
offices in  Rochelle and  Oregon, Illinois,  and assets  totaling  approximately
$51.0 million at the time of acquisition.  This acquisition was accounted for as
a purchase transaction.  On March 31, 1998, the charter of Rochelle Savings Bank
S.B. was merged into the charter of Blackhawk State Bank.

As a part of  this purchase, the  Company also acquired  all of the  outstanding
shares of MAC, a  consumer finance subsidiary whose  loan portfolio was sold  by
the Company in December 1999.

Effective September 1, 1998,  the Company completed the  purchase of all of  the
outstanding shares of First Financial Bancorp, Inc. ("Belvidere") of  Belvidere,
Illinois for  approximately $12.7  million in  cash.   Belvidere's wholly  owned
subsidiary, First Federal Savings Bank, a federal savings bank with two  offices
in Belvidere and one  in Rockford, Illinois,  and assets totaling  approximately
$86.0 million, was merged into the Bank on the effective date of purchase.

The principal sources  of funds for  the Bank's lending  activities are  deposit
accounts, amortization and prepayment of loans, short-term borrowings,  advances
from the Federal  Home Loan  Bank of Chicago  ("FHLB") and  funds provided  from
operations.  The  principal sources of  income are interest  and fees on  loans,
interest on investments and non-interest income, consisting of fees for the sale
and servicing  of mortgage  loans, service  charges, trust  department fees  and
income from retail non-deposit investment sales.

LENDING ACTIVITIES.  A majority  of the loans in  the Bank's loan portfolio  are
secured by residential or commercial real estate.  Substantially all of the real
estate securing  the mortgage  loans is  located within  thirty minutes  driving
distance of  the Bank's  offices.   Previously, management  of the  Company  has
restructured the loan  portfolio of  the bank  branches located  in the  Greater
Beloit Area  to  decrease  the concentration  of  mortgage  loans  and  increase
commercial and installment loans.  Management of the Company anticipates the on-
going restructuring  of the  loan  portfolio of  Rochelle  and Belvidere.    The
Analysis of Loan Portfolio, located in Table 2  of Item 7, shows the changes  in
the types of loans from 1999 through 2001.

Commercial loans are either collateralized by  assets other than real estate  or
are unsecured.   Interest rates  on commercial loans  are generally  tied to  an
index adjustable monthly  and therefore are  more rate  sensitive than  mortgage
loans.  Consumer  and installment loans  are generally  secured by  automobiles,
boats, or  junior liens on real estate.  A substantial percentage of  automobile
and boat loans in the portfolio were purchased from area dealers. The Bank  also
offers credit cards and home equity lines of credit.

Approximately $26 million in single one-to-four family loans are serviced by the
Bank as  of December  31,  2001. Prior  to  the sale  of  75% of  the  servicing
portfolio during  2000, the  Bank serviced  approximately $120  million of  such
loans. The  majority  of   these  servicing  rights were  acquired  through  the
purchase transactions mentioned above while the remainder resulted from internal
originations.  Substantially  all of these  loans are sold  to the Federal  Home
Loan Mortgage Corporation ("Freddie Mac").

MAC, having  operated  as  a sub-prime  lender,  maintained  approximately  $1.3
million in outstanding loans until the sale of the portfolio in December 1999.

INVESTMENT ACTIVITIES.   The  investment policy  under which  the Bank  and  its
Nevahawk subsidiary operate normally  limits investments to:   1) U.S.  Treasury
and government  agency securities  with maturities  of  5 years  or fewer;    2)
mortgage-backed securities,  limited  to no  more  than 30%  of  the  investment
portfolio, with  an  average  life of  5  1/2  years or  fewer;    3)  municipal
securities rated "A" or better, unless they are tax-anticipation notes issued by
Wisconsin issuers whose long-term debt is rated at least "A" or if unrated,  are
judged by management  to possess  investment characteristics  comparable to  "A"
rated debt securities; and 4) corporate bonds and notes rated "A" or better with
a maturity of 4 years  or fewer. In addition,  the Bank may purchase  commercial
paper, bankers  acceptances  and  bank certificates  of  deposit  as  authorized
investments to provide additional liquidity in the investment portfolio.

Security investments made in a single entity  are limited to 20% of its  capital
and surplus.  This  limitation does not apply  to investments in obligations  of
the United States Treasury, Federal Land Banks, Federal Home Loan Banks, Federal
Farm Credit Banks, Federal National Mortgage Association, Export-Import Bank  of
Washington or obligations  fully and  unconditionally guaranteed  by the  United
States. Generally,  the  recently  purchased  taxable  securities  held  by  the
Company, the  Bank  and Nevahawk  are  classified as  available-for-sale,  while
exempt securities have been classified as held-to-maturity.

During 1991,  the Bank  transferred approximately  $21.5  million worth  of  its
investment securities to Nevahawk, it's  wholly-owned subsidiary located in  Las
Vegas, Nevada.  In March 1999, an additional $7.0 million investment was made in
Nevahawk.  At December 31, 2001,  the portfolio under management by Nevahawk  is
approximately $39.7 million.

The Company can  maintain an investment  portfolio that  consists of  securities
similar to  those mentioned  above. At  December 31,  2001, the  Company had  no
security holdings.

DEPOSIT ACTIVITIES.   Deposits  are divided  between interest  bearing and  non-
interest bearing.  Non-interest bearing deposits consist of checking accounts of
individuals and non-personal  entities.  The  interest-bearing deposits  include
savings accounts,  money  market  deposit  accounts,  certificates  of  deposit,
individual retirement  accounts, NOW  accounts and  check  club accounts.    The
aggregate balance of time deposits with balances in excess of $100,000 was $23.5
million at December 31, 2001.  During 2001 the Bank acquired approximately  $2.5
million in brokered deposits which mature  in 2002.  The Bank attracts  deposits
by offering competitive interest rates for interest-bearing accounts and  prices
services on a competitive basis for non-interest bearing accounts.

TRUST SERVICES.  Through a separate department the Bank provides personal  trust
services, including acting as trustee for living and testamentary trusts, and as
an  agent,  custodian,   guardian,  conservator,   personal  representative   or
administrator for individuals or their estates.  Trust offices are maintained at
the Bank's main location in Beloit, Wisconsin.

OTHER SERVICES.  The Bank  provides a wide range  of other banking services  for
both retail and  commercial customers. It  also provides full-service  brokerage
services through  a  relationship with  a  third-party provider,  Raymond  James
Securities, Inc., in two locations.

COMPETITION.   Banks  experience  intense competition  in  both  attracting  and
retaining deposits  and in  making loans.   The  Bank's direct  competition  for
deposits has come from  other commercial banks,  savings and loan  associations,
credit unions, mutual funds, stock brokerage firms, and other financial services
intermediaries. In  addition  to  offering competitive  types  of  accounts  and
interest rates,  the principal  methods used  by the  Bank to  attract  deposits
includes the offering of a variety  of services, convenient business hours,  and
branch locations.

Competition in making real estate loans comes principally from savings and  loan
associations, mortgage companies  and other  commercial banks.   Consumer  loans
provided by credit unions, finance companies and other commercial banks  provide
the competition in this area.  Other commercial banks are the major  competition
for commercial loans.

EMPLOYMENT.   As  of  December 31,  2001,  the  Company and  the  Bank  had  151
employees, of which 112 were employed on a full-time basis.  The fringe benefits
generally provided to  qualified employees include  health insurance,  long-term
disability insurance, group  term life insurance,  a flexible compensation  plan
(cafeteria  plan),  a  401k  deferred  compensation  and  profit-sharing   plan.
Management considers its relations with employees to be good.

SUPERVISION AND REGULATION.  The Company and the Bank are extensively  regulated
under federal  and state  law.   Any descriptions  of statutory  and  regulatory
provisions contained in the following discussion are qualified in their entirety
by reference to the particular statutory and regulatory provisions.  Any  change
in applicable law or regulations may have a material effect on the Company.

The Company.

On March 27, 1990, the Company received approval from the Federal Reserve  Board
(the "FRB") under the  Bank Holding Company  Act of 1956,  as amended (the  "BHC
Act"), to  become a  registered bank  holding company  by acquiring  all of  the
capital stock of the Bank.  As a result, since consummation of the bank  holding
company reorganization  on May  16, 1990,  the  Company's activities  have  been
subject to limitations  imposed under  the BHC  Act.   Transactions between  the
Company  and  the  Bank  and  their  affiliates  are  also  subject  to  certain
restrictions.  As a registered bank  holding company, the Company is subject  to
various filing requirements of the FRB and is also subject to examination by the
FRB.

FRB approval must  be obtained  before a bank  holding company  acquires all  or
substantially all of the assets  of a bank or  savings association or merges  or
consolidates with  another bank  holding company  or  savings and  loan  holding
company.   Wisconsin has  also adopted  legislation  which allows  bank  holding
companies from other states to acquire banks in Wisconsin, and allows  Wisconsin
bank holding companies to acquire banks in other states.

The laws and regulations  to which the Company  is subject are constantly  under
review by Congress, regulatory agencies and state legislatures.  On November 12,
1999, then President Clinton signed important legislation passed by Congress  to
overturn Depression-era restrictions on  affiliations by banking  organizations.
This comprehensive legislation, referred to  as the Gramm-Leach-Bliley Act  (the
"Act"), eliminates certain barriers to and restrictions on affiliations  between
banks and securities  firms, insurance  companies and  other financial  services
organizations.  The Act provides for  a new type of "financial holding  company"
structure under which affiliations  among these entities  may occur, subject  to
the regulation of the Federal Reserve Board and regulation of affiliates by  the
functional regulators,  including the  Securities  and Exchange  Commission  and
state insurance regulators.   In addition, the  Act permits certain  non-banking
financial and  financially  related  activities to  be  conducted  by  operating
subsidiaries of a  national bank.   Under the Act,  a bank  holding company  may
become certified as  a financial  holding company by  filing a  notice with  the
Federal Reserve  Board, together  with a  certification  that the  bank  holding
company meets  certain criteria,  including  capital, management  and  Community
Reinvestment Act  requirements.    The  Act  contains  a  number  of  provisions
allocating regulatory authority among the  Federal Reserve Board, other  banking
regulators,  the  Securities  and   Exchange  Commission  and  state   insurance
regulators.  In addition, the Act imposes strict new limits on the transfer  and
use by financial  institutions of  nonpublic, personal  information about  their
customers.

Other important  provisions  of the  Act  permit merchant  banking  and  venture
capital activities, and insurance underwriting, to be conducted by a  subsidiary
of a financial holding company, and municipal securities underwriting activities
to be conducted directly  by a national bank  or by its  subsidiary.  Under  the
Act, a  financial holding  company may  engage  in a  broad list  of  "financial
activities," and  any  non-financial activity  that  the Federal  Reserve  Board
determines is "complementary" to a financial  activity and poses no  substantial
risk to the  safety and soundness  of depository institutions  or the  financial
system. The Company has not elected to become a financial holding company.

On June 1, 2000, the federal  bank regulatory agencies issued final  regulations
implementing the Act's consumer  privacy protections.   Among other things,  the
new privacy regulations give  customers the right to  "opt out" of having  their
nonpublic,  personal  information  shared   by  a  financial  institution   with
nonaffiliated  third  parties,  bars  financial  institutions  from   disclosing
customer account  numbers or  other such  access  codes to  nonaffiliated  third
parties  for  direct  marketing  purposes  and  requires  annual  disclosure  by
financial  institutions  of  their   policies  and  procedures  for   protecting
customers' nonpublic,  personal  information.   Full  compliance  with  the  new
privacy regulations was mandatory as of July 1, 2001.

The FRB has adopted capital guidelines as to both minimum levels of core capital
and risk-based capital. The minimum core  capital requirement ranges from 3%  to
5% of total assets depending upon  the regulator's determination of the  holding
company's strength.  The  guidelines assign risk weightings  to assets and  off-
balance sheet  items, and  have minimum  risk-based capital  ratios.   All  bank
holding companies are required to have total consolidated capital of 8% of risk-
weighted assets.  Core capital consists principally of shareholders' equity less
intangibles, while qualifying  total capital consists  of core capital,  certain
debt instruments and a portion of  the allowance for loan  losses.  Table 12  of
Item 7 of  this report, reflects  various regulatory measures  of capital as  of
December 31, 2001.  The Company's  core and risk-based capital ratios, as  shown
in the table are well above the minimum levels.

Under Wisconsin law,  a bank  holding company  is deemed  to be  engaged in  the
banking business and is subject to supervision and examination by the  Wisconsin
Department of Financial Institutions (the "WDFI").   The WDFI is also  empowered
to issue orders  to a bank  holding company to  remedy any  condition or  policy
which, in the  opinion of  the WDFI,  endangers the  safety of  deposits of  any
subsidiary state bank  or trust company.   In the  event of non-compliance  with
such an order, the WDFI has the power to direct the operations of the state bank
or trust company and to restrict dividends paid to the bank holding company.

The Bank.

Wisconsin-chartered banks, including the Bank,  are regulated and supervised  by
the WDFI.  Each Wisconsin-chartered bank is required to periodically be examined
by either the WDFI or the bank's primary federal regulator.  The approval of the
WDFI is required  to establish  or close branches,  merge with  other banks  and
undertake many other activities.

Any Wisconsin bank  that does not  operate in accordance  with the  regulations,
policies  and  directives  of  the  WDFI   may  be  subject  to  sanctions   for
noncompliance.  The  WDFI may, under  certain circumstances,  suspend or  remove
directors, officers or employees who have violated the law, conducted the Bank's
business in a  manner which is  unsafe, unsound or  contrary to the  depositors'
interests or been negligent in the performance of their duties.

Wisconsin state  banks  are authorized  to  accept deposits  (including  demand,
savings and time deposits  and certificates of deposit).  Banks may make a  wide
variety of  loans (including  mortgage loans,  loans to  corporations and  other
commercial loans and other  personal consumer loans).   Other federal and  state
regulations with respect to banks include  required reserves, limitations as  to
the nature and amount, by type and borrower, of lending, regulatory approval  of
mergers and  consolidations,  issuance and  retirement  by  a bank  of  its  own
securities, and other aspects of banking operations.

PAYMENT OF DIVIDENDS.  A  Wisconsin bank may only  pay dividends on its  capital
stock if such  payment would  not impair the  bank's capital  stock and  surplus
account (as defined under  Wisconsin law). Federal  and state regulations  limit
dividends paid by the Bank to  the Company to net income  of the Bank. The  Bank
paid dividends to the Company of  $1,500,000, $1,250,000 and $1,450,000 for  the
years ended December 31, 2001, 2000 and 1999, respectively. During 2001 the Bank
received a waiver from state banking regulators to pay dividends to the  Company
in excess of current net income.

FEDERAL DEPOSIT INSURANCE CORPORATION.  The Bank's deposit accounts are  insured
by the FDIC.   FDIC insurance, at the  present time, generally  insures up to  a
maximum of $100,000  for each  insured depositor.   The FDIC  imposes an  annual
assessment on deposits.  Effective January 1, 1993, premiums are assessed on the
basis of a risk rating assigned by the FDIC.  Since that time the Bank's premium
has  been  at  the  lowest  available  rate.    Beginning  in  1997,   financial
institutions insured by the  FDIC were required to  contribute to the  Financing
Corporation bond refinancing.  This is expected to occur through the year  2003.
Beginning January 1,  2000, the Bank's  Bank Insurance Fund  ("BIF") and  Saving
Association Insurance Fund ("SAIF") deposits will be assessed at the same rate.

The FDIC issues regulations, conducts periodic examinations, requires the filing
of reports and generally  supervises the operations of  its insured banks.   The
approval of the FDIC is  required prior to any  merger or consolidation, or  the
establishment or  relocation  of  any  branch  office.    This  supervision  and
regulation is intended primarily for the protection of depositors.

As an  FDIC-insured bank,  the  Bank is  subject  to certain  FDIC  requirements
designed to  maintain the  safety  and soundness  of  individual banks  and  the
banking system.    The FDIC,  based  upon appraisals  during  examinations,  may
revalue assets of an insured institution  and require establishment of  specific
reserves in amounts  equal to the  difference between such  revaluation and  the
book value  of  the assets.    In addition,  the  FDIC has  adopted  regulations
regarding capital adequacy requirements similar to those of the FRB.

OTHER ASPECTS OF FEDERAL AND STATE LAW.  The Bank is also subject to federal and
state statutory and regulatory provisions covering, among other things, security
procedures, currency  reporting,  insider  and  affiliated  party  transactions,
management  interlocks,  community  reinvestment,  truth-in-lending,  electronic
funds transfers, truth-in-savings, privacy, and equal credit opportunity.

Proposals for new legislation  or rule making  affecting the financial  services
industry are continuously being advanced and considered at both the national and
state  levels.    Proposals  are   primarily  focused  upon  restructuring   and
strengthening regulation and supervision to reduce the risks to which assets  of
banks and savings institutions are exposed.

Although further changes in  the regulatory framework  may be enacted,  specific
provisions and  their ultimate  effect upon  the business  of the  Bank and  the
Company cannot be reliably anticipated.

GOVERNMENTAL MONETARY POLICIES  AND ECONOMIC CONDITIONS.   The  earnings of  the
Bank and the Company  are affected not only  by general economic conditions  but
also by  the  policies  of various  governmental  regulatory  authorities.    In
particular, the FRB  influences general economic  conditions and interest  rates
through the regulation  of money and  credit conditions.   It does so  primarily
through open-market  operations  in  U.S.  Government  Securities,  varying  the
discount rate  on member  and nonmember  bank  borrowings, and  setting  reserve
requirements  against  bank  deposits.    FRB  monetary  policies  have  had   a
significant effect on the operating results of banks in the past and are  likely
to continue to have such an effect in the  future.  The general effect, if  any,
of such policies upon  the future business  and earnings of  the Bank cannot  be
accurately predicted.  In  addition, losses sustained  by the federal  insurance
funds and regulatory costs incurred in connection with failed or failing insured
depository institutions continue to  be assessed to  those within the  industry.
As such, future earnings  will be adversely affected  by regulations enacted  to
cover these losses and costs.

EXECUTIVE OFFICERS

Executive officers of the registrant as of March 1, 2002 are as follows:

     NAME AND AGE                   PRINCIPAL OCCUPATION
     ------------                   --------------------

     R. Richard Bastian, 55         President and Chief Executive Officer of
                                    the Company since February 2002 and of the
                                    Bank since May 2001. Previously, President
                                    of the Bank of Kenosha from  January 1999
                                    to January 2001 and Executive Vice
                                    President and Director of the Clean Air
                                    Action Corporation from August 1994 to
                                    January 2001.

     David A. Stearns, 55           Executive Vice President of the Bank since
                                    October 1998. Previously President and
                                    Chief Executive Officer of the Castle Bank
                                    Harvard, N.A., Harvard, IL. from 1995 to
                                    1997.

     Todd J. James, 38              Senior Vice President, Chief Financial
                                    Officer, Secretary and Treasurer of the
                                    Company and the Bank. since February 2002.
                                    Previously Senior Vice President, Amcore
                                    Investment Group N.A. from October 1999 to
                                    February 2002 and Vice President Amcore
                                    Financial, Inc. from October 1998 to
                                    October 1999 and Amcore Bank N.A. from
                                    1994 to October 1998.

     Judith A. Gard, 61             Senior Vice President Manager Consumer
                                    Banking for the Bank since October 2001.
                                    Previously, Vice President Private Banking
                                    Manager for Firstar Bank from February
                                    1999 to October 2001 and Senior Vice
                                    President Home Equity Unit Manager for Bank
                                    One from 1996 to 1998.

     Richard J. Rusch, 58           Senior Vice President Commercial Lending of
                                    the Bank since August 1990.

     Thomas L. Lepinski, 46         Chief Accounting Officer, Assistant
                                    Secretary and Assistant Treasurer of the
                                    Company and the Bank since February 2002
                                    and Assistant Vice President/Controller of
                                    the Bank since June 2001. Previously,
                                    Profitability Analyst III for Associated
                                    Banc-Corp from May 1999 to June 2001.
                                    Previously, Treasurer, Chief Financial
                                    Officer and Chief Accounting Officer of
                                    Luxemburg Bancshares, Inc. from January
                                    1997 to April 1999.

ITEM 2.  DESCRIPTION OF PROPERTY

On December 31, 2001, the Company  had ten locations, of  which two were
leased.  All of  these offices are considered  by management to  be well
maintained and  adequate  for the  purpose  intended.  During 2000,  the
Company vacated a  leased facility  in Beloit upon  which the  lease had
expired and  deposit  growth  was  minimal.  Upon  vacating  the  leased
facility, the  Bank incurred  a loss  of  $217,000 that  was charged  to
operations. See the Notes  to the Consolidated Financial  Statements and
Table 14 included under Item 7 of this  document for further information
on properties.

ITEM 3.  LEGAL PROCEEDINGS

To management's  knowledge, there  is one  material legal  proceeding to
which the Company  is party.   On August 18,  2000, the Company  filed a
complaint in the Circuit Court of Waukesha  County, Wisconsin seeking to
recover an  amount  improperly charged  from  a  former data  processing
provider.  The claim seeks to recover $541,000 improperly charged by the
provider to  the Company's  check clearing  account maintained  with the
Federal Home Loan Bank  of Chicago.  Trial  is scheduled for  July 2002.
Given a lack of significant movement toward a  resolution of this matter
during the fourth quarter  of 2000, and  pursuant to the  application of
regulatory guidelines  and  principles  under these  circumstances,  the
Company wrote this contingent asset down  approximately 50% to $271,000.
In the unlikely event that the Company is unsuccessful in recovering any
portion of this improper charge, the Company would  be required to write
off the remaining  $271,000 balance of  this contingent asset  through a
further charge against  earnings in  the period  in which  the write-off
occurs.   Legal  costs  and  fees  incurred  in  connection  with  these
proceedings have been  and will be  charged against earnings  during the
period(s) incurred.  To management's knowledge, there are no other known
pending legal proceedings of  which any of the  Company's property would
be subject, other than routine litigation incidental to its business.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters  were submitted  to a  vote  of security  holders during  the
fourth quarter of 2001.

                                   PART II

ITEM  5.    MARKET  FOR  THE  REGISTRANT'S   COMMON  STOCK  AND  RELATED
STOCKHOLDER MATTERS

As of  March  15, 2002  there  were 348  Registered  Stockholders.   The
Company's stock is publicly traded on the Over  the Counter Market under
the symbol BKHB.   The following table sets  forth the stock  prices and
dividend information for  each quarter during  the years  ended December
31, 2001 and 2000.  Stock price information represents  high and low bid
quotations and as such reflect inter-dealer prices, without retail mark-
up, mark-down or commission and may not represent actual transactions.

<TABLE>
                                                For the Quarter Ended

             12/31/01   09/30/01   06/30/01   03/31/01   12/31/00  09/30/00   06/30/00   03/31/00
<S>             <C>        <C>       <C>        <C>        <C>        <C>        <C>        <C>
Stock Price
    High      $9.50      $10.62     $10.30     $10.38     $10.25    $11.75     $10.00     $13.75
    Low        8.50        8.80       8.38       8.00       9.38      9.50       8.25       8.38
Dividends      0.09        0.09       0.12       0.12       0.12      0.12       0.12       0.12
</TABLE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following  discussion provides  additional  analysis of  the  Company's
financial statements presented in its annual  report and should be read  in
conjunction  with  this  information.    This  discussion  focuses  on  the
significant factors which  affected the  Company's earnings  in 2001,  with
comparisons to 2000 and 1999, where  applicable.  As of December 31,  2001,
Blackhawk State Bank  ("the Bank") was  the only direct  subsidiary of  the
Company and its  operations contribute nearly  all of the  revenue and  the
majority of the  consolidated expenses for  the year.   The Bank has  three
wholly owned subsidiaries.  Nevahawk  Investments, Inc. ("Nevahawk") is  an
investment subsidiary located in Nevada.  Prior to 1998, RSL, Inc. operated
mutual fund and  annuity activities, and  in turn  owns Midland  Acceptance
Corp. ("MAC"), a consumer finance company that operated offices in Rochelle
and Rockford, IL  through December, 1999.  Prior to  1999, First  Financial
Services of Belvidere, Inc.  ("FFSI") administered and  sold, on an  agency
basis, mortgage-related insurance products and  a variety of insurance  and
annuity products. FFSI  owns the  Bank property  located at  1021 N.  State
Street, Belvidere, IL. For the years ended December 31, 2001 and 2000, RSL,
Inc., MAC and FFSI were primarily inactive except for the ownership of  the
Belvidere bank property.

OVERVIEW

As a part of  the 1997 purchase of  Rochelle Bancorp, Inc. ("Rochelle")  of
Rochelle, Illinois, the Company also acquired all of the outstanding shares
of MAC, a consumer finance subsidiary.  MAC operated as a consumer  finance
subsidiary through  December  1999,  at which  time  the  outstanding  loan
portfolio was sold.

Effective September 1, 1998, the Company  completed the purchase of all  of
the outstanding shares  of First Financial  Bancorp, Inc. ("Belvidere")  of
Belvidere, Illinois for approximately $12.7  million in cash.   Belvidere's
wholly owned subsidiary, First Federal Savings Bank, a federal savings bank
with two offices  in Belvidere and  one in Rockford,  Illinois, and  assets
totaling approximately $86.0 million at the time of acquisition was  merged
into the Bank on the effective date of the purchase.

Operating results  for  2000 were  impacted  by two  notable  non-recurring
charges including a special  loan loss provision  associated with a  second
mortgage loan  on a  commercial property  and the  write down  of an  asset
recorded for a claim brought against the Bank's former data processor.

The special  loan  loss  provision for  the  commercial  real  estate  loan
amounted to $1.9  million.  This  loan dates back  to 1994,  when the  Bank
extended a $2.0 million loan to the purchaser of the property.  The loan is
secured with a second mortgage on  the property and a second priority  lien
on other  assets  associated  with  the  ownership  and  operation  of  the
associated business.  Other financial institutions extended a $3.0  million
loan secured by  a first  mortgage and  a first  priority general  security
interest.   At that  time,  the property  and  facility were  appraised  at
approximately $5.7 million.   The principal  amount of  the first  mortgage
loan began amortizing  immediately, while the  Bank's second mortgage  loan
required interest only payments  until 1999, when  it too began  amortizing
principal.

The borrower remained current on all interest and principal payments on the
loans through the end of 2000, including amortizing principal commencing in
1999 on  the Bank's  second mortgage  loan.   However, the  business  began
experiencing negative  cash  flows in  1999,  and the  credit  quality  and
collateral value, as measured by  a recently completed appraisal,  declined
significantly by late 2000.   In response to  these developments, the  Bank
made a special  provision to its  loan loss reserve  for this  loan in  the
amount of $1.9 million,  which was charged against  earnings in 2000.  This
loan was charged off in the second quarter of 2001.

During the fourth  quarter of  2000, the  Company wrote  down a  contingent
asset associated  with  a claim  against  its former  data  processor  from
$541,000 to $271,000, resulting  in a non-recurring  charge of $270,000  to
2000 earnings.  The $541,000 receivable related to an improper charge  made
by the Company's  former data processing  service provider ("Provider")  to
the Company's check clearing account maintained with the Federal Home  Loan
Bank of Chicago.  Upon discovery of the Provider's error and following  the
Provider's initial  acknowledgement  of  that  error,  the  Company  worked
closely with  the Provider  to attempt  to  recover the  amount  improperly
charged.   During the  third quarter  of 2000,  the Provider  notified  the
Company that  it was  unable to  pursue  the matter  further and  that  the
Provider did not intend to indemnify the Company on account of this error.

In response, the Company filed a complaint in the Circuit Court of Waukesha
County, Wisconsin on August 18, 2000, seeking to recover the amount of  the
improper charge  from the  Provider.   While  the  Company believes  it  is
entitled to recovery, it can provide  no assurance that it will  ultimately
prevail in the  litigation.   Moreover, the  Company will  incur costs  and
legal fees in connection  with its pursuit  of this matter,  and it may  be
unable to recover  those costs  and fees.   The potential  amount of  those
costs and fees depends  on how this litigation  develops and ultimately  is
resolved, and the Company cannot predict that amount with certainty at this
time.

Given the lack of significant movement  toward a resolution of this  matter
in the final quarter of 2000, and pursuant to the application of regulatory
guidelines and principles under these circumstances, the Company wrote this
contingent asset down approximately  50% to $271,000.  The Company did  not
write down any portion of  this asset in 2001.  In the unlikely event  that
the Company  is unsuccessful  in recovering  any portion  of this  improper
charge, the Company would be required  to write off the remaining  $271,000
balance of this contingent asset through a further charge against  earnings
in the period in which the write-off occurs.  Legal costs and fees incurred
in connection with these proceedings have been and will be charged  against
earnings in the period(s) incurred.

At December 31, 2001 the Company continues to carry the $271,000 receivable
as an asset. Trial in this matter  has been scheduled for July 2002.  Legal
costs will continue  to be  expensed as  incurred. The  receivable will  be
adjusted based on the results of  the upcoming trial or other  developments
as they occur. Management  intends to aggressively  pursue recovery of  the
entire $541,000 misappropriated by its former service provider.

NET INTEREST INCOME

Net interest income is the difference  between interest income and fees  on
loans and interest expense, and is  the largest contributing factor to  net
income for the Company.  All discussions of income amounts and rates are on
a tax-equivalent  basis, which  accounts for  income  earned on  loans  and
securities that are not fully subject to income taxes as if they were fully
subject to income taxes. As shown  in Item 7, Table  1 of this report,  Net
interest income in 2001 was $10.8  million, increasing 11.0% over the  2000
level of $9.7 million. Net interest income as a percent of average  earning
assets ("Net Interest Margin") was 3.69%  in 2001, 3.48% in 2000 and  3.64%
in 1999.   The increase in  Net Interest Margin  between 2001  and 2000  is
primarily due  to Bank  growth, a  mix shift  in deposit  accounts to  more
transaction accounts and the effects of the lower interest rate environment
on time deposits.   The decrease  in Net Interest  Margin between 2000  and
1999 is primarily due to the sale of high-yielding finance company loans in
December 1999 and increasing funding costs.

Interest income and fees on  loans increased 5.0% from  2000 to 2001 as  an
8.9% increase in average loans outstanding was slightly offset by a decline
in average loan  yield to  8.31% for  2001 from  8.62% in  2000. The  yield
decline is attributable to  lower market interest rates  during 2001.   The
Company sustained its focus on the commercial lending market as most of the
Company's loan growth in 2001 came from commercial real estate loans.

Interest income and fees on  loans increased 11.1% from  1999 to 2000 as  a
12.7% increase  in  average loans  outstanding  was slightly  offset  by  a
decline in yield to 8.62% for 2000 from 8.74% in 1999. The yield decline is
attributable to the sale of the MAC sub-prime lending portfolio at the  end
of 1999.  Exclusive of the  contribution these higher-rate sub-prime  loans
had during 1999, the yield on loans improved from 8.61% in 1999 to 8.62% in
2000.  The Company sustained its focus on the commercial lending market  as
$24.4 million of asset growth in  2000 came from commercial and  industrial
and commercial real estate loans  increasing total outstanding balances  of
such loans to $76.5 million as of December 31, 2000.

Investment income decreased 6.6%, to $4.2 million in 2001 compared to  $4.5
million in 2000. In 2001, a  portion of the Company's investment  portfolio
was shifted to fund  increases in the Company's  loan portfolio. Also,  the
Company's strategy in  2001 was to  take advantage of  the relatively  more
attractive tax-equivalent  yields on  municipal securities.  Thus,  average
balances for taxable  securities were lower  and the  average balances  for
exempt securities were higher in 2001 when compared to 2000.  The  decrease
in investment income was the product of a decrease in the average  balances
in total investments of 8.6% and  an overall increase in investment  yields
of 13 basis points to 6.29% for 2001.

Investment income increased 15.9%, to $4.5 million in 2000 compared to $3.9
million in 1999.  Average balances  for both taxable and exempt  securities
were higher in 2000 when compared to 1999.  The increase was the product of
an increase in the  average balances in total  investments of 11.4% and  an
overall increase in investment yields of 24 basis points to 6.16% for 2000.
Average balances  increased from  1999  to 2000  due  to two  factors:  (1)
Investments made in March  and April of  1999 that were  held for the  full
year in 2000; (2) In March of 2000, the Company entered into a  transaction
to continue  leveraging  its  capital base  and  improve  earnings.    That
transaction involved the acquisition of approximately $5.0 million of  U.S.
agency securities  funded by  FHLB advances.    A similar  transaction  was
entered into during May  2000, but was  liquidated shortly thereafter  when
interest rates moved favorably at which point, the Company was able to sell
the  underlying  securities  at  a  gain  of  $24,000  and  extinguish  the
associated  debt  without  penalty.     Throughout  2000  the  mixture   of
investments reflected a  movement from U.S.  Treasury and  mortgage-related
securities  and  into  securities  issued  by  state  and  local  political
subdivisions as well as U.S. agency securities.

Total interest  expense was  $12.0 million  in 2001,  decreasing 4.4%  from
$12.5 million in 2000. Average  interest bearing demand deposits  increased
$9.9 million or 53.8% from $18.5 million in 2000 to $28.4 million in  2001.
This favorable mix  shift combined with  a 75 basis  point decrease in  the
cost of the Company's time deposits from 6.23% for the year ended  December
31, 2000 to 5.48%  for the year  ended December 31,  2001 were the  primary
drivers of the decrease in interest expense on deposits. Average borrowings
outstanding increased $8.2 million or 16.2%  to $58.6 million in 2001  from
$50.4 million in 2000  as the Company funded  loan growth with  non-deposit
liabilities. The average cost of borrowings  in 2001 was 5.49% compared  to
6.36% in 2000. The lower rates on borrowings in 2001 offset the increase in
average balances outstanding  as interest expense  on borrowings  increased
$6,000 from $3.209 million in 2000 to $3.215 million in 2001.

Total interest expense  was $12.5 million  in 2000,  increasing 17.2%  from
$10.7 million in 1999.   Higher funding costs  during 2000 resulted from  a
7.9% increase in interest-bearing liabilities, a 39 basis point increase in
rates paid  on deposits  and borrowings,  and  a shift  in the  mixture  of
liabilities as a percentage of funding towards the highest cost liabilities
in the form  of borrowings.   The  steady management  upward of  short-term
rates by the Federal Reserve throughout  the second half of 1999 and  first
half of  2000 impacted  a significant  portion of  the Company's  liability
structure, which  is relatively  short in  nature,  similar to  its  assets
structure. This  mixture  shift in  the  liability portfolio  reflects  the
competitive nature  of  the Company's  deposit  gathering markets  and  the
economic growth in many of those markets which contributed to the Company's
asset growth in 2000.  Funding of that asset growth has come, for the  most
part, from  non-deposit  liabilities  such  as  repurchase  agreements  and
Federal Home Loan Bank advances due to the competitive deposit market.

OTHER OPERATING INCOME AND EXPENSES

Other operating  income  for 2001  increased  $441,000, or  18.5%  to  $2.8
million compared  to $2.4  million in  2000. The  increase included  a  net
increase of $248,000, or 93.2% in  revenues from the sale and servicing  of
mortgage loans and an increase of  $107,000 in gain on sale of  securities.
The increase in revenues from the sale and servicing of mortgage loans  was
driven by the  high level  of refinancing  activity that  occurred in  2001
compared to 2000 due  to the lower interest  rate environment in 2001.  The
interest rate environment and economic uncertainty had the opposite  effect
on brokerage  and  annuity commission  income  which decreased  46.1%  from
$228,000 in 2000  to $123,000 in  2001. Deposit  service charges  increased
$246,000, or 16.4% from $1.5 million in  2000 to $1.7 million in 2001.  The
increase in deposit service charges was achieved as a result of  employees'
increased focus on  gathering transaction accounts  and a restructuring  of
account fees.

Other operating income decreased  15.0% to $2.4 million  in 2000 from  $2.8
million in  1999.   A $202,000  increase in  core fee  income from  deposit
accounts was more than offset by declines in revenue streams with a  higher
degree of sensitivity to financial markets, such as gains on mortgage sales
and brokerage commissions.   Continued  increases in  the secondary  market
mortgage rates  had a  detrimental effect  on the  Company's production  of
loans sold which  declined to $8.5  million in 2000  from $24.0 million  in
1999.  Gains associated with the sale  of this product dropped as a  result
by $271,000,  or  65.5%.    Brokerage  commissions  declined  $110,000,  as
staffing levels declined and market volatility, particularly in the  equity
markets, tempered brokerage  activity.   Net losses  on the  sale of  other
assets during 2000 included the offsetting effects of two of the  Company's
significant undertakings for  the year.   The sale of  the majority of  the
Company's mortgage servicing portfolio, which  realized a gain of  $205,000
nearly offset the loss of $217,000  incurred with the consolidation of  one
of the Company's in-store facilities  with another stand-alone branch,  for
which  leasehold  improvements  were  disposed  and  equipment  was   sold.
Comparatively, the sale  of MAC's loan  portfolio in 1999  resulted in  the
recognition of a gain of $144,000.

Other operating expenses increased 6.0% to $10.9 million for the year ended
December 31, 2001 from $10.3 million for the year ended December 31,  2000.
Compensation costs increased  $337,000 or 6.9%  from $4.9  million for  the
year ended December 31,  2000 to $5.2 million  for the year ended  December
31, 2001. The Bank also incurred a significant level of legal fees  related
to its lawsuit against a former check processor to recover funds improperly
charged to  the  Bank's  correspondent  bank  account  during  1998.  Total
professional fees  increased $269,000  or 73.3%  to $636,000  in 2001  from
$367,000 in 2000. Loan expenses increased 293% or $166,000 from $86,000  in
2000 to $252,000 in 2001 and reflect the increased costs of working through
a higher level of problem credits in 2001.

Other operating expense increased 1.6% to $10.3 million in 2000 from  $10.1
million in 1999, and would have  declined without the previously  mentioned
non-recurring charge of $270,000.  Consolidation benefits were reflected in
absolute or relative terms across nearly  all areas of expense.    Absolute
declines, where expenses dropped in dollars for 2000 relative to 1999, were
realized in  salaries  and  wages,  occupancy  expenses,  data  processing,
advertising and marketing, office supplies, and intangible amortization  as
business units and facilities that did not contribute sufficiently  towards
corporate earnings were  sold or  discontinued.   Relative declines,  where
expenses dropped in relation to average  assets for 2000 versus 1999,  were
realized across the  balance of the  expense areas, with  the exception  of
legal and  professional  fees.   The  relative  declines  in  expenses  are
reflective of the Company's ability to leverage its capacity and add assets
without associated  overhead.   The area  of  legal and  professional  fees
increased $131,000,  to  $367,000, in  2000  as the  Company  utilized  the
services of  professional  firms  in the  specialties  of  internal  audit,
compliance, asset liability management and marketing.  Additionally,  legal
costs increased in 2000 in association with the previously mentioned  claim
against the former data processing service provider.

Management monitors  three ratios  related to  other operating  income  and
expense: (1) Net other operating expense as a percentage of average assets,
(2) Standard efficiency ratio  and (3) Gross efficiency  ratio.  Net  other
operating expense to  average assets decreased  slightly to  2.52% in  2001
from 2.57%  in 2000  and 2.54%  in 1999.  The decrease  from 2000  to  2001
reflected the favorable  impact of the  Company's 18.5%  increase in  other
operating income  for the  similar period.  The standard  efficiency  ratio
(other  operating  expense  divided  by  net  interest  income  plus  other
operating income) decreased to 82.0% in 2001, compared to 86.2% in 2000 and
81.7% in 1999. The gross efficiency ratio (other operating expense  divided
by interest income plus other operating income) increased to 43.1% in  2001
compared to  41.6%  in 2000  and  43.8% in  1999.  For 2001,  the  standard
efficiency ratio reflects the Company's ability to grow net interest margin
and other operating income  in excess of the  growth in operating  expenses
while the increase in the gross  efficiency ratio reflects the decrease  in
interest income due to the declining rate environment.

PROVISIONS FOR LOAN LOSSES

The provision for loan losses was  $1,222,000, $2,260,000 and $464,000  for
2001, 2000 and 1999, respectively. The  large increase in the provision  in
2000 was due to a special loan loss provision as explained in the  overview
section of Item 6 of this report. This loan was subsequently charged off in
2001. In 2001,  based on  an assessment of  the Bank's  loan portfolio  and
economic conditions in its market area, management decided to increase  the
reserve for  loan  losses  to 1.15%  of  outstanding  loans.  Approximately
$550,000 of the 2001 provision for loan losses was to increase the reserve.
In 2001, the Bank had net  charge-offs of $2,712,000 (total charge-offs  of
$2,785,000 less recoveries of $73,000), compared  to 2000, when it had  net
charge-offs of $362,000 (total charge-offs  of $394,000 less recoveries  of
$32,000).   In  1999, Blackhawk  had  net charge-offs  of  $359,000  (total
charge-offs of $408,000  less recoveries  of $49,000).  Net charge-offs  to
average loans were  1.22% in 2001,  0.18% in 2000  and 0.20%  in 1999.  The
allowance for loan losses as a percent  of loans was 1.14% at December  31,
2001 compared to 1.76% at  December 31, 2000 and  to 1.04% at December  31,
1999.

INCOME TAXES

The effective  income tax  rate for  the  Company in  2001 was  25.3%.  The
effective income  tax  rate  was 54.5%  in  2000  and 30.9%  in  1999.  The
resulting effective  rate for  2000 was  not  reflective of  the  Company's
effective tax rate under  normal operating results,  but was reflective  of
the pre-tax loss for the year and the net effect of non-deductible and non-
taxable income and expenses upon that relatively smaller taxable base. Thus
we are comparing effective income tax rates from 2001 and 1999. The primary
reason for the decline in the effective  income tax rate from 1999 to  2001
was the  increased holdings  of tax-exempt  municipal securities.  Interest
income on securities exempt from federal income taxes was $762,000 for  the
year ended  December 31,  2001  compared to  $467,000  for the  year  ended
December 31, 1999. The 63.2% increase in tax-exempt security income reduced
the company's income taxes at statutory rates by an additional $94,000  for
the year ended December  31, 2001 compared to  the year ended December  31,
1999. Income generated  at Nevahawk is  not subject to  state income  taxes
while certain  U.S. government  agency investments  qualify for  state  tax
exemption for the Bank within Illinois.

BALANCE SHEET ANALYSIS

Total assets as of December 31, 2001 were $330.3 million compared to $327.2
million as  of December  31, 2000.  While the  company experienced  average
asset growth of 4.1% for the year  ended December 31, 2001 compared to  the
year ended  December 31,  2000, portfolio  real estate  loans sold  to  the
secondary market and the  effects of the weakening  economy on loan  demand
caused year end assets  to increase only .95%  for the year ended  December
31, 2001.

CASH AND CASH EQUIVALENTS

Cash and  cash equivalents  were  $11.7 million  as  of December  31,  2001
compared to $13.3 million at December  31, 2000. The decrease is  primarily
due to  lower  balances maintained  by  the Bank  in  non-interest  bearing
correspondent accounts.

INTEREST-BEARING DEPOSIT ACCOUNTS

The increase in interest-bearing  deposits to $7.9  million as of  December
31, 2001, from  $0.8 million  on December  31, 2000  was due  to using  the
Federal Home Loan Bank of Chicago  to invest a customer's large deposit  on
December 31, 2001.

FEDERAL FUNDS SOLD AND OTHER SHORT-TERM INVESTMENTS

Federal funds sold and short-term investments increased to $16.4 million as
of December  31,  2001 from  $2.5  million as  of  December 31,  2000.  The
increase reflects the short-term investment of excess liquidity at December
31, 2001 due to weak loan demand and the investment of a portion of a large
year-end deposit in federal funds sold.

SECURITIES

Available-for-sale securities decreased $11.5 million, to $42.6 million, as
of December 31,  2001 from $54.1  million as of  December 31,  2000.   $5.2
million of this decrease was  invested in held-to-maturity securities.  The
majority of the balance was used to fund loan demand early in the Company's
fiscal year  and  was,  as previously  mentioned,  invested  short-term  at
December 31, 2001.

FEDERAL HOME LOAN BANK OF CHICAGO STOCK

The Bank's investment  in stock of  the Federal Home  Loan Bank of  Chicago
increased from  $2.2  million at  December  31,  2000 to  $2.4  million  at
December 31,  2001. The  increase is  due  to the  purchase of  $32,000  in
additional stock as required by the FHLB and the reinvestment of  dividends
received.

LOANS HELD FOR SALE

As of  December 31,  2001,  loans held  for  sale were  approximately  $2.8
million compared  to  $0.7 million  on  December 31,  2000.  The  increased
balance reflects the  higher volume of  secondary market loan  refinancings
during the fourth quarter of 2001.

LOANS

Net portfolio  loans  decreased  4.9% during  2001  to  $206.4  million  at
December 31, 2001 from $216.9 million at December 31, 2000. The decrease is
primarily due to portfolio real estate  loans being refinanced and sold  to
the secondary market due to favorable  interest rates in 2001 and the  lack
of consumer loan demand due to a weakening economy.

BANK PREMISES AND EQUIPMENT

Bank premises and equipment, net were $6.7 million at December 31, 2001 and
2000 and reflect the reinvestment of depreciation and amortization  expense
in capital additions during the year ended December 31, 2001.

INTANGIBLE ASSETS

These assets consist of goodwill and  purchase premiums resulting from  the
purchases of the Rochelle and Belvidere institutions as well as  originated
mortgage servicing  rights.   The  decrease  in intangible  assets  between
December 31, 2001 and December 31, 2000 was the result of the  amortization
of the purchase-accounting intangible assets.

DEPOSITS

Total deposits at  December 31,  2001 were  $249.6 million  as compared  to
$260.9 million  at December  31, 2000.   Excluding  short-term deposits  of
$14.4 million and $25.3 million made on the final business days of 2001 and
2000, respectively,  deposits  decreased  0.2%.    During  2001,  the  Bank
generated more transaction accounts.  The Investor Checking account,  which
was introduced in  2000, saw  tremendous growth  in 2001  with the  average
balance for the year  increasing $10.7 million to  $11.8 million from  $1.1
million for the year ended December 31, 2000.

BORROWED FUNDS

The use of alternative funding sources  continued to increase during  2001.
Borrowings increased to $54.5 million as  of December 31, 2001 compared  to
$39.9 million  as  of December  31,  2000.  The primary  source  for  these
borrowings has been, and  is expected to continue  to be, the Federal  Home
Loan Bank of Chicago ("FHLB").  Advances  from the FHLB as of December  31,
2001 totaled  $42.7 million.

ASSET/LIABILITY MANAGEMENT

Asset/liability management  is the  process of  identifying, measuring  and
managing the risk to the Company's earnings and capital resulting from  the
movements in interest  rates.   It is  the Company's  objective to  protect
earnings and capital while achieving liquidity, profitability and strategic
goals.

During 1999, the Company began to  focus its measure of interest rate  risk
on the effect a shift in interest rates would have on earnings rather  than
on the amount of assets and/or liabilities subject to repricing in a  given
time period.  Since not all assets or liabilities move at the same rate and
at the same  time, a determination  must be made  as to  how each  interest
earning asset and each interest bearing liability adjusts with each  change
in the  base  rate.    The  Company  develops,  evaluates  and  amends  its
assumptions on an ongoing basis and analyzes its earnings exposure monthly.

In addition to  the effect  on earnings, a  monthly evaluation  is made  to
determine the  change in  the economic  value of  the equity  with  various
changes in interest  rates.    This  determination indicates  how much  the
value of  the  assets  and the  value  of  the liabilities  change  with  a
specified change  in  interest  rates.   The  net  difference  between  the
economic values of the assets and liabilities results in an economic  value
of equity.

LIQUIDITY

Liquidity, as it relates to the Bank, is  a measure of its ability to  fund
loans and withdrawals of deposits in  a cost-effective manner.  The  Bank's
principal  source  of  funds  are  deposits,  scheduled  amortization   and
prepayment of loan principal, maturities of securities and other short-term
investments, income from operations, and short-term borrowings.  Additional
sources  include  purchasing  federal  funds,  sales  of  loans,  sales  of
securities, borrowing  from  the Federal  Reserve  Bank and  the  FHLB  and
capital loans.    Current  year earnings  can  be  paid to  the  Bank  from
Nevahawk,  to  provide  additional  liquidity,  without  incurring  a   tax
liability under present law.

Generally, the  liquidity  needs  of the  Company  consist  of  payment  of
dividends to its shareholders, the repayment of debt used for the Belvidere
acquisition and a  limited amount  of expenses.   The sources  of funds  to
provide this liquidity are  income from cash  balances, dividends from  the
Bank and a $2.0  million line of credit  with a non-affiliated  third-party
bank.  Certain restrictions are imposed upon banks, which could limit their
ability to pay dividends if they do not generate future net earnings.   The
Company maintains adequate liquidity to pay its expenses. In addition,  the
Company may also borrow from external sources leveraging its strong capital
base.

CAPITAL

Total shareholders  equity  as  of December  31,  2001  was  $23.7  million
compared to $23.0 million as of  December 31, 2000.  The increase  resulted
from the  favorable impact  of interest  rate changes  during 2001  on  the
Bank's  available-for-sale   security  portfolio   which  is   carried   in
shareholders' equity as accumulated other comprehensive income. The capital
ratios of the Company are in  excess of the regulatory requirements.   Core
capital as a percent of risk  based assets for 2001  is 8.5% compared to  a
December 31,  2000 ratio  of 8.3%  and a  regulatory requirement  of  4.0%.
Total capital as a percent of risk  based assets for 2001 is 9.6%  compared
to a December 31, 2000 ratio of 9.6% and a regulatory requirement of  8.0%.
The leverage ratio for the Company is 5.9% compared to a December 31,  2000
ratio of 5.6% and a 4.0% regulatory requirement.

IMPACT OF INFLATION AND CHANGING PRICES

Unlike most industrial companies, most of the assets and liabilities of the
Bank are  monetary  in nature.    Consequently, interest  rates  have  more
significant impact on the Company's  performance and results of  operations
than the effect  of general  levels of inflation.   Interest  rates do  not
necessarily move in  the same  direction or in  the same  magnitude as  the
prices of goods and services as measured  by the Consumer Price Index.   As
discussed previously under Asset/Liability Management, the Bank's  interest
rate exposure in conjunction with the direction of the movement in interest
rates, is an important factor in the Company's results of operations.   The
Company's financial statements  are prepared in  accordance with  generally
accepted accounting principles, which require the measurement of  financial
position and results of operations in terms of historical dollars,  without
giving consideration to changes in the  relative purchasing power of  money
over time due to inflation.

ACCOUNTING DEVELOPMENTS

In September 2001, the Financial  Accounting Standards Board (FASB)  issued
Statement of  Financial  Accounting  Standards (SFAS)  No.  141,  "Business
Combinations", and SFAS  No. 142, "Goodwill  and Other Intangible  Assets."
SFAS No. 141 supersedes Accounting Principles  Board (APB) Opinion No.  16,
"Business Combinations", and  SFAS No. 38,  "Accounting for  Preacquisition
Contingencies of Purchased Enterprises." SFAS No.  141 requires the use  of
the purchase method of accounting for business combinations initiated after
September  30,  2001.    SFAS  No.  142  supersedes  APB  Opinion  No.  17,
"Intangible Assets." SFAS No. 142 addresses how intangible assets  acquired
outside of a business combination should be accounted for upon  acquisition
and how goodwill and other intangible assets should be accounted for  after
they  have  been  initially  recognized.    SFAS  No.  142  eliminates  the
amortization for  goodwill  and  other intangible  assets  with  indefinite
lives.  Other intangible assets with  a finite life will be amortized  over
their useful life.   Goodwill and other  intangible assets with  indefinite
useful lives shall be tested for impairment annually or more frequently  if
events or changes in circumstances indicate that the asset may be impaired.
SFAS No. 142  is effective for  fiscal years beginning  after December  15,
2001.

The Company's strategy over  the past several  years has included  business
combinations accounted  for  under  the purchase  accounting  method  which
created goodwill upon the transactions' closings.  The Company has goodwill
of $3.1 million on its balance sheet as of December 31, 2001 which is being
amortized over  20  years.   The  pronouncement  will have  the  effect  of
eliminating the amortization of this asset and will subject it to  periodic
impairment analysis.

Management, at this time, cannot determine the effect that adoption of SFAS
No. 142  may  have  on the  financial  statements  of the  Company  as  the
statement  requires  a  comprehensive   review  of  previous   combinations
accounted for  under the  purchase accounting  method  and an  analysis  of
impairment as  of  the date  of  adoption.   The  impairment  analysis  for
goodwill and other intangible assets with an indefinite useful life has not
been completed.   The  impairment analysis  will  be completed  within  the
timelines outlined in SFAS No. 142.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

The matters  discussed in  this  report, including  expectations  regarding
interest income,  interest  expense,  and net  interest  margin,  operating
results and net  income are forward-looking  statements that involve  risks
and  uncertainties.  When  used  in  this  report,  the  words  "believes,"
"expects," and similar expressions are intended to identify forward-looking
statements. The Company's actual results  may differ materially from  those
described in  the  forward-looking  statements. The  assumptions  and  risk
factors that may cause actual results to differ materially include but  are
not limited  to, changes  in interest  rates or  in the  volume of  earning
assets and liabilities,  increases in non-performing  or delinquent  loans,
the level of  consumer bankruptcies, increased  competition, customer  loan
and deposit preferences, changes in the volume of loans originated for  the
secondary market  and  changes  in  the  volume  of  sales  of  non-deposit
investment products by the Company's brokerage operation, as well as  those
described from time to time in the Company's SEC filings.

ITEM 7 FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

Pages  31  through  53  of  this  report  on   Form  10-KSB  are  hereby
incorporated by reference.

Following are supplemental data tables of the Company:

TABLE 1
RATE/VOLUME ANALYSIS

The following rate/volume analysis is  prepared with non-accruing loans  treated
on a cash basis in accordance with the Company's practices as described in  Note
4 to  the Consolidated  Financial Statements  located  within this  report.  Tax
equivalency is calculated based on an effective combined income tax rate of 34%.

<TABLE>
        Average Balance              Average Rate                                                        Interest Earned or Paid

   2001       2000       1999    2001    2000    1999         (Dollars in thousands)                     2001      2000      1999
<S>           <C>        <C>     <C>     <C>     <C>     <C>                                             <C>       <C>       <C>



                                                         Interest Earning Assets:
$ 49,234   $ 58,424   $ 54,669   6.24%   6.38%   5.93%      Taxable investment securities              $ 3,074   $ 3,725   $ 3,240
  17,992     15,095     11,343   6.42%   5.33%   5.91%      Tax-exempt investment securities (1)<F1>     1,155       805       670
  67,226     73,519     66,012   6.29%   6.16%   5.92%            Total investments                      4,229     4,530     3,910
 222,176    204,021    181,089   8.31%   8.62%   8.74%      Loans                                       18,465    17,580    15,817
   2,219        705      4,201   3.24%   3.76%   6.86%      Federal funds sold & short                      72        27       288
                                                              term investments
   1,349      1,962     11,585   3.41%   7.85%   2.17%      Interest bearing                                46       154       251
                                                              deposits in banks

$292,970   $280,207   $262,887   7.79%   7.96%   7.71%   TOTAL INTEREST EARNING ASSETS                 $22,812   $22,291   $20,266

                                                         Interest Bearing Liabilities:

$ 28,443  $ 18,499    $ 17,468   2.13%   1.71%   1.08%      Interest bearing demand deposits           $   607   $   316   $   189
  51,068    56,749      62,869   2.20%   1.88%   2.97%      Savings deposit                              1,123     1,066     1,866
 128,596   127,702     125,920   5.48%   6.23%   5.55%      Time deposits                                7,051     7,952     6,994
 208,107   202,950     206,257   4.22%   4.60%   4.39%         Total interest bearing deposits           8,781     9,334     9,049
  11,439    30,394      21,732   4.04%   6.38%   2.97%      Short-term borrowings                          462     1,941       646
  47,157    20,039       6,873   5.84%   6.33%  14.71%     Other borrowings                              2,753     1,268     1,011

$266,703  $253,383    $234,862   4.50%   4.95%   4.56%  TOTAL INTEREST BEARING LIABILITIES             $11,996   $12,543   $10,706

                                 3.29%   3.01%   3.15%  INTEREST RATE SPREAD


                                 3.69%   3.48%   3.64%  NET INTEREST MARGIN/INCOME                     $10,816   $ 9,748   $ 9,560
</TABLE>

TABLE 1
RATE/VOLUME ANALYSIS
(CONTINUED)

<TABLE>
                                                       2001 Compared to 2000                        2000 Compared to 1999

                                                    Increase (Decrease) due to                   Increase (Decrease) due to
                                                            Rate/Volume                                  Rate/Volume

             (Dollars in thousands)                                   Rate/                                       Rate/
                                                Rate      Volume     Volume      Net          Rate    Volume     Volume       Net
<S>                                              <C>       <C>        <C>        <C>          <C>      <C>        <C>         <C>
Interest Earning Assets:
   Taxable investment securities              $   (77)   $   (586)   $   12    $  (651)      $ 246    $  222    $    17     $  485
   Tax-exempt investment securities (1)<F1>       164         154        32        350         (65)      222        (22)       135
      Total investments                            87        (432)       44       (301)        181       444         (5)       620
   Loans                                         (624)      1,564       (55)       885        (213)    2,003        (27)     1,763
   Federal funds sold & short term
     Investments                                   (4)         58        (9)        45        (130)     (239)       108       (261)
   Interest bearing deposits in banks             (87)        (48)       27       (108)        658      (208)      (547)       (97)

   TOTAL EARNING ASSETS                       $  (628)    $ 1,142   $     7    $   521       $ 496    $2,000    $  (471)    $2,025

Interest Bearing Liabilities:
   Interest bearing demand deposits           $    79     $   170   $    42    $   291       $ 110    $   11    $     6     $  127
   Savings deposits                               182        (107)      (18)        57        (686)     (182)        67       (801)
   Time deposits                                 (951)         56        (6)      (901)        847        99         12        958
      Total interest bearing deposits            (690)        119        18       (553)        271       (72)        85        284
   Short-term borrowings                         (711)     (1,210)      442     (1,479)        741       258        296      1,295
   Long-term borrowings                           (98)      1,716      (133)     1,485        (576)    1,937     (1,103)       258

TOTAL INTEREST BEARING
   LIABILITIES                                $(1,499)    $   625   $   327    $  (547)      $ 436    $2,123    $  (722)    $1,837

NET INTEREST MARGIN                           $   871     $   517   $  (320)   $ 1,068       $  60    $ (123)   $   251     $  188
</TABLE>

(1)<F1>   Tax exempt investment securities are presented on a tax-equivalent
          basis.

TABLE 2

ANALYSIS OF LOAN PORTFOLIO

<TABLE>
                                                 2001                       2000                       1999
(Dollars in thousands)                                 % of                        % of                       % of
                                          Amount      Total         Amount        Total        Amount        Total
<S>                                         <C>        <C>           <C>           <C>           <C>          <C>

Real estate-mortgage                     $136,625     65.33%       $153,033       70.30%      $136,943       71.80%
Real estate-construction                    9,806      4.69%          4,551        2.09%         2,047        1.07%
Real estate-held-for-sale                   2,752      1.31%            739        0.34%           540        0.28%
Consumer                                   27,851     13.32%         32,139       14.77%        29,224       15.32%
Commercial                                 34,505     16.50%         31,097       14.29%        23,965       12.57%

Gross loans                               211,539    101.15%        221,559      101.79%       192,719      101.05%

Allowance for loan loss                    (2,404)    -1.15%         (3,894)      -1.79%        (1,996)      -1.05%

Net loans                                $209,135    100.00%       $217,665      100.00%      $190,723      100.00%
</TABLE>

<TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSS BY CATEGORY
                                                    2001                       2000                      1999

                                                        Percent of                 Percent of                Percent of
                                                        Gross Loans                Gross Loans               Gross Loans
(Dollars in thousands)                         Amount   By Category     Amount     by Category     Amount    by Category
<S>                                             <C>         <C>          <C>           <C>          <C>          <C>

Real estate-mortgage                           $  939      39.06%       $2,717        69.77%       $  677       33.92%
Real estate-construction                            0       0.00%            0         0.00%            0        0.00%
Consumer                                          809      33.65%          568        14.59%          578       28.96%
Commercial                                        656      27.29%          609        15.64%          741       37.12%

Total                                          $2,404     100.00%       $3,894       100.00%       $1,996      100.00%
</TABLE>

<TABLE>
SUMMARY OF LOAN LOSS EXPERIENCE
                                                                         December 31,

(Dollars in thousands)                                2001      2000       1999      1998         1997
<S>                                                   <C>       <C>        <C>       <C>          <C>
Allowance for loan losses, beginning                $3,894    $1,996     $1,915     $1,523      $1,186
Amounts associated with acquisition                      0         0          0        452         321
Amounts associated with sale                             0         0         24          0           0
Amounts charged-off:
   Real estate-mortgage                              2,445       196         94          1         110
   Consumer                                            340       170        314        180         104
   Commercial                                            0        28          0        214           1
      Total Charge-offs                              2,785       394        408        395         215

Recoveries on amounts previously charged-off:
   Real estate-mortgage                             $   30    $    1     $    5     $    0      $    2
   Consumer                                             43        31         44         13          17
   Commercial                                            0         0          0          7          20
      Total recoveries                                  73        32         49         20          39
      Net charge-offs                                2,712       362        359        375         176
Provision charged to expense                         1,222     2,260        464        315         192
Allowance for loan losses, ending                   $2,404    $3,894     $1,996     $1,915      $1,523

NON-PERFORMING LOANS AT PERIOD END
Impaired loans                                      $1,147    $2,063     $1,984     $2,389      $  325
Non-accrual                                          2,808     1,819        565        857         663
Past due 90 days or more and still accruing            356       280        529        240          90
   Total problem loans                              $4,311    $4,162     $3,078     $3,486      $1,078

RATIOS
Allowance for loan loss to period-end loans          1.14%     1.76%      1.04%      1.08%       1.11%
Net charge-offs to average loans                     1.22%     0.18%      0.20%      0.24%       0.14%
Recoveries to charge -offs                           2.62%     8.12%     12.01%      5.06%      18.14%
Problem loans to gross loans                         2.04%     1.88%      1.60%      1.41%       0.77%

EFFECT ON INTEREST INCOME OF
NON-ACCRUAL LOANS
Income recognized                                   $  177    $   74     $   35    $   33       $   34
Income that would have been recognized in
accordance with the original loan terms                185       178         73        76           78
</TABLE>

TABLE 3

OTHER INCOME AND EXPENSE

<TABLE>
                                        2001                            2000                              1999
(Dollars in thousands)                         % of                              % of                               % of
                                              Average                          Average                             Average
                                Amount         Assets         Amount            Assets          Amount             Assets
<S>                              <C>             <C>            <C>               <C>             <C>               <C>

Other operating expenses        $10,870         3.41%         $10,257            3.35%          $10,098              3.52%
Other operating income            2,826         0.89%           2,385            0.78%            2,806              0.98%

Net non-interest expense        $ 8,044         2.52%         $ 7,872            2.57%          $ 7,292              2.54%
</TABLE>

TABLE 4

<TABLE>
THREE-YEAR COMPARISON OF AVERAGE BALANCE SHEETS
                                                         Years Ended December 31,
                                            2001                     2000                         1999
                                                 Percent of                Percent of                   Percent of
(Dollars in thousands)                Amount       Total      Amount         Total         Amount          Total
<S>                                    <C>          <C>        <C>            <C>            <C>             <C>
ASSETS:
   Federal funds sold
      and short term investments     $  2,219      0.70%     $    705        0.23%       $  4,201          1.47%
   Interest bearing deposit
       Accounts                         1,349      0.42%        1,962        0.64%         11,585          4.04%
   Taxable investment
       Securities                      51,537     16.14%       58,424       19.07%         54,669         19.07%
   Tax-exempt investment
       Securities                      17,992      5.64%       15,095        4.92%         11,343          3.96%
  Loans, net of unearned
       Income                         222,176     69.60%      204,021       66.56%        181,089         63.18%

     Total earning assets             295,273     92.50%      280,207       91.42%        262,887         91.72%

   Cash and due from banks             10,016      3.14%       11,106        3.62%          5,256          1.83%
   Bank premises and equipment          6,838      2.14%        6,802        2.22%          7,065          2.46%
   Other non-earning assets             7,108      2.22%        8,407        2.74%         11,460          4.00%

     Total non-earning assets          23,962      7.50%       26,315        8.58%         23,781          8.30%

TOTAL ASSETS                         $319,235    100.00%     $306,522      100.00%       $286,668        100.00%
</TABLE>

TABLE 4  (CONTINUED)

<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY/CAPITAL
LIABILITIES:                                                    Years Ended December 31,

                                             2001                     2000                         1999
                                                       % of                       % of                         % of
                                                    Average                    Average                      Average
                                          Amount     Assets       Amount        Assets       Amount          Assets
<S>                                        <C>         <C>        <C>            <C>          <C>             <C>
   Interest bearing demand deposits     $ 28,443      8.91%     $ 18,499         6.04%     $ 17,468           6.09%
   Savings accounts                       51,068     16.00%       56,749        18.51%       62,869          21.93%
   Time deposits                         128,596     40.28%      127,702        41.66%      125,920          43.93%

    Total interest bearing deposits      208,107     65.19%      202,950        66.21%      206,257          71.96%

   Short-term borrowings                  11,439      3.58%       30,394         9.90%       21,732           7.58%
   Other borrowings                       47,157     14.78%       20,039         6.54%        6,873           2.40%

    Total interest-bearing               266,703     83.55%      253,383        82.67%      234,862          81.94%
       liabilities

   Non-interest bearing deposits          26,315      8.24%       26,651         8.69%       25,538           8.91%
   Other liabilities                       2,530      0.79%        2,651         0.86%        2,394           0.84%

    Total liabilities                    295,548     92.58%      282,685        92.22%      262,794          91.68%

  Stockholders' Equity/Capital            23,687      7.42%       23,837         7.78%       23,874           8.33%

TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY/CAPITAL                          $319,235    100.00%     $306,522       100.00%     $286,668         100.00%
</TABLE>

TABLE 5

INVESTMENT SECURITIES
                                                             December 31,

(Dollars in thousands)                                  2001     2000    1999
Available-for-Sale
US Treasury                                            $     0  $     0  $   246
US Government Agency                                    37,459   49,142   42,745
Tax-exempt obligations                                     233      556      155
Other securities                                         4,931    4,370    5,925
Total market value of available for sale securities     42,623   54,068   49,071

Held-to-Maturity
US Treasury                                                  0        0    2,000
US Government Agency                                     4,768    4,253    5,225
Tax-exempt obligations                                  18,967   14,277   12,471
Total book value of held-to-maturity securities         23,735   18,530   19,696

Total market value of held-to-maturity securities       24,172   18,530   19,373

Total book value of securities                         $66,358  $72,598  $68,767

TABLE 6

<TABLE>
MATURITY OF INVESTMENT SECURITIES
                                    Within             After One but           After Five but
                                   One Year          Within Five Years        Within Ten Years        After Ten Years

(Dollars in thousands)          Amount    Yield       Amount     Yield      Amount       Yield       Amount      Yield
<S>                              <C>       <C>         <C>        <C>         <C>         <C>         <C>         <C>
Available-for-Sale
US Government Agency            $1,688    5.29%       $30,792    5.83%        $1,939      6.24%        $3,040    6.20%
Tax-exempt obligations             233    6.50%             0    0.00%             0      0.00%             0    0.00%
Other securities                 1,806    4.72%         3,125    5.94%             0      0.00%             0    0.00%

Total                            3,727    5.09%        33,917    5.84%         1,939      6.24%         3,040    6.20%

Held-to-Maturity
US Government Agency                 0    0.00%             0    0.00%         2,715      5.64%         2,053    6.05%
Tax-exempt obligations           2,439    4.12%        14,070    4.26%         2,458      4.52%             0    0.00%

Total                            2,439    4.12%        14,070    4.26%         5,173      5.11%         2,053    6.05%

Grand Total                     $6,166    4.71%       $47,987    5.38%        $7,112      5.42%        $5,093    6.14%
</TABLE>

TABLE 7

<TABLE>
MATURITY AND INTEREST SENSITIVITY OF LOANS
December 31, 2001
                                                                                                      Greater Than
(Dollars in thousands)                  Time Remaining to Maturity                                      One Year

                                                After One                                          Fixed        Floating
                              Due Within        But Within       After Five                      Interest       Interest
                               One Year         Five Years         Years           Total           Rate           Rate
<S>                               <C>               <C>             <C>             <C>            <C>             <C>
Real estate-mortgage            $ 1,128          $ 86,481         $49,016         $136,625       $ 60,325        $75,172
Real estate-construction          7,414             2,381              11            9,806             95          2,297
Consumer                          2,386            24,690             775           27,851         25,465              0
Commercial                          876            30,889           2,740           34,505         17,837         15,792

Gross Loans                     $11,804          $144,441         $52,542         $208,787       $103,722        $93,261
</TABLE>

TABLE 8

<TABLE>
COMPOSITION OF DEPOSITS AND INTEREST RATES PAID
                                                      Years Ended December 31,

                                               2001                             2000                            1999

                                  Average    Percent of    Average   Average   Percent of   Average   Average  Percent of  Average
(Dollars in thousands)            Balance      Total        Rate     Balance     Total       Rate     Balance    Total      Rate
<S>                                    <C>      <C>         <C>        <C>        <C>         <C>       <C>       <C>        <C>
Non-interest bearing demand
   deposits                       $ 26,315     11.23%           -     $26,651     11.61%        -     $ 25,538   11.02%        -
Interest bearing demand deposits    28,443     12.13%       2.13%      18,499      8.05%     1.71%      17,468    7.54%     1.08%
Savings deposits                    51,068     21.78%       2.20%      56,749     24.72%     1.88%      62,869   27.12%     2.95%
Time deposits                      128,596     54.86%       5.48%     127,702     55.62%     6.23%     125,920   54.32%     5.56%

Total                             $234,422    100.00%       4.22%    $229,601    100.00%     4.98%    $231,795  100.00%     4.39%
</TABLE>

TABLE 9

<TABLE>
INTEREST RATE RISK ANALYSIS

                                    Time Remaining to Maturity

December 31, 2001              Due Within         Four to          Seven to            After
(Dollars in thousands)          3 months          6 months         12 months         12 months           Total
<S>                               <C>               <C>               <C>                <C>              <C>
Certificates of Deposit
   Less than $100,000            $15,754          $14,555           $27,560            $37,752          $95,621
   More than $100,000              7,478            7,270             3,390              5,373           23,511

Total                            $23,232          $21,825           $30,950            $43,125         $119,132
</TABLE>

TABLE 10

SHORT-TERM BORROWINGS
(Dollars in thousands)
Balance outstanding December 31,          2001          2000           1999

Repurchase agreements                    $5,037        $9,323          $4,164
Fed funds purchased                           0             0           4,400
FHLB Open line of credit                      0             0          10,000
Line of Credit                            1,050           550               0
                                         ------        ------         -------
                                         $6,087        $9,873         $18,564
                                         ------        ------         -------
                                         ------        ------         -------

Weighted rate December 31,
Repurchase agreements                     1.25%         4.34%           3.25%
Fed funds purchased                          --            --           4.00%
FHLB Open line of credit                     --            --           4.74%
Line of Credit                            3.93%         7.91%              --
                                         ------        ------         -------

                                          1.71%         4.53%           4.23%
                                         ------        ------         -------
                                         ------        ------         -------


Maximum month-end outstanding
balance
Repurchase agreement                    $12,599       $15,132         $10,121
Fed funds purchased                       6,865        10,200          13,500
FHLB Open line of credit                      0        25,500          10,000
Line of Credit                            1,050           550               0

Year-to-date average amount
outstanding
Repurchase agreements                   $ 8,071       $10,651         $ 3,734
Fed funds purchased                       1,004         3,793           6,873
FHLB Open line of credit                    697        15,770           1,570
Line of Credit                            1,010           180               0
                                        -------       -------         -------
                                        $10,782       $30,394         $12,177
                                        -------       -------         -------
                                        -------       -------         -------

Year-to-date average weighted rate
Repurchase agreements                     3.92%         5.77%           4.93%
Fed funds purchased                       5.14%         6.74%           5.64%
FHLB Open line of credit                  6.43%         6.69%           5.62%
Line of Credit                            4.94%         7.98%              --
                                        -------       -------         -------
                                          4.29%         6.38%           5.41%
                                        -------       -------         -------
                                        -------       -------         -------

TABLE 11

<TABLE>
INTEREST RATE RISK ANALYSIS
                                                              Two-        Four-       Seven-        Ten-       Over
December 31, 2000                                  One        three         six        nine        twelve      One
(Dollars in thousands)                            Month       months      months      months       months      year       Total
<S>                                                <C>         <C>         <C>        <C>            <C>        <C>        <C>
Federal funds sold and short-term investments    $16,417      $     0     $     0     $     0      $     0   $      0    $ 16,417
Interest bearing deposits                          7,857            0           0           0            0          0       7,857
Taxable investment securities                      1,930        1,436       2,045         461        2,122     39,164      47,158
Tax-exempt investment securities                     120        1,141       1,035           0          376     16,528      19,200
Federal Home Loan Bank of Chicago stock                0        2,385           0           0            0          0       2,385
Loans                                             42,910       20,857      22,090      22,148       17,760     85,774     211,539

Total interest-earning assets                    $69,234      $25,819     $25,170     $22,609      $20,258   $141,466    $304,556
</TABLE>

TABLE 12

SELECTED EQUITY RATIOS                             2001     2000     Regulatory
                                                   Ratio    Ratio    Requirement

Equity as a percent of assets                      7.19%    7.03%        N/A
Core capital as a percent of risk based assets     8.49%    8.25%      4.00%
Total capital as a percent of risk based assets    9.61%    9.57%      8.00%
Leverage ratio                                     5.87%    5.64%      4.00%

TABLE 13

<TABLE>

SELECTED FINANCIAL RATIOS
                                                              2001          2000        1999         1998         1997
<S>                                                           <C>           <C>         <C>           <C>          <C>
Return on average assets                                      0.27%       (0.09)%       0.39%        0.87%        1.07%
Return on average equity                                      3.65%       (1.19)%       4.64%        8.33%        8.61%
Average equity to average assets                              7.42%         7.78%       7.43%       10.22%       12.40%
Dividend payout ratio                                       114.58%           n/m     100.18%       53.41%       50.00%
Interest rate spread                                          3.27%         3.01%       3.15%        3.59%        3.72%
Net interest margin                                           3.67%         3.48%       3.64%        4.24%        4.52%
Net non-interest expense to assets                            2.52%         2.57%       2.54%        2.29%        2.38%
Efficiency ratio                                             82.04%        86.23%      81.66%       68.06%       64.76%
Allowance for loan losses to total loans at end of period     1.14%         1.79%       1.04%        1.08%        1.11%
</TABLE>

TABLE 14

<TABLE>
LOCATIONS                               Owned or                                                       Owned or
Address                                 Leased         Address                                         Leased
<S>                                     <C>            <C>                                             <C>
400 Broad St., Beloit, WI 53511         Owned          2475 N. Perryville Road, Rockford, IL 61107     Owned
2200 Cranston Rd., Beloit, WI 53511     Owned          1021 N. State St., Belvidere, IL 61008          Owned
1795 Madison Rd., Beloit, WI 53511      Owned          121 E. Locust Ave., Belvidere, IL 61008         Owned
2785 Milwaukee Rd., Beloit, WI 53511    Leased         422 Cherry Ave., Rochelle, IL 61068             Owned
5206 Elevator Rd., Roscoe, IL 61073     Leased         307 N. Franklin Dr., Oregon, IL 61061           Owned
</TABLE>

ITEM 8  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

                                    PART III

ITEM 9  DIRECTORS, EXECUTIVE  OFFICERS, PROMOTERS  AND  CONTROL PERSONS  OF  THE
REGISTRANT; SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

a)   Directors of  the  registrant.   The  information that  will  appear  under
     "Election of Directors" in  the definitive Proxy  Statement to be  prepared
     and filed for the  Company's Annual Meeting of  Stockholders to be held  on
     May 15, 2002 is incorporated herein by this reference.

b)   Executive officers of the Registrant.  The information presented in Item  I
     of this report is incorporated herein by this reference.

c)   Section 16(a) Beneficial  Ownership Reporting  Compliance. The  information
     that will  appear  under  "Section  16(a)  Beneficial  Ownership  Reporting
     Compliance" in the definitive proxy statement to be prepared and filed  for
     the Company's Annual Meeting of stockholders to be held on May 15, 2002  is
     incorporated herein by this reference.

ITEM 10  EXECUTIVE COMPENSATION

The information that will appear under "Director and Executive Compensation"  in
the definitive Proxy Statement to be prepared and filed for the Company's Annual
Meeting of Stockholders to  be held on  May 15, 2002  is incorporated herein  by
this reference.

ITEM 11  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information that will appear under  "Beneficial Ownership of Securities"  in
the definitive Proxy Statement to be prepared and filed for the Company's Annual
Meeting of Stockholders to  be held on  May 15, 2002  is incorporated herein  by
this reference.

ITEM 12  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information that will appear under "Certain Transactions with Management and
Others" in  the definitive  Proxy Statement  to be  prepared and  filed for  the
Company's Annual  Meeting  of  Stockholders  to  be held  on  May  15,  2002  is
incorporated herein by this reference.

ITEM 13  EXHIBITS AND REPORTS ON FORM 8-K

a)   Documents Filed:

1 and  2.    Financial  Statements.   See  the  following  "Index  to  Financial
Statements and Financial  Statement Schedules" which  is incorporated herein  by
this reference.

3            Exhibits.  See "Exhibit Index" which is incorporated herein by this
reference.

b)   Reports On Form 8-K:

             During the fourth quarter of  2001 the Company filed one report  on
             Form  8-K.  An  8-K  filed   on  October  4,  2001  announced   the
             resignation of Keith D. Hill as Vice President and Chief  Financial
             Officer of the Company and Bank.

SIGNATURES

Pursuant to the requirements of Section  13 or 15(d) of the Securities  Exchange
Act of 1934, the registrant has duly caused this report
to be signed  on its  behalf by the  undersigned, thereunto  duly authorized  on
March 20, 2002.

                                       Blackhawk Bancorp, Inc.

                                       By /s/ Todd J. James
                                       -----------------------------------------
                                       Todd J. James
                                       Senior Vice President and Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by  the following persons on  behalf of the registrant  in
the capacities indicated on March 20, 2002.

Principal Executive Officer and Director:
  Director, President and                         /s/ R. Richard Bastian, III
  Chief Executive Officer                         ------------------------------
                                                  R. Richard Bastian, III,
                                                  President and Chief
                                                  Executive Officer

Principal Financial Officer                       /s/ Todd J. James
                                                  ------------------------------
                                                  Todd J. James
                                                  Senior Vice President,
                                                  Treasurer and Chief
                                                  Financial Officer

Principal Accounting Officer                      /s/ Thomas L. Lepinski
                                                  ------------------------------
                                                  Thomas L. Lepinski, C.P.A.,
                                                  Principal Accounting Officer

Directors:


/s/ John B. Clark                                 /s/ Merritt J. Mott
-----------------------------                     -----------------------------
    John B. Clark                                     Merritt J. Mott

/s/ H. Daniel Green                               /s/ Sunil Puri
-----------------------------                     -----------------------------
    Dr. H. Daniel Green                               Sunil Puri

/s/ Charles Hart                                  /s/ George D. Merchant
-----------------------------                     -----------------------------
    Charles Hart                                      George D. Merchant

/s/ Kenneth A Hendricks                           /s/Roger K. Taylor
-----------------------------                     -----------------------------
    Kenneth A. Hendricks                              Roger K. Taylor

/s/ Charles J. Howard                             /s/Dennis M. Conerton
-----------------------------                     -----------------------------
    Charles J. Howard                                 Dennis M. Conerton

                            Blackhawk Bancorp, Inc.
                                Exhibit Index To
                       2001 Annual Report on Form 10-KSB

<TABLE>                                                                                     Filed
Exhibit                                         Incorporated Herein                         Here-
Number     Description                          By Reference To:                            with      Page No.
------     -----------                          ----------------                            -----     --------
<S>        <C>                                  <C>                                         <C>        <C>

3.1        Amended and Restated Articles of     Exhibit 3.1 to
           Incorporation of Blackhawk           Amendment No. 1 to Registration
           Bancorp, Inc.                        Statement on Form S-1(Reg. No. 33.32351)


3.2        By-Laws of Blackhawk Bancorp,        Exhibit 3.2 to  Amendment No. 1 to
           Inc., as amended.                    Registration Statement on Form S-1


3.3        Amendments to By-Laws                Exhibit 3.3 to 1994 Form 10-KSB dated
           of Blackhawk Bancorp,                March 29, 1995
           Inc., as amended.

3.4        Amendments to By-Laws of             Exhibit 3.4 to 1994 Form 10-KSB dated
           Blackhawk Bancorp, Inc., as          March 29, 1995.
           amended.

4.1        Sections 15 and 19 of Plan of        Exhibit 1.2 to Amendment No. 1 to
           Conversion of Beloit Savings         Registration Statement on Form-1
           Bank, as amended                     (No. 33-32351) filed on March 5, 1990.


10.12      Blackhawk State Bank Officer         Exhibit 10.12 to 1996 Form 10-KSB, dated
           Bonus Plan, as amended *<F2>         March 28, 1997

10.2       Written description of Plan for      Proxy Statement for its Annual Meeting of
           Life  Insurance of Blackhawk         Stockholders, on May 8, 1991, dated April
           State Bank *<F2>                     4, 1991


10.3       Blackhawk Bancorp, Inc. Employee     Exhibit 10.3 to 1990 Form 10-K, dated
           Stock Ownership Plan *<F2>           March 31, 1990


10.31      Amendment to Blackhawk Bancorp,      Exhibit 10.31 to 1994 Form 10-KSB,
           Inc. Employee Stock Ownership        dated March 29, 1995
           Plan *<F2>

10.4       Blackhawk Bancorp, Inc. Employee     Exhibit 10.4 to Amendment No. 1 to
           Stock Ownership Trust *<F2>          Registration Statement Form S-1
                                                (No. 33-32351)

10.5       Blackhawk Bancorp, Inc.              Exhibit 10.5 to Amendment No. 1 to
           Directors' Stock Option              Registration Statement Form S-1
           Plan *<F2>                           (No. 33-32351)


10.6       Blackhawk Bancorp, Inc.              Exhibit 10.6 to Registration Statement
           Executive Stock Option Plan *<F2>    Form S-1 (No. 33-32351)


10.7       Form of Severance Payment            Exhibit 10.8 to Amendment No. 1 to
           Agreement entered into between       Registration Statement Form S-1
           Blackhawk State Bank and Messrs.     (No. 33-32351)
           Calkins, Kelley and Rusch *<F2>


10.71      Form of Severance Payment            Exhibit 10.8 to 1994 Form 10-KSB, dated
           Agreement entered into between       March 29, 1995
           Blackhawk State Bank and Mr.
           Conerton *<F2>

10.8       Blackhawk Bancorp, Inc.              Exhibit 10.9 to 1994 Form 10-KSB, dated
           Directors' Stock Option              March 29, 1995
           Plan *<F2>

10.9       Blackhawk Bancorp, Inc.              Proxy Statement for its Annual Meeting
           Executive Stock Option               of Stockholders on May 13, 1998, dated
           Plan *<F2>                           April 2, 1998

21         Subsidiaries of                                                                  X
           Registrant
</TABLE>

*<F2>     Each management contract and compensatory plan or arrangement required
          to be filed as an exhibit to this report is identified in the Exhibit
          Index by an asterisk following the description of the exhibit.

                            BLACKHAWK BANCORP, INC.

        Index To Financial Statements And Financial Statement Schedules

The following Consolidated Financial Statements of  the Blackhawk Bancorp, Inc.
are incorporated in Item 7 of this 10-KSB.

10-KSB page as indicated:

                                                                     Annual
                                                                  Report Pages
                                                                  ------------

Independent Auditor's Report                                             33

Consolidated Balance Sheets - December 31, 2001
  and 2000                                                               34

Consolidated Statements of Income for the years ended
  December 31, 2001, 2000 and 1999                                       35

Consolidated Statements of Shareholders' Equity for
  the years ended December 31, 2001, 2000 and 1999                       36

Consolidated Statements of Cash Flows for the years
  ended December 31, 2001, 2000 and 1999                                 37

Notes to the Consolidated Financial Statements                        38-53

                            BLACKHAWK BANCORP, INC.
                                 AND SUBSIDIARY

                         CONSOLIDATED FINANCIAL REPORT

                               DECEMBER 31, 2001

INDEPENDENT AUDITOR'S REPORT

Board of Directors and Shareholders
Blackhawk Bancorp, Inc.
Beloit, Wisconsin

We have  audited  the  accompanying consolidated  balance  sheets  of  Blackhawk
Bancorp, Inc. and Subsidiary as of December  31, 2001 and 2000, and the  related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three  years in  the period  ended December  31, 2001.   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 auditing standards generally accepted
in the United  States.  Those  standards require that  we plan  and perform  the
audit to obtain reasonable assurance about whether the financial statements  are
free of material misstatement.   An audit includes  examining, on a test  basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the  accounting principles  used and  significant
estimates made  by  management, as  well  as evaluating  the  overall  financial
statement presentation.  We believe that  our audits provide a reasonable  basis
for our opinion.

In our opinion, the consolidated financial statements referred to above  present
fairly, in all material respects, the  financial position of Blackhawk  Bancorp,
Inc. and Subsidiary  at December 31,  2001 and 2000,  and the  results of  their
operations and their cash flows for each of the three years in the period  ended
December 31, 2001, in conformity  with accounting principles generally  accepted
in the United States.

/s/ Wipfli Ullrich Bertelson LLP

Wipfli Ullrich Bertelson LLP
February 15, 2002
Green Bay, Wisconsin

                   BLACKHAWK BANCORP, INC. AND SUBSIDIARY
                        CONSOLIDATED BALANCE SHEETS
                        DECEMBER 31, 2001 AND 2000

                                                          2001           2000

ASSETS                                                   (Dollars in thousands)

Cash and cash equivalents                                $11,746       $13,336
Interest-bearing deposit accounts                          7,857           780
Federal funds sold and other short-term investments       16,417         2,529
Securities:
     Available-for-sale                                   42,623        54,068
     Held-to-maturity, fair value of $24,172
       in 2001 and $18,530 in 2000                        23,735        18,530
Federal Home Loan Bank of Chicago stock, at cost           2,385         2,200
Loans held for sale                                        2,752           739
Loans, net of allowance for loan losses of $2,404
  in 2001 and $3,894 in 2000                             206,383       216,926
Bank premises and equipment, net                           6,716         6,732
Accrued interest receivable                                2,067         2,481
Intangible assets                                          5,040         5,671
Other assets                                               2,554         3,179
                                                        --------      --------
     Total Assets                                       $330,275      $327,171
                                                        --------      --------
                                                        --------      --------

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
     Deposits:
          Non-interest bearing                          $ 36,618      $ 28,875
          Interest bearing                               212,987       232,068
                                                        --------      --------
               Total deposits                            249,605       260,943
                                                        --------      --------
     Borrowed funds:
          Short-term borrowings                            6,087         9,873
          Other borrowings                                48,388        30,031
                                                        --------      --------
               Total borrowed funds                       54,475        39,904
                                                        --------      --------
     Accrued interest payable                              1,044         1,765
     Other liabilities                                     1,410         1,564
                                                        --------      --------
               Total Liabilities                         306,534       304,176
                                                        --------      --------

SHAREHOLDERS' EQUITY
     Preferred stock, $.01 par value per share;
       authorized
       1,000,000 shares; issued, none                          -             -
     Common stock, $.01 par value per share;
       authorized
       10,000,000 shares; issued 2,371,398
       in 2001 and 2,347,598 in 2000                          24            23
     Additional paid in capital                            7,555         7,417
     Retained earnings                                    15,447        15,573
     Treasury stock, 4,980 and 10,324
      shares, at cost                                        (58)         (120)
     Accumulated other comprehensive income                  773           102
                                                        --------      --------
          Total Shareholders' Equity                      23,741        22,995
                                                        --------      --------
          Total Liabilities and Shareholders' Equity    $330,275      $327,171
                                                        --------      --------
                                                        --------      --------

                 See Notes to Consolidated Financial Statements

                   BLACKHAWK BANCORP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF INCOME
                YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999

                                                 2001       2000        1999

                                                     Dollars in thousands
                                                    (except per share data)
Interest Income:
   Interest and fees on loans                  $18,465    $17,580     $15,817
Interest on securities:
Taxable                                          3,074      3,725       3,240
Exempt from federal income taxes                   762        567         467
Interest on federal funds sold and other            72         27         288
short-term investments
Interest on interest-bearing deposits               46        154         251
                                               -------    -------     -------
Total interest income                           22,419     22,053      20,063
                                               -------    -------     -------

Interest Expense:
   Interest on deposits                          8,781      9,334       9,049
   Interest on short-term borrowings               462      1,940         646
   Interest on other borrowings                  2,753      1,269       1,011
                                               -------    -------     -------
        Total interest expense                  11,996     12,543      10,706
                                               -------    -------     -------
          Net interest income                   10,423      9,510       9,357

Provision for loan losses                        1,222      2,260         464
                                               -------    -------     -------
        Net interest income after
           provision for loan losses             9,201      7,250       8,893
                                               -------    -------     -------
Other Operating Income:
   Service charges on deposit accounts           1,742      1,496       1,294
   Gain on sale of mortgage loans                  563        143         414
   Brokerage and annuity commissions               123        228         338
   Trust department income                         165        167         150
   Net loan servicing fees                         (49)       123         146
   Gain on sales of securities                     132         25          69
   Net gain (loss) on sale of other assets         (76)       (12)        151
   Other income                                    226        215         244
                                               -------    -------     -------
        Total other operating income             2,826      2,385       2,806
                                               -------    -------     -------

Other Operating Expenses:
   Salaries and wages                            4,128      3,899       3,924
   Employee benefits                             1,067        959         887
   Occupancy expense, net                          761        650         681
   Furniture and equipment                         768        817         804
   Data processing                                 750        758         764
   Professional fees                               636        367         236
   Advertising and marketing                       280        278         284
   Telephone and telecommunications                292        253         231
   Office supplies                                 283        245         265
   Amortization of intangible assets               497        549         604
   Other operating expenses                      1,408      1,482       1,418
                                               -------    -------     -------
        Total other operating expenses          10,870     10,257      10,098
                                               -------    -------     -------
        Income (Loss) before income taxes        1,157       (622)      1,601
   Provision (Credit) for income taxes             293       (339)        494
                                               -------    -------     -------
          Net Income (Loss)                    $   864    $  (283)    $ 1,107
                                               -------    -------     -------
                                               -------    -------     -------

          Basic Earnings (Loss) Per Share      $  0.37    $ (0.12)    $  0.48
                                               -------    -------     -------
                                               -------    -------     -------
          Diluted Earnings (Loss) Per Share    $  0.36    $ 0.12)     $  0.46
                                               -------    -------     -------
                                               -------    -------     -------
          Dividends Per Share                  $  0.42    $  0.48     $  0.48
                                               -------    -------     -------
                                               -------    -------     -------

                 See Notes to Consolidated Financial Statements

                   BLACKHAWK BANCORP, INC. AND SUBSIDIARY
               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


<TABLE>
                                                                                                 Accumulated
                                             Additional                                             Other
                                  Common      Paid In           Retained        Treasury        Comprehensive
                                  Stock       Capital           Earnings          Stock         Income (Loss)         Total
                                  -----       -------           --------          -----         -------------         -----
<S>                                <C>        <C>                <C>              <C>               <C>                <C>

                                                                       Dollars in thousands

Balance December 31, 1998        $  23        $7,229            $16,975           $(120)          $    293           $24,400

Net income                                                        1,107                                                1,107
Other comprehensive loss                                                                            (1,151)           (1,151)
                                                                                                                     -------
Total comprehensive loss                                                                                                 (44)
Cash dividends declared on                                       (1,109)                                              (1,109)
  common stock
Exercise of stock options                         78                                                                      78
                                 -----        ------            -------           -----           --------           -------
Balance December 31, 1999           23         7,307             16,973            (120)              (858)           23,325

Net loss                                                           (283)                                                (283)
Other comprehensive income                                                                             960               960
                                                                                                                     -------
Total comprehensive income                                                                                               677
Cash dividends declared on                                       (1,117)                                              (1,117)
  common stock
Exercise of stock options                        110                                                                     110
                                 -----        ------            -------           -----           --------           -------
Balance December 31, 2000           23         7,417             15,573            (120)               102            22,995

Net income                                                          864                                                  864
Other comprehensive income                                                                             671               671
                                                                                                                     -------
Total comprehensive income                                                                                             1,535
Cash dividends declared on                                         (990)                                                (990)
  common stock
Sale of treasury stock                           (12)                                62                                   50
Exercise of stock options            1           150                                                                     151
                                 -----        ------            -------           -----           --------           -------
Balance December 31, 2001        $  24        $7,555            $15,447           $ (58)          $    773           $23,741
                                 -----        ------            -------           -----           --------           -------
                                 -----        ------            -------           -----           --------           -------
</TABLE>

                 See Notes to Consolidated Financial Statements

                   BLACKHAWK BANCORP, INC. AND SUBSIDIARY
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999


<TABLE>
CASH FLOWS FROM OPERATING ACTIVITIES                                         2001          2000           1999
                                                                             ----          ----           ----
<S>                                                                           <C>          <C>            <C>

                                                                                   (Dollars in thousands)

 Net Income (Loss)                                                        $    864       $  (283)      $  1,107
 Adjustments to reconcile net income (loss) to net cash provided by
   operating activities:
     Provision for loan losses                                               1,222         2,260            464
     Provision for depreciation and amortization                             1,414         1,421          1,337
     Amortization of premiums and (accretion of discounts) on
       Investment securities, net                                               72            36             67
     Gain on sale of loans held for sale                                      (563)         (143)          (414)
     FHLB stock dividends                                                     (146)          (82)             -
     Gain on sale of finance subsidiary loan portfolio                           -             -           (144)
     Gain on sale of securities available for sale                            (132)          (25)           (69)
     Gain on sale of mortgage servicing rights                                   -          (205)             -
     Loss on sale/disposal of property and equipment                            73           217             23
     Loans originated for sale                                             (33,624)       (8,519)       (23,999)
     Proceeds from the sale of loans held for sale                          32,173         8,447         28,004
     Change in assets and liabilities:
       (Increase) decrease in accrued interest receivable                      407          (453)          (120)
       (Increase) decrease in other assets                                     597          (439)           (45)
       (Decrease) increase in accrued interest payable
         and other liabilities                                                (746)          804         (1,092)
                                                                           -------       -------        -------
     Net cash provided by operating activities                               1,611         3,036          5,119
                                                                           -------       -------        -------

CASH FLOWS FROM INVESTING ACTIVITIES

     Decrease (increase) in federal funds sold, interest-bearing
       deposits and other short-term investments, net                      (20,966)        1,398         24,496
     Proceeds from maturities and calls of securities available-for-sale    26,966         3,324          7,998
     Proceeds from maturities and calls of securities held-to-maturity       2,655         4,230          8,840
     Purchases of securities available-for-sale                            (18,618)      (13,759)       (25,513)
     Purchases of securities held-to-maturity                               (7,934)       (3,126)        (9,055)
     Proceeds from the sale of securities available-for-sale                 4,297         4,820            229
     Purchase of FHLB stock                                                    (32)            -              -
     Proceeds from the sale of finance subsidiary loan portfolio                 -             -          1,383
     Proceeds from the sale of mortgage servicing rights                         -           988              -
     Proceeds from sale of property, equipment and OREO                        845             7             52
     Loans originated, net of principal collected                            8,139       (29,424)       (15,860)
     Purchase of bank premises and equipment                                  (891)         (442)          (660)
                                                                           -------       -------        -------
     Net cash used in investing activities                                  (5,539)      (31,984)        (8,090)
                                                                           -------       -------        -------

CASH FLOWS FROM FINANCING ACTIVITIES
  Net (decrease) increase in deposits                                      (11,338)       26,818         (7,270)
  Net increase (decrease) in short-term borrowings                          (3,786)       (8,691)        13,988
  Proceeds from long-term borrowings                                        24,200        18,000          3,500
  Payments on long-term borrowings                                          (5,843)       (4,772)        (3,820)
  Dividends paid                                                            (1,057)       (1,117)        (1,109)
  Proceeds from issuance of common stock                                       112            52             78
  Proceeds from sale of treasury stock                                          50             -              -
                                                                           -------       -------        -------
     Net cash provided by financing activities                               2,338        30,290          5,367
                                                                           -------       -------        -------
     Increase (decrease) in cash and cash equivalents                       (1,590)        1,342          2,396
  Cash and cash equivalents:
     Beginning                                                              13,336        11,994          9,598
                                                                           -------       -------        -------
     Ending                                                                $11,746       $13,336        $11,994
                                                                           -------       -------        -------
                                                                           -------       -------        -------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash payments for:
     Interest                                                              $12,717       $12,012        $10,722
     Income taxes                                                               43           332            742

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
 FINANCING ACTIVITIES
   Other assets acquired in settlement of loans                              1,182           422            874
</TABLE>

                 See Notes to Consolidated Financial Statements

                     BLACKHAWK BANCORP, INC. AND SUBSIDIARY
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2001

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                 The accompanying  consolidated financial statements conform  to
                 generally  accepted   accounting  principles  and  to   general
                 practices  within the  banking industry.   The  following is  a
                 description of the more significant accounting policies:

        NATURE OF BANKING ACTIVITIES:

                 The  Company  provides   a  variety  of  banking  services   to
                 individuals  and  businesses  through  its  ten  facilities  in
                 Beloit, Wisconsin and  Belvidere, Rockford, Roscoe, Oregon  and
                 Rochelle, Illinois.   Its primary  deposit products are  demand
                 deposits, savings, and certificates of deposit and its  primary
                 lending  products  are commercial,  real  estate  mortgage  and
                 installment loans.

                 As of  December 31, 2001 and  2000, 65% and 69%,  respectively,
                 of the gross loan  portfolio consisted of real estate loans  on
                 real estate located in Southcentral Wisconsin and  Northcentral
                 Illinois.   Generally, these loans  are expected  to be  repaid
                 from the cash flows of the borrowers and are collateralized  by
                 the related property.   Credit losses arising from real  estate
                 lending transactions compare  favorably with the Bank's  credit
                 loss experience  on its loan  portfolio as a  whole.   However,
                 adverse  changes in  the  local  economy would  have  a  direct
                 impact on the credit risk in the loan portfolio.

        PRINCIPLES OF CONSOLIDATION:

                 The accompanying consolidated financial statements include  the
                 accounts  of  Blackhawk Bancorp,  Inc.  and  its  wholly  owned
                 subsidiary, Blackhawk  State Bank ("the  Bank") and the  Bank's
                 wholly  owned  subsidiaries  Nevahawk  Investment,  Inc.,  RSL,
                 Inc., and  First Financial Services, Inc.   RSL, Inc.  includes
                 the accounts of its wholly owned subsidiary Midland  Acceptance
                 Corporation.   All  significant intercompany  transactions  and
                 accounts have been eliminated in consolidation.

        USE OF ESTIMATES:

                 The  preparation of  financial  statements in  conformity  with
                 generally  accepted accounting  principles requires  management
                 to  make estimates  and assumptions  that affect  the  reported
                 amounts of assets and liabilities and disclosure of  contingent
                 assets and liabilities at the date of the financial  statements
                 and the  reported amounts of revenues  and expenses during  the
                 reporting  period.   Actual  results could  differ  from  those
                 estimates.

        RECLASSIFICATIONS:

                 Certain reclassifications have  been made to the 2000 and  1999
                 historical  financial  statements   to  conform  to  the   2001
                 presentation.

        STATEMENTS OF CASH FLOWS:

                 For  the  purpose  of  reporting  cash  flows,  cash  and  cash
                 equivalents includes  cash on hand and  amounts due from  banks
                 (including  cash items  in process  of clearing).   Cash  flows
                 from interest-bearing deposits,  federal funds sold, and  other
                 short-term investments with  an original maturity of less  than
                 three  months and  loans, deposits,  and short-term  borrowings
                 are reported  net under  general practices  within the  banking
                 industry.

        SECURITIES AVAILABLE-FOR-SALE:

                 Securities  classified  as available-for-sale  are  those  debt
                 securities that the  Company intends to hold for an  indefinite
                 period 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.    Unrealized
                 holding gains and  losses on securities available-for-sale  are
                 reported  as  accumulated  other  comprehensive  income  (loss)
                 within shareholders' equity until realized.  Realized gains  or
                 losses,  determined  on  the basis  of  the  cost  of  specific
                 securities sold, are included in earnings.

        SECURITIES HELD-TO-MATURITY:

                 Securities  classified  as  held-to-maturity  are  those   debt
                 securities the Company has both the 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.

        FEDERAL HOME LOAN BANK STOCK:

                 As a member  of the Federal Home  Loan Bank (FHLB) system,  the
                 Bank  is required  to  hold stock  in  the FHLB  based  on  the
                 anticipated level of borrowings to be advanced.  This stock  is
                 recorded at cost,  which approximates fair value.  Transfer  of
                 the stock is substantially restricted.

        INTEREST INCOME AND FEES ON LOANS:

                 Interest on  loans is accrued and  credited to income based  on
                 the principal amount  outstanding.  The accrual of interest  on
                 loans  is  discontinued  when,  in  management's  opinion,  the
                 borrower may  be unable to  meet payments as  they become  due.
                 When  interest  accrual is  discontinued,  all  unpaid  accrued
                 interest  is  reversed.     Interest  income  is   subsequently
                 recognized only to  the extent it is  received in cash.   Loan-
                 origination fees are  credited to income when received and  the
                 related  loan  origination  costs  are  expensed  as  incurred.
                 Capitalization of the fees  net of the related costs would  not
                 have   a  material   effect  on   the  consolidated   financial
                 statements.

        LOANS:

                 Loans  are  stated  at  unpaid  principal  balances,  less  the
                 allowance for loan losses and net of deferred loan fees.

                 Mortgage loans held for sale are recorded at the lower of  cost
                 or  fair  market value.    Gains  and losses  on  the  sale  of
                 mortgage loans are included in other operating income.

                 The allowance for loan  losses is maintained at a level  which,
                 in management's judgment,  is adequate to absorb credit  losses
                 inherent in  the loan portfolio.   The amount of the  allowance
                 is based  on management's evaluation  of the collectibility  of
                 the  loan portfolio,  including the  nature of  the  portfolio,
                 credit concentrations,  trends in  historical loss  experience,
                 specific impaired loans,  and economic conditions.   Allowances
                 for   impaired  loans   are  generally   determined  based   on
                 collateral  values (or  the  present value  of  estimated  cash
                 flows).   Because of uncertainties  inherent in the  estimation
                 process,  management's estimate  of credit  losses inherent  in
                 the  loan  portfolio  and  the  related  allowance  may  change
                 materially in the near term.   The allowance is increased by  a
                 provision  for loan  losses, which  is charged  to expense  and
                 reduced  by charge-offs,  net  of recoveries.  Changes  in  the
                 allowance relating  to impaired loans  are charged or  credited
                 to the provision for loan losses.

        SALES OF FIRST MORTGAGE LOANS AND LOAN SERVICING:

                 The Company sells first mortgage loans with yield rates to  the
                 buyer based  upon the current  market rates,  which may  differ
                 from the contractual rate on the loans sold.  At the time  that
                 loans are sold, a gain  or loss is recorded which reflects  the
                 difference between  the assumed cash  flow to  be generated  by
                 the  contractual interest  rates  of  the loans  sold  and  the
                 assumed cash flow  resulting from the yield  to be paid to  the
                 purchaser,  adjusted for  servicing and  discounted to  reflect
                 present value.   Loan servicing  fees are  recognized over  the
                 lives of  the related loans.   Real estate  loans serviced  for
                 others are not included in the accompanying balance sheets.

        INTANGIBLE ASSETS:

                 The Company's  intangible assets include  the value of  ongoing
                 customer  relationships (core  deposits),  the excess  of  cost
                 over the fair  value of net assets acquired (goodwill)  arising
                 from  the purchase  of certain  assets  and the  assumption  of
                 certain  liabilities  from  unrelated  entities,  and  mortgage
                 servicing rights.  Core deposit intangibles are amortized  over
                 a  10-year  period  and  goodwill  is  amortized  over  periods
                 ranging  from   15  to  25  years.     Intangible  assets   are
                 periodically reviewed  for impairment.   Any impairment in  the
                 intangibles would be  recorded against income in the period  of
                 impairment.

        MORTGAGE SERVICING RIGHTS:

                 The  Company  capitalizes  the  estimated  value  of   mortgage
                 servicing rights through  the origination and sale of  mortgage
                 loans.    When  the  originated  mortgage  loans  are  sold  or
                 securitized into  the secondary market,  the Company  allocates
                 the  total  cost   of  the  mortgage  loans  between   mortgage
                 servicing rights  and the loans, based  on their relative  fair
                 values.  The cost of mortgage servicing rights is amortized  in
                 proportion to, and over the period of, estimated net  servicing
                 revenues. Mortgage servicing rights are periodically  evaluated
                 for  impairment.   For purposes  of measuring  impairment,  the
                 servicing  rights are  stratified into  pools based  on one  or
                 more predominant risk  characteristics of the underlying  loans
                 including  loan  type, interest  rate  and  term.    Impairment
                 represents the  excess of carrying value  of a stratified  pool
                 over  its fair  value, and  is recognized  through a  valuation
                 allowance.   The fair value  of each servicing  rights pool  is
                 evaluated based on  the present value of estimated future  cash
                 flows  using  a  discount  rate  commensurate  with  the   risk
                 associated  with that  pool, given  current market  conditions.
                 Estimates of  fair value include  assumptions about  prepayment
                 speeds, interest  rates, and other  factors, which are  subject
                 to change over  time.  Changes in these underlying  assumptions
                 could cause  the fair value of  mortgage servicing rights,  and
                 the  related valuation  allowance, to  change significantly  in
                 the future.

        PREMISES AND EQUIPMENT:

                 Bank  premises   and  equipment   are  stated   at  cost   less
                 accumulated   depreciation.       Depreciation   is    computed
                 principally on a straight-line basis over the estimated  useful
                 life of each  asset.  Expenditures for maintenance and  repairs
                 are reflected  as expense when  incurred.  Gains  or losses  on
                 disposition of premises and equipment are reflected in income.

        OTHER REAL ESTATE:

                 Other real estate  is carried in other  assets at the lower  of
                 cost or  fair value less  estimated disposal costs.   When  the
                 property is  acquired through  foreclosure, any  excess of  the
                 related  loan balance  over  market  value is  charged  to  the
                 allowance for loan losses.  It is the Bank's policy to  account
                 for collateral that  has been substantively repossessed in  the
                 same manner as  collateral that has been formally  repossessed.
                 Subsequent  write-downs or  losses  upon sale  are  charged  to
                 other operating expense.

        SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:

                 The Bank  enters into sales of  securities under agreements  to
                 repurchase   (reverse-repurchase    agreements).       Reverse-
                 repurchase  agreements  are  treated  as  financings,  and  the
                 obligations to  repurchase securities sold  are reflected as  a
                 liability in  the balance  sheets.   The securities  underlying
                 the agreements remain in the asset accounts.

        TRUST ASSETS:

                 Assets held in a fiduciary or agency capacity are not  included
                 in  the  consolidated financial  statements  as  they  are  not
                 assets of the Bank.

        INCOME TAXES:

                 The  Company, the  Bank  and  the Bank's  subsidiaries  file  a
                 consolidated  federal  income tax  return  and  separate  state
                 income tax returns.

                 Deferred  taxes are  provided  on a  liability  method  whereby
                 deferred  tax assets  are recognized  for deductible  temporary
                 differences  and operating  loss and  tax credit  carryforwards
                 and  deferred  tax  liabilities  are  recognized  for   taxable
                 temporary   differences.     Temporary  differences   are   the
                 differences  between  the   reported  amounts  of  assets   and
                 liabilities  and their  tax basis.    Deferred tax  assets  are
                 reduced  by a  valuation  allowance  when, in  the  opinion  of
                 management, it  is more likely  than not that  some portion  or
                 all of the deferred tax assets will not be realized.   Deferred
                 tax  assets and  liabilities are  adjusted for  the effects  of
                 changes in tax laws and rates on the date of enactment.

        EARNINGS PER SHARE DATA:

                 The per share data is  based on the weighted average number  of
                 common stock  and common stock  equivalents outstanding  during
                 each year.

        COMPREHENSIVE INCOME (LOSS):

                 Comprehensive income (loss)  consists of net income (loss)  and
                 other comprehensive income (loss).  Other comprehensive  income
                 (loss)  includes  unrealized gains  and  losses  on  securities
                 available  for sale,  net of  tax, which  are recognized  as  a
                 separate component  of equity, accumulated other  comprehensive
                 income (loss).

        FUTURE ACCOUNTING CHANGE

                 In  September 2001,  the Financial  Accounting Standards  Board
                 (FASB)  issued  Statement  of  Financial  Accounting  Standards
                 (SFAS)  No. 141,  "Business Combinations",  and SFAS  No.  142,
                 "Goodwill   and  Other   Intangible  Assets."   SFAS  No.   141
                 supersedes Accounting  Principles Board (APB)  Opinion No.  16,
                 "Business  Combinations",  and SFAS  No.  38,  "Accounting  for
                 Preacquisition  Contingencies of  Purchased Enterprises."  SFAS
                 No. 141 requires the  use of the purchase method of  accounting
                 for business combinations  initiated after September 30,  2001.
                 SFAS  No.  142  supersedes  APB  Opinion  No.  17,  "Intangible
                 Assets." SFAS No. 142 addresses how intangible assets  acquired
                 outside of a business combination should be accounted for  upon
                 acquisition  and  how  goodwill  and  other  intangible  assets
                 should  be  accounted  for  after  they  have  been   initially
                 recognized.   SFAS  No.  142 eliminates  the  amortization  for
                 goodwill  and other  intangible assets  with indefinite  lives.
                 Other intangible  assets with a finite  life will be  amortized
                 over their useful  life.  Goodwill and other intangible  assets
                 with indefinite  useful lives  shall be  tested for  impairment
                 annually  or   more  frequently   if  events   or  changes   in
                 circumstances indicate  that the asset may  be impaired.   SFAS
                 No. 142 is effective for fiscal years beginning after  December
                 15, 2001.

                 The  Company's  strategy  over  the  past  several  years   has
                 included  business   combinations  accounted   for  under   the
                 purchase  accounting method  which  created goodwill  upon  the
                 transactions'  closings.   The  Company has  goodwill  of  $3.1
                 million on its balance sheet  as of December 31, 2001 which  is
                 being amortized  over 20 years.   The  pronouncement will  have
                 the effect  of eliminating the amortization  of this asset  and
                 will subject it to periodic impairment analysis.

                 Management,  at this  time, cannot  determine the  effect  that
                 adoption of SFAS No.  142 may have on the financial  statements
                 of  the  Company as  the  statement  requires  a  comprehensive
                 review  of  previous  combinations  accounted  for  under   the
                 purchase accounting method and an analysis of impairment as  of
                 the date  of adoption.   The impairment  analysis for  goodwill
                 and other intangible assets with an indefinite useful life  has
                 not been completed.  The impairment analysis will be  completed
                 within the timelines outlined in SFAS No. 142.

NOTE 2. RESTRICTIONS ON CASH AND CASH EQUIVALENT

                 Cash  and cash  equivalents  in  the amount  of  $500,000  were
                 restricted at December 31,  2001 and 2000, to meet the  reserve
                 requirements of the Federal Reserve System.

                 In the normal course of business, the Bank maintains  interest-
                 bearing   and  non-interest-bearing   deposit   balances   with
                 correspondent banks.   Balances  in these  accounts may  exceed
                 the Federal  Deposit Insurance Corporation's  insured limit  of
                 $100,000.  The  Bank's subsidiary also maintains cash  balances
                 in money market funds.  Such balances are not insured.

NOTE 3. SECURITIES

                 Debt  securities have  been classified  in the  balance  sheets
                 according to management's  intent as either available for  sale
                 or held-to-maturity.   The  carrying amount  of securities  and
                 their estimated fair values at December 31, is as follows:

        AVAILABLE-FOR-SALE SECURITIES:

<TABLE>
                                                                                       2001
                                                                                       ----
Dollars in thousands                                              Gross Unrealized    Gross Unrealized     Estimated
                                                  Amortized Cost       Gains             (Losses)         Fair Value
                                                  --------------       -----             --------         ----------
<S>                                                    <C>              <C>                <C>                <C>
U.S. Government Agencies                             $30,860          $1,093             $  (7)            $31,946
Mortgage-backed securities                             5,460              65               (12)              5,513
Obligations of states and political subdivisions         233               -                 -                 233
Corporate Securities                                   3,950              94                (5)              4,039
Mutual funds and equity securities                       894               -                (2)                892
                                                     -------          ------             -----             -------
    Total                                            $41,397          $1,252             $ (26)            $42,623
                                                     -------          ------             -----             -------
                                                     -------          ------             -----             -------
</TABLE>

<TABLE>
                                                                                       2000
                                                                                       ----
Dollars in thousands                                              Gross Unrealized    Gross Unrealized     Estimated
                                                  Amortized Cost       Gains             (Losses)         Fair Value
                                                  --------------       -----             --------         ----------
<S>                                                    <C>              <C>                <C>                <C>
U.S. Government Agencies                             $43,480          $  324             $(178)            $43,626
Mortgage-backed securities                             5,549              15               (48)              5,516
Obligations of states and political subdivisions         555               1                 -                 556
Corporate Securities                                   3,471               -               (45)              3,426
Mutual funds and equity securities                       852              99                (7)                944
                                                     -------          ------             -----             -------
    Total                                            $53,907          $  439             $(278)            $54,068
                                                     -------          ------             -----             -------
                                                     -------          ------             -----             -------
</TABLE>

<TABLE>
         HELD-TO-MATURITY SECURITIES:
                                                                                       2001
                                                                                       ----
Dollars in thousands                                              Gross Unrealized    Gross Unrealized     Estimated
                                                  Amortized Cost       Gains             (Losses)         Fair Value
                                                  --------------       -----             --------         ----------
<S>                                                    <C>              <C>                <C>                <C>
Mortgage-backed securities                           $ 4,768          $   42             $  (5)            $ 4,805
Obligations of states and political subdivisions      18,967             430               (30)             19,367
                                                     -------          ------             -----             -------
    Total                                            $23,735          $  472             $ (35)            $24,172
                                                     -------          ------             -----             -------
                                                     -------          ------             -----             -------
</TABLE>

<TABLE>
                                                                                       2000
                                                                                       ----
Dollars in thousands                                              Gross Unrealized    Gross Unrealized     Estimated
                                                  Amortized Cost       Gains             (Losses)         Fair Value
                                                  --------------       -----             --------         ----------
<S>                                                    <C>              <C>                <C>                <C>
U.S. Government Agencies                             $   500          $    -             $  (1)            $   499
Mortgage-backed securities                             3,753               4               (33)              3,724
Obligations of states and political subdivisions      14,277             106               (76)             14,307
                                                     -------          ------             -----             -------
    Total                                            $18,530          $  110             $(110)            $18,530
                                                     -------          ------             -----             -------
                                                     -------          ------             -----             -------
</TABLE>

                 The amortized cost and fair value of securities as of  December
                 31,   2001,  by   contractual   maturity,  are   shown   below.
                 Maturities may differ from contractual maturities in  mortgage-
                 backed  securities   because  the   mortgages  underlying   the
                 securities  may be  called or  prepaid without  any  penalties.
                 Therefore, these  securities are not  included in the  maturity
                 categories in the following maturity summary:

<TABLE>
                                                  Available-For-Sale                 Held-to-Maturity
                                                  ------------------                 ----------------
Dollars in thousands                                           Estimated                          Estimated
                                            Amortized Cost     Fair Value     Amortized Cost     Fair Value
                                            --------------     ----------     --------------     ----------
<S>                                              <C>              <C>              <C>              <C>
Due in one year or less                        $ 2,665          $ 2,713          $ 1,739           $ 1,749
Due after one year through five years           28,882           29,820           13,994            14,330
Due after five years through ten years           3,496            3,686            3,234             3,288
Mortgage-backed securities                       5,460            5,512            4,768             4,805
Mutual funds and equity securities                 894              892                -                 -
                                               -------          -------          -------           -------
    Total                                      $41,397          $42,623          $23,735           $24,172
                                               -------          -------          -------           -------
                                               -------          -------          -------           -------
</TABLE>

                 Fair  values  of   many  securities  are  estimates  based   on
                 financial methods  or prices paid for  similar securities.   It
                 is possible interest rates could change considerably  resulting
                 in a material change in the estimated fair value.

                 Realized  gains  on  sales  of  securities   available-for-sale
                 totaled $132,000,  $25,000 and $69,000,  respectively in  2001,
                 2000 and  1999.  The Company  realized no losses on  securities
                 in 2001, 2000 and 1999.

                 Investment  securities with  an amortized  cost of  $17,671,000
                 and   $13,380,000  as   of   December  31,   2001   and   2000,
                 respectively, and a  fair value of $18,222,000 and  $13,423,000
                 as of  December 31, 2001 and  2000, respectively, were  pledged
                 to  secure  short-term  borrowings.  Additionally,   investment
                 securities   with  an   amortized  cost   of  $20,810,000   and
                 $23,583,000 in  2001 and 2000, respectively,  and a fair  value
                 of $21,379,000 and $23,363,000 in 2001 and 2000,  respectively,
                 were  pledged to  secure  public deposits  and  other  purposes
                 required by law as of December 31.

NOTE 4. LOANS

                 The composition of the loan portfolio is as follows:

                 Dollars in thousands                   2001            2000
                                                        ----            ----

                 Real estate - Mortgage               $136,625        $153,033
                 Real estate - Construction              9,806           4,551
                 Consumer                               27,851          32,139
                 Commercial                             34,505          31,097
                                                      --------        --------
                 Total loans                          $208,787        $220,820

                 Less:  Allowance for loan losses        2,404           3,894
                                                      --------        --------

                    Loans, net                        $206,383        $216,926
                                                      --------        --------
                                                      --------        --------

                 Non-performing loans include loans which have been  categorized
                 by management as  impaired and non-accruing because  collection
                 of interest is not assured, non-accruing loans (not  considered
                 impaired loans)  and loans which  are past-due  ninety days  or
                 more as to  interest and/or principal payments.  The  following
                 summarizes information concerning problem loans:

                 Dollars in thousands                   2001            2000
                                                        ----            ----

                 Impaired loans                       $  1,147        $  2,063
                 Non-accruing loans                      2,808           1,819
                 Past due 90 days or more
                   and still accruing                      356             280
                                                      --------        --------
                    Total problem loans               $  4,311        $  4,162
                                                      --------        --------
                                                      --------        --------

                 The average  balance of  loans classified  as impaired  totaled
                 approximately  $1,717,000, $1,005,000  and $2,716,000  for  the
                 years ended  December 31,  2001, 2000  and 1999,  respectively.
                 Interest income  that would  have been  recognized on  impaired
                 loans on  an accrual basis would  have been $126,000,  $193,000
                 and  $160,000  during   2001,  2000  and  1999,   respectively.
                 Interest  income that  was recognized  on impaired  loans on  a
                 cash  basis was  $68,000, $184,000  and $160,000  during  2001,
                 2000  and 1999,  respectively. The  allowance for  loan  losses
                 related to impaired  loans amounted to approximately  $234,000,
                 $2,008,000 and  $100,000 at December 31,  2001, 2000 and  1999,
                 respectively.

                 The Company had no commitments to loan additional funds to  the
                 borrowers of  problem loans for  the years  ended December  31,
                 2001 and 2000.

                 The effect on interest  income of the non-accruing loans is  as
                 follows:

                 Dollars in thousands               2001      2000      1999
                                                    ----      ----      ----
                 Income recognized                  $177       $74      $35
                 Income that would have been
                   recognized in accordance with
                   the original loan terms           185       178       73

                 A summary of transactions in the allowance for loan
                 losses is as follows:

                 Dollars in thousands                2001      2000       1999
                                                     ----      ----       ----
                 Balance at beginning of year      $ 3,894   $ 1,996    $ 1,915
                 Allowance associated with               -         -        (24)
                   finance subsidiary loans sold
                 Provision charged to expense        1,222     2,260        464
                 Loans charged-off                  (2,785)     (394)      (408)
                 Recoveries                             73        32         49
                                                   -------   -------    -------
                      Balance at December 31       $ 2,404   $ 3,894      1,996
                                                   -------   -------    -------
                                                   -------   -------    -------

                 Loans  are  made,   in  the  normal  course  of  business,   to
                 directors,  executive officers,  their immediate  families  and
                 affiliated companies in which they are a principal  shareholder
                 (commonly referred to as related parties).  The terms of  these
                 loans, including interest rates and collateral, are similar  to
                 those  prevailing for  comparable transactions  and  management
                 believes  they  do not  involve  more  than a  normal  risk  of
                 collectibility.  Such direct and indirect loans are  summarized
                 as follows:

                 Dollars in thousands                2001           2000
                                                     ----           ----
                 Balance at beginning of year      $ 6,876         $ 4,045
                 New loans and advances              9,393           3,486
                 Principal repayments               (7,018)           (655)
                                                   -------         -------
                 Balance at December 31            $ 9,251         $ 6,876
                                                   -------         -------
                                                   -------         -------

                 In  addition,   the  Company  has   loan  commitments  to   the
                 aforementioned related parties of $1,281,000 and $4,364,000  as
                 of December 31, 2001 and 2000, respectively.

NOTE 5. MORTGAGE SERVICING RIGHTS

                 The unpaid  principal balance  of mortgage  loans serviced  for
                 others,  which are  not included  on the  consolidated  balance
                 sheets,  were  $26,076,000,  $35,517,000  and  $127,139,000  at
                 December 31, 2001,  2000 and 1999, respectively.  During  2000,
                 the  Company  sold  a  substantial  portion  of  its   mortgage
                 servicing portfolio in the secondary market.  Servicing  rights
                 of  $529,000  along  with a  servicing  asset  that  was  being
                 carried  in  another  purchase-related  intangible  account  of
                 $49,000 were sold for $818,000, net of transaction costs.   The
                 carrying value  of the  mortgage servicing  rights is  included
                 with intangible  assets and approximates  fair market value  at
                 December 31, 2001 and 2000.

                 The  following is  an analysis  of  the activity  for  mortgage
                 servicing rights for the years ended December 31.

                 Dollars in thousands            2001       2000      1999
                                                 ----       ----      ----
                 Balance at beginning of year   $ 409     $1,058    $ 1,028
                 Additions of originated
                 mortgage servicing rights          -         19        231
                 Sale of mortgage servicing
                 rights                             -       (529)         -
                 Amortization                    (134)      (139)      (201)
                                                -----     ------    -------
                 Balance at end of year         $ 275     $  409    $ 1,058
                                                -----     ------    -------
                                                -----     ------    -------

NOTE 6. PREMISES AND EQUIPMENT

                 A summary of premises and equipment is as follows:

                 Dollars in thousands                2001        2000
                                                     ----        ----
                 Land and Improvements             $ 1,404     $ 1,404
                 Buildings and Improvements          6,991       6,995
                 Equipment                           5,368       4,796
                 Vehicles                              250         274
                                                   -------     -------
                                                    14,013      13,469
                 Less accumulated depreciation       7,297       6,737
                                                   -------     -------
                    Premises and equipment, net    $ 6,716     $ 6,732
                                                   -------     -------
                                                   -------     -------

                 Depreciation  charged  to  operating  expenses  was   $782,000,
                 $732,000, and $733,000  for the years ended December 31,  2001,
                 2000 and 1999, respectively.

NOTE 7. DEPOSITS

                 Deposit accounts at December 31 are summarized as follows:

                                                         2001         2000
                                                         ----         ----
                 Non-interest-bearing demand          $ 36,618     $ 28,875
                 Interest-bearing demand deposits       31,665       23,339
                 Savings deposits                       25,585       25,386
                 Money market deposits                  36,605       50,127
                 Time deposits                         119,132      133,216
                                                      --------     --------
                    Total deposits                    $249,605     $260,943
                                                      --------     --------
                                                      --------     --------

                 The  aggregate amount  of short-term  jumbo  CDs, each  with  a
                 minimum   denomination    of   $100,000,   was    approximately
                 $23,511,000  and $30,153,000  in 2001  and 2000,  respectively.
                 Interest  expense on  time deposits  of  $100,000 or  more  was
                 approximately  $1,557,000, $1,671,000  and $1,263,000  for  the
                 years ended December 31, 2001, 2000 and 1999, respectively.

                 At December  31, 2001, the scheduled  maturities of CDs are  as
                 follows (in thousands):

                         2002                                     $  76,007
                         2003                                        29,575
                         2004                                         7,436
                         2005                                         1,859
                         2006 and thereafter                          4,255
                                                                  ---------
                            Total certificates of deposit         $ 119,132
                                                                  ---------
                                                                  ---------

                 At December 31, 2001 deposits from Directors, Executive
                 Officers and their related interests totaled $16.1 million.

NOTE 8. BORROWED FUNDS

               A summary of borrowed funds is as follows (in thousands):

                                                              2001      2000
                                                              ----      ----
                 Line of credit                            $ 1,050    $   550
                 Securities sold under an agreement
                   to repurchase                             5,037      9,323
                                                           -------    -------
                    Total short-term borrowings            $ 6,087    $ 9,873

                 Term Loan                                 $ 5,688    $ 6,531
                 Secured Advances from
                   Federal Home Loan Bank of Chicago:
                 Fixed rate of 6.72%, due 10/10/01               -      5,000
                 Fixed rate of 5.84%, due 01/03/02           1,800          -
                 Fixed rate of 5.40%, due 01/16/02           5,000          -
                 Fixed rate of 6.28%, due 08/28/03,
                   convertible quarterly                     5,000      5,000
                 Fixed rate of 6.01%, due 12/22/03           1,000      1,000
                 Fixed rate of 5.30%, due 03/01/04           2,400          -
                 Fixed rate of 3.88%, due 10/05/04           5,000          -
                 Fixed rate of 5.63%, due 12/13/04,
                   convertible quarterly                     1,500      1,500
                 Fixed rate of 6.16%, due 03/21/05,
                   convertible quarterly                     7,000      7,000
                 Fixed rate of 5.30%, due 01/16/08,
                   convertible 01/16/03                      4,000      4,000
                 Fixed rate of 4.55%, due 01/17/11,
                   convertible 01/16/02                      5,000          -
                 Fixed rate of 4.80%, due 01/17/11,
                   convertible 01/16/03                      5,000          -
                                                           -------    -------
                         Total other borrowings            $48,388    $30,031

                         Total borrowings                  $54,475    $39,904
                                                           -------    -------
                                                           -------    -------

                 The  scheduled  principal  maturities  of  borrowed  funds   at
                 December 31, 2001 are as follows:

                      2002                    $18,575
                      2003                      6,000
                      2004                      8,900
                      2005                      7,000
                      2006 and thereafter      14,000
                                              -------
                          Total borrowings    $54,475
                                              -------
                                              -------

                 Federal  Home  Loan  Bank (FHLB)  advances  are  subject  to  a
                 prepayment  penalty if  they are  repaid prior  to maturity.  A
                 number of the FHLB advances  are callable at the option of  the
                 FHLB. The  FHLB will convert those  called advances to an  open
                 line  of  credit.  The  Company  is  required  to  maintain  as
                 collateral unencumbered first  mortgage loans in its  portfolio
                 aggregating  at  least  167%  of  the  amount  of   outstanding
                 advances  from   the  FHLB.    The   FHLB  advances  are   also
                 collateralized by FHLB stock owned by the Company.

                 The  term  loan consists  of a $3,888,000  loan  with  a  fixed
                 interest rate  of 6.60% and  a variable  portion of  $1,800,000
                 with a  current rate  of 4.09%.   The  loan requires  quarterly
                 principal payments  of $211,000  in addition  to the  quarterly
                 interest payments on  the fixed portion and quarterly  interest
                 only payments  on the  variable portion.   In  addition to  the
                 term loan, the Company maintains a $2.0 million line of  credit
                 with the same  lender which had a  balance of $1,050,000 and  a
                 variable rate of  3.93% as of December  31, 2001.  On  February
                 1, 2002 the maximum line of credit available to the Company  is
                 $1.0 million.  The line of credit  and term loan mature  August
                 21, 2002.   Collateral for this loan  consists of the stock  of
                 the Bank.

                 A  covenant placed  upon the  Company includes  limitations  on
                 further  mergers  without consent  of  the  lender.  Additional
                 covenants require  the Bank's Average  Return on  Assets be  at
                 least .20%,  the Bank's Total  Risk-based Capital  Ratio be  at
                 least 10%  and the ratio  of the  Bank'' Non-performing  Assets
                 plus Other  Real Estate to Total  Loans plus Other Real  Estate
                 to be  at or  below 2%.  The Company  was in  violation of  the
                 Return on  Assets covenant during the  fourth quarter of  2001.
                 However, a waiver of this covenant violation was received  from
                 the lender.

NOTE 9. EMPLOYEE BENEFIT PLANS

        PENSION AND 401(K) PLANS:

                 The Company sponsors a 401(k) profit-sharing plan, under  which
                 eligible employees are allowed to make voluntary  contributions
                 to the plan. The Bank  makes a matching contribution of 25%  of
                 the  first   6%  of  an   employee's  compensation  that   they
                 contribute.   Additionally, the Bank  may make a  discretionary
                 profit  sharing contribution.   The  total expenses  for  these
                 plans were $99,000,  $154,000 and $146,000 for the years  ended
                 December 31, 2001, 2000 and 1999, respectively.

        EXECUTIVE BONUS PLAN:

                 The  Company has  adopted a  revised incentive  bonus plan  for
                 officers,  providing  cash bonuses  based  upon  the  financial
                 performance of  the Company and  performance of the  respective
                 officers.  Bonus compensation expense was $14,000, $57,000  and
                 $32,000 for the years 2001, 2000 and 1999, respectively.

        STOCK OPTION PLANS:

                 The Company  has reserved shares of  common stock for  issuance
                 to  directors  and  key  employees  under  incentive  and  non-
                 qualified stock  option plans.  Options  are granted at  prices
                 equal  to the  fair market  value and  90% of  the fair  market
                 value on  the dates of grant  for directors and key  employees,
                 respectively, and  are exercisable  in cumulative  installments
                 over a three year period.  Other pertinent information  related
                 to the plans is as follows:

<TABLE>
                                             Weighted                     Weighted                       Weighted
                                             Average                      Average                         Average
                                  2001        Price           2000         Price            1999           Price
                                  ----        -----           ----         -----            ----           -----
<S>                                <C>          <C>            <C>          <C>             <C>             <C>
Shares under option,
 beginning of year              318,180       $ 9.76        335,999        $9.24          334,132         $ 8.98
Granted during the year          80,500         9.03         22,000         9.24           25,500          13.75
Terminated and canceled
 during the year                (14,200)       11.40        (16,894)        5.93          (12,333)         13.73
Exercised during the year       (23,800)        4.67        (22,925)        4.44          (11,300)          6.86
                                -------       ------        -------        -----          -------         ------
Shares under option,
 end of year                    360,680         9.87        318,180         9.76          335,999           9.24
                                -------       ------        -------        -----          -------         ------
                                -------       ------        -------        -----          -------         ------
Options exercisable,
 end of year                    262,679        10.02        261,897         9.20          270,150           8.02
                                -------       ------        -------        -----          -------         ------
                                -------       ------        -------        -----          -------         ------
Available to grant,
 end of year                    210,150                     290,650                       312,650
                                -------                     -------                       -------
                                -------                     -------                       -------
Weighted average fair value
 of options granted
 during the year                              $ 3.20                       $1.57                          $ 1.19
                                              ------                       -----                          ------
                                              ------                       -----                          ------
</TABLE>

<TABLE>
                                  Outstanding Options                             Vested Options
                                  -------------------                             --------------
       Year of             Outstanding         Weighted Average                                  Weighted
     Expiration           Shares Granted             Price             Shares Vested          Average Price
     ----------           --------------             -----             -------------          -------------
<S>                            <C>                    <C>                  <C>                    <C>
        2002                  4,200                 $ 4.33                 4,200                 $ 4.33
        2003                 47,580                   5.36                47,580                   5.36
        2004                  6,300                   6.83                 6,300                   6.83
        2005                105,250                   9.36               105,250                   9.36
        2006                 15,250                  11.21                15,250                  11.21
        2007                 14,300                  11.43                14,300                  11.43
        2008                 48,800                  15.05                48,800                  15.05
        2009                 23,500                  13.75                15,333                  13.75
        2010                 17,000                   9.26                 5,666                   9.27
        2011                 78,500                   9.04                     -                      -
                            -------                 ------               -------                 ------
              Total         360,680                 $ 9.87               262,679                 $10.02
                            -------                 ------               -------                 ------
                            -------                 ------               -------                 ------
</TABLE>

                 The Company  applies APB Opinion No.  25 in accounting for  its
                 stock options.   Had compensation costs been determined on  the
                 basis of  fair value pursuant  to FASB Statement  No. 123,  net
                 income  and earnings  per  share  would have  been  reduced  as
                 follows:

                                                   2001      2000      1999
                                                   ----      ----      ----
                Net Income:
                As reported                        $ 864    $ (283)   $1,107
                   Pro Forma                         803      (310)    1,049
                Earnings Per Share - As reported
                      Basic                        $0.37    $(0.12)   $ 0.48
                                                   -----    ------    ------
                                                   -----    ------    ------
                      Diluted                      $0.36    $(0.12)   $ 0.46
                                                   -----    ------    ------
                                                   -----    ------    ------
                Earnings Per Share - Pro Forma:
                      Basic                        $0.34    $(0.13)   $ 0.45
                                                   -----    ------    ------
                                                   -----    ------    ------
                      Diluted                      $0.34    $(0.13)   $ 0.43
                                                   -----    ------    ------
                                                   -----    ------    ------

                 The fair  value of each stock  option grant has been  estimated
                 on the  date of grant  using the  Black-Scholes option  pricing
                 model with the following weighted-average assumptions:

                                               2001        2000      1999
                                               ----        ----      ----
                 Risk-free interest rate         2%          5%          5%
                 Expected Life               10 years    10 years    10 years
                 Expected Volatility            26%         24%         17%
                 Expected Dividend Yield         4%          5%          3%

        EMPLOYEE STOCK OWNERSHIP PLAN:

                 The  Company has  an  Employee  Stock Ownership  Plan  for  the
                 benefit  of employees  who meet  the eligibility  requirements.
                 The Plan was established in 1990.  The Plan held 63,282  shares
                 of the Company's  common stock, as of  December 31, 2001, in  a
                 trust established in the Bank.   The stock was acquired by  the
                 Plan  by  using  the proceeds  from  a  loan  obtained  from  a
                 nonrelated  commercial   lender.  The  loan  was   subsequently
                 satisfied. Cash  payments to the Plan  consist of dividends  of
                 $30,000, $36,000 and  $38,000 for the years ended December  31,
                 2001, 2000 and 1999, respectively

                 In   accordance  with   the  applicable   federal  income   tax
                 regulations,  the Bank  is  expected  to honor  the  rights  of
                 certain  participants   to  diversify   their  vested   account
                 balances or  to liquidate their vested  ownership of the  stock
                 in the event of employment termination.  The purchase price  of
                 the stock is based on the market value.

        DEFERRED COMPENSATION PLAN:

                 As  a  result  of  acquisitions,  the  Bank  assumed   deferred
                 compensation agreements with  certain officers of Rochelle  and
                 Belvidere.   Amounts are accumulated in  an account from  which
                 benefits  will  be  paid to  the  officers  at  termination  or
                 retirement.    As  of  December  31,  2001  and  2000  deferred
                 compensation   liability   totaled   $470,000   and   $453,000,
                 respectively.

                 The agreements  also provide  for an  acceleration of  benefits
                 upon  the   deaths  of   these  officers,   payable  to   their
                 beneficiaries. The Bank  has purchased life insurance  policies
                 on the lives of the officers in order to fund the  acceleration
                 of benefits  at death.  The Bank  is owner  and beneficiary  of
                 these  policies  that  provide  for  death  benefits   totaling
                 $1,379,000 and  $1,351,000 as of  December 31,  2001 and  2000,
                 respectively.   These policies have a  cash surrender value  of
                 $654,000 and $624,000 as of December 31, 2001 and 2000.

NOTE 10. INCOME TAXES

                 Deferred   income  taxes   are  provided   for  the   temporary
                 differences between the  financial reporting basis and the  tax
                 basis  of the  Company's assets  and  liabilities.   The  major
                 components  of  net   deferred  tax  assets  (liabilities)   at
                 December 31 are as follows (in thousands):

                                                           2001        2000
                                                           ----        ----
                 Deferred Tax Liabilities:
                     Property and Equipment             $  (414)     $  (440)
                     Unrealized gains on securities
                       available-for-sale                  (453)         (59)
                     Purchase Accounting                   (378)        (388)
                     Mortgage Servicing Rights             (108)        (160)
                     Other                                 (150)         (76)
                                                        -------      -------
                        Total Deferred Tax Liabilities   (1,503)      (1,123)
                                                        -------      -------

                 Deferred Tax Assets:
                     Reserve for loan losses                943        1,514
                     Accrued liabilities                    271          267
                     State net operating
                       loss carryovers                      201           89
                                                        -------      -------
                      Total Deferred Tax Assets           1,415        1,870
                                                        -------      -------

                 Total valuation allowance recognized
                   for net deferred tax assets              (75)         (42)
                                                        -------      -------

                       Net Deferred Tax Assets
                        (Liabilities)                   $  (163)     $   705
                                                        -------      -------
                                                        -------      -------

                 The provision (credit) for income taxes consists of the
                 following (in thousands):

                                                    2001      2000      1999
                                                    ----      ----      ----
                 Current tax provision (credit):
                     Federal                       $(181)    $  471    $   506
                     State                             -         42         27
                                                   -----     ------    -------
                         Total Current              (181)       513        533
                                                   -----     ------    -------

                 Deferred tax provision (credit):
                     Federal                         343       (662)       (68)
                     State                            98       (190)        (1)
                                                   -----     ------    -------
                         Total Deferred              441       (852)       (69)
                                                   -----     ------    -------

                 Change in valuation allowance        33          -         30
                                                   -----     ------    -------
                         Total provision (credit)
                          for income taxes         $ 293     $ (339)   $   494
                                                   -----     ------    -------
                                                   -----     ------    -------

                 A summary of the source of differences between income taxes  at
                 the  federal statutory  rate  and the  provision  (credit)  for
                 income  taxes for  the  years  ended December  31  follows  (in
                 thousands):

                                                    2001       2000       1999
                                                    ----       ----       ----
                 Tax expense (benefit) at
                   statutory rate                  $ 294      $(211)     $ 544
                 Increase (decrease) in taxes
                   resulting from:
                       Tax exempt interest          (260)      (193)      (166)
                        State income taxes, net
                         of federal  tax benefit      87        (98)        17
                       Amortization of goodwill
                         and other intangibles       169        202        205
                       Other                           4       ( 39)      (106)
                                                   -----      -----      -----
                 Provision (credit) for
                   income taxes                    $ 293      $(339)     $ 494
                                                   -----      -----      -----
                                                   -----      -----      -----

NOTE 11. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

                 Comprehensive  income  (loss) is  shown  in  the  statement  of
                 changes  in shareholders'  equity.   The Company's  accumulated
                 other  comprehensive   income  (loss)  is   comprised  of   the
                 unrealized gain or  loss on securities available for sale,  net
                 of tax.  The following shows the activity in accumulated  other
                 comprehensive income (loss) (in thousands):

                 Dollars in thousands                2001       2000      1999
                                                     ----       ----      ----
                 Accumulated other comprehensive
                   income (loss) at beginning       $  102    $ (858)   $   293
                                                    ------    ------    -------
                 Activity:
                    Unrealized gain (loss) on
                      securities available for sale  1,197     1,556     (1,607)
                    Tax impact                        (444)     (581)       498
                                                    ------    ------    -------

                 Net unrealized gain (loss) on
                   securities available for sale       753       975     (1,151)
                                                    ------    ------    -------
                    Reclassification adjustment for
                      realized gains on securities
                      available-for-sale              (132)      (25)       (69)
                    Tax impact                          50        10         27
                                                    ------    ------    -------
                 Net reclassification adjustment       (82)      (15)       (42)
                                                    ------    ------    -------
                 Other comprehensive
                   income (loss)                       671       960     (1,151)
                                                    ------    ------    -------
                 Accumulated other comprehensive
                   income (loss) at end             $  773    $  102    $  (858)
                                                    ------    ------    -------
                                                    ------    ------    -------

NOTE 12. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

                 The  Company is  a party  to  financial instruments  with  off-
                 balance-sheet risk, acquired  in the normal course of  business
                 to meet the financing needs of its customers.  These  financial
                 instruments include  various commitments to  extend credit  and
                 standby letters  of credit.   These instruments  involve, to  a
                 varying  degree, elements  of  credit  risk in  excess  of  the
                 amount recognized in  the balance sheet.  The contract  amounts
                 of  these instruments  reflect the  extent of  involvement  the
                 Company has in particular classes of financial instruments.

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

                 Standby letters  of credit are  conditional commitments  issued
                 by the Company to guarantee the performance of a customer to  a
                 third party.   The credit risk  involved in issuing letters  of
                 credit is  essentially the same as  that involved in  extending
                 loans to  customers.  The  Company holds collateral  supporting
                 those  commitments for  which collateral  is deemed  necessary.
                 Because these  instruments have fixed  maturity dates and  many
                 of them expire without being drawn upon, they do not  generally
                 present any significant liquidity risk to the Company.

                 The Company frequently enters into loan sale commitments  prior
                 to closing loans in order  to limit interest rate risk for  the
                 period of time between when a loan is committed and when it  is
                 sold.  These sale commitments  are typically made on a loan  by
                 loan basis.

                 A summary of the amount of Company's exposure to credit  and/or
                 interest rate  risk for  loan commitments  (unfunded loans  and
                 unused  lines  of   credit)  and  standby  letters  of   credit
                 outstanding at  December 31, 2001 and  2000 was as follows  (in
                 thousands):

                                                 2001        2000
                                                 ----        ----
                 Loan Commitments              $25,390      $30,834

                 Standby Letters of Credit     $   383      $ 2,987

                 Commitments to Sell           $ 6,165      $   175

                 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 the commitments  may expire  without
                 being  drawn  upon,   the  total  commitment  amounts  do   not
                 necessarily represent  future cash requirements.   The  Company
                 evaluates each customer's  credit worthiness on a  case-by-case
                 basis.  The amount of collateral obtained, if deemed  necessary
                 by Company upon  extension of credit, is based on  management's
                 credit evaluation.  Collateral varies but may include  accounts
                 receivable, inventory,  property, plant and equipment,  income-
                 producing commercial properties and real estate.

NOTE 13. LEASE COMMITMENTS

                 The  Bank  leases   one  branch  office  location  in   Beloit,
                 Wisconsin that expires in  July 2002. The lease can be  renewed
                 for an additional two five year option terms.  Should the  Bank
                 not  renew the  lease, it  could be  liable for  remodeling  or
                 removal costs  to the leased  office spaces if  the leases  are
                 terminated before 2012, the 14th year of the lease.

                 The Bank  also leases an  office in Roscoe,  Illinois under  an
                 operating  lease expiring  in  December  2002.   The  lease  is
                 subject  to  inflationary  adjustments  after  three  years  of
                 occupancy and  provides the Bank  with the  option to  purchase
                 the entire  leased office building.   In addition, the Bank  is
                 obligated  to  pay   a  portion  of  the  real  estate   taxes,
                 insurance, and common area maintenance.

                 The  total  minimum  rental  commitment  under  the  leases  at
                 December  31, 2001  is $65,000.   Total  rent expense  for  the
                 years  ended December  31, 2001,  2000  and 1999  was  $66,000,
                 $98,000 and $108,000, respectively.

NOTE 14. EARNINGS PER SHARE

                 Basic earnings (loss) per share are arrived at by dividing  net
                 income  (loss)   available  to  common   shareholders  by   the
                 weighted-average  number of  common shares  outstanding and  do
                 not  include the  impact  of any  potentially  dilutive  common
                 stock equivalents.  The diluted earnings per share  calculation
                 is arrived  at by dividing net  income (loss) by the  weighted-
                 average  number  of   shares  outstanding,  adjusted  for   the
                 dilutive effect  of outstanding  stock options,  and any  other
                 common  stock  equivalents.   The  following  table  shows  the
                 computation  of  the basic  and  diluted  earnings  (loss)  per
                 share:

<TABLE>
                 Dollars in thousands, except per share data    Income (loss)        Share        Per Share
                                                                 (Numerator)     (Denominator)     Amount
                 For the Year Ended December 31, 2001           -------------    -------------    ---------
<S>                                                                 <C>               <C>            <C>
                 Basic Earnings Per Share                         $    864         2,354,316       $ 0.37
                                                                  --------                         ------
                                                                  --------                         ------
                 Effect of Dilutive Stock Options                                     27,045
                                                                                   ---------
                 Diluted Earnings Per Share                       $    864         2,381,361       $ 0.36
                                                                  --------         ---------       ------
                                                                  --------         ---------       ------

                 For the Year Ended December 31, 2000
                 Basic Loss Per Share                             $  (283)         2,323,235       $(0.12)
                                                                  --------                         ------
                                                                  --------                         ------
                 Effect of Dilutive Stock Options                                     41,842
                                                                                   ---------
                 Diluted Loss Per Share                           $  (283)         2,365,077       $(0.12)
                                                                  --------         ---------       ------
                                                                  --------         ---------       ------

                 For the Year Ended December 31, 1999
                 Basic Earnings Per Share                         $  1,107         2,309,345       $ 0.48
                                                                  --------                         ------
                                                                  --------                         ------
                 Effect of Dilutive Stock Options                                    112,641
                                                                                   ---------
                 Diluted Earnings Per Share                       $  1,107         2,421,986       $ 0.46
                                                                  --------         ---------       ------
                                                                  --------         ---------       ------
</TABLE>

NOTE 15. SEGMENT INFORMATION

                 The  Company, through  the branch  network of  its  subsidiary,
                 Blackhawk State  Bank, provides a  full range  of consumer  and
                 commercial  banking services  to individuals,  businesses,  and
                 farms  in southern  Wisconsin  and northern  Illinois.    These
                 services  include  demand,  time  and  savings  deposits;  safe
                 deposit   services;  credit   cards;  secured   and   unsecured
                 consumer, commercial,  and real estate  loans; ATM  processing;
                 cash  management; and  trust  services.   While  the  Company's
                 chief  decision  makers monitor  the  revenue  streams  of  the
                 various  products  and services,  operations  are  managed  and
                 financial  performance is  evaluated on  a Company-wide  basis.
                 Accordingly,  all  of  the  Company's  banking  operations  are
                 considered by  management to  be aggregated  in one  reportable
                 operating segment.

NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS

                 The following  methods and  assumptions were  used to  estimate
                 the  fair value  of each  class  of financial  instruments  for
                 which it is practicable to estimate that value:

                 Cash, cash  equivalents, interest-bearing deposit accounts  and
                 federal  funds  sold: For  these  short-term  instruments,  the
                 carrying amount is a reasonable estimate of fair value.

                 Securities:   For securities, fair  value equals quoted  market
                 price,  where available.    If a  quoted  market price  is  not
                 available, fair value  is estimated using quoted market  prices
                 for similar securities.

                 Federal Home Loan Bank  stock: Federal Home Loan Bank stock  is
                 carried  at cost,  which is  its  redeemable value,  since  the
                 market for this stock is limited.

                 Loans  and  Loans  Held  for  Sale:  For  certain   homogeneous
                 categories of loans, such as fixed-rate residential  mortgages,
                 fair  value is  estimated using  the quoted  market prices  for
                 securities backed  by similar loans,  adjusted for  differences
                 in loan  characteristics.   The fair  value of  other types  of
                 loans is estimated  by discounting the future cash flows  using
                 the  current rates  at which  similar loans  would be  made  to
                 borrowers  with similar  credit ratings.   Impaired  loans  are
                 measured at  the estimated fair  value of  the expected  future
                 cash flows  at the loan's effective  interest rate, the  loan's
                 observable market  price, or the fair  value of the  collateral
                 for  loans which  are  collateral dependent.    Therefore,  the
                 carrying  value of  impaired loans  approximates the  estimated
                 fair value for these assets.

                 Deposits:   The  fair  value  of demand  deposits  and  savings
                 accounts is  the amount  payable at  the reporting  date.   The
                 fair  value  of  fixed-maturity  certificates  of  deposit   is
                 estimated using  the rates  currently offered  for deposits  of
                 similar remaining maturities.

                 Short-term and  long-term borrowings: The  carrying amounts  of
                 variable-rate borrowings  and notes  payable approximate  their
                 fair  values.   The  fair value  of  fixed rate  borrowings  is
                 estimated  using  rates  currently  available  for  debt   with
                 similar terms and remaining maturities.

                 Off-balance  sheet financial  instruments:  The fair  value  of
                 off-balance  sheet  instruments  was  estimated  based  on  the
                 amount  the Company  would pay  to terminate  the contracts  or
                 agreements,  using current  rates  and, when  appropriate,  the
                 current creditworthiness of the customer.

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

<TABLE>
                                                             December 31, 2001         December 31, 2000
                                                             -----------------         -----------------
                 Dollars in thousands                      Carrying                 Carrying
                                                            Amount    Fair Value     Amount      Fair Value
                                                           --------   ----------    --------     ----------
<S>                                                         <C>          <C>          <C>          <C>
                 Financial Assets
                      Cash, cash equivalents               $ 11,746      11,746      $13,336        13,336
                      Interest-bearing deposit accounts       7,857       7,857          780           780
                      Federal funds sold and other
                           Short-term investments            16,417      16,417        2,529         2,529
                      Securities                             66,358      66,795       72,598        72,598
                      Federal Home Loan Bank of
                           Chicago Stock                      2,385       2,385        2,200         2,200
                      Loans held for sale                     2,752       2,752          739           739
                      Loans, net of allowance for
                           Loan losses                      206,383     211,154      216,926       219,081

                 Financial Liabilities
                      Demand deposit and savings           $130,473    $130,473     $127,727      $127,727
                      Time deposits                         119,132     120,274      133,216       133,235
                      Borrowings                             54,475      56,501       39,904        38,722
</TABLE>

                 Limitations:   Fair  value estimates  are  made at  a  specific
                 point  in  time  based  on  relevant  market  information   and
                 information about  the financial instrument.   These  estimates
                 do not reflect any  premium or discount that could result  from
                 offering for sale at one time the Company's entire holdings  of
                 a  particular instrument.    Because  no market  exists  for  a
                 significant  portion of  the Company's  financial  instruments,
                 fair value  estimates are based  on judgments regarding  future
                 expected  loss experience,  current economic  conditions,  risk
                 characteristics  of various  financial instruments,  and  other
                 factors.  These estimates are subjective in nature and  involve
                 uncertainties  and matters  that  could affect  the  estimates.
                 Fair value estimates are based on existing on-and  off-balance-
                 sheet financial instruments without attempting to estimate  the
                 value of  anticipated future business and  the value of  assets
                 and liabilities that are not considered financial  instruments.
                 Deposits  with no  stated maturities  are defined  as having  a
                 fair value  equivalent to the amount  payable on demand.   This
                 prohibits  adjusting fair  value derived  from retaining  those
                 deposits  for  an  expected  future  period  of  time.     This
                 component, commonly referred  to as a deposit base  intangible,
                 is neither considered in  the above amounts nor is it  recorded
                 as  an intangible  asset on  the  balance sheet.    Significant
                 assets  and  liabilities  that  are  not  considered  financial
                 assets  and liabilities  include premises  and equipment.    In
                 addition, the tax  ramifications related to the realization  of
                 the unrealized gains  and losses can have a significant  effect
                 on fair  value estimates and  have not been  considered in  the
                 estimates.  With respect to off-balance sheet instruments,  the
                 amounts were  deemed immaterial  and therefore  no fair  values
                 are presented.

NOTE 17. REGULATORY MATTERS

                 The  Company and  the Bank  are subject  to various  regulatory
                 capital  requirements  administered  by  the  federal   banking
                 agencies.   Failure to  meet minimum  capital requirements  can
                 initiate    certain   mandatory    and   possibly    additional
                 discretionary actions by regulators that, if undertaken,  could
                 have a  direct material effect  on the Company  and the  Bank's
                 financial statements.   Under capital  adequacy guidelines  and
                 regulatory framework for prompt corrective action, the  Company
                 and  the  Bank  must  meet  specific  capital  guidelines  that
                 involve quantitative measures  of the assets, liabilities,  and
                 certain off-balance sheet items as calculated under  regulatory
                 accounting practices.   The capital amounts and  classification
                 are also  subject to qualitative  judgements 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
                 total  capital   and  Tier  I  capital   (as  defined  in   the
                 regulations)  to risk-weighted  assets  (as defined),  and  the
                 Tier I  capital (as defined)  to average  assets (as  defined).
                 Management believes, as of December 31, 2001, that the  Company
                 and the  Bank meet all capital  adequacy requirements to  which
                 it is subject.

                 As of December 31, 2001, the most recent notification from  the
                 FDIC  categorized  the  Bank  as  well  capitalized  under  the
                 regulatory  framework for  prompt  corrective action.    To  be
                 categorized as well capitalized, the Company and the Bank  must
                 maintain minimum total risk-based, Tier I risk-based, and  Tier
                 I leverage  ratios as set  forth in the  table.   There are  no
                 conditions or  events since that  notification that  management
                 believe have changed the Company and the Bank's category.

                 The actual  capital amounts and ratios  as of December 31,  are
                 also presented in the table (dollars in thousands).

<TABLE>
                                                                                                         To be Well Capitalized
                                                                                                               Under prompt
                                                                                  For Capital                   Corrective
                                                         Actual                Adequacy Purposes         Action Provisions
                                                         ------                -----------------         -----------------
                 As of December 31, 2001:          Amount        Ratio        Amount        Ratio      Amount         Ratio
                                                   ------        -----        ------        -----      ------         -----
<S>                                                 <C>           <C>          <C>           <C>        <C>            <C>
                 Company
                 -------
                    Total Capital (To Risk
                       Weighted Assets)           $20,577         9.6%       $17,134         8.0%
                    Tier I Capital (To Risk
                       Weighted Assets)            18,173         8.5%         8,567         4.0%
                    Tier I Capital (To
                       Average Assets)             18,173         5.9%        12,387         4.0%
                 Bank
                 ----
                    Total Capital (To Risk
                       Weighted Assets)            27,229        12.7%        17,131         8.0%     $21,414          10.0%
                    Tier I Capital (To Risk
                       Weighted Assets)            24,825        11.6%         8,565         4.0%      12,848           6.0%
                    Tier I Capital (To
                       Average Assets)             24,825         8.0%        12,391         4.0%      15,489           5.0%

                 As of December 31, 2000:

                 Company
                 -------
                    Total Capital (To Risk
                       Weighted Assets)           $20,391         9.6%       $17,052         8.0%
                    Tier I Capital (To Risk
                       Weighted Assets)            17,591         8.3%         8,526         4.0%
                    Tier I Capital (To
                       Average Assets)             17,591         5.6%        12,478         4.0%
                 Bank
                 ----
                    Total Capital (To Risk
                       Weighted Assets)            27,408        12.2%        17,648         8.0%     $22,060          10.0%
                    Tier I Capital (To Risk
                       Weighted Assets)            24,608        11.2%         8,824         4.0%      13,236           6.0%
                    Tier I Capital (To
                       Average Assets)             24,608         7.9%        12,473         4.0%      15,592           5.0%
</TABLE>

                 Federal and state banking regulations place certain
                 restrictions on dividends paid by the Bank to the Company.
                 During 2001, the Bank's ability to pay dividends was limited
                 to net income, however a waiver to exceed net income was
                 obtained from the state banking regulators.

NOTE 18. CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

         CONDENSED PARENT COMPANY BALANCE SHEETS:


                                                              2001       2000
                                                              ----       ----
                 ASSETS
                    Cash and cash equivalents               $    48    $   141
                    Short-term investments                        6          6
                    Investment in subsidiaries               30,393     30,012
                    Due from subsidiaries, net                  262        131
                    Other assets                                 33        128
                                                            -------    -------
                         Total Assets                       $30,742    $30,418
                                                            -------    -------
                                                            -------    -------

                 LIABILITIES AND SHAREHOLDERS' EQUITY
                    Liabilities:
                      Other borrowings                      $ 6,738    $ 7,081
                      Other liabilities                         263        342
                                                            -------    -------
                         Total Liabilities                    7,001      7,423
                                                            -------    -------
                    Shareholders' Equity:
                      Preferred Stock                             -          -
                      Common Stock                               24         23
                      Additional paid in capital              7,555      7,417
                      Retained earnings                      15,447     15,573
                      Less treasury stock, at cost              (58)      (120)
                      Accumulated other
                        comprehensive income                    773        102
                                                            -------    -------

                         Total Shareholders' Equity          23,741     22,995
                                                            -------    -------

                         Total liabilities and
                           shareholders' equity             $30,742    $30,418
                                                            -------    -------
                                                            -------    -------

         CONDENSED PARENT COMPANY STATEMENTS OF INCOME:

                                                       2001      2000     1999
                                                       ----      ----     ----
              Income:
                 Dividends from subsidiaries          $1,500   $ 1,250   $1,450
                 Gain on sale of securities
                   available-for-sale                      -        -        69
                 Interest and other income                 9        4        12
                                                      ------   ------    ------
                     Total Income                      1,509    1,254     1,531
                                                      ------   ------    ------
              Expenses:
                 Interest Expense                        444      501       503
                 Professional fees                        24       90        47
                 Other                                    65       71        68
                                                      ------   ------    ------
                     Total Expenses                      533      662       618
                                                      ------   ------    ------
              Income before income tax benefits and
                equity in undistributed net income
                (loss) of subsidiaries                   976      592       913
              Income tax benefit                        (178)    (228)     (201)
                                                      ------   ------    ------
              Income before equity in undistributed
                net income (loss) of Subsidiaries      1,154      820     1,114
              Equity in undistributed net income
                (loss) of subsidiaries                  (290)  (1,103)       (7)
                                                      ------   ------    ------
                     Net Income                       $  864  $ (283)    $1,107
                                                      ------   ------    ------
                                                      ------   ------    ------

        CONDENSED PARENT COMPANY STATEMENTS OF CASH FLOWS:

<TABLE>
                                                                                     2001          2000          1999
                                                                                     ----          ----          ----
<S>                                                                                  <C>           <C>           <C>
                 Cash Flows From Operating Activities
                     Net income (loss)                                              $   864      $  (283)      $ 1,107
                     Adjustments to reconcile net income to net cash provided
                       by operating activities:
                     Amortization of intangible assets                                   38           38            38
                     Equity in undistributed net (income) loss of subsidiaries          290        1,103             7
                     Gain on sale of available-for-sale securities                        -            -           (69)
                     Decrease in due from subsidiaries                                 (131)         100          (126)
                     (Increase) decrease in other assets                                 96          235          (300)
                     (Decrease) increase in other liabilities                           (12)          (9)          (29)
                                                                                    -------      -------       -------
                     Net cash provided by operating activities                        1,145        1,184           628
                                                                                    -------      -------       -------
                 Cash Flows From Investing Activities
                     Net increase in short-term investments                               -           (1)           (5)
                     Proceeds from the sales of securities                                -            -           174
                                                                                    -------      -------       -------
                           Net cash provided by (used in) investing activities            -           (1)          169
                                                                                    -------      -------       -------
                 Cash Flows From Financing Activities
                     Net increase in short term debt                                    500          550             -
                     Repayment of long-term debt                                       (843)        (622)         (520)
                     Dividends paid                                                  (1,057)      (1,117)       (1,109)
                     Proceeds from sale of common stock                                 162          110            78
                                                                                    -------      -------       -------
                           Net cash provided by (used in) financing activities       (1,238)      (1,079)       (1,551)
                                                                                    -------      -------       -------
                     Increase (decrease) in cash and cash equivalents                   (93)         104          (754)

                 Cash and Cash Equivalents:
                           Beginning                                                    141           37           791
                                                                                    -------      -------       -------
                           Ending                                                   $    48      $   141       $    37
                                                                                    -------      -------       -------
                                                                                    -------      -------       -------
</TABLE>