Exhibit 13.1

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY

Ottawa, Illinois

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009 and 2008

FIRST OTTAWA BANCSHARES, INC. AND SUBSIDIARY

Ottawa, Illinois

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009 and 2008

INDEX

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth selected consolidated financial and other data of First Ottawa Bancshares, Inc. and its wholly owned subsidiary, the First National Bank of Ottawa (the Bank) and the Bank’s wholly owned subsidiary, First Ottawa Financial Corporation, together referred to as the Company.  This information should be read in conjunction with the Company’s consolidated financial statements and notes thereto included herein.  All dollar amounts are in thousands, except per share information.

(1)          Excludes unrealized gain (loss) on securities available–for–sale.

(2)          Includes total nonaccrual loans, impaired loans, and all other loans 90 days past due and still accruing interest.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended as a review of significant factors affecting the financial condition and results of operations of the Company for the periods indicated.  The discussion should be read in conjunction with the Company’s consolidated financial statements and notes thereto and the selected consolidated financial data presented herein.  In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward–looking statements that involve risks and uncertainties.  The Company’s actual results could differ significantly from those anticipated in these forward–looking statements as a result of certain factors discussed elsewhere in this report.

Overview

The Company’s principal business is conducted by the Bank and consists of a full range of community–based financial services, including commercial and retail banking.  The profitability of the Company’s operations depends primarily on its net interest income, provision for loan losses, other income, and other expenses.  Net interest income is the difference between the income the Company receives on its loan and securities portfolios and its cost of funds, which consists of interest paid on deposits and borrowings.  The provision for loan losses reflects the cost of credit risk in the Company’s loan portfolio.  Other income consists of service charges on deposit accounts, trust and farm management fee income, securities gains (losses), gains (losses) on sales of loans, and other income.  Other expenses include salaries and employee benefits, as well as occupancy and equipment expenses and other noninterest expenses.

Net interest income is dependent on the amounts and yields of interest–earning assets as compared to the amounts of and rates on interest—bearing liabilities.  Net interest income is sensitive to changes in market rates of interest and the Company’s asset/liability management procedures in coping with such changes.  The provision for loan losses is dependent upon management’s assessment of the collectibility of the loan portfolio under current economic conditions.

Net income was $1.8 million for the year ended December 31, 2009 compared to $1.9 million for the year ended December 31, 2008.  The return on average assets was .64% in 2009 compared to .67% in 2008.  The return on average equity decreased to 7.18% in 2009 from 7.32% in 2008.  This resulted primarily from an increase in other comprehensive income of $273,000 in 2009, causing an increase in average equity. In addition, net income decreased by $19,000 in 2009 compared to 2008.

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Critical Accounting Policies

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry.  The Company’s significant accounting policies are described in detail in the notes to the Company’s consolidated financial statements.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions.  The Company’s financial condition and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results of operations, and they require management to make estimates that are difficult, subjective, or complex.

Allowance for Loan Losses. The allowance for loan losses provides coverage for probable losses inherent in the Company’s loan portfolio.  Management evaluates the adequacy of the allowance for loan losses each quarter based on changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer–specific concentrations), trends in loan performance, regulatory guidance and economic factors. This evaluation is inherently subjective, as it requires the use of significant management estimates. Many factors can affect management’s estimates of specific and expected losses, including volatility of default probabilities, rating migrations, loss severity and economic conditions.  The allowance is increased through provisions charged to operating earnings and reduced by net charge–offs.

The Company determines the amount of the allowance based on relative risk characteristics of the loan portfolio.  The allowance recorded for commercial loans is based on reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss experience.  The allowance recorded for homogeneous consumer loans is based on an analysis of loan mix, risk characteristics of the portfolio, fraud loss and bankruptcy experiences, and historical losses, adjusted for current trends, for each homogeneous category or group of loans.  The allowance for loan losses relating to impaired loans is based on the loan’s observable market price, the collateral for certain collateral–dependent loans, or the discounted cash flows using the loan’s effective interest rate.

Regardless of the extent of the Company’s analysis of customer performance, portfolio trends or risk management processes, certain inherent but undetected losses are probable within the loan portfolio.  This is due to several factors, including inherent delays in obtaining information regarding a customer’s financial condition or changes in the customer’s unique business conditions, the judgmental nature of individual loan evaluations, collateral assessments and the interpretation of economic trends.  Volatility of economic or customer–specific conditions affecting the identification and estimation of losses for larger non—homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are among other factors.  The Company estimates a range of inherent losses related to the existence of these exposures.  The estimates are based upon the Company’s evaluation of imprecise risk associated with the commercial and consumer allowance levels and the estimated impact of the current economic environment.

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Mortgage Servicing Rights. Mortgage servicing rights (“MSRs”) associated with loans originated and sold, where servicing is retained, are capitalized and included in other intangible assets in the consolidated balance sheet.  The value of the capitalized MSRs represents the present value of the future servicing fees arising from the right to service loans in the portfolio.  Critical accounting policies for MSRs relate to the initial valuation and subsequent impairment tests.  The methodology used to determine the valuation of MSRs requires the development and use of a number of estimates, including anticipated principal amortization and prepayments of that principal balance.  Events that may significantly affect the estimates used are changes in interest rates, mortgage loan prepayment speeds and the payment performance of the underlying loans.  The carrying value of the MSRs is periodically reviewed for impairment based on a determination of fair value.  For purposes of measuring impairment, the servicing rights are compared to a valuation prepared based on a discounted cash flow methodology, utilizing current prepayment speeds and discount rates.  Impairment, if any, is recognized through a valuation allowance and is recorded as amortization of intangible assets.

Derivatives. As a part of the Company’s funding strategy, derivative financial instruments, all of which are interest rate swap arrangements, are used to reduce exposure to changes in interest rates for certain financial instruments.  These derivatives are accounted for by recognizing the fair value of the contracts on the balance sheet.  The valuation of these derivatives is considered critical because carrying assets and liabilities at fair value inherently results in more financial statement volatility.  The fair values and the information used to record valuation adjustments for the interest rate swaps and related deposit products are provided by third parties.

Additionally, the Company has purchased certificates of deposit which contain an equity related embedded derivative component.  The initial investment in the certificates of deposit is not at risk but the return on the investment is based on appreciation in the S&P 500 Index.  Accordingly, the fair value of the embedded derivative is recorded at fair value as an adjustment to the certificates of deposit and interest income.

Stock Compensation. Grants under the Company’s stock incentive plan are accounted for by applying the fair value method and the use of an option pricing model to estimate the value of the options granted. The stock options are granted with an exercise price equal to the market price at the date of grant. Resulting compensation expense relating to the stock options is measured and recorded based on the estimated value of the options.

Valuation Measurements.  Valuation methodologies often involve a significant degree of judgment, particularly when there are no observable active markets for the items being valued. Investment securities and derivatives are carried at fair value, as defined in FASB ASC Topic 820, which requires key judgments affecting how fair value for such assets and liabilities is determined. In addition, the outcomes of valuations have a direct bearing on the carrying amounts of goodwill, mortgage servicing rights, and pension and other postretirement benefit obligations. To determine the values of these assets and liabilities, as well as the extent to which related assets may be impaired, management makes assumptions and estimates related to discount rates, asset returns, prepayment rates and other factors. The use of different discount rates or other valuation assumptions could produce significantly different results, which could affect the Company’s results of operations.

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Goodwill.  Under FASB ASC Topic 350, the Company is required to evaluate goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company has elected to test for goodwill impairment as of December 31 of each year. The Company cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the effect of the economic environment on the Company’s customer base, or a material negative change in its relationship with significant customers.

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Consolidated Financial Condition

Total assets at December 31, 2009 were $283.7 million compared to $275.2 million at December 31, 2008, an increase of $8.5 million, or 3.1%.  Despite the increase in our total assets, our net loans decreased 6.7% in 2009 to $147.2 million.  Commercial and residential real estate loans decreased by $8.8  million during 2009, due to an effort by management to maintain credit quality during a period of decreasing demand.  In addition to the decreases in commercial and residential real estate loans, installment loans decreased by $1.1 million due to a general decline in indirect lending volume and more stringent underwriting guidelines on consumer loans.  Commercial and agricultural loans increased $1.2 million during 2009, partially offsetting the decreased volume in real estate loans. Investment securities decreased by $1.5 million, and certificates of deposit held for investment purposes increased by $26.2 million.  The increase in certificates of deposit held for investment purposes was funded by the decrease in loans and investment securities. Cash and cash equivalents decreased $8.6 million to $17.9 million, as management attempted to deploy excess balances at the Federal Reserve Bank while remaining liquid through the end of 2009.  Deposits increased by $10.5 million, to $251.2 million at December 31, 2009, compared to $240.7 million in the prior year. Premises and equipment increased by $286,000 due to the purchase of a building with the intent to relocate an existing branch in Streator, Illinois. The Company has submitted an application with the Office of the Comptroller of Currency and received approval to relocate the branch located at 401 East Main Street in Streator, Illinois, to 409 East Bridge Street in Streator Illinois. This relocation would be considered a short distance relocation as defined in 12 CFR 5.3(i).

Total shareholders’ equity was $26.0 million at December 31, 2009 and $24.7 million at December 31, 2008.  This was primarily the result of a decrease in the unrealized loss on securities available–for–sale, net of tax, of $162,000, and $186,000 in additional paid in capital related to the Company’s stock option plan.  Dividends declared of $994,000 were offset by net income of $1.8 million.

Consolidated Results of Operations

2009 Compared to 2008

Net Interest Income.  Net interest income was $9.1 million in 2009 and $9.2 million in 2008.  Interest income on earning assets decreased $1.6 million in 2009 from 2008.  This decrease was primarily attributable to decreased interest income earned on the loan portfolio of $1.7 million, taxable securities of $246,000, and federal funds sold of $168,000.  Increased interest income earned on certificates of deposit held for investment of $477,000, and tax exempt securities of $56,000, helped to offset the decreased loan and securities income.  The decrease is attributable to decreases in average balances and also average yields available in the marketplace in 2009.  Interest expense on interest–bearing liabilities decreased $1.6 million as a result of a decrease in the average cost of funds in 2009 compared to 2008.  The net interest margin on a tax equivalent basis decreased to 3.88% in 2009 from 3.91% in 2008.  The primary reason for the decrease in the net interest margin was the result of a decrease in the market rates earned on assets during the current year.

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Provision for Loan Losses.  The provision for loan losses was $1.3 million in 2009 compared to $170,000 in 2008.  As of December 31, 2009, the allowance for loan losses totaled $2.3 million, or 1.56% of total loans, compared to $1.6 million, or 1.01% of total loans, at December 31, 2008.  The increase in the allowance for loan losses in 2009 was influenced by the current economy, increased delinquencies, increased non-performing loans, and the assessment of risk factors affecting our loan portfolio.

The amounts of the provision and allowance for loan losses are influenced by current economic conditions, actual loss experience, industry trends and other factors, including real estate values in the Company’s market area and management’s assessment of current collection risks within the loan portfolio.  Along with other financial institutions, management shares a concern for the outlook of the economy for 2010.  Even though there are indications of emerging strength, it is uncertain if this strength is sustainable. If it is not sustainable, borrowers may experience difficulty, and the level of non–performing loans, charge-offs, and delinquencies could rise and require increases in the provision.  Regulatory agencies have warned of possible higher charge-offs in the industry.  The allowance for loan losses represents management’s estimate of probable incurred losses based on information available as of the date of the financial statements.  The allowance for loan losses is based on management’s evaluation of the collectibility of the loan portfolio, including past loan loss experience, known and inherent risks in the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, and economic conditions.

Management has concluded that the allowance for loan losses was adequate at December 31, 2009.  However, there can be no assurance that the allowance for loan losses will be adequate to cover all losses.

Noninterest Income.  The Company’s noninterest income increased $2.4 million, or 227.2%, compared to 2008.  Noninterest income increased primarily due to $979,000 of gains realized on the sale of investment securities in 2009, compared to 2008 impairment losses realized on equity security investments of $647,000. The market adjustment for the index powered certificates of deposit in the current year decreased $5,000, compared to a loss of $401,000, in the prior year.  Service charges on deposit accounts decreased by $9,000, or 1.1%, to $843,000 due to decreased overdraft volume in 2009 compared to 2008.  Gains on loan sales to the secondary market increased $374,000 to $432,000 in 2009 compared to 2008 as a result of increased originations of residential real estate loans because of the general decrease in interest rates in 2009. Trust and farm management fee income decreased slightly to $503,000 in 2009 from $540,000 in 2008.

Noninterest Expense.  The Company’s noninterest expense was $8.9 million in 2009 and $7.7 million for 2008.  Salaries and employee benefits, which is the largest component of noninterest expense, increased $345,000, to $4.6 million in 2009.  Increases in data processing expense of $5,000, insurance expense of $510,000, other expense of $345,000, and professional fees of $65,000 were partially offset by a decrease in occupancy and equipment expense of $85,000, and decreased amortization of core deposit intangible expense of $17,000 in 2009.  Insurance expense increased dramatically in 2009 due to a $526,000 increase in FDIC insurance premiums compared to 2008.  This increase was primarily the result of industry-wide increases as the FDIC increased its deposit insurance fund that has been depleted from the high level of bank failures in 2009. Other expense increased due to expenses incurred as a result of the increase in

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other real estate owned of $139,000, increased losses on the sale of other real estate owned of $19,000, increased directors life insurance expense of $117,000, and increased amortization of mortgage servicing asset of $84,000 during 2009.

Income Taxes.  Income tax expense increased by $44,000 compared to 2008.  The Company’s effective tax rate increased slightly in 2009. The Company’s tax rate varied from statutory rates principally due to interest income from tax–exempt securities and loans.  The Company’s effective tax rate was 20.71% and 19.01% for 2009 and 2008, respectively.

The components of the changes in net interest income are shown below.  Changes in net interest income are allocated between amounts attributed to changes in rate and changes in volume for the various categories of interest–earning assets and interest–bearing liabilities.

Analysis of Changes in Interest Income and Expense

($000s)

Volume/rate variances are allocated to the volume variance and the rate variance on an absolute basis.  Tax–exempt income is reflected on a fully tax–equivalent basis utilizing a 34% rate for municipal securities and tax–exempt loans.

Interest–Earning Assets and Interest–Bearing Liabilities

The following table sets forth the average balances, net interest income and expense, and average yields and rates for the Company’s interest–earning assets and interest–bearing liabilities for the indicated years on a tax–equivalent basis assuming a 34% tax rate.

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Analysis of Average Balances, Tax Equivalent Yields and Rates

Years Ended December 31, 2009, 2008 and 2007

(in Thousands)

(1)          Interest income on loans includes loan origination and other fees of $292 for 2009, $301 for 2008, and $403 for 2007.

(2)          Loan and securities income is reflected on a fully tax–equivalent basis utilizing a 34% rate for municipal securities and tax–exempt loans.

(3)          Non–accrual loans are included in average loans.

(4)          Average balances are derived from the average daily balances.

(5)          Rate information is calculated based upon average amortized cost.

(6)          Average balance information includes an average valuation allowance for securities of $(208) , $(523) and $(1,444), respectively.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company uses overall risk sensitivity to monitor and manage exposure to sudden changes in interest rates.  The Company’s overall interest rate sensitivity is demonstrated by a net interest income analysis.  Net interest income analysis measures the change in net interest income in the event of hypothetical changes in interest rates.  This analysis assesses the risk of change in net income in the event of sudden and sustained 1.0% increases and decreases in market interest rates.  The tables below present the Company’s projected changes in net income for the various rate shock levels for the periods ended December 31, 2009 and 2008.

As shown above, at December 31, 2009, the effect of an immediate 100 basis point increase in interest rates would increase the Company’s net income by 1.6%, or approximately $26,000.  The effect of an immediate 100 basis point decrease in rates would decrease the Company’s net interest income by 22.2%, or approximately $382,000.  The Company’s Board of Directors has set a risk tolerance limit of 10% of estimated net interest income for the succeeding 12 months based on an immediate 200 basis point change in market prices.  Federal funds overnight rates were under 1.0% as of December 31, 2009, therefore market interest rates decreasing an additional 100 basis points may not be achievable in today’s rate environment.

Interest rate sensitivity reflected exposure in a decreasing rate environment at the end of 2009 and 2008.  Overall net interest income sensitivity increased slightly in 2009 compared to 2008.

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Liquidity and Capital Resources

The Company’s primary sources of funds are deposits, repurchase agreements, and proceeds from principal and interest payments on loans and securities.  While maturities and scheduled amortization of loans and securities and calls of securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition.  The Company generally manages the pricing of its deposits to be competitive and to increase core deposit relationships.

Liquidity management is both a daily and long–term responsibility of management.  The Company adjusts its investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest–earning deposits and securities, and (iv) the objectives of its asset/liability management program.  Excess liquid assets are invested generally in interest–earning overnight deposits and short– and intermediate–term U.S. Government and agency obligations.

The Company’s cash flows are comprised of three primary classifications:  cash flows from operating activities, investing activities, and financing activities.  Cash flows provided by operating activities were $1.7 million, and $3.9 million, for the years ended December 31, 2009, and 2008.  Net cash from investing activities consisted primarily of principal collections on loans and proceeds from maturation and sales of securities offset by disbursements for loan originations and the purchase of securities.  Net cash from financing activities consisted primarily of changes in net deposits and short–term borrowings partially offset by dividends paid and the purchase of Company stock.

The Company’s most liquid assets are cash and due from banks.  The levels of these assets are dependent on the Company’s operating, financing, lending, and investing activities during any given year.  At December 31, 2009, cash and short–term investments totaled $17.9 million.  The Company has other sources of liquidity if a need for additional funds arises, including securities maturing within one year and the repayment of loans.  The Company may also utilize the sale of securities available–for–sale, federal funds lines of credit from correspondent banks, and borrowings from the Federal Home Loan Bank of Chicago.

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The following table discloses contractual obligations and commercial commitments of the Company as of December 31, 2009:

(1)  Represents amounts committed to customers.

During 2009, the Company did not repurchase any stock. During 2008, the Company repurchased 2,526 shares of common stock for $197,000.

Capital provides the foundation for future growth.  Regulatory agencies have developed minimum guidelines by which the adequacy of a financial institution’s capital may be evaluated.  At December 31, 2009, all of the Company’s ratios exceeded the levels required under regulatory guidelines as shown in Note 16 of the Consolidated Financial Statements.

Facilities

First Ottawa Bancshares, Inc. is the holding company for First National Bank of Ottawa.  The Company is headquartered in Ottawa, Illinois and operates four offices in Ottawa, two branches in Streator, a branch in Morris, a branch in Yorkville and a loan production office in Minooka.

The Company has submitted an application with the Office of the Comptroller of Currency and received approval to relocate the branch located at 401 East Main Street in Streator, Illinois, to 409 East Bridge Street in Streator Illinois. This relocation would be considered a short distance relocation as defined in 12 CFR 5.3(i).

Impact of Inflation and Changing Prices

The financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.  The primary impact of inflation on the operations of the Company is reflected in increased operating costs.  Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature.  As a result, interest rates generally have a more significant impact on a financial institution’s performance than does inflation.  Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

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SAFE HARBOR STATEMENT

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

The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain.  There are many factors that may impact any public company, including ours, which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries.  These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

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Report of Independent Registered Public Accounting Firm

Audit Committee, Board of Directors and Stockholders

First Ottawa Bancshares, Inc.

Ottawa, Illinois

We have audited the accompanying consolidated balance sheets of First Ottawa Bancshares, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of income, shareholders’ equity and cash flows for the years then ended. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Ottawa Bancshares, Inc. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

BKD, LLP

Indianapolis, Indiana

March 25, 2010

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FIRST OTTAWA BANCSHARES, INC.

CONSOLIDATED BALANCE SHEETS

December 31, 2009 and 2008

(In thousands, except share and per share data)

See notes to consolidated financial statements.

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FIRST OTTAWA BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31, 2009 and 2008

(In thousands, except share and per share data)