<PAGE>


                                 UPBANCORP, INC.
                                      1998
                                 ANNUAL REPORT
                                    FORM 10K

<PAGE>



UPBANCORP, INC.
--------------------------------------------------------------------------------

CONSOLIDATED FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------
For the years ended December 31,                     1998        1997   % Change
--------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

<S>                                               <C>         <C>         <C>
NET INCOME:                                       $  2,300    $   1,977   16%
--------------------------------------------------------------------------------

PER SHARE DATA:
--------------------------------------------------------------------------------
Net income                                        $   2.63     $   2.24   17%
Cash dividends declared                               0.50         0.50    0%
Book value                                           26.02        23.79    9%
Market price                                         35.25        31.13   13%

PERFORMANCE RATIOS:
--------------------------------------------------------------------------------
Return on average assets                             0.91%        0.87%    4%
Return on average shareholders' equity              10.44%        9.98%    5%

BALANCE SHEET HIGHLIGHTS:
--------------------------------------------------------------------------------
Average assets                                   $ 253,559    $ 227,079   12%
Average loans, net of unearned discount            178,076      144,898   23%
Average deposits                                   213,886      198,842    8%
Average shareholders' equity                        22,033       19,819   11%
--------------------------------------------------------------------------------
</TABLE>



                                [Graphic Below]

<TABLE>
<CAPTION>

    Net Income                                 Non-Performing Assets
<S>       <C>                                    <C>        <C>
1996      $1,154                                 1996       $2,580
1997      $1,977                                 1997       $1,482
1998      $2,300                                 1998       $1,309
</TABLE>


<TABLE>
<CAPTION>

 Total Loans                   Total Deposits               Total Assets
<S>   <C>                      <C>   <C>                  <C>    <C>
1996  $129,584                 1996  $195,302             1996   $226,395
1997  $164,242                 1997  $198,132             1997   $231,377
1998  $192,596                 1998  $226,034             1998   $269,462
</TABLE>


<PAGE>

UPBANCORP, INC.
--------------------------------------------------------------------------------

To Our Shareholders:

On behalf of the Board of Directors, I am pleased to present the 1998 Annual
Report for Upbancorp, Inc..

In summary, we again experienced significant asset and earnings growth. Total
assets reached $269 million as of December 31, 1998, an increase of $38 million
from the previous year. Loan growth was strong, with over $195 million in loans
outstanding at year-end. In addition, a 14% growth of deposits occurred in 1998,
bringing year-end totals to $226 million. Our loan balances as a percentage of
deposits continue to improve with a 3% increase in this ratio. Such growth,
coupled with our improving asset mix, allowed the Company to recognize continued
improvement in our financial performance. Net income for the year was $2.3
million, an improvement of 16% from 1997. The Company's Return on Average Assets
was .91% and Return on Average Shareholders' Equity was 10.44%, improvements of
4% and 5%, respectively.

The Company implemented computer networks this past year in conjunction with the
conversion of our data processing systems. These efforts will ensure better
coordination of workflow between our two affiliate Banks as well as within each
respective Bank. In addition to our technological advancements, in October,
1998, Uptown National Bank purchased the assets of Zook Pilot Services, Inc., a
broker of aircraft financing. We look forward to the additional opportunities
that this acquisition provides. A new branch office was recently opened in the
Chicago area. This branch, located in the Edgewater community, is another full
service site to serve both our existing as well as new customers. Our strategic
plan calls for additional branches to open in the near term in both of our
regional areas.

While improved communications, technology, delivery systems and services were
our priorities during 1998, improving financial performance for you, our valued
shareholders, is always a primary focus. The Company's charter was changed,
effective October 20, 1998, to increase its authorized shares of common stock
from 300,000 to 3,000,000. Also, the common stock was split on a four-to-one
basis. I am pleased to announce that effective February 16, 1999, the Board of
Directors elected to increase your quarterly cash dividend to $0.13 per share.

As the year progresses, we will continue to emphasize the Company's readiness
for all potential year 2000 (Y2K) concerns. A detailed discussion of this issue
follows later in this report. However, I would like to assure you that we have
had teams mobilized for the past two years to address this issue as we approach
the new millennium. Although we cannot guarantee full Y2K compliance, we are on
track with our internal plans.

On a very sad note, the Board of Directors of Upbancorp, Inc., lost a valuable
member with the recent death of B. Arthur Russell. Mr. Russell served on the
Board since 1971. His knowledge, insight and experience was extremely valuable
to his fellow directors and the Corporation. He will be greatly missed.

During 1999 we will be celebrating our 70th year anniversary, a milestone in the
history of service, progress and achievement for the Company. Uptown National
Bank of Chicago opened its doors as Uptown State Bank on December 21, 1929.
Throughout our 70 years in business, the Bank, and later all other affiliates,
have been committed to serving our customers and meeting their needs through
providing strong and viable institutions. As we move into this historic year, I
wish to again thank our Board of Directors and staff for the many efforts and
resulting successes that we have experienced this past year, as well as the last
70 years. In addition, I want to thank you, our shareholders, for your continued
support and assure you of our ongoing commitment and focus to the continual
improvement of past successes.

Sincerely yours,




/s/ Richard K. Ostrom
-------------------------------------
    Richard K. Ostrom
    Chairman of the Board
    President & Chief Executive Officer


<PAGE>

<TABLE>

<S>                                      <C>                                    <C>
                                         UPTOWN NATIONAL
UPBANCORP, INC.                          BANK OF CHICAGO                        HERITAGE BANK
DIRECTORS                                DIRECTORS                              DIRECTORS

RICHARD K. OSTROM                        RICHARD K. OSTROM                      RICHARD K. OSTROM
CHAIRMAN OF THE BOARD,                   CHAIRMAN OF THE BOARD                  CHAIRMAN OF THE BOARD
PRESIDENT AND CHIEF EXECUTIVE
OFFICER, UPBANCORP, INC.                 STEPHEN W. EDWARDS                     JOHN D. BENTON
                                                                                PRESIDENT
STEPHEN W. EDWARDS, CLU                  ROBERT P. GRIFFITHS                    BENTON-ROBB DEVELOPMENT
PRESIDENT                                PRESIDENT AND                          ASSOCIATES
PLANNED FUTURES, INC.                    CHIEF EXECUTIVE OFFICER                (REAL ESTATE DEVELOPMENT
                                                                                AND MANAGEMENT)
DELBERT R. ELLIS                         ALFRED E. HACKBARTH, JR.
RETIRED                                                                         DELBERT R. ELLIS
FORMER EXECUTIVE VICE PRESIDENT          JAMES E. HERATY                        VICE CHAIRMAN OF THE BOARD
BANK OF AMERICA, ARIZONA
                                         MARVIN L. KOCIAN                       JOHN E. FAHRENDORF, JR.
JOHN E. FAHRENDORF, JR.                                                         PRESIDENT AND CHIEF
VICE PRESIDENT                                                                  EXECUTIVE OFFICER
UPBANCORP, INC.
                                                                                ALFRED E. HACKBARTH, JR.
ROBERT P. GRIFFITHS
VICE PRESIDENT                                                                  VICTOR A. ROOT
UPBANCORP, INC.                                                                 PRESIDENT
                                                                                VICTOR A. ROOT & ASSOCIATES
ALFRED E. HACKBARTH, JR.                                                        (CPA AND FINANCIAL CONSULTANT)
OWNER
A.E. HACKBARTH & ASSOCIATES
(ATTORNEYS & CPAS)
RETIRED PARTNER
ARTHUR ANDERSEN & CO., S.C.

JAMES E. HERATY
RETIRED
FORMER PRESIDENT
READY-MEN, INC.

MARVIN L. KOCIAN
PRESIDENT
KOMAR SCREW CORPORATION

</TABLE>


<PAGE>


<TABLE>
<S>                                      <C>                                    <C>
                                         UPTOWN NATIONAL
UPBANCORP, INC.                          BANK OF CHICAGO                        HERITAGE BANK
OFFICERS                                 MANAGEMENT                             MANAGEMENT

RICHARD K. OSTROM                        RICHARD K. OSTROM                      RICHARD K. OSTROM
CHAIRMAN OF THE BOARD,                   CHAIRMAN OF THE BOARD                  CHAIRMAN OF THE BOARD
PRESIDENT AND                             
CHIEF EXECUTIVE OFFICER                  ROBERT P. GRIFFITHS                    DELBERT R. ELLIS
                                         PRESIDENT AND                          VICE CHAIRMAN OF THE BOARD
GLEN E. COUCHMAN                         CHIEF EXECUTIVE OFFICER
VICE PRESIDENT,                                                                 JOHN E. FAHRENDORF, JR.
INFORMATION SYSTEMS                      EVY JOHANSEN                           PRESIDENT AND
                                         SENIOR VICE PRESIDENT AND CASHIER      CHIEF EXECUTIVE OFFICER
JOHN E. FAHRENDORF, JR.                                                         .
VICE PRESIDENT                           JANET BELL                             KATHLEEN L. HARRIS
                                         CARTER R. HUHTA                        SENIOR VICE PRESIDENT AND CASHIER
ROBERT P. GRIFFITHS                      STEVEN D. OLSON 
VICE PRESIDENT                           SENIOR VICE PRESIDENTS                 ROBERT W. GOLDWATER, JR.
                                                                                SENIOR VICE PRESIDENT
KATHLEEN L. HARRIS                       GLEN E. COUCHMAN  
VICE PRESIDENT AND                       REEM GHANEM                            RONALD P. CHRISTENSON
CHIEF FINANCIAL OFFICER                  JOHN C. LIVENSPARGER                   VICE PRESIDENT AND CHIEF CREDIT
                                         PATRICIA L. PAPPAS                     OFFICER
EVY JOHANSEN                             DANIEL B. STARZYK 
VICE PRESIDENT,                          VICE PRESIDENTS                        ANTHONY M. ASHTON 
ADMINISTRATION                                                                  DANIEL T. BERGIN  
                                         MARLENE M. KUCERA                      JEFFREY S. BIRKELO
MARVIN L. KOCIAN                         LAURA Y. LEE                           TIMOTHY J. BRUNNER
VICE PRESIDENT AND                       ANI MJUKIAN                            J. THOMAS HAND    
ASSISTANT SECRETARY                      BONNIE J. OCHSNER                      SONDRA K. KOSKELA 
                                         ASSISTANT VICE PRESIDENTS              MARK A. PURCELL   
                                                                                JERI A. SAFCIK    
                                         FRANZ R. RAUSCH                        PHILLIP D. WILSON 
                                         CONTROLLER                             VICE PRESIDENTS

                                                                                JOSEPH R. ASHTON
                                                                                SHELLY K. MARTIN
                                                                                PATRICIA A. TAYLOR
                                                                                ASSISTANT VICE PRESIDENTS

                                                                                A.M. BUD CLIFFORD
                                                                                PRIVATE BANKING OFFICER




MCGLADREY & PULLEN, LLP
IA IVERSEN + ASSOCIATES, INC.
AUDITORS


HINSHAW & CULBERTSON
LEGAL COUNSEL

</TABLE>


<PAGE>


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    FORM 10-K


              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                    SECURITIES EXCHANGE ACT OF 1934. For the
                      fiscal year ended December 31, 1998.

                         Commission file number 0-12292


                                 UPBANCORP, INC.
                                 ---------------
             (Exact name of registrant as specified in its charter)

         DELAWARE                                             36-3207297
         --------                                             ----------
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                            Identification No.)

4753 N. BROADWAY, CHICAGO, ILLINOIS                               60640
-----------------------------------                               -----
(Address of principal executive offices)                       (Zip Code)
Registrant's telephone number, including area code (773) 878-2000
                                                   --------------
<TABLE>

<S>                                                           <C> 
Securities registered pursuant to Section 12(b) of the Act:   NONE
Securities registered pursuant to Section 12(g) of the Act:   COMMON STOCK-$1 PAR VALUE
</TABLE>

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing for the
past 90 days. Yes X No
                  -   --
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 9, 1999 (based upon the closing price as of such date),
was approximately $22,432,806.

The number of shares outstanding of the registrant's common stock, $1.00 par
value, as of March 9, 1999 as 868,636.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the annual shareholders meeting to be held
April 13, 1999, are incorporated by reference into Part III of this Form 10-K.


<PAGE>


UPBANCORP, INC.
--------------------------------------------------------------------------------


                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                               PAGE
<S>                                                                                                              <C>
PART I

<S>      <C>                                                                                                     <C>
Item 1:  Business.................................................................................................3


Item 2:  Properties...............................................................................................7


Item 3:  Legal Proceedings........................................................................................8


Item 4:  Submission of Matters to a Vote of Security Holders......................................................8


PART II


Item 5:  Market for the Registrant's Common Equity and Related Stockholder Matters................................8


Item 6:  Selected Financial Data..................................................................................9


Item 7:  Management's Discussion and Analysis of Financial Condition and Results of Operations...................10


Item 8:  Financial Statements and Supplementary Data.............................................................23


Item 9:  Changes in and Disagreements with Accountants on Accounting and Financial Disclosures...................45


PART III


Item 10:  Directors and Executive Officers of the Registrant.....................................................45


Item 11:  Executive Compensation.................................................................................45


Item 12:  Security Ownership of Certain Beneficial Owners and Management.........................................45


Item 13:  Certain Relationships and Related Transactions.........................................................45


PART IV


Item 14:  Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................46
</TABLE>


2

<PAGE>

                                     PART I

                                ITEM 1: BUSINESS

UPBANCORP, INC.

         Upbancorp, Inc. ("Upbancorp" or the "Company"), is a multi-bank holding
company organized in 1983 under the laws of the State of Delaware. Upbancorp
owns all of the outstanding common stock of Uptown National Bank of Chicago
("Uptown"), organized in 1929 and located in Chicago, Illinois, and Heritage
Bank ("Heritage"), organized in 1977 and located in Phoenix, Arizona. (Uptown
and Heritage are referred to as the "Subsidiary Banks".) Upbancorp does not
engage in any activities other than providing administrative services and acting
as a holding company for its Subsidiary Banks.

         The Company is a publicly traded banking company with total assets of
$269 million at year-end 1998 and its headquarters are in Chicago, Illinois. The
majority of the operational responsibilities of each of the Subsidiary Banks
rests with their respective Officers and Directors.

         The Company and its Subsidiary Banks employed approximately 141
full-time equivalent employees at December 31, 1998.

SUBSIDIARY BANKS

         The Company's affiliates consist of two full-service community banks,
which operate five banking offices in northern Chicago and metropolitan Phoenix.
Approximately 77% of its banking assets are related to Uptown with the remainder
related to Heritage.

         Both Subsidiary Banks are engaged in the general commercial banking
business in addition to offering a complete range of retail banking services.
The Subsidiary Banks conduct a general banking business which embraces all of
the usual functions, both commercial and consumer, and which they may lawfully
provide, including, but not limited to: the acceptance of deposits to demand,
savings and time accounts and the servicing of such accounts; commercial,
industrial, consumer and real estate lending; safe deposit box operations; and
other banking services tailored for both commercial and retail clients.

         Uptown has one wholly-owned subsidiary, Broadway Clark Building
Corporation ("BCBC"), which is an Illinois corporation. BCBC owns all of the
real estate that is used in connection with the operation of Uptown's business
with the exception of two facilities, which are leased.

                           SUPERVISION AND REGULATION

         The Company and its Subsidiary Banks are subject to regulation and
supervision by various governmental regulatory authorities including, but not
limited to, the Board of Governors of the Federal Reserve System (the "FRB"),
the Office of the Comptroller of the Currency (the "OCC"), the Federal Deposit
Insurance Corporation (the "FDIC"), the Arizona State Banking Department, the
Securities and Exchange Commission (the "SEC"), the Internal Revenue Service and
state taxing authorities. Financial institutions and their holding companies are
extensively regulated under federal and state law. The effect of such statutes,
regulations and policies can be significant and cannot be predicted with a high
degree of certainty.

         Federal and state laws and regulations generally applicable to
financial institutions, such as the Company and the Subsidiary Banks, regulate,
among other things, the scope of business, investments, reserves against
deposits, capital levels relative to operations, the nature and amount of
collateral for loans, the establishment of branches, mergers, consolidations and
dividends. This supervision and regulation is intended primarily for the
protection of the FDIC's Bank Insurance Fund and the depositors, rather than the
shareholders of financial institutions.


                                                                               3

<PAGE>

         The Company is subject to supervision and regulation by the FRB, under
the Bank Holding Company Act of 1956, as amended.

         Uptown is chartered under the National Bank Act, as amended, and is
subject to the examination, supervision, reporting and enforcement requirements
of the OCC, as the chartering authority for national banks, and the FDIC as the
administrator of the Bank Insurance Fund. The Bank is a member of the Federal
Reserve System.

         Heritage is chartered under the banking laws of Arizona and is subject
to the examination, supervision, reporting and enforcement requirements of the
Arizona State Banking Commission under the banking laws of Arizona and the FDIC
under the Federal Deposit Insurance Act, as amended.

         The deposits of the Subsidiary Banks are insured by the Bank Insurance
Fund of the FDIC to the extent permitted by law.

         The Company's common stock is registered with the SEC under the
Securities Act of 1934, as amended. Consequently, the Company is subject to the
information, proxy solicitation, insider trading and other restrictions and
requirements of the SEC under such act.

             GOVERNMENTAL MONETARY POLICIES AND ECONOMIC CONDITIONS

         The earnings of the Company are affected in important respects by
general economic conditions and also by the fiscal and monetary policies of the
federal government and its agencies. In particular, the FRB regulates the
national supply of bank credit in order to achieve, among other things, maximum
employment and a stable price level. Among the instruments of monetary policy
used by the FRB to implement these objectives are: open market transactions in
United States government securities, changes in the discount rate on member bank
borrowings and changes in reserve requirements against member bank deposits.
These means are used in varying combinations to influence overall growth of bank
loans, investments, and deposits, and they may also affect interest rates
charged on loans or paid for deposits.

         Interest rate sensitivity has a major impact on the yields earned on
assets of the Subsidiary Banks. As market rates change, yields earned on assets
may not necessarily move to the same degree as rates paid on liabilities. For
this reason, the Subsidiary Banks attempt to minimize earnings volatility
related to fluctuations in interest rates through the use of formal
asset/liability management programs which identify imbalances between the
repricing of earning assets and funding sources, among other things.

         In addition to the policy of the FRB, the Company's earnings are also
affected by the FDIC insurance premiums and the annual fees charged by the
various regulatory authorities. The Company cannot fully predict the nature or
the extent of any effect which such fiscal and monetary policies may have on its
business and earnings.

                                   COMPETITION

         The principal methods of competition between commercial banks is
generally expressed in terms of price, including interest rates paid on deposits
and interest rates charged on borrowings, fees charged on fiduciary services,
quality of services to customers, ease of access to services, and the offering
of additional services. More recently, technological advances such as PC
banking, telebanking, point-of-sale debit cards and electronic data interchange
have also resulted in intensified competition with traditional banking
distribution systems.

         Both Illinois and Arizona are highly competitive markets for banking
and related financial services. Since these areas are the Company's primary
focus markets, the Subsidiary Banks are exposed to varying types and levels of
competition. In general, each Subsidiary Bank competes, anticipates and responds
within


4

<PAGE>

each individual market area. Both Subsidiary Banks compete and rely heavily on
the high level of quality service provided to our customers. The Company has
seen the level of competition and number of competitors in its market places
increase in recent years and expects a continuation of these competitive market
conditions.

                               CAPITAL GUIDELINES

         The FRB, the OCC and the FDIC have risk-based capital guidelines which
provide a framework for assessing the adequacy of the capital of banks and bank
holding companies (collectively "banking institutions"). These guidelines apply
to all banking institutions regardless of size and are used in the examination
and supervisory process as well as in the analysis of applications to be acted
upon by the regulatory authorities. These guidelines require banking
institutions to maintain capital based on the credit risk of their operations.

         The risk-based capital guidelines are designed to require the
maintenance of capital commensurate with both on and off-balance sheet credit
risks. The minimum ratios established by the guidelines are based on both Tier 1
and total capital to total risk-based assets. Total risk-based assets are
calculated by assigning each on-balance sheet asset and off-balance sheet item
to one of four risk categories depending on the nature of each item. The amount
of the items in each category is then multiplied by the risk-weight assigned to
that category (0%, 20%, 50% or 100%). Total risk based assets equals the sum of
the resulting amounts. Tier 1 capital is generally defined as shareholders'
equity less intangible assets and total capital is generally defined to include
Tier 1 capital plus limited levels of the allowance for loan losses.

         In addition to the risk-based capital requirements, the FRB, the OCC
and the FDIC require institutions to maintain a minimum leveraged-capital ratio
to supplement the risk-based capital guidelines. The leverage ratio is intended
to ensure that adequate capital is maintained against risks other than credit
risk.

         The Company and the Subsidiary Banks exceed the minimum required
capital guidelines for both risk-based capital ratios and the leverage ratio at
December 31, 1998. A further discussion of the capital guidelines is included in
the Capital Resources section under Item 7 of this Form 10-K.

                                    DIVIDENDS

GENERAL

         In addition to the capital guidelines provided in the discussion above,
there are various national and state banking regulations which limit the ability
of the Subsidiary Banks to pay dividends. This limits the ability of the Company
to pay dividends. Since the Company is a legal entity, separate and distinct
from its affiliates, its dividends are not subject to such bank regulatory
guidelines. The holders of the Company's common stock are entitled to receive
such dividends as are declared by the Board of Directors. For a further
discussion of dividends, see Note 12 "Restrictions on Retained Earnings" in the
Notes to Consolidated Financial Statements included under Item 8 of this Form
10-K.

NATIONAL BANKING ASSOCIATION RESTRICTIONS

         Uptown is a national banking association and is limited with respect to
the amount of dividends which it can pay to its shareholders under Sections 56
and 60 of the National Bank Act.

         Section 56 restricts a national bank from paying dividends if it would
impair the institution's capital by barring any payments in excess of "net
profits then on hand". Section 56 further requires that a bank deduct losses and
bad debts from "net profits then on hand". It also specifies that a portion of a
bank's capital surplus account may be included as "net profits then on hand" to
the extent that it represents earnings from prior periods.


                                                                               5

<PAGE>

         Section 60 requires the OCC's approval if the total of all dividends
declared in any calendar year will exceed the institution's net profits of that
year combined with its retained net profits of the preceding two years, less any
required transfers to surplus. In calculating its net profits under Section 60 a
national bank may not add back provisions made to its allowance for loan losses
nor deduct net charge-offs.


ARIZONA STATE-CHARTERED BANK RESTRICTIONS

         Under the provisions of the Arizona Bank Code, dividends may not be
declared by state-chartered banks unless they are made in compliance within the
banking laws of Arizona. Additionally, the payment of dividends by a
state-chartered bank whose deposits are insured by the Bank Insurance Fund, is
affected by the requirement to maintain minimum capital pursuant to the capital
adequacy guidelines issued by the FDIC.


6

<PAGE>




                               ITEM 2: PROPERTIES

        The following table summarizes the Company and Subsidiary Banks' 
properties by location:

<TABLE>
<CAPTION>

AFFILIATE         PROPERTY TYPE/LOCATION                OWNERSHIP         SQUARE FOOTAGE
---------         ----------------------                ---------         --------------
<S>               <C>                                       <C>           <C>
THE COMPANY       4753 N. Broadway                           -                    -
                  Chicago, Illinois

UPTOWN            Main Office:
                  4753 N. Broadway                          Owned         149,000 (Note 1)
                  Chicago, Illinois

                  Banking Office:
                  6041 N. Clark Street                      Owned           2,100 (Note 1)
                  Chicago, Illinois

                  Banking Office:
                  5345 N. Sheridan Road                     Leased          1,500
                  Chicago, Illinois

                  Aircraft Lending Office:
                  43 W 518 Route 30                         Leased          1,800
                  Aurora Municipal Airport
                  Sugar Grove, Illinois

HERITAGE          Main Office:
                  4222 E. Camelback Road                    Leased          4,000
                  Suite J200
                  Phoenix, Arizona

                  Banking Office:
                  4222 E. Camelback Road                    Leased          4,000
                  Suite J100
                  Phoenix, Arizona

                  Banking Office:
                  1333 W. Broadway                          Owned          13,900
                  Tempe, Arizona

                  Mortgage Lending Office:
                  4222 E. Camelback Road                    Leased          1,641
                  Suite H200
                  Phoenix, Arizona

</TABLE>


         In addition to the banking locations listed above, the Subsidiary Banks
own 12 automatic teller machines, strategically located within the Subsidiaries'
market places.

         At December 31, 1998, the properties and equipment of the Company had
an aggregate net book value of approximately $6.3 million.

         Note 1: These locations are owned by Uptown's wholly-owned subsidiary,
BCBC. Uptown utilizes approximately 49,000 square feet of its main office and
the rest of the facility is leased out by BCBC to independent third parties.


                                                                               7

<PAGE>

                            ITEM 3: LEGAL PROCEEDINGS

         Neither the Company nor its Subsidiary Banks are party to any
litigation, which in the judgment of management after consultation with counsel,
would have a material effect on the financial position or results of operations
of the Company or the Subsidiary Banks.

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

         At a Special Meeting of Shareholders held October 20, 1998, the
following amendment to the Corporation's Certificate of Incorporation was
approved: The number of authorized shares of common stock was increased from
300,000 to 3,000,000 and the par value of each share was reduced from $10.00 to
$1.00.


                                     PART II

              ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
                          RELATED STOCKHOLDER MATTERS

         The Company's common stock is traded on the Over-The-Counter market
under the symbol UPBN. As of December 31, 1998, there were 326 shareholders of
record. The following table sets forth common stock information during each
quarter of 1998 and 1997. This information has been adjusted to reflect the
Company's four-for-one stock split in October, 1998.

<TABLE>
<CAPTION>

                                                1998                                                  1997                         
                           --------------------------------------------------   ---------------------------------------------------
MARKET PRICE OF             Fourth        Third        Second       First         Fourth       Third        Second        First    
 COMMON STOCK:             ----------  ------------  -----------  -----------   -----------  -----------  ------------ ------------
<S>                          <C>           <C>          <C>          <C>           <C>          <C>           <C>          <C>     

     High                    $ 36.25       $ 36.25      $ 37.25      $ 36.25       $ 31.13      $ 24.38       $ 20.00      $ 18.75 

     Low                       35.00         35.69        35.50        32.75         24.75        20.50         17.75        16.88 

     Quarter-End               35.25         36.25        35.84        36.25         31.13        23.75         20.00        17.75 

CASH DIVIDENDS PER SHARE       0.125         0.125        0.125        0.125         0.125        0.125         0.125        0.125 
                           --------------------------------------------------------------------------------------------------------
</TABLE>


         A discussion regarding the regulatory restrictions applicable to the
Subsidiary Banks' ability to pay dividends is included in the Dividends Section
under Item 1 of this Form 10-K and Note 12 in the Notes to Consolidated
Financial Statements found under Item 8 of this Form 10-K.



8

<PAGE>




                         ITEM 6: SELECTED FINANCIAL DATA

         The following Selected Financial Data is not covered by the report of
independent public accountants and should be read in conjunction with the
consolidated financial statements and accompanying notes included elsewhere in
this Form 10-K. A more detailed discussion and analysis of factors affecting the
Company's financial position and operating results is presented in Management's
Discussion and Analysis of Financial Condition and Results of Operations found
under Item 7 of this Form 10-K.

         Consolidated financial information reflecting a summary of the
operating results and financial condition of the Company for the five years
ended December 31, 1998 is presented in the following table (all per share data
has been adjusted to reflect the Company's four for one stock split in October,
1998): 

<TABLE>
<CAPTION>

SELECTED FINANCIAL DATA                                                      YEARS ENDED DECEMBER 31,
                                                     ------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)          1998         1997          1996          1995             1994
                                                     --------     --------      --------     ---------         --------
<S>                                                  <C>          <C>           <C>          <C>               <C>     
OPERATING RESULTS:
  Interest income                                    $ 20,040     $ 17,722      $ 15,805     $  15,312         $ 13,884
  Interest expense                                      7,109        6,115         5,425         5,383            4,884
                                                     --------     --------      --------     ---------         --------
  Net interest income                                  12,931       11,607        10,380         9,929            9,000
  Provision for loan losses                               580          410           914           717              291
  Other income                                          3,154        2,667         2,440         1,982            1,790
  Other expense                                        11,940       10,760        10,059         9,551            9,447
                                                     --------     --------      --------     ---------         --------
  Income before income taxes                            3,565        3,104         1,847         1,643            1,052
  Applicable income taxes                               1,265        1,127           693           625              246
                                                     --------     --------      --------     ---------         --------
  Net income                                         $  2,300     $  1,977      $  1,154      $  1,018          $   806
                                                     --------     --------      --------     ---------         --------
                                                     --------     --------      --------     ---------         --------

PER SHARE DATA:
  Net income                                         $   2.63     $   2.24      $   1.30      $   1.15          $   0.91
  Cash dividends declared                                0.50         0.50          0.50          0.50              0.50
  Dividend payout ratio                                 19.04%       22.31%        38.39%        43.61%            55.09%
  Book value (1)                                        26.02        23.79         21.36         20.76             19.50
  Market price                                          35.25        31.13         17.06         15.00             14.38

BALANCE SHEET HIGHLIGHTS:
  Assets                                             $269,462     $231,377     $ 226,395      $206,341          $210,234
  Loans, net of unearned discount                     195,095      166,252       131,069       111,208            98,518
  Deposits                                            226,034      198,132       195,302       180,773           186,087
  Shareholders' equity                                 22,638       21,000        18,856        18,434            17,316
  Average equity to average asset ratio                  8.69%        8.73%         8.58%         8.63%             8.49%

PERFORMANCE RATIOS:
  Return on average assets                                .91%         .87%          .54%          .49%              .39%
  Return on average shareholders' equity                10.44%        9.98%         6.28%         5.66%             4.55%
</TABLE>


(1)   Book value per share is calculated by dividing total shareholders' equity
      at December 31, 1998 by the number of shares common stock outstanding at
      year-end.



                                                                               9

<PAGE>

                 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                  (Dollars in thousands, except per share data)

         The following management's discussion and analysis of financial
condition and results of operations should be read in conjunction with the
Company's Consolidated Financial Statements and Notes to Consolidated Financial
Statements presented in Item 8 of this Form 10-K as well as the Selected
Financial Data presented in Item 6 of this Form 10-K.

         This discussion and analysis is intended to address significant factors
affecting the Company's consolidated statements of condition and statements of
income for the past three years. The discussion is designed to provide
shareholders with a comprehensive review of the operating results and financial
condition of the Company.

SUMMARY 

         The Company's consolidated net income for 1998 totaled $2,300 or $2.63
per share. This is compared to net income and earnings per share of $1,977 or
$2.24 and $1,154 or $1.30 for 1997 and 1996, respectively. The results of 1998
represent a 16% improvement in net income from 1997 after a 71% improvement in
1997 over 1996. As we noted last year and, again, consistent in the current
year, the earnings improvement is mostly attributable to increased net interest
income and mortgage banking fees collected.

         The operating performance of bank holding companies is often measured
and comparisons made based on net income to average assets and net income to
average equity. The Company's return on average shareholders' equity for 1998
was 10.44% as compared to 9.98% in 1997 and 6.28% in 1996. Return on average
assets for 1998 was .91% as compared to .87% in 1997 and .54% in 1996.

         Non-performing loans decreased as a percentage of outstanding loans
during the past three year period. Non-performing loans totaled $1,309 or .67%
of net loans at December 31, 1998 as compared to $1,148 or .69% in 1997 and
$2,112 or 1.61% in 1996.

         Upbancorp continues to maintain a strong capital base at December 31,
1998. Consolidated capital levels as well as the individual Subsidiary Banks'
capital ratios exceed minimum capital requirements.

NET INTEREST INCOME

         Net interest income, which is the difference between interest and fees
earned on assets and the interest paid on deposits and other funding sources, is
the primary source of earnings for the Company. This component represents 80% of
the Company's net revenues in 1998. A detailed analysis highlighting the changes
in net interest income is provided in Table 2. Interest earned on tax-exempt
loans and investments is adjusted for comparative purposes to a taxable
equivalent basis using the federal tax rate of 34%, resulting in a fully taxable
equivalent ("FTE") net interest income.

         Net interest income on a fully taxable equivalent basis totaled $13,115
in 1998 compared to $11,720 in 1997 and $10,442 in 1996. The significant
increase in net interest income in 1998 includes an increase of $1,844 due to
volume increases in 1998 following a $1,259 increase due to volume in 1997. Rate
movements negatively impacted the overall improvement in net interest income by
$395 after positively impacting net interest income by $3 in 1997.

         The 1998 volume increase was fueled by the earning assets added to the
balance sheet. Average interest earning assets increased by $25,124 or 11.98%.
The majority of that increase is the result of growth 


10

<PAGE>

in average loan balances due in large part to the strong real estate markets in
both the Chicago and Phoenix metropolitan areas. In addition, we recognize
continued success of the aircraft lending division, which was augmented by the
purchase of Zook Pilot Services in early October. The loan growth was funded via
a more aggressive pricing strategy with regard to time deposits and a greater
utilization of borrowed funds as well as maturities and selective sales in our
investment portfolio.

         Net interest margin represents net interest income as a percentage of
total interest earning assets. The Company attempts to favorably impact net
interest income through investment decisions on interest earning assets and
monitoring interest rates its banking subsidiaries offer, particularly rates for
time deposits and short-term borrowings. The Company's net interest spread
measured on a fully taxable equivalent basis decreased slightly to 5.58% in 1998
from 5.59% in 1997.

         Table 1 summarizes Upbancorp's average earning assets and funding
sources over the last three years. Additionally, the table shows interest income
and expense related to each category of assets and funding sources and the
yields earned and the rates paid on such assets and funding sources.

                                                       TABLE 1
                                       NET INTEREST INCOME AND MARGIN ANALYSIS


<TABLE>
<CAPTION>

                                                            1998                                           1997                
                                           ------------------------------------------------------------------------------------
                                              Average                     Yield/      Average                      Yield/   
ASSETS:                                       Balance        Interest     Rate        Balance         Interest      Rate    
                                           -----------       ---------    ----        ---------       --------     -----        
<S>                                        <C>               <C>          <C>         <C>             <C>           <C>         
Investment securities:                  
  Taxable                                  $    42,108       $  2,540     6.03%       $  54,005       $  3,263      6.04%       
  Non-taxable (1)(2)                             4,015            399     9.94%           2,189            236     10.78%   
Federal funds sold                               8,355            437     5.23%           7,390            401      5.43%       
Mortgages held-for-sale                          2,314            118     5.10%           1,262             83      6.58%       
Loans, net of unearned 
  discount (2)(3)                              178,076         16,730     9.39%         144,898         13,852      9.56%       
                                           -----------       --------     ----        ---------       --------     -----        
  Total interest earning                
    assets (1)(2)(3)                       $   234,868       $ 20,224     8.61%       $ 209,744       $ 17,835      8.50%       
                                           -----------       --------     ----        ---------       --------     -----        
Cash and due from banks                         10,073                                    8,633                                 
Reserve for loan losses                         (2,247)                                  (1,700)                                 
Other assets                                    10,865                                   10,402                                 
                                           -----------                                ---------                                 
  Total assets                             $   253,559                                $ 227,079                                 
                                           -----------                                ---------                                 
                                           -----------                                ---------                                 
LIABILITIES &                           
  SHAREHOLDERS' EQUITY:                 
Savings, NOW and                        
  money market deposits                    $   100,853       $  2,670     2.65%      $  101,227       $  2,577      2.55% 
Other time deposits                             67,727          3,630     5.36%          59,361          3,158      5.32% 
Borrowed funds                                  14,955            809     5.83%           6,521            380      5,83% 
                                           -----------       --------     ----        ---------       --------     -----
  Total interest bearing                   $   183,535       $  7,109     3.87%      $  167,109       $  6,115      3.66% 
    liabilities                             
                                           -----------       --------     ----        ---------       --------     -----
Demand deposits                                 45,306                                   38,254
Other liabilities                                2,685                                    1,897                           
Shareholders' equity                            22,033                                   19,819
                                           -----------                                ---------
  Total liabilities and                 
    shareholders' equity                    $  253,559                               $  227,079                           
                                           -----------                                ---------
                                           -----------                                ---------
                                                             --------     ----                       ---------      ----
Net interest income/margin (1)(3)                            $ 13,115     4.74%                      $  11,720      4.84%
                                                             --------     ----                       ---------      ----
                                                             --------     ----                       ---------      ----
Net interest income/earning assets                                        5.58%                                     5.59%
                                                                          ----                                      ----
                                                                          ----                                      ----
</TABLE>


<TABLE>
<CAPTION>

                                                                            1996
                                                   -------------------------------------------------------------
                                                       Average                                      Yield/
ASSETS:                                                Balance             Interest                  Rate
                                                   -------------------------------------------------------------
<S>                                                  <C>                    <C>                          <C>  
Investment securities:
  Taxable                                            $  66,002              $   3,930                    5.95%
  Non-taxable (1)(2)                                     1,834                    145                    7.91%
Federal funds sold                                       8,588                    451                    5.25%
Mortgages held-for-sale                                    616                     48                    7.79%
Loans, net of unearned
  discount (2)(3)                                      120,427                 11,293                    9.38%
                                                     ---------              ---------                    ----
  Total interest earning
    assets (1)(2)(3)                                 $ 197,467              $  15,867                    8.04%
                                                     ---------              ---------                    ----
Cash and due from banks                                  8,366
Reserve for loan losses                                 (1,464)
Other assets                                             9,876
                                                      --------
  Total assets                                       $ 214,245
                                                      --------
                                                      --------

LIABILITIES &                                 
  SHAREHOLDERS' EQUITY:                       
Savings, NOW and                              
  money market deposits                              $  98,437              $  2,307                    2.34%
Other time deposits                                     52,499                 2,674                    5.09%
Borrowed funds                                           7,912                   444                    5.61%
                                                     ---------              ---------                    ----
  Total interest bearing liabilities                $  158,848              $  5,425                    3.42%
                                                     ---------              ---------                    ----
Demand deposits                                         35,317
Other liabilities                                        1,697
Shareholders' equity                                    18,383
                                                     ---------
  Total liabilities and                       
    shareholders' equity                            $  214,245
                                                    ----------
                                                    ----------              ---------                   ----

Net interest income/margin (1)(3)                                           $  10,442                   4.62%
                                                                            ---------                   ----
                                                                            ---------                   ----
Net interest income/earning assets                                                                      5.29%
                                                                                                        ----
                                                                                                        ----
</TABLE>






 (1)     Interest income and yields on non-taxable securities are reflected on a
         tax equivalent basis based upon a statutory Federal income tax rate of
         34% for 1998, 1997 and 1996.

(2)      Loans and securities on a non-accrual basis for the recognition of
         interest income are included in loans, net of unearned discount, and
         investment securities for purposes of this analysis.

(3)      Loan fees included in the above interest income computations total
         $907, $773, and $648 for the years ended December 31, 1998, 1997, and
         1996, respectively. At December 31, 1998, 1997, and 1996, deferred loan
         and commitment fee income, net of direct loan origination costs,
         totaled $235, $244, and $277, respectively.


                                                                              11

<PAGE>

         Table 2 analyzes the changes in interest income, interest expense and
net interest income that result from changes in volumes of earning assets and
funding sources, as well as fluctuations in interest rates. Changes noted in the
volume/rate column represent variances attributable jointly to changes in volume
and rate.
<TABLE>
<CAPTION>

                                                       TABLE 2
                       CHANGES IN NET INTEREST INCOME APPLICABLE TO VOLUMES AND INTEREST RATES
1998 COMPARED TO 1997                               Interest Income/Expense                         Increase/(Decrease)due to:
---------------------                         ------------------------------------------     ---------------------------------------
                                                                                   Increase                                  Volume/
                                                    1998           1997           (Decrease)       Volume         Rate         Rate
                                              --------------  --------------  -------------   ------------  ----------- ------------
<S>                                               <C>             <C>             <C>            <C>           <C>          <C>     
Investment securities:
  Taxable                                         $   2,540       $   3,263       $  (723)       $  (719)      $   (5)      $     1
  Non-taxable (1)                                       399             236           163            197          (18)          (15)
Federal funds sold                                      437             401            36             52          (14)           (2)
Mortgages held-for-sale                                 118              83            35             69          (19)          (16)
Loans, net of unearned discount                      16,730          13,852         2,878          3,172         (239)          (55)
                                                  ---------       ---------       -------        -------       ------       -------
  Total interest income (1)                       $  20,224       $  17,835       $ 2,389        $ 2,771       $ (296)      $   (86)
                                                  ---------       ---------       --------       --------      ------       -------
                                                  ---------       ---------       --------       --------      ------       -------
Savings, NOW and money market deposits                2,670           2,577            93            (10)         103            (0)
Other time deposits                                   3,630           3,158           472            445           24             3
Borrowed funds                                          809             380           429            491          (27)          (35)
                                                  ---------       ---------       --------       --------      ------       -------
    Total interest expense                            7,109           6,115           994            927           99           (32)
                                                  ---------       ---------       --------       --------      ------       -------
      Net interest income                        $   13,115      $   11,720      $  1,395        $ 1,844       $ (395)      $   (54)
                                                  ---------       ---------       --------       --------      ------       -------
                                                  ---------       ---------       --------       --------      ------       -------
</TABLE>

<TABLE>
<CAPTION>


1997 COMPARED TO 1996                               Interest Income/Expense                         Increase/(Decrease) due to:
---------------------                         ------------------------------------------     ---------------------------------------
                                                                                 Increase                                  Volume/  
                                                      1997            1996      (Decrease)       Volume         Rate        Rate 
                                             --------------- --------------- -------------   ------------  ----------- -------------
<S>                                               <C>             <C>           <C>            <C>            <C>         <C>      
Investment securities:                                                                                                              
  Taxable                                         $   3,263       $   3,930     $   (667)      $   (714)      $   58      $   (11) 
  Non-taxable (1)                                       236             145           91             28           53           10  
Federal funds sold                                      401             451          (50)           (63)          15           (2) 
Mortgages held-for-sale                                  83              48           35             50           (7)          (8) 
Loans, net of unearned discount                      13,852          11,293        2,559          2,295          220           45 
                                                  ----------      ----------    --------       --------       ------      -------
  Total interest income (1)                       $  17,835       $  15,867     $  1,968       $  1,596       $  338      $    34 
                                                  ----------      ----------    --------       --------       ------      -------
                                                  ----------      ----------    --------       --------       ------      -------
Savings, NOW and money market deposits                2,577           2,307          270             65          199            6  
Other time deposits                                   3,158           2,674          484            350          119           16  
Borrowed funds                                          380             444          (64)           (78)          17           (3  
                                                  ----------      ----------    --------       --------       ------      -------
    Total interest expense                            6,115           5,425          690            337          335           18   
                                                  ----------      ----------    --------       --------       ------      -------

      Net interest income                        $   11,720       $  10,442     $  1,278       $  1,259       $    3      $    16 
                                                  ----------      ----------    --------       --------       ------      -------
                                                  ----------      ----------    --------       --------       ------      -------
</TABLE>

  (1)    Interest income and yields on non-taxable securities are reflected on a
         tax equivalent basis based upon a statutory Federal income tax rate of
         34% for 1998, for 1997 and 1996.

FUNDS MANAGEMENT ANALYSIS AND INTEREST RATE SENSITIVITY

         The earning asset portfolio of community banks is typically the leading
determinate of performance for the Company. This is because the largest
percentage of total income for the Company is attributable to net interest
income. The policies and practices for managing liquidity risk and interest rate
risk are set by the Subsidiary Banks' Funds Management Committees ("FMCs") whose
goal is to ensure maximum returns within safe and sound risk parameters. The
FMCs monitor exposures in view of market developments and the Subsidiary Banks'
financial conditions, set guidance for interest rate risk management decisions,
ensure consistency in the measurement of risk and monitor liquidity and capital
adequacy. In this capacity, the FMCs place limits on the level of investments in
various assets and off-balance sheet instruments, as well as on the funding
levels for loans and deposits. In addition, the FMCs establish pricing policies
for the Subsidiary Banks' products and services.


12

<PAGE>

         Interest rate risk is the degree to which market interest rate
fluctuations can effect net interest income. The Company not only responds to
this interest rate risk, but also tries to anticipate and build strategies based
on the current interest rate and maturity characteristics of the various balance
sheet categories of assets and liabilities. This is done through a formalized
funds management process and while there are several ways in which to analyze
interest rate risk, the traditional method is called a "gap" analysis. A gap
analysis is a static management tool used to identify mismatches or gaps in the
repricing of assets and liabilities within specified periods of time.

         The Company's gap analysis as of December 31, 1998 is presented in
Table 3. Earning assets and interest bearing liabilities are presented within
selected time intervals based upon their repricing and maturity characteristics.
In a perfectly matched gap analysis, an equal amount of rate sensitive assets
and liabilities would be reflected as repricing within each given time interval.
A positive interest rate sensitivity gap indicates more assets than liabilities
will reprice in that time period, while a negative gap indicates more
liabilities will reprice. Generally, a positive gap position, or asset sensitive
position, has a favorable impact on net interest income in periods of rising
interest rates. Conversely, a negative gap would generally imply a favorable
impact on net interest income in periods of declining interest rates.


                                     TABLE 3
                 REMAINING MATURITY OR EARLIEST POSSIBLE PRICING
<TABLE>
<CAPTION>

                                                           Up to
                                                             3         3-12          1-3         3-5    Greater than
                                                           Months      Months       Years       Years     5 Years       Total
                                                          ---------   ---------   --------    --------  ------------  --------
<S>                                                       <C>         <C>         <C>         <C>         <C>         <C>     
RATE SENSITIVE ASSETS:
Federal funds sold                                        $ 10,000    $   --      $   --      $   --      $   --      $ 10,000
Investment securities - Debt (1)                               --          426       5,335      15,936      15,760      37,457
Investment securities - Equity (1)                             --         --          --          --         4,922       4,922
Loans and mortgages held-for-sale (1)                       60,443      14,053      24,114      78,857      20,696     198,163
                                                          --------    --------    --------    --------    --------    --------
  Total Rate Sensitive Assets                               70,443      14,479      29,449      94,793      41,378     250,542
                                                          --------    --------    --------    --------    --------    --------

RATE SENSITIVE LIABILITIES:
Savings, NOW, and
  money market deposits                                     37,523      24,389      26,834      15,321        --       104,067
Other time deposits                                         27,479      33,156      11,846       2,424        --        74,905
Borrowed funds                                               8,097        --        10,000        --          --        18,097
                                                          --------    --------    --------    --------    --------    --------
    Total Rate Sensitive Liabilities                        73,099      57,545      48,680      17,745        --       197,069
                                                          --------    --------    --------    --------    --------    --------
INTEREST SENSITIVITY GAP:
  Incremental                                             $ (2,656)   $(43,066)   $(19,231)   $ 77,048    $ 41,378    $ 53,473
                                                          --------    --------    --------    --------    --------    --------
                                                          --------    --------    --------    --------    --------    --------
  Cumulative                                              $ (2,656)   $(45,722)   $(64,953)   $ 12,095    $ 53,473
CUMULATIVE INTEREST SENSITIVE
  GAP AS A PERCENTAGE OF
  TOTAL EARNING ASSETS                                          -1%        -18%        -26%          5%         21%
</TABLE>







 (1) Loans and securities on a non-accrual basis are not included as a part of
     this analysis.

         Table 3 shows the under-one-year net liability position at December 31,
1998 was ($45,722) (16.97% of total assets), compared to the under-one-year net
liability position of ($11,548) at December 31, 1997 (4.99% of total assets). A
significant under-one-year net liability position would indicate that the
Company's net interest income is exposed to rising short-term interest rates,
while a significant net asset position would mean an exposure to declining
short-term interest rates. Upbancorp and the Subsidiary Banks follow a policy of
maintaining a relatively balanced mix of rate-sensitive assets and liabilities,
making each side of the balance sheet equally flexible in reacting to changes in
market interest rates so that net interest income will not be materially
affected in periods of rising or falling interest rates.


                                                                              13

<PAGE>

         The following table shows the Company's available-for-sale investment
securities' maturity distribution and corresponding tax-equivalent yields at
December 31, 1998:




                                                      TABLE 4
                                           SECURITIES AVAILABLE-FOR-SALE
                                    MATURITY DISTRIBUTION AND PORTFOLIO YIELDS
<TABLE>
<CAPTION>

                                               One year               One year             Five years               After
                                               or less             to five years          to ten years            ten years
                                         ---------------------  --------------------- ---------------------  ---------------------
                                         Amortized    Yield     Amortized    Yield    Amortized     Yield    Amortized    Yield
                                            Cost       (%)        Cost        (%)        Cost        (%)        Cost       (%)
                                         ----------- ---------  ----------  --------- -----------  --------  ----------- ---------
<S>                                      <C>        <C>       <C>          <C>       <C>          <C>       <C>          <C>
U.S. Agency securities                       $  196     4.41%     $20,298      6.07%     $ 5,000     6.14%            -         -
States and political subdivisions               190    10.83%         523      8.15%       1,666     7.69%        3,378      7.69%
Other debt securities                             -         -           -          -          30     6.25%            -         -
                                         ----------- ---------  ----------  --------- -----------  --------  ----------- --------
    Total                                    $  386     7.57%     $20,821      6.12%     $ 6,696     6.53%      $ 3,378      7.69%
                                         -----------            ----------            -----------            -----------
                                         -----------            ----------            -----------            -----------
</TABLE>
<TABLE>
<CAPTION>

                                         Amortized    Yield
                                            Cost       (%)
                                         ----------- ---------
<S>                                      <C>         <C>  
Collateralized mortgage obligations
  and other mortgage-backed securities      $ 5,736     5.96%
                                         -----------
                                         -----------
Equity securities                           $ 4,748     6.09%
                                         -----------
                                         -----------

</TABLE>


         Of the $5,736 of collateralized mortgage obligations and other
mortgage-backed securities depicted above, all were issued or guaranteed by
various U.S. Government sponsored agencies.

LOAN PORTFOLIO

         The following table shows the major classifications of loans at
December 31:

                                                            TABLE 5
                                                          LOAN PORTFOLIO

<TABLE>
<CAPTION>
                                                          1998          1997         1996         1995          1994      
                                                       ---------     ---------    ---------    ---------    ---------
<S>                                                    <C>          <C>          <C>          <C>          <C>       
Commercial - Aircraft related                          $  26,617    $  17,846    $   9,154    $     492    $    --   
Commercial - Other                                        33,395       30,361       30,344       29,117       25,743
Secured by real estate - Construction                     22,365        9,440        9,829       16,249        6,462
Secured by real estate - Farmland                           --           --             62           64           65
Secured by real estate - Residential (1 to 4 family)      30,971       34,899       34,071       27,415       23,128
Secured by real estate - Residential (5 or more)          29,900       27,635       19,736       14,127       16,947
Secured by real estate - Non-residential                  45,640       40,984       23,925       18,705       19,568
Consumer, net of unearned discount                         6,207        5,087        3,948        5,039        6,605
                                                       ---------    ---------    ---------    ---------    ---------
Total loans                                              195,095      166,252      131,069      111,208       98,518
Less: Allowance for loan losses                           (2,499)      (2,010)      (1,485)      (1,402)      (1,605)
                                                       ---------    ---------    ---------    ---------    ---------
Total loans, net of allowance for loan losses          $ 192,596    $ 164,242    $ 129,584    $ 109,806    $  96,913
                                                       ---------    ---------    ---------    ---------    ---------
                                                       ---------    ---------    ---------    ---------    ---------
</TABLE>


14
<PAGE>

         The commercial loan maturities and sensitivity to changes in interest
rates at December 31, 1998, are shown in the following table:

                                     TABLE 6
    COMMERCIAL LOAN MATURITIES AND SENSITIVITIES TO CHANGES IN INTEREST RATES
<TABLE>
<CAPTION>
                                                After one
                                   In one year   through       Over
                                     or less    five years   five years     Total
                                   -----------  ----------   ----------    -------
<S>                                 <C>          <C>          <C>          <C>    
Commercial loan maturities          $24,973      $33,977      $ 1,062      $60,012
                                    -------      -------      -------      -------
                                    -------      -------      -------      -------

Interest rate sensitivity:
                    Fixed rate      $ 4,759      $33,364      $ 1,062      $39,185
                 Variable rate       20,214          613         --         20,827
                                    -------      -------      -------      -------
                         Total      $24,973      $33,977      $ 1,062      $60,012
                                    -------      -------      -------      -------
                                    -------      -------      -------      -------
</TABLE>



LIQUIDITY MANAGEMENT

         A key element of the Company's FMC process is the management of
liquidity. Liquid funds are needed by the Subsidiary Banks to meet the needs of
their depositors, borrowers and for regulatory requirements. Liquid funds,
however, generally have very low earnings potential and thus careful control of
the Subsidiary Banks' liquidity position is needed. Monitoring of this liquidity
position is done daily to ensure constant adequacy and to maintain optimal
levels of liquidity on the balance sheet. Another source of liquidity is off
balance sheet, in the form of pre-approved loan commitments from the Federal
Home Loan Bank and various correspondent banks. For a further review of the
Company's sources and uses of funds, see the Consolidated Statements of Cash
Flows found in Item 8 of this Form 10-K.

         The Company requires adequate liquidity to pay its expenses and pay
shareholder dividends. Liquidity is provided to the Company from the Subsidiary
Banks in the form of dividends. Other liquidity is provided by cash balances in
banks, maturing investments and interest on investments. For a discussion of
dividend payments, please see Note 12 in the Notes to Consolidated Financial
Statements found in Item 8 of this Form 10-K. One method of analyzing the
Company's liquidity position is through a careful review of available funding
sources. The following table provides information as it pertains to funding
sources and reflects a year-to-year comparison of the sources of the Company's
liability funding based upon year-end balances.

                                           TABLE 7
                             FUNDING SOURCES - YEAR-END BALANCES
<TABLE>
<CAPTION>
                                            1998          1997          1996   
                                          --------      --------      -------- 
<S>                                        <C>            <C>          <C>     
Demand deposits                           $ 47,062      $ 40,088      $ 40,009 
Savings, NOW & money market deposits       104,067        98,660       100,519 
Other time deposits of $100 or less         55,021        44,409        42,190 
                                          --------      --------      -------- 
  Core deposits                            206,150       183,157       182,718 
Other time deposits of $100 or more         19,884        14,975        12,584 
Borrowed funds                              18,097        10,037        10,561 
                                          --------      --------      -------- 
      Total funding sources               $244,131      $208,169      $205,863 
                                          --------      --------      -------- 
                                          --------      --------      -------- 

</TABLE>

         Total funding sources increased 17.28% at December 31, 1998 from prior
year levels. Core deposits increased 12.55% from December 31, 1997 balances
while other time deposits $100 or more grew at a 32.78% rate. A recap of other
time deposits $100 and over is presented in the following table. For a review of
total other time deposit maturities, see Note 6 in the Notes to Consolidated
Financial Statements found in Item 8 of this Form 10-K. A recap of borrowed
funds can be found in Note 7 in the Notes to Consolidated Financial Statements
found in Item 8 of this Form 10-K.

                                                                              15
<PAGE>

                                     TABLE 8
          REMAINING MATURITY OF OTHER TIME DEPOSITS - $100,000 AND OVER

<TABLE>
<S>                                                     <C>     
Three months or less                                    $  5,243
Over 3 through 6 months                                    6,560
Over 6 through 12 months                                   4,567
Over 12 months                                             3,514
                                                  --------------
                                                        $ 19,884
                                                  --------------
                                                  --------------
</TABLE>


            Borrowing facilities are available to the Subsidiary Banks through
various correspondent banks in the amount of $22,000. These lines are
established for the purpose of borrowing on an overnight basis in the form of
Federal Funds. In addition, Uptown has borrowing capacity with the Federal Home
Loan Bank of Chicago in the amount of $18,000 for short and long-term
borrowings. These borrowings are to be secured by qualifying 1-4 family first
mortgages, private mortgage backed securities or U.S. Treasury and Agency
Obligations.

CAPITAL RESOURCES

         A strong capital structure is vital for many reasons, one of which is
to allow the Company the opportunity for future growth. Upbancorp has developed
a policy to manage its capital structure and that of its Subsidiary Banks in
accordance with regulatory guidelines and to ensure appropriate use of this
resource. The Company's capital policy requires that the Company and its
Subsidiary Banks maintain a capital ratio in excess of the minimum regulatory
guidelines. At December 31, 1998, all entities exceeded regulatory established
minimums as defined for financial institutions.

         Total shareholders equity increased 7.80% to $22,638 at December 31,
1998. Total equity as a percentage of assets was 8.40% at the end of 1998 versus
9.08% a year earlier. Included in shareholders equity is the net unrealized gain
on securities classified as available-for-sale, which amounted to $253 at the
end of 1998 and $19 as of the end of 1997. Please see Note 13 in the Notes to
Consolidated Financial Statements found in Item 8 of this Form 10-K.

PROVISION AND ALLOWANCE FOR LOAN LOSSES

         The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the full collection of the loan principal
is unlikely. The level of the provision for loan losses charged to operating
expense as well as the balances maintained in the allowance for loan losses is
dependent upon many factors, including loan growth, changes in the composition
of the loan portfolio, net charge-off levels, delinquencies, collateral values
and management's assessment of current and prospective economic conditions in
the Company's primary market areas.

         The Subsidiary Banks measure the allowance for loan losses on a
quarterly or more frequent basis using three measures of reserve adequacy. The
first measurement compares the allowance as a percentage of the total loan
portfolio. The second test measures the allowance against various loan pools, or
types, using historical and peer group reserve percentages for expectations of
possible loan losses on each category. The third is a detailed evaluation by all
loan officers of classified or non-performing loans to ensure that an adequate
allowance has been established for these individual assets.

         The allowance for loan losses is comprised of both allocated and
unallocated allowances in order to quantify future loss potential. The allocated
position represents management's assessment as to potential loss exposure based
on both actual loan losses experienced historically and independent credit
ratings on individual credits. The unallocated portion is that which is not
specifically allocated to a particular loan or 



16
<PAGE>

general loan category. At December 31, 1998, the allowance for loan losses was
comprised of $1,576 and $923 of allocated and unallocated reserves,
respectively.

                                                      TABLE 9
                                     ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>

                                                                      December 31,
                                               --------------------------------------------------------
                                                  1998        1997         1996        1995        1994
                                               -------     -------      -------     -------     -------
<S>                                            <C>         <C>          <C>         <C>         <C>    
Balance at beginning of year                   $ 2,010     $ 1,485      $ 1,402     $ 1,605     $ 1,421
Loan charge-offs:
  Commercial - Other                               130          12          256         403         204
  Real estate - Residential (1 to 4 family)       --             1         --            18        --
  Real estate - Residential (5 or more)           --          --            607          66        --
  Real estate - Non-Residential                   --          --           --           460        --
  Consumer, net of unearned discount                25          15           33           1           2
                                               -------     -------      -------     -------     -------
    Total charge-offs                              155          28          896         948         206

Recoveries:
  Commercial - Other                                64          55           62          25          82
  Real estate - Residential (5 or more)           --            86         --          --          --
  Real estate - Non-Residential                   --          --           --          --             9
  Consumer, net of unearned discount              --             2            3           3           8
                                               -------     -------      -------     -------     -------
    Total recoveries                                64         143           65          28          99

Net charge-offs (recoveries)                        91        (115)         831         920         107
Provision for loan losses                          580         410          914         717         291
                                               -------     -------      -------     -------     -------
Balance at end of year                         $ 2,499     $ 2,010      $ 1,485     $ 1,402     $ 1,605
                                               -------     -------      -------     -------     -------
                                               -------     -------      -------     -------     -------
As a percent of average loans:
  Net loan charge-offs                            0.05%     -0.08%         0.69%       0.86%       0.11%
  Provision for loan losses                       0.33%      0.28%         0.76%       0.67%       0.31%

Allowance for loan losses
  as a percentage of net loans:                   1.28%       1.21%        1.13%       1.26%       1.63%

Allocation of allowance:
  Commercial -  Aircraft related                   426         268          137           5        --
  Commercial -  Other                              684         772          765         841         972
  Secured by real estate                           377          11          222         274         285
  Consumer                                          89          89          107         102          99
  Unallocated                                      923         870          254         180         249
                                               -------     -------      -------     -------     -------
Balance at end of year                         $ 2,499     $ 2,010      $ 1,485     $ 1,402     $ 1,605
                                               -------     -------      -------     -------     -------
                                               -------     -------      -------     -------     -------

Loan balance as a percent of total loans:
  Commercial -  Aircraft related                    14%         11%           7%          0%          0%
  Commercial -  Other                               17%         18%          23%         26%         26%
  Secured by real estate                            66%         68%          67%         69%         67%
  Consumer                                           3%          3%           3%          5%          7%

</TABLE>

         As indicated by this table, the provision for loan losses amounted to
$580 for 1998 compared to $410 in 1997 and $914 in 1996. This increase in the
1998 provision is due to the continued growth in the Company's loan portfolio.

         The allowance for loan losses amounted to $2,499 for 1998 compared to
$2,010 in 1997 and $1,485 in 1996. Allowance levels are the result of the
Company's analysis of potential loan losses and the adequacy level as defined by
management's internal analysis.

                                                                              17
<PAGE>


NON-PERFORMING ASSETS

         One measurement used by management in assessing the risk inherent in
the loan portfolio is the level of non-performing assets. Non-performing assets
consist of both non-accrual loans, investments and other real estate owned.
Non-accrual loans are those loans which have been determined to have reasonable
doubt as to the timely collectibility of interest or principal. Other real
estate owned ("OREO") represents real property which has been acquired through
foreclosure or real estate which a Subsidiary Bank has obtained possession of in
satisfaction of a debt. OREO is carried at the lower of the recorded investment
value of the loan or the estimated fair market value, less estimated disposal
costs, of the related real estate. Past due loans are loans whose principal and
interest payments are delinquent 90 days or more and are still accruing
interest.

         The following table summarizes non-performing assets and past due loans
for the past five years as well as certain information related to interest
income on non-accrual loans:

                                                  TABLE 10
                            ANALYSIS OF NON-PERFORMING ASSETS AND PAST DUE LOANS
<TABLE>
<CAPTION>
                                                                        December 31,
                                                    --------------------------------------------------
                                                      1998       1997       1996       1995       1994
                                                    ------     ------     ------     ------     ------
<S>                                                 <C>        <C>        <C>        <C>        <C>   
Non-accrual loans                                   $1,234     $  252     $1,158     $2,369     $3,637
Restructured loans                                      75        896        954      1,430        312
                                                    ------     ------     ------     ------     ------
    Total non-performing loans                       1,309      1,148      2,112      3,799      3,949
Non-performing securities, at market                  --         --          134        134       --
Other real estate owned                               --          334        334      1,343        335
                                                    ------     ------     ------     ------     ------
       Total non-performing assets                  $1,309     $1,482     $2,580     $5,276     $4,284
                                                    ------     ------     ------     ------     ------
                                                    ------     ------     ------     ------     ------
Percentage of non-performing loans/loans,
    net of unearned discount                          0.67%      0.69%      1.61%      3.42%      4.01%
Percentage of non-performing assets/total assets      0.49%      0.64%      1.14%      2.56%      2.04%
Past due loans, not included above                  $ --       $ --       $    5     $    4     $    3
    Percentage of total net loans                     0.00%      0.00%      0.00%      0.00%      0.00%
    Percentage of total assets                        0.00%      0.00%      0.00%      0.00%      0.00%
Interest income not recognized due to
    non-accrual status of loans                     $  164     $   64     $  282     $  419     $  309
</TABLE>


         Non-performing assets have decreased for three consecutive years and
have reached their lowest level in 14 years. This trend is a result of a strong
economy and the effectiveness of the Subsidiary Banks' loan administration and
workout procedures. As shown in Table 10, at December 31, 1998, non-performing
assets totaled $1,309, a $173 decrease from 1997. This decrease is primarily a
result of the sale of other real estate owned at year-end 1998. As a result, the
percentage of non-performing assets to total assets was reduced 24.16% to 0.49%.

NON-INTEREST INCOME

         Non-interest income consists primarily of service charges on customer
deposit accounts and fees earned from mortgage banking activities. Total
non-interest income increased 18.26% to $3,154 in 1998 compared to 1997. The
continued improvement in non-interest income reflects the continued
diversification of our sources of revenue. The following table analyzes the
various sources of non-interest income for the years ended December 31, 1996
through 1998.


18

<PAGE>


                                    TABLE 11
                         NON-INTEREST INCOME COMPONENTS
<TABLE>
<CAPTION>

                                                          December 31,
                                              --------------------------------------
                                                 1998         1997          1996
                                              -----------  -----------   -----------
<S>                                             <C>          <C>            <C>
Service charges on deposit accounts             $  1,481     $  1,215       $ 1,247
Mortgage banking fees                              1,258          907           625
Net loss on securities                               (28)        (107)         (105)
Other non-interest income                            317          475           470
Net gains from sale of loans                         126          177           203
                                              -----------  -----------   -----------
  Total non-interest income                      $ 3,154      $ 2,667       $ 2,440
                                              -----------  -----------   -----------
                                              -----------  -----------   -----------

</TABLE>


         Service charges on deposit accounts, the largest component of
non-interest income, consists of fees on both interest bearing and non-interest
bearing deposit accounts and charges for items such as insufficient funds,
overdrafts and stop payment requests. These charges increased 21.89% in 1998
over 1997 levels.

         Mortgage banking activities at Heritage have produced revenues from the
sale of mortgage loans into the secondary market. Income from mortgage loans
sold in the secondary market was a significant contributor to Heritage's core
earnings performance. Heritage does not retain servicing rights to these
mortgage loans sold. Mortgage banking fee income of $1,258, an increase of
38.70%, was recognized in 1998 along with interest income of $118.

         Net loss on securities result from the sale of securities from the
investment portfolio. For a review of gains and losses related to the investment
portfolio, see Note 3 in the Notes to Consolidated Financial Statements found in
Item 8 of this Form 10-K.

NON-INTEREST EXPENSE

         Total non-interest expense increased $1,174 or 10.91%, in 1998 after
increasing $701, or 6.97% in 1997. This is reflective of the incremental
increase in salaries and benefits which result from the necessary staffing
increases due to the loan and deposit growth pattern as well as new branch
facilities. In addition, staffing has been increased in connection with the sale
of mortgage loans as well as the participation of various commercial loans to
other banking institutions. Another component of this increase is the financial
impact of the Company's technological advancements made during the year.
Wide-area networks were implemented in addition to conversion of the Subsidiary
Banks' data processing systems.

           A key indicator of a bank's ability to maintain low overhead while
generating net income is the bank's efficiency ratio. A lower ratio indicates a
bank's ability to maintain a lower cost operation in comparison to the resulting
income produced. The Company's efficiency ratio continues to improve; for the
year-ended December 31, 1998, the Company had a 74% efficiency ratio as compared
to 75% for the prior year's period. The following table analyzes the various
components of non-interest expense for the years ended December 31, 1996 through
1998.


                                                                              19
<PAGE>


                                    TABLE 12
                         NON-INTEREST EXPENSE COMPONENTS
<TABLE>
<CAPTION>

                                                           December 31,
                                          -----------------------------------------------
                                              1998             1997            1996
                                          --------------  ---------------  --------------
<S>                                           <C>              <C>            <C>
Salaries and employee benefits:
  Core bank employees                         $   6,003        $   5,432      $    5,113
  Mortgage lending group                            911              666             499
                                          --------------  ---------------  --------------
     Total                                        6,914            6,098           5,612
                                          --------------  ---------------  --------------
Net occupancy expense                               647              680             514
Equipment expense                                   811              579             780
Outside fees and services                           703              979             735
Advertising and business
  development expense                               406              316             322
Supplies expense                                    282              244             218
Data processing expense                             659              271             269
Regulatory services/fees                             95               98              85
Other operating expense                           1,423            1,495           1,524
                                          --------------  ---------------  --------------
  Total non-interest expense                 $   11,940       $   10,760      $   10,059
                                          --------------  ---------------  --------------
                                          --------------  ---------------  --------------

</TABLE>


         Salaries and benefits have experienced increases over the past three
years as a result of the growth trends experienced at the Subsidiary Banks. Core
employees deliver all services except mortgage banking. Mortgage banking
activities, where loans are sold into the secondary market, contributed to
interest and fee income of the Subsidiary Banks of $1,376 in 1998 compared to
$990 in 1997.

         A slight increase of $498 was recognized in non-interest expense other
than salaries and employee benefits, from $4,662 at December 31, 1997 to $5,160
at December 31, 1998. The increase in data processing expense and equipment
expense resulted from implementation of a new wide-area network along with
outsourcing data processing for Uptown National Bank of Chicago in 1998.
Management continues to focus on cost containment and this control of expenses
remains a priority as a part of our broader goal of maximizing long-term
profitability.

FORWARD LOOKING STATEMENTS

         Statements made about the Company's future economic performance,
strategic plans or objectives, revenue or earnings projections, or other
financial items and similar statements are not guarantees of future performance,
but are forward looking statements. By their nature, these statements are
subject to numerous uncertainties that could cause actual results to differ
materially from those in the statements. Important factors that might cause the
Company's actual results to differ materially include, but are not limited to,
the following:

         - Federal and state legislative and regulatory developments;
         - Changes in management's estimate of the adequacy of the allowance for
           loan losses (and/or other significant estimates such as OREO,
           deferred tax valuation allowance, etc.);
         - Changes in the level and direction of loan delinquencies and
           write-offs; 
         - Interest rate movements and their impact on customer behavior and
           Upbancorp's net interest margin;
         - The impact of repricing and competitors' pricing initiatives on loan
           and deposit products; 
         - Upbancorp's ability to adapt successfully to technological changes to
           meet customers' needs and developments in the marketplace;
         - Upbancorp's ability to access cost effective funding; and 
         - Economic conditions.


20
<PAGE>


YEAR 2000 COMPLIANCE

         The Year 2000 will be the first century date change ever for an
automated society. For years, information systems were designed using two-digit
date fields. This practice has created an environment in which older generation
software programs may not be able to discern the difference between the year
2000 and the year 1900. This problem could result in the failure of computers
and/or information systems.

         To manage this issue, the Subsidiary Banks have appointed Year 2000
project teams, headed by full-time project coordinators. The team members come
from all areas of the organization and have experience with the processes and
systems in use by the Subsidiary Banks.

         The Subsidiary Banks software and hardware systems provide essential
support to all of their businesses. Failure to properly address Year 2000 issues
could result in an adverse effect on the daily operations and financial
performance of the Subsidiary Banks. Additionally, those on whom the Subsidiary
Banks rely or do business with could also adversely affect the organization if
they are not properly prepared. Given the number of possible scenarios, it is
virtually impossible to determine the potential cost of problems should the
Subsidiary Banks remediation efforts or the efforts of those with whom it does
business not be successful. In addition, should the Subsidiary Banks fail to
make satisfactory progress toward Year 2000 preparedness or not fully comply
with government agency mandated steps, actions could be taken by state or
federal regulators that would adversely affect the Subsidiary Banks business.

         The project teams have employed a five-step plan to effectively deal
with all aspects of the Year 2000 issue. The first step is awareness, during
which the project was defined. This was followed closely by the assessment
phase, during which all software, hardware, equipment, physical plant issues,
and forms were inventoried and priority was assigned as to the importance in
overall operations. Items included in the physical plant inventory include HVAC
systems, security systems, vaults, and elevators among others.

         The third step of the project plan is renovation. This step involves
making changes to existing items, elimination of unnecessary items, or
replacement of items. During early 1998, the Subsidiary Banks conducted a search
of processes to select a new core processing system. This provided the
Subsidiary Banks with the opportunity to review all options available and to
select a solution which would be Year 2000 compliant.

         The fourth step of the Year 2000 project plan is validation, which
involves testing all mission critical systems. This phase is scheduled for
completion by March 31, 1999. Testing will continue throughout 1999 on
non-mission critical systems. The testing will be conducted on all systems even
those such as the core banking applications that were represented as being Year
2000 compliant when purchased. Any systems that have changes made after the
initial testing will be retested to ensure that they remain compliant.

         The fifth step of the Subsidiary Banks' Year 2000 project plan is
implementation. This phase involves the review of test results by end users to
verify that performance is as expected.

         The Subsidiary Banks have completed the awareness and the assessment
phases. The remaining three steps will be completed by March 31, 1999.

         In addition to the five-step plan, the Subsidiary Banks have also
undertaken the challenge to review their customer bases and business suppliers
for compliance. Several approaches have been taken to achieve an understanding
of how well prepared these groups are. Questionnaires were sent to the
Subsidiary Banks' larger customers and suppliers. These questionnaires were
followed up with personal interviews when questionnaire responses did not
provide clear indications of the entities' preparedness. The Subsidiary Banks
cannot control the success of any given entity's preparations but are trying to
have


                                                                              21
<PAGE>


as complete an understanding as possible about all aspects of their business.

         The Subsidiary Banks have been simultaneously developing business
continuity plans to implement should problems arise. These plans will be
completed prior to June 30, 1999 and will be tested several times prior to the
end of 1999.

         The Subsidiary Banks have also developed an education program in
conjunction with their Year 2000 efforts. The Subsidiary Banks have provided
mandatory training for all in-house personnel. They have also taken a leadership
role in educating their customers about the Year 2000 issues. Various direct
mailings have been sent to further educate the customers. In addition, one of
the Subsidiary Banks has organized a Year 2000 peer group to discuss issues at
hand on a monthly basis. It is important that the citizens of the communities
which the Subsidiary Banks serve understand what the Year 2000 issues are and
what plans and progress that individuals, businesses, and government agencies
are making to minimize any negative effects of Year 2000.

         The estimated expense for the Company's Year 2000 efforts is expected
to range between $200 and $250. The cost of in-house personnel that performed
testing and other functions for the Year 2000 project plan is not included in
this estimate. These expenses have been incorporated in the Subsidiary Banks
operating budget for 1999. This is a complex issue and no assurances can be
given that compliance will be achieved without any unplanned outlays that would
affect future financial results.


22
<PAGE>





               ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION

<TABLE>
<CAPTION>

December 31, (Dollars in thousands)                       1998              1997
------------------------------------------------    --------------------------------
<S>                                                  <C>                <C>       
ASSETS                                              
 Cash And due from banks                             $     9,165        $    6,678
 Federal funds sold                                       10,000               500
 Securities                                               42,379            47,621
 Mortgages held-for-sale                                   4,067             2,146
 Loans, net of allowance for loan loses of          
  $2,499 and $2,010 in 1998 and 1997                     192,596           164,242
 Premises and equipment, net                               6,349             5,675
 Accrued interest and other assets                         4,906             4,515
                                                     -----------        ----------
  TOTAL ASSETS                                       $   269,462        $  231,377
                                                     -----------        ----------
                                                     -----------        ----------
                                                    
LIABILITIES AND SHAREHOLDERS' EQUITY                
                                                    
LIABILITIES                                         
                                                    
 Demand deposits                                     $    47,062        $   40,088
 Savings, NOW and money market deposits                  104,067            98,660
 Other time deposits                                      74,905            59,384
                                                     -----------        ----------
  Total deposits                                         226,034           198,132
 Borrowed funds                                           18,097            10,037
 Accrued interest and other liabilities                    2,693             2,208
                                                     -----------        ----------
  TOTAL LIABILITIES                                      246,824           210,377
                                                     -----------        ----------
SHAREHOLDERS' EQUITY                                
                                                    
 Common stock $1 par value: 3,000,000 authorized:
  1,000,000 issued in 1998 and 1997                        1,000             1,000
 Additional paid in capital                                4,500             4,500
 Retained earnings                                        18,823            16,961
 Treasury stock - 130,004 in 1998 and 117,200 in 1997     (1,938)           (1,480)
 Accumulated other comprehensive income                      253                19
                                                     -----------        ----------
  TOTAL SHAREHOLDERS' EQUITY                              22,638            21,000
                                                     -----------        ----------
  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY         $   269,462        $  231,377
                                                     -----------        ----------
                                                     -----------        ----------
</TABLE>


THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.

                                                                             23

<PAGE>


Upbancorp, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended December 31, (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)        1998                 1997                1996
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>                  <C>            <C>
INTEREST INCOME
Interest and fees on loans                                                  $     16,730        $     13,852       $       11,293
Interest on mortgages held-for-sale                                                  118                  83                   48
Interest on federal funds sold                                                       437                 401                  451
Interest on investments:
  Taxable                                                                          2,540               3,263                3,930
  Non-taxable                                                                        215                 123                   83
                                                                         ----------------     ---------------     ----------------
Total interest income                                                             20,040              17,722               15,805
                                                                         ----------------     ---------------     ----------------
INTEREST EXPENSE
Interest on savings, NOW, and money market deposits                                2,670               2,577                2,307
Interest on other time deposits                                                    3,630               3,158                2,674
Interest on borrowed funds                                                           809                 380                  444
                                                                         ----------------     ---------------     ----------------
Total interest expense                                                             7,109               6,115                5,425
                                                                         ----------------     ---------------     ----------------
NET INTEREST INCOME                                                               12,931              11,607               10,380
PROVISION FOR LOAN LOSSES                                                            580                 410                  914
                                                                         ----------------     ---------------     ----------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                               12,351              11,197                9,466
                                                                         ----------------     ---------------     ----------------
NON-INTEREST INCOME
Service charges on deposit accounts                                                1,481               1,215                1,247
Mortgage banking fees                                                              1,258                 907                  625
Other non-interest income                                                            317                 475                  470
Net gains from sale of loans                                                         126                 177                  203
Net loss on securities                                                               (28)               (107)                (105)
                                                                         ----------------     ---------------     ----------------
Total non-interest income                                                          3,154               2,667                2,440
                                                                         ----------------     ---------------     ----------------
NON-INTEREST EXPENSE
Salaries and employee benefits                                                     6,914               6,098                5,612
Net occupancy expense                                                                647                 680                  514
Equipment expense                                                                    811                 579                  780
Outside fees and services                                                            703                 979                  735
Advertising and business development expenses                                        406                 316                  322
Supplies expense                                                                     282                 244                  218
Data processing expense                                                              659                 271                  269
Regulatory services/fees                                                              95                  98                   85
Other operating expense                                                            1,423               1,495                1,524
                                                                         ----------------     ---------------     ----------------
Total non-interest expense                                                        11,940              10,760               10,059
                                                                         ----------------     ---------------     ----------------
INCOME BEFORE INCOME TAXES                                                         3,565               3,104                1,847
Income taxes                                                                       1,265               1,127                  693
                                                                         ----------------     ---------------     ----------------
NET INCOME                                                                  $      2,300        $      1,977       $        1,154
                                                                         ----------------     ---------------     ----------------
                                                                         ----------------     ---------------     ----------------

Basic earnings per share                                                    $       2.63        $       2.24       $         1.30
                                                                         ----------------     ---------------     ----------------
                                                                         ----------------     ---------------     ----------------
Weighted average shares outstanding                                              875,907             882,800              885,740
                                                                         ----------------     ---------------     ----------------
                                                                         ----------------     ---------------     ----------------
</TABLE>

THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.

24

<PAGE>



UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
Years ended December 31, (DOLLARS IN THOUSANDS)                         1998                     1997                 1996
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                    <C>                 <C>       
CASH FLOWS FROM OPERATING ACTIVITIES                                                                              
  Net Income                                                                 $   2,300              $    1,977          $    1,154
  Adjustments to reconcile net income to net cash 
    provided by operating activities:
    Provision for loan losses                                                      580                     410                 914
    Depreciation and amortization                                                1,107                     965                 929
    Net loss on securities                                                          28                     107                 105
    Net gains on sale of mortgage loans                                           (126)                   (177)               (203)
    Net gains on sale of other real estate owned                                   (52)                      -                 (21)
    Change in deferred income taxes                                               (179)                    171                 163
    Amortization on investment securities, net                                    (118)                   (342)               (326)
    Originations of mortgages held-for-sale                                    (77,169)                (38,262)            (25,627)
    Proceeds from sales of mortgages held-for-sale                              75,374                  37,294              27,778
    Changes in assets and liabilities:
      Increase in accrued interest and other assets                               (289)                    (17)                (52)
      Increase (decrease) in accrued interest and other liabilities                485                     532                (228)
                                                                     ------------------  ----------------------  ------------------
Net cash provided by operating activities                                        1,941                   2,658               4,586
                                                                     ------------------  ----------------------  ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Net (increase) decrease in federal funds sold                                 (9,500)                  9,050              (1,450)
  Purchases of available-for-sale securities                                   (23,853)                (23,803)            (34,786)
  Proceeds from maturities and redemptions
    of available-for-sale securities                                            15,330                  27,319              22,236
  Proceeds from sale of available-for-sale securities                           14,239                  16,150              12,386
  Purchases of held-to-maturity securities                                           -                    (200)                  - 
  Proceeds from maturities and
    redemptions of held-to-maturity securities                                       -                       -                 415
  Net increase in loans                                                        (28,934)                (35,068)            (21,149)
  Purchases of premises and equipment                                           (1,728)                 (1,097)               (608)
  Purchase of airplane financing division                                         (460)                      -                   -
  Proceeds from sale of other real estate                                          386                       -               1,487
                                                                     ------------------  ----------------------  ------------------
Net cash used in investing activities                                          (34,520)                 (7,649)            (21,469)
                                                                     ------------------  ----------------------  ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Net increase in total deposits                                                27,902                   2,830              14,529
  Net increase (decrease) in borrowed funds                                      8,060                    (524)              5,331
  Cash dividends paid                                                            (438)                    (441)               (443)
  Purchase of treasury stock                                                     (458)                       -                 (86)
                                                                     ------------------  ----------------------  ------------------
Net cash provided by financing activities                                       35,066                   1,865              19,331
                                                                     ------------------  ----------------------  ------------------
Net increase (decrease) in cash and due from banks                               2,487                  (3,126)              2,448
Cash and due from banks at beginning of period                                   6,678                   9,804               7,356
                                                                     ------------------  ----------------------  ------------------
Cash and due from banks at end of period                                    $    9,165               $   6,678           $   9,804
                                                                     ------------------  ----------------------  ------------------
                                                                     ------------------  ----------------------  ------------------
Supplemental disclosure of cash flow information:
  Cash payments:        Interest                                            $    7,017               $   5,936           $   5,396
                        Income taxes                                             1,642                     826                 701

Supplemental schedule of non-cash investing activities:
  Other real estate acquired in settlement of loans                         $      -                 $       -           $     457
                                                                     ------------------  ----------------------  ------------------
                                                                     ------------------  ----------------------  ------------------
</TABLE>



THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.

                                                                              25

<PAGE>


UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands, except per share data)




<TABLE>
<CAPTION>

                                                                                                                               
                                                                          Additional                                           
                                                          Common           Paid In           Retained           Treasury       
                                                           Stock           Capital           Earnings            Stock         
                                                     --------------------------------------------------------------------------
<S>                                                  <C>                <C>              <C>               <C>                 
BALANCE, DECEMBER 31, 1995                                     $ 1,000         $ 4,500       $  14,714            $(1,394)     
                                                     ------------------ ---------------  ----------------- ------------------- 
Comprehensive Income:
  Net income                                                                                     1,154                         
  Net unrealized gain (loss) on securities                                                                                     
  available-for-sale, net of tax of $(130)                                                                                     
                                                                                                                               
                                                                                                                               
    Comprehensive Income                                                                                                       
                                                                                                                               
  Cash dividends: $.50 per share                                                                  (443)                        
  Purchase of treasury stock                                                                                          (86)     
                                                                                                                               
                                                     ------------------ ---------------  ----------------- ------------------- 
BALANCE, DECEMBER 31, 1996                                     $ 1,000         $ 4,500       $  15,425            $(1,480)     
                                                     ------------------ ---------------  ----------------- ------------------- 
Comprehensive Income:
  Net income                                                                                     1,977                         
  Net unrealized gain (loss) on securities                                                                                     
  available-for-sale, net of tax of $388                                                                                       
                                                                                                                               
    Comprehensive Income                                                                                                       
                                                                                                                               
  Cash dividends: $.50 per share                                                                  (441)                        
                                                     ------------------ ---------------  ----------------- ------------------- 
BALANCE, DECEMBER 31, 1997                                     $ 1,000         $ 4,500       $  16,961            $(1,480)     
                                                     ------------------ ---------------  ----------------- ------------------- 
Comprehensive Income:
  Net income                                                                                     2,300                         
  Net unrealized gain (loss) on securities                                                                                     
  available-for-sale, net of tax of $149                                                                                       
                                                                                                                               
    Comprehensive Income                                                                                                       
                                                                                                                               
  Cash dividends: $.50 per share                                                                  (438)                        
  Purchase of treasury stock                                                                                         (458)     
                                                     ------------------ ---------------  ----------------- ------------------- 
BALANCE, DECEMBER 31, 1998                                     $ 1,000         $ 4,500       $  18,823            $(1,938)     
                                                     ------------------ ---------------  ----------------- ------------------- 
                                                     ------------------ ---------------  ----------------- ------------------- 

</TABLE>








<TABLE>                                     
<CAPTION>                                   
                                            
                                                    Accumulated                                        
                                                       Other                                           
                                                   Comprehensive                                       
                                                       Income                        Total             
                                            --------------------------------------------------------   
<S>                                         <C>                             <C>                        
BALANCE, DECEMBER 31, 1995                           $   (386)                    $ 18,434             
                                            -----------------------------   ------------------------   
Comprehensive Income:                                                                                  
  Net income                                                                         1,154             
  Net unrealized gain (loss) on securities                                                             
  available-for-sale, net of tax of $(130)               (203)                        (203)            
                                                                            ------------------------   
    Comprehensive Income                                                               951             
                                                                            ------------------------   
  Cash dividends: $.50 per share                                                      (443)            
  Purchase of treasury stock                                                           (86)            
                                            -----------------------------   ------------------------   
BALANCE, DECEMBER 31, 1996                           $   (589)                    $ 18,856             
                                            -----------------------------   ------------------------   
Comprehensive Income:                                                                                  
  Net income                                                                         1,977             
  Net unrealized gain (loss) on securities                                                             
  available-for-sale, net of tax of $388                  608                          608             
                                                                            ------------------------   
    Comprehensive Income                                                             2,585             
                                                                            ------------------------   
  Cash dividends: $.50 per share                                                      (441)            
                                            -----------------------------   ------------------------   
BALANCE, DECEMBER 31, 1997                           $     19                     $ 21,000             
                                            -----------------------------   ------------------------   
Comprehensive Income:                                                                                  
  Net income                                                                         2,300             
  Net unrealized gain (loss) on securities                                                             
  available-for-sale, net of tax of $149                  234                          234             
                                                                            ------------------------   
    Comprehensive Income                                                             2,534             
                                                                            ------------------------   
  Cash dividends: $.50 per share                                                      (438)            
  Purchase of treasury stock                                                          (458)            
                                            -----------------------------   ------------------------   
BALANCE, DECEMBER 31, 1998                            $   253                     $ 22,638             
                                            -----------------------------   ------------------------   
                                            -----------------------------   ------------------------   
                                            
</TABLE>





THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.

UPBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1998, 1997 and 1996 
(Dollars in thousands, except per share data)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS:

         Upbancorp, Inc. ("Upbancorp" or the "Company"), is a multi-bank holding
company, organized in 1983 under the laws of the State of Delaware. The Company
owns all of the outstanding common stock of Uptown National Bank of Chicago
("Uptown"), organized in 1929 and located in Chicago, Illinois, and Heritage
Bank ("Heritage"), organized in 1977 and located in Phoenix, Arizona. Upbancorp
does not engage in any activities other than providing administrative services
and acting as a holding company for its Subsidiary Banks.

         The Company's affiliates consist of two full-service community banks,
which operate five banking offices and two loan production offices in northern
Chicago and metropolitan Phoenix. Both Subsidiary 

26

<PAGE>

Banks are engaged in the general commercial banking business in addition to
offering a complete range of retail banking services. The Subsidiary Banks
conduct general banking business which embraces all of the usual functions, both
commercial and consumer, and which they may lawfully provide, including, but not
limited to: the acceptance of deposits to demand, savings, and time accounts and
the servicing of such accounts; commercial, industrial, consumer and real estate
lending; collections; safe deposit box operations; and other banking services
tailored for both commercial and retail clients.

         Uptown's wholly-owned subsidiary, Broadway Clark Building Corporation
("BCBC"), is an Illinois corporation and owns all of the real estate that is
used in connection with the operation of Uptown's business with the exception of
two facilities.

PRINCIPLES OF CONSOLIDATION:

         The consolidated financial statements include the accounts of Upbancorp
and its wholly-owned subsidiaries Uptown (including its wholly-owned subsidiary
BCBC) and Heritage after elimination of all intercompany balances and
transactions.

BASIS OF FINANCIAL STATEMENT PRESENTATION:

         The accounting and reporting policies of the Company conform to
generally accepted accounting principles. In preparing the accompanying
consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts in the consolidated financial
statements and the accompanying notes. Significant estimates which are
particularly susceptible to change in a short period of time include the
determination of the allowance for loan losses. Actual results could differ from
those estimates.

         Effective January 1, 1998, the Company adopted Financial Accounting
Standards Board's Statement No. 130, which was issued in June 1997. Statement
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components, but has no effect on the Company's net income or
total shareholders' equity. Statement No. 130 requires unrealized gains and
losses on the Company's available-for-sale securities which prior to adoption
were reported separately in shareholders' equity to be included in comprehensive
income. Prior year financial statements have been reclassified to conform to the
requirements of Statement No. 130.

         Effective January 1, 1998, the Company adopted Financial Accounting
Standards Board Statement No. 131, "Disclosures about Segments of an Enterprise
and Related Information". Statement No. 131 requires a publicly-held entity to
disclose financial and other descriptive information about all of its reportable
operating segments. The Statement requires disclosure of net income or loss,
certain specific revenue and expense items, and assets for each segment
presented and disclosure of a reconciliation of this information with the
corresponding amounts recognized in the financial statements of the entity. This
Statement also requires disclosure of other pertinent segment information,
including the products and services provided by its operating segments and the
method by which the operating segments were determined.

         Based on the Company's approach to decision making, it has decided that
its business is comprised of a single segment and that Statement No. 131
therefore has no impact on its consolidated financial statements.

SECURITIES:

         Securities classified as held-to-maturity are those debt securities for
which the Subsidiary Banks have both the positive intent and ability to hold to
maturity and are reported at amortized cost. Amortization of premiums and
accretion of discounts, computed by the interest method over their contractual
lives, is included in interest income.

                                                                              27

<PAGE>

         Securities classified as available-for-sale are those debt securities
that the Subsidiary Banks intend to hold for an indefinite period of time, but
not necessarily to maturity. Any decision to sell a security classified as
available-for-sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Subsidiary
Bank's assets and liabilities, liquidity needs, regulatory capital
considerations, and other similar factors.

         Securities available-for-sale are reported at fair value with
unrealized gains or losses reported as a separate component of other
comprehensive income net of the related deferred tax effect. The amortization of
premiums and accretion of discounts, computed by the interest method over their
contractual lives, are recognized in interest income.

         Realized gains or losses, determined on the basis of the cost of
specific securities sold, are included in earnings.

         Declines in the fair value of individual securities classified as
either held-to-maturity or available-for-sale below their amortized cost that
are determined to be other than temporary, result in write-downs of the
individual securities to their fair value with the resulting write-downs
included in current earnings as realized losses.

MORTGAGES HELD-FOR-SALE:

         The Company routinely sells to investors its originated residential
mortgage loans and retains no servicing rights relating to these mortgages sold.
Mortgage activity includes both mortgages held-for-sale which are held for a
period of 5-10 days, all with pre-purchase agreements, in addition to loans sold
directly into the secondary market. Mortgages held-for-sale are carried at the
lower of cost or market for a period of up to ten days with interest income
recognized for that period. Mortgage banking fees are recorded at the date of
origination. For purposes of this report, mortgages held-for-sale and mortgage
banking fees relate only to these two types of mortgage activities; not to
mortgages which are originated, booked and serviced by the Company. All sales
are made without recourse.

LOANS AND ALLOWANCE FOR LOAN LOSSES:

         Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding unpaid principal balances reduced by any charge-offs or specific
valuation accounts and net of unearned discount, deferred loan fees and the
allowance for loan losses.

         Loan origination and commitment fees are deferred and the net amount is
accreted as an adjustment of the loan yield over the contractual life of the
related loans. Commitment fees based upon a percentage of a customer's unused
line of credit and fees related to standby letters of credit are recognized over
the commitment period.

         Unearned interest on discounted loans is accreted to income over the
life of the loans, using the sum-of-month's digits method which approximates the
level yield method. For all other loans, interest is accrued daily on the
outstanding balances. The accrual of interest is discontinued on loans past due
90 days or more. For impaired loans, accrual of interest is discontinued when
management believes, after considering collection efforts and other factors,
that the borrower's financial condition is such that collection of interest is
doubtful. Interest income on these loans is recognized to the extent interest
payments are received and the principal is considered fully collectible.

         A loan is impaired when it is probable the Subsidiary Bank will be
unable to collect all contractual principal and interest payments due in
accordance with the terms of the loan agreement. Impaired loans are measured
based on the present value of expected future cash flows discounted at the
loan's effective 

28 

<PAGE>

interest rate or at the fair value of the collateral if the loan is collateral
dependent. When the measure of the impaired loan is less than the recorded
investment in the loan, the impairment, as well as any subsequent changes, is
recorded through a valuation allowance included in the allowance for loan
losses. The Company considers consumer loans and residential real estate loans
to be smaller homogeneous loans that are not considered as impaired loans. All
other loan types are accounted for as impaired loans when they meet the above
criteria.

         The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb estimated losses on existing loans, based on an evaluation of the
collectibility of loans and prior loss experience. This evaluation also takes
into consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, and
current economic conditions that may affect the borrower's ability to pay. While
management uses the best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are significant changes
in economic conditions. In addition, various regulatory agencies periodically
review the allowance for loan losses. These agencies may require the Banks to
make additions to the allowance for loan losses based on their judgments of
collectibility after reviewing the information available to them at the time of
their examination.

PREMISES AND EQUIPMENT:

         Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the straight-line method
over their estimated useful lives.

INTANGIBLE ASSETS:

         Intangible assets consist of goodwill and other intangible assets which
are being amortized on a straight-line basis over estimated lives of 3 to 15
years. Intangible assets, net of accumulated amortization, are included in other
assets in the consolidated statements of condition.

INCOME TAXES:

         The Company files a consolidated tax return with its subsidiaries. Its
share of the consolidated income tax provision is computed on a separate return
basis. Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.

EARNINGS PER COMMON SHARE:

         Basic earnings per share is computed by dividing net income for the
year by the average number of shares outstanding during the year. Dilutive
earnings per share do not differ from basic earnings per share.

STOCK SPLIT:

         Effective October 20, 1998, the Company increased its authorized shares
of common stock from 300,000 to 3,000,000 and reduced the par value from $10 to
$1. In addition, the common stock was split on a four-to-one basis. All
references in the accompanying financial statements to number of shares and per
share amounts have been retroactively restated to reflect these changes.

                                                                              29

<PAGE>


RECLASSIFICATIONS:

         Certain amounts in the 1997 and 1996 consolidated financial statements
have been reclassified to conform with the 1998 presentation. Such
reclassifications have no effect on previously reported net income.

EMERGING ACCOUNTING STANDARDS:

         In June 1998, The Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which
is required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Company has not determined whether to adopt the new statement
early. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. Management does not believe that the adoption of
Statement No. 133 will have a material impact on the Company's financial
condition or results of operations.

         The Financial Accounting Standards Board has issued Statement No. 134,
"Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise", which conforms
the subsequent accounting for securities retained after the securitization of
mortgage loans by a mortgage banking enterprise with the subsequent accounting
for securities retained after the securitization of other types of assets by a
nonmortgage banking enterprise. The Company does not securitize its mortgage
loans held for sale therefore Statement No.134 will have no impact. Statement
No. 134 is effective for the first fiscal quarter beginning after December 15,
1998.

NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS

         The Subsidiary Banks are required to maintain reserve balances in cash
or on deposit with the Federal Reserve Bank, based on a percentage of deposits.
The total of these reserve balances was approximately $2,047 and $1,880 at
December 31, 1998 and 1997.

NOTE 3. SECURITIES

         The amortized cost and fair value of securities HELD-TO-MATURITY are as
follows at December 31:

<TABLE>
<CAPTION>

                                                                     1998
                              -----------------------------------------------------------------------------------
                                                               Gross            Gross
                                      Amortized              Unrealized       Unrealized            Fair
                                         Cost                  Gains            Losses              Value
                              --------------------------- ----------------- ---------------  --------------------
<S>                           <C>                         <C>               <C>              <C>      
U.S. Treasury securities              $     200            $      -          $      -         $     200
                              --------------------------- ----------------- ---------------  --------------------
                              --------------------------- ----------------- ---------------  --------------------
</TABLE>


<TABLE>
<CAPTION>

                                                                     1997
                              -----------------------------------------------------------------------------------
                                                               Gross             Gross
                                      Amortized              Unrealized       Unrealized             Fair
                                         Cost                  Gains            Losses              Value
                              --------------------------- ----------------- ----------------  -------------------
<S>                           <C>                         <C>               <C>               <C>      
U.S. Treasury securities       $     200                   $       1         $      -           $     201
                              --------------------------- ----------------- ----------------  -------------------
                              --------------------------- ----------------- ----------------  -------------------
</TABLE>

30

<PAGE>


         The amortized cost and fair value of securities HELD-TO-MATURITY at
December 31, 1998, by contractual maturity, are shown below.

<TABLE>
<CAPTION>

                                               Amortized          Fair
                                                  Cost            Value
                                             ---------------  --------------
<S>                                          <C>              <C>     
Due in one year or less                       $     200        $    200
                                             ---------------  --------------
                                             ---------------  --------------
</TABLE>




         The amortized cost and fair value of securities AVAILABLE-FOR-SALE are
as follows at December 31:

<TABLE>
<CAPTION>

                                                                                         1998
                                       ---------------------------------------------------------------------------------------------
                                                                       Gross                  Gross
                                              Amortized              Unrealized            Unrealized                  Fair
                                                 Cost                  Gains                 Losses                   Value
                                       -------------------------  -----------------  ------------------------   --------------------
<S>                                    <C>                        <C>                <C>                        <C>     
U.S. Treasury securities                    $         -           $      -               $      -                     $      -
U.S. Government agencies                         25,494                242                      -                       25,736
States and political
  subdivisions                                    5,757                208                     26                        5,939
Mortgage-backed securities                        5,736                  -                    154                        5,582
Other securities                                  4,778                144                      -                        4,922
                                       -------------------------  -----------------  ------------------------   --------------------
Total securities available-for-sale         $    41,765           $    594               $    180                     $ 42,179
                                       -------------------------  -----------------  ------------------------   --------------------
                                       -------------------------  -----------------  ------------------------   --------------------
</TABLE>

<TABLE>
<CAPTION>


                                                                                         1997
                                       ---------------------------------------------------------------------------------------------
                                                                       Gross                  Gross
                                              Amortized             Unrealized             Unrealized                Fair
                                                 Cost                  Gains                 Losses                 Value
                                       -------------------------  ----------------   ------------------------   --------------------
<S>                                    <C>                        <C>                <C>                        <C>      
U.S. Treasury securities                     $    7,501            $    -                   $     37                  $   7,464
U.S. Government agencies                         17,453                 100                        6                     17,547
States and political
  subdivisions                                    3,589                 147                        -                      3,736
Mortgage-backed securities                       14,206                  29                      325                     13,910
Other securities                                  4,641                 125                        2                      4,764
                                       -------------------------  ----------------   ------------------------   --------------------
Total securities available-for-sale           $  47,390           $     401                 $    370                  $  47,421
                                       -------------------------  ----------------   ------------------------   --------------------
                                       -------------------------  ----------------   ------------------------   --------------------
</TABLE>




         The amortized cost and fair value of securities AVAILABLE-FOR-SALE at
December 31, 1998, by contractual maturity, are shown below. Expected maturities
in mortgage-backed securities may differ from contractual maturities because the
mortgages underlying the securities may be called or repaid with or without
prepayment penalties. Therefore, these securities are not included in the
maturity categories in the following maturity summary.

<TABLE>
<CAPTION>
                                                   Amortized                  Fair
                                                     Cost                     Value
                                             ----------------------   ----------------------
<S>                                          <C>                      <C> 
Due in one year or less                           $   386                  $   405
Due after one year through five years              20,821                   21,062
Due after five years through ten years              6,696                    6,777
Due after ten years                                 3,378                    3,461
Equity securities                                   4,748                    4,892
Mortgage-backed securities                          5,736                    5,582
                                             ----------------------   ----------------------
Total                                             $41,765                  $42,179
                                             ----------------------   ----------------------
                                             ----------------------   ----------------------
</TABLE>



                                                                              31

<PAGE>


         Gross gains realized were $15 in 1998, $19 in 1997 and $71 in 1996.
Gross losses realized were $43 in 1998, $126 in 1997 and $176 in 1996.

         Investment securities carried at approximately $26,515 and $14,184 at
December 31, 1998 and 1997, respectively, were pledged to secure public and
trust deposits and for other purposes as required or permitted by law.

NOTE 4. LOANS

         Major classifications of loans are as follows at December 31:

<TABLE>
<CAPTION>

                                                                     1998                         1997
                                                           --------------------------    ------------------------
<S>                                                        <C>                           <C>       
Commercial - Aircraft related                                     $   26,617                  $   17,846
Commercial - Other                                                    33,395                      30,361
Secured by real estate - Construction                                 22,365                       9,440
Secured by real estate - Residential (1 to 4 family)                  30,971                      34,899
Secured by real estate - Residential (5 or more)                      29,900                      27,635
Secured by real estate - Non-residential                              45,640                      40,984
Consumer, net of unearned discount                                     6,207                       5,087
                                                           --------------------------    ------------------------
Total loans                                                          195,095                     166,252
Less: Allowance for loan losses                                       (2,499)                     (2,010)
                                                           --------------------------    ------------------------
Total loans, net of allowance for loan losses                     $  192,596                  $  164,242
                                                           --------------------------    ------------------------
                                                           --------------------------    ------------------------
</TABLE>


         Transactions in the allowance for loan losses account during the years
ended December 31, 1998, 1997 and 1996 are summarized below:


<TABLE>
                                                                                    December 31,
                                                          ---------------------------------------------------------------
                                                                1998                  1997                   1996
                                                          ------------------ -----------------------   ------------------
<S>                                                       <C>                <C>                       <C>     
Balance at beginning of year                                       $  2,010                $  1,485             $  1,402
Provision for loan losses                                               580                     410                  914
Loans charged-off                                                      (155)                    (28)                (896)
Recoveries on loans previously charged-off                               64                     143                   65
                                                          ------------------ -----------------------   ------------------
Balance at end of year                                             $  2,499                $  2,010             $  1,485
                                                          ------------------ -----------------------   ------------------
                                                          ------------------ -----------------------   ------------------
</TABLE>



         As of December 31, 1998 and 1997, the Company's recorded investment in
impaired loans and the related valuation allowance calculated under SFAS No. 114
and No. 118 are as follows:

<TABLE>
<CAPTION>
                                                      1998                                     1997
                                               ----------------------------------------  -----------------------------------
                                                    Carrying             Valuation           Carrying          Valuation
                                                      Value              Allowance            Value            Allowance
                                               --------------------   -----------------  -----------------  ----------------
<S>                                            <C>                    <C>                <C>                <C>   
Impaired loans
  Valuation allowance required                      $    -                $  -             $    -            $    -
  No valuation allowance required                    1,234                   -                252                 -
                                               --------------------   -----------------  -----------------  ----------------
    Total impaired loans                            $1,234                $  -             $  252            $    -
                                               --------------------   -----------------  -----------------  ----------------
                                               --------------------   -----------------  -----------------  ----------------
</TABLE>




32

<PAGE>

         The valuation allowance is included in the allowance for loan losses on
the balance sheet. The average recorded investment in impaired loans for
years-ended December 31, 1998 and 1997, was $402 and $523, respectively. No
Interest income was recognized in 1998 and 1997 on impaired loans.

NOTE 5. PREMISES AND EQUIPMENT

         The following is a summary of bank premises and equipment at December
31:

<TABLE>
<CAPTION>
                                                      1998                       1997
                                                  --------------     -----------------
<S>                                                  <C>                   <C>       
Land                                                 $    1,106            $    1,106
Buildings and improvements                               12,474                11,666
Furniture, fixtures and equipment                         7,318                 6,500
                                                  --------------     -----------------
  Total cost                                             20,898                19,272
Accumulated depreciation                                (14,549)              (13,597)
                                                  --------------     -----------------
                                                      $   6,349             $   5,675
                                                  --------------     -----------------
                                                  --------------     -----------------
</TABLE>


         Depreciation expense on premises and equipment totaled $1,054, $923,
and $887 for 1998, 1997 and 1996, respectively.

         The buildings, in which the main facilities of each bank are located,
have stores and offices which are rented. Total rent received was $1,037, $974
and $952 in 1998, 1997 and 1996, respectively and is recorded as a reduction of
net occupancy expense.

NOTE 6. OTHER TIME DEPOSITS

         The aggregate amount of certificates of deposits of $100 or more
totaled $19,884 and $14,975 at December 31, 1998 and 1997.

         Maturities of other time deposits are summarized as follows at December
31:

<TABLE>
<CAPTION>
                         1998
                     ------------
    <S>              <C>     
           1999         $ 58,056
           2000            9,014
           2001            5,359
           2002              524
           2003            1,952
     Thereafter                -
                     ------------
                      $   74,905
                     ------------
                     ------------
</TABLE>

                                                                              33

<PAGE>

NOTE 7. BORROWED FUNDS

         At December 31, 1998 and 1997, borrowed funds consisted of:

<TABLE>
<CAPTION>

                                                                                     1998           1997
                                                                               ------------   ------------
<S>                                                                               <C>             <C>    
Federal Home Loan Bank borrowing, due October 3, 2008, fixed rate                 $  5,000        $     -
Federal Home Loan Bank borrowing, due January 20, 2008, fixed rate                   5,000              -
Federal Home Loan Bank borrowing, due July 1, 2000, variable rate                    4,000              -
Federal Home Loan Bank borrowing, due July 25, 2003, variable rate                   4,000              -
Federal Home Loan Bank borrowing, due July 1, 1998, variable rate                        -          5,000
Federal Home Loan Bank borrowing, due October 3, 1998, fixed rate                        -          3,000
Federal funds purchased                                                                  -          1,000
Securities sold under agreements to repurchase and
  U.S. Treasury tax and loan note accounts                                              97          1,037
                                                                               ------------   ------------
Total                                                                            $  18,097      $  10,037
                                                                               ------------   ------------
                                                                               ------------   ------------
</TABLE>

         Uptown has an arrangement with the Federal Home Loan Bank of Chicago
whereby the FHLB will make advances to the Bank with repayment terms from
overnight to ten years. The Bank is eligible to obtain credit up to 20 times the
member Bank's holding of Federal Home Loan Capital Stock; these eligible
borrowings amount to $18,000. As required under the agreement, the advances can
be collateralized by the following: qualifying 1-4 family first mortgages,
private mortgage-backed securities or U.S. Treasury and Agency obligations.
Uptown has pledged a combination of U.S. Treasury and Agency mortgage-backed
securities.

NOTE 8. PENSION PLAN

         Uptown has a defined benefit plan covering substantially all employees
in the Company. The plan is based on years of service and the employee's average
compensation during all years of employment. The Company's funding policy is to
meet the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974 ("ERISA"), plus additional amounts as appropriate.
In addition, the Company adopted a Supplemental Executive Retirement Plan (the
"SERP") for certain executive officers, effective February 17, 1998.

         During the year ended December 31, 1998, the Company adopted Statement
of Financial Accounting Standards No. 132, "EMPLOYER'S DISCLOSURES ABOUT
PENSIONS AND OTHER POSTRETIREMENT BENEFITS - AN AMENDMENT OF SFAS NO. 87, 88 AND
106" (SFAS 132). SFAS 132 revises employer's disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. Prior period disclosures have been restated.


34

<PAGE>

The following table provides a reconciliation of the changes in the Plans'
benefit obligations and fair value of assets over the two year period ended
December 31, 1998 and a statement of the Plans' funded status as of December 31
of both years:

<TABLE>
<CAPTION>
                                                            Pension Benefits
Amounts in ($000)                                         1998        1997
-------------------------------------------------------------------------------
<S>                                                      <C>         <C>   

Reconciliation of benefit obligation:
  Net obligation at beginning of the year                5,546       4,577 
  Service cost                                             307         249 
  Interest cost                                            446         377 
  Plan amendments                                          658         267 
  Actuarial (gain) loss                                    587         368 
  Gross Benefits paid                                     (313)       (292) 
                                                         -----       ----- 
Net obligation at end of the year                        7,231       5,546 
                                                         -----       ----- 
                                                         -----       ----- 

Reconciliation of fair value of plan assets:
  Fair value of plan assets at beginning year            7,845       6,402 
  Actual return on plan assets                             392       1,735 
  Gross benefits paid                                     (313)       (292) 
                                                         -----       ----- 
Fair value of plan assets at end of the year             7,924       7,845 
                                                         -----       ----- 
                                                         -----       ----- 
                                                                            
Funded status:                                                              
  Funded status at end of the year                         693       2,299 
  Unrecognized transition (asset) obligation                -          (53) 
  Unrecognized prior service cost                          715         126 
  Actuarial gain/(loss)                                     13        (841) 
                                                         -----       ----- 
Net amount recognized                                    1,421       1,531 
                                                         -----       ----- 
                                                         -----       ----- 
</TABLE>

The net amount recognized is recorded in the financial statements with $1,555 in
other assets and $134 in other liabilities.

As of December 31, 1998, the benefit obligations of the defined benefit plan and
the SERP were $6,442 and $789, respectively, and the fair value of plan assets
of the defined benefit plan and the SERP were $7,924 and $-0-, respectively.

The following table provides the components of net periodic benefit cost for the
plans fiscal years 1998 and 1997:

<TABLE>
<CAPTION>
                                                                      Pension Benefits
Amounts in ($000)                                                      1998      1997
--------------------------------------------------------------------------------------
<S>                                                                     <C>        <C>   
Service cost                                                            307       249   
Interest cost                                                           446       377   
Expected return on plan assets                                         (654)     (532)   
Amortization of transition obligation (asset)                           (53)     (133)   
Amortization of prior service cost                                       70         6   
Actuarial gain(loss)                                                     (6)        -   
                                                                     -------    ------
Net periodic benefit cost                                               110       (33)   
                                                                     -------    ------
                                                                     -------    ------
</TABLE>

The assumptions used in the measurement of the Company's benefit obligation are
shown in the following table:

<TABLE>
<CAPTION>
                                                                      Pension Benefits
                                                                       1998      1997
                                                                   -----------------------
<S>                                                                  <C>            <C>  
Weighted average assumptions as of December 31:
Discount rate                                                         6.50%          7.00%
Expected return on plan assets                                        8.50%          8.50%
Rate of compensation increase                                         5.00%          4.50%
</TABLE>


                                                                              35
<PAGE>

NOTE 9. INCOME TAXES

         The provision for income taxes for the years ended December 31, 1998,
1997 and 1996 is comprised of the following amounts:

<TABLE>
<CAPTION>
                                                  1998            1997             1996
                                             ---------------  --------------   --------------
<S>                                                <C>              <C>              <C>    
Current:
   Federal                                         $  1,289         $   827          $   470
   State                                                155             129               60
Deferred:                                              (179)            171              163
                                                   --------        --------          -------
   Total tax provision                             $  1,265        $  1,127          $   693
                                                   --------        --------          -------
                                                   --------        --------          -------

</TABLE>



         The components of the net deferred tax assets which are included in
other assets, are as follows:

<TABLE>
<CAPTION>
                                                                    1998            1997
                                                              --------------   -------------
<S>                                                               <C>                <C>   
Deferred Tax Assets                                                            
  Allowance for loan losses and other real estate owned           $  570             $  388
  Depreciation                                                       603                535
  Interest on non-accrual loans                                       26                129
  Deferred loan fees                                                   8                 14
                                                              --------------   -------------
Gross deferred tax assets                                          1,207              1,066
                                                              --------------   -------------
                                                                               
Deferred Tax Liabilities                                                       
  Pension expense                                                    646                680
  Discount accretion                                                  32                 45
  Securities available-for-sale                                      161                 12
  Other                                                               43                 34
                                                              --------------   -------------
Gross deferred tax liabilities                                       882                771
                                                              --------------   -------------
Net deferred tax assets                                           $  325             $  295
                                                              --------------   -------------
                                                              --------------   -------------
</TABLE>



         Management has determined that a valuation allowance is not required at
December 31, 1998 and 1997.

         The following table reconciles the statutory Federal income tax rate
with the effective income tax as a percent of pretax income.

<TABLE>
<CAPTION>
                                                                1998         1997          1996
                                                             -----------  -----------   -----------
<S>                                                               <C>          <C>           <C>  
Federal income tax as statutory rate                              35.0%        35.0%         35.0%
  Tax-exempt interest                                            (3.4)%       (2.4)%        (2.2)%
  Graduated tax rate                                             (1.0)%       (1.0)%        (1.0)%
  State tax                                                        2.9%         2.8%          2.1%
  Other, net                                                       2.0%         1.9%          3.6%
                                                             -----------  -----------   -----------
Effective income tax rate                                         35.5%        36.3%         37.5%
                                                             -----------  -----------   -----------
                                                             -----------  -----------   -----------
</TABLE>




NOTE 10.  RELATED PARTIES

         The Subsidiary Banks have entered into transactions with their
directors and their affiliates (related parties). The aggregate amount of loans
to such related parties at December 31, 1998 and 1997 was $2,805 and $5,304,
respectively. These loans were made using the same criteria and at interest
rates and terms that 



36
<PAGE>

would be comparable to loans granted to a borrower who is not an executive
officer or director. During 1998, new loans and advances to such related parties
amounted to $3,118 and repayments amounted to $5,617.

NOTE 11. COMMITMENTS, CONTINGENCIES AND CREDIT RISK

         The Banks are parties to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of their
customers. These financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the balance sheet.
The contract amounts of these instruments reflect the extent of involvement a
bank has in particular classes of financial instruments.

         The Banks' exposure to credit loss in the event of nonperformance by
the other party for commitments to extend credit and standby and commercial
letters of credit is presented by the contractual amount of those instruments.
The Banks use the same credit policies in making commitments and conditional
obligations as they do for on-balance sheet instruments.

         Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Banks evaluate each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Banks upon an extension of credit is based on
management's credit evaluation of the customer. Collateral held varies but may
include accounts receivable, marketable securities, inventory, property, plant,
and equipment, and income-producing commercial properties and residential
properties.

         Standby letters of credit are conditional commitments issued by the
Banks to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
The Banks hold various types of collateral (primarily certificates of deposit)
to support those commitments for which collateral is deemed necessary. Most of
the letters of credit expire within twelve months.

<TABLE>
<CAPTION>
                                                    Contract Amount
                                            ---------------------------------
Off - balance sheet assets                      1998               1997
                                            --------------     --------------
<S>                                              <C>                <C>     
    Commitments to extend credit                 $ 68,792           $ 56,074
    Letters of credit:
      Standby                                         340                568
      Commercial                                    1,149                680
</TABLE>


         Upbancorp leases certain office facilities under various operating
lease agreements that provide for payment of taxes, insurance and maintenance
costs. These leases generally include renewal options. The future minimum rental
commitments at December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                      Premises
                                 ----------------
     <S>                            <C>     
     1999                             $    201
     2000                                  214
     2001                                  192
     2002                                  197
     2003                                  119
                                    ----------
     Total minimum payments            $   924
                                    ----------
                                    ----------
</TABLE>



                                                                              37
<PAGE>

         In the ordinary course of business, the Banks have various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Company and its
Subsidiary Banks are defendants in certain claims and legal actions arising in
the ordinary course of business. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters is
not expected to have a material adverse effect on the consolidated financial
condition of the Company.

         In addition to financial instruments with off-balance-sheet risk, the
Company, to a certain extent, is exposed to varying risks associated with
concentrations of credit. Concentrations of credit risk generally exist if a
number of counterparties are engaged in similar economic characteristics that
would cause their ability to meet contractual obligations to be similarly
affected by economic or other conditions.

         The Company conducts substantially all of its lending activities
throughout northeastern Illinois and the greater Phoenix metropolitan area. As
of December 31, 1998, loans to customers in Arizona were approximately $57
million. Loans granted to businesses are primarily secured by business assets,
owner-occupied real estate or personal assets of commercial borrowers. Loans to
individuals are primarily secured by automobiles, residential real estate or
other personal assets. Since the Company's borrowers and its loan collateral
have geographic concentration in the greater Chicago and greater Phoenix
metropolitan areas, the Company could have exposure to a decline in those local
economies and real estate markets. However, management believes that the
diversity of its customer base and local economies, its knowledge of the local
markets, and its proximity to customers limits the risk of exposure to adverse
economic conditions.

         As of December 31, 1998, the Company's loan portfolio included $26,617
of loans secured by aircraft. Credit losses arising from aircraft loans compare
favorably with the Company's credit loss experience on its loan portfolio as a
whole.

NOTE 12. RESTRICTIONS ON RETAINED EARNINGS

         Uptown and Heritage are subject to certain restrictions on the amount
of dividends that they may declare without prior regulatory approval. At
December 31, 1998, no retained earnings of Uptown were available for dividend
declaration without prior regulatory approval. Under the provisions of the
Arizona Bank Code, dividends may not be declared unless they are made in
compliance within the banking laws of Arizona.

NOTE 13. REGULATORY MATTERS

         The Company and the Banks are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet
minimum capital requirements can cause regulators to initiate certain mandatory
- and possibly additional discretionary - action that, if undertaken could have
a direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Company and the Banks must meet specific capital guidelines that involve
quantitative measures of the Company's and the Banks' assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Company's and the Banks' capital amounts and classification are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.

         Quantitative measures established by regulation to ensure capital
adequacy require the Banks to maintain minimum amounts and ratios (set forth in
the table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes the Company and the Banks meet all
capital adequacy requirements to which they are subject to at December 31, 1998.

         At December 31, 1998, all entities exceeded regulatory established
minimums as defined for financial institutions. To be categorized as adequately
capitalized, the Banks must maintain minimum total risk-based, Tier 1 risk
based, and Tier 1 leverage ratios as set forth in the table below. As of
year-end, 



38

<PAGE>

Heritage Bank exceeded regulatory established capital minimums, however, did not
exceed the category for "well" capitalized institutions. As a result, the Bank
may not accept brokered deposits without prior approval from the regulatory
authorities. As a matter of fact, the Bank does not accept brokered deposits.
There are no conditions or events since that notification that management
believes have changed the Banks' category.

         The Company's ratios are presented in the following table:
<TABLE>
<CAPTION>
                                                                                                   To be well
                                                                          For capital          capitalized under
                                                                           adequacy            prompt corrective
                                                    Actual                  purposes           action provisions
                                            ----------------------------------------------------------------------
AS OF DECEMBER 31, 1998:                           Amount     Ratio       Amount       Ratio     Amount     Ratio
------------------------
<S>                                                <C>        <C>         <C>           <C>      <C>        <C>
Total Capital (to risk-weighted assets)
  Consolidated                                     $24,244    11.9%       $ 16,302      8.0%     $  --         --
  Uptown National Bank                              17,171    11.8%         11,611      8.0%     14,513      10.0%
  Heritage Bank                                      5,255     8.9%          4,721      8.0%      5,901      10.0%
                                                                             

Tier 1 Capital (to risk-weighted assets)
  Consolidated                                      21,745    10.6%          8,151      4.0%        --         --
  Uptown National Bank                              15,356    10.6%          5,806      4.0%      8,708       6.0%
  Heritage Bank                                      4,654     7.9%          2,361      4.0%      3,541       6.0%
                                                                             

Leverage (Tier 1 to average assets)
  Consolidated                                      21,745     8.2%         10,594      4.0%      --           --
  Uptown National Bank                              15,356     7.6%          8,109      4.0%     10,136       5.0%
  Heritage Bank                                      4,654     7.3%          2,536      4.0%      3,170       5.0%

AS OF DECEMBER 31, 1997:
------------------------
Total Capital (to risk-weighted assets)
  Consolidated                                     $22,758    13.7%       $ 13,260      8.0%     $  --         --
  Uptown National Bank                              17,315    14.3%          9,716      8.0%     12,146      10.0%
  Heritage Bank                                      4,634    10.2%          3,634      8.0%      4,543      10.0%

Tier 1 Capital (to risk-weighted assets)
  Consolidated                                      23,748    12.5%          6,630      4.0%        --         --  
  Uptown National Bank                              15,805    13.0%          4,858      4.0%      7,287       6.0%
  Heritage Bank                                      4,134     9.1%          1,817      4.0%      2,726       6.0%

Leverage (Tier 1 to average assets)
  Consolidated                                      23,748     9.0%          9,277      4.0%        --          --
  Uptown National Bank                              15,805     8.6%          7,352      4.0%      9,190       5.0%
  Heritage Bank                                      4,134     8.3%          1,992      4.0%      2,490       5.0%
</TABLE>



NOTE 14. FINANCIAL INSTRUMENTS

         FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

         CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD: The carrying amounts
         reported in the balance sheet for cash and due from banks and federal
         funds sold approximate their fair values.


                                                                              39
<PAGE>

         SECURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE: Fair values of
         securities are based on quoted market prices, where available. If
         quoted market prices are not available, fair values are based on quoted
         market prices of comparable instruments.

         LOANS AND MORTGAGES HELD-FOR-SALE: The fair values of the loan
         portfolio are estimated based upon discounted cash flow analyses that
         apply using interest rates currently being offered for loans with
         similar terms to borrowers with similar credit quality.

         DEPOSIT LIABILITIES: The fair values disclosed for deposits with no
         defined maturities is equal to their carrying amounts which represent
         the amount payable on demand. The carrying amounts for variable-rate,
         fixed-term money market accounts and certificates of deposit
         approximate their fair value at the reporting date. Fair values for
         fixed rate certificates of deposit are estimated using a discounted
         cash flow calculation that applies interest rates currently being
         offered on certificates to a schedule of aggregated expected monthly
         maturities on time deposits.

         BORROWED FUNDS: The carrying amounts of borrowings under repurchase
         agreements and other short-term borrowings approximate their fair
         values.

         ACCRUED INTEREST: The carrying amounts of accrued interest approximate
         their fair values.

         OFF-BALANCE SHEET INSTRUMENTS: Fair values for the Company's
         off-balance sheet lending commitments (letters of credit and
         commitments to extend credit) are based on fees currently charged to
         enter into similar agreements, taking into account the remaining terms
         of the agreements and the counterparties' credit standing. The fair
         value for such commitments is nominal.

         The estimated fair values of the Company's financial instruments were
as follows at December 31,

<TABLE>
<CAPTION>
                                                             1998                              1997
                                              --------------------------------------------------------------------------
                                                  Carrying         Estimated        Carrying           Estimated
                                                   Amount         Fair Value         Amount            Fair Value
                                              --------------------------------------------------------------------------
<S>                                                   <C>             <C>               <C>                    <C>     
FINANCIAL ASSETS
  Cash and due from banks                             $   9,165       $   9,165         $  6,678               $  6,678
  Federal fund sold                                      10,000          10,000              500                    500
  Securities available-for-sale                          42,179          42,179           47,421                 47,421
  Securities held-to-maturity                               200             200              200                    201
  Loans, net of unearned discount and
    mortgages held-for-sale                             198,562         205,482          166,388                163,723
  Accrued interest receivable                             1,632           1,632            1,439                  1,439

FINANCIAL LIABILITIES
  Deposits                                            $ 226,034       $ 229,750        $ 198,132              $ 198,240
  Borrowed funds                                         18,097          18,097           10,037                 10,037
  Accrued interest payable                                  862             862              770                    770

</TABLE>


40

<PAGE>


NOTE 15. UPBANCORP, INC. - PARENT ONLY
FINANCIAL STATEMENTS

The Parent Company's condensed financial information, which follows, conforms
with the accounting policies described in the preceding notes:

                             STATEMENTS OF CONDITION

<TABLE>
<CAPTION>
December 31, (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)      1998            1997
-----------------------------------------------------------------------------------------------
<S>                                                           <C>                      <C>    
ASSETS
Cash                                                           $  1,739        $    862
Investment in subsidiary banks                                   20,903          20,191
Other                                                               206             140
                                                          --------------  --------------
TOTAL ASSETS                                                   $ 22,848        $ 21,193
                                                          --------------  --------------
                                                          --------------  --------------

LIABILITIES
Dividend declared                                              $    109        $    110
Other liabilities                                                   101              83
                                                          --------------  --------------
TOTAL LIABILITIES                                                   210             193
                                                          --------------  --------------

SHAREHOLDERS' EQUITY
Common stock - $1 par value                                       1,000           1,000
Additional paid in capital                                        4,500           4,500
Retained earnings                                                18,823          16,961
Treasury stock                                                   (1,938)         (1,480)
Accumulated other comprehensive income                              253              19
                                                          --------------  --------------
TOTAL SHAREHOLDERS' EQUITY                                     $ 22,638        $ 21,000
                                                          --------------  --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                     $ 22,848        $ 21,193
                                                          --------------  --------------
                                                          --------------  --------------
</TABLE>




                              STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Years ended December 31, (DOLLARS IN THOUSANDS)                 1998        1997          1996
------------------------------------------------------------------------------------------------
<S>                                                         <C>           <C>           <C>     
INCOME
Dividends received from
  bank subsidiaries                                         $  2,151      $ 1,736       $  1,411
Interest on short term investments                                18           25              9
                                                          -----------  -----------  -------------
Total Income                                                   2,169        1,761          1,420
                                                          -----------  -----------  -------------
EXPENSE
Salaries and employee benefits                                   365          435            333
Other expense                                                    187          132            122
                                                          -----------  -----------  -------------
Total Expense                                                    552          567            455
                                                          -----------  -----------  -------------
INCOME BEFORE INCOME TAXES AND
 UNDISTRIBUTED INCOME OF SUBSIDIARIES                          1,617        1,194            965
Income tax benefit                                               205          140            112
                                                          -----------  -----------  -------------
INCOME BEFORE UNDISTRIBUTED INCOME
  OF SUBSIDIARIES                                              1,822        1,334          1,077
Undistributed income of subsidiaries                             478          643             77
                                                          -----------  -----------  -------------
NET INCOME                                                   $ 2,300      $ 1,977       $  1,154
                                                          -----------  -----------  -------------
                                                          -----------  -----------  -------------
</TABLE>



                                                                              41
<PAGE>


NOTE 15. UPBANCORP, INC. - PARENT ONLY
FINANCIAL STATEMENTS
(Continued)


                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

Years ended December 31, (Dollars in thousands)                        1998           1997           1996
-----------------------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                         $ 2,300        $ 1,977       $  1,154
  Adjustments to reconcile net income to
    net cash provided by (used in) operating activities:
      Equity in undistributed (income) loss of subsidiaries             (478)          (643)           (77)
      Accretion on U.S. Treasury Bills                                    --            (10)            --
      Other, net                                                         (49)            88            (57)
                                                                     -------         ------        -------
Net cash provided by (used in) operating activities                    1,773          1,412          1,020
                                                                     -------         ------        -------
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital infusion to subsidiary                                          --           (500)          (250)
  Purchases of U.S. Treasury Bills                                        --           (738)            --
  Maturities of U.S. Treasury Bills                                       --            748             --
                                                                     -------         ------        -------
Net cash provided by (used in) investing activities                       --           (490)          (250)
                                                                     -------         ------        -------
CASH FLOWS FROM FINANCING ACTIVITIES
  Cash dividends paid                                                   (438)          (441)          (443)
  Treasury stock purchased                                              (458)            --            (86)
                                                                     -------         ------        -------
Net cash used in financing activities                                   (896)          (441)          (529)
                                                                     -------         ------        -------
Net increase in cash                                                     877            481            241
Cash at beginning of year                                                862            381            140
                                                                     -------         ------        -------
Cash at end of year                                                  $ 1,739         $  862        $   381
                                                                     -------         ------        -------
                                                                     -------         ------        -------

</TABLE>




42
<PAGE>


REPORT OF MANAGEMENT ON RESPONSIBILITY FOR FINANCIAL REPORTING
UPBANCORP, INC. AND SUBSIDIARIES

To the Shareholders of Upbancorp, Inc.:

         The accompanying consolidated financial statements were prepared by
Management, who is responsible for the integrity and objectivity of the data
presented. In the opinion of Management, the financial statements, which
necessarily include amounts based on Management's best estimates and judgments,
have been prepared in conformity with generally accepted accounting principles
appropriate to the circumstances.

         Management depends upon the Company's system of internal controls in
meeting its responsibilities for reliable financial statements. This system is
designed to provide reasonable assurance that assets are safeguarded and that
transactions are properly recorded and executed in accordance with Management's
authorization. Judgments are required to assess and balance the relative cost
and the expected benefits of these controls. As an integral part of the system
of internal controls, the Bank Subsidiaries contract with a professional staff
of Independent Internal Auditors who conduct operational, financial, and special
audits, and coordinate audit coverage with the Independent Auditors.

         The consolidated financial statements have been audited by our
Independent Auditors, McGladrey & Pullen LLP, who render an independent
professional opinion on Management's financial statements.

         The Audit Committee of Upbancorp, Inc.'s Board of Directors, composed
solely of outside directors, meets regularly with the Independent Internal
Auditors, the Independent Auditors and Management to assess the scope of the
annual examination plan and to discuss audit, internal control and financial
reporting issues, including major changes in accounting policies and reporting
practices. The Independent Internal Auditors and the Independent Auditors have
free access to the Audit Committee, without Management present, to discuss the
results of their audit work and their evaluations of the adequacy of internal
controls and the quality of financial reporting.

Sincerely,


/s/ Richard K. Ostrom
-------------------------------------
Richard K. Ostrom
Chairman of the Board
President and Chief Executive Officer


/s/ Kathleen L. Harris
-------------------------------------
Kathleen L. Harris
Vice President & Chief Financial Officer


                                                                              43
<PAGE>


REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of Upbancorp, Inc.:

         We have audited the accompanying consolidated statements of condition
of Upbancorp, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of income, cash flows and changes in
shareholders' equity for each of the three years in the period ended December
31, 1998. 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 audit.

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

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Upbancorp, Inc. and
subsidiaries as of December 31, 1998 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.


                                                   /s/ McGladrey & Pullen LLP
                                                   -----------------------------
                                                   McGladrey & Pullen LLP

Schaumburg, Illinois
March 9, 1999



44
<PAGE>


              ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                      ON ACCOUNTING AND FINANCIAL DISCLOSURES

         None.

                                    PART III


                ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE
                                   REGISTRANT

         Information regarding the Directors and Executive Officers of the
Company, their family relationships and their business experience is contained
in the "Information about Directors and Nominees" and "Executive Officers"
sections of the Proxy Statement for the 1999 Annual Meeting of Shareholders of
the Company to be held on April 13, 1999, which is incorporated herein by
reference.

                         ITEM 11: EXECUTIVE COMPENSATION

         Information regarding compensation of the Executive Officers of the
Company is contained in the "Executive Compensation" section of the Proxy
Statement for the 1999 Annual Meeting of Shareholders of the Company to be held
on April 13, 1999, which is incorporated herein by reference.

                ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                              OWNERS AND MANAGEMENT

         Information regarding security ownership of certain beneficial owners
and management is contained in the "Security Ownership of Certain Beneficial
Owners and Management" section of the Proxy Statement for the 1999 Annual
Meeting of Shareholders of the Company to be held on April 13, 1999, which is
incorporated herein by reference.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information regarding certain relationships and related transactions of
the Company is contained in the "Certain Relationships and Related Transactions"
section of the Proxy Statement for the 1999 Annual Meeting of Shareholders of
the Company to be held on April 13, 1999, which is incorporated herein by
reference. Further information with respect to loans to the Directors and
Executive Officers of the Company is provided in Note 10 in the Notes to
Consolidated Financial Statements found in Item 8 of this Form 10-K.



                                                                              45
<PAGE>


                                     PART IV


              ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
                               REPORTS ON FORM 8-K

(a)      The following exhibits, financial statements and financial statement
         schedules are filed as part of this report:

                              FINANCIAL STATEMENTS
         Consolidated Statements of Condition - December 31, 1998 and 1997

         Consolidated Statements of Income - Years ended December 31, 1998, 1997
         and 1996

         Consolidated Statements of Cash Flows - Years ended December 31, 1998,
         1997 and 1996

         Consolidated Statements of Changes in Shareholders' Equity - Years
         ended December 31, 1998, 1997 and 1996

         Notes to Consolidated Financial Statements

         Report of Independent Public Accountants

                          FINANCIAL STATEMENT SCHEDULES
         All schedules normally required by Form 10-K are omitted since they are
         either not applicable or the required information is shown in the
         financial statements or notes thereto.

                                    EXHIBITS
   (3)   Amended Certificate of Incorporation is attached hereto as Exhibit A
         and by-laws (filed as an Exhibit to the Registrant's Form S-14 Number
         2-18746 filed with the Securities and Exchange Commission on February
         8, 1983 and incorporated herein by reference).

(10.1)   Employment Agreement between Upbancorp, Inc. and Richard K. Ostrom is
         attached hereto as Exhibit B. Employment Agreement between Heritage
         Bank, Upbancorp, Inc. and John E. Fahrendorf, Jr. is attached hereto as
         Exhibit C. Employment Agreement between Uptown National Bank of
         Chicago, Upbancorp, Inc. and Robert P. Griffiths is attached hereto as
         Exhibit D.

(10.2)   Indemnity Agreement between Upbancorp, Inc. and its Directors and
         Officers (filed as an Exhibit to the Registrant's 1992 Form 10-K and
         incorporated herein by reference).

  (22)   Subsidiaries of the Registrant (see Item 1 which contains this
         information).

(27.1)   Financial Data Schedule.

  (28)   Proxy Statement for the 1999 Annual Meeting (filed with the Securities
         and Exchange Commission on March 22, 1999 and incorporated herein by
         reference).



(b)      REPORTS ON FORM 8-K - No reports on Form 8-K were filed during the
         fourth quarter of 1998.




46
<PAGE>




                                   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.


Date: March 9, 1999                                       UPBANCORP, INC.
                                                          ---------------------
                                                          (The Registrant)


                                                          /s/ Richard K. Ostrom
                                                          ---------------------
                                                          Richard K. Ostrom
                                                          Chairman of the Board,
                                                          President and Chief
                                                          Executive Officer

         PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THEIR CAPACITIES ON MARCH 9, 1999.


<TABLE>

<S>                                                    <C>                             <C>
                /s/ Richard K. Ostrom                  Chairman of the Board           March 9, 1999
------------------------------------------------------
                  Richard K. Ostrom

             /s/ Stephen W. Edwards, CLU               Director                        March 9, 1999
------------------------------------------------------
               Stephen W. Edwards, CLU

                /s/ Delbert R. Ellis                   Director                        March 9, 1999
------------------------------------------------------
                  Delbert R. Ellis

             /s/ John E. Fahrendorf, Jr.               Director                        March 9, 1999
------------------------------------------------------
               John E. Fahrendorf, Jr.

               /s/ Robert P. Griffiths                 Director                        March 9, 1999
------------------------------------------------------
                 Robert P. Griffiths

            /s/ Alfred E. Hackbarth, Jr.               Director                        March 9, 1999
------------------------------------------------------
              Alfred E. Hackbarth, Jr.

                 /s/ James E. Heraty                   Director                        March 9, 1999
------------------------------------------------------
                   James E. Heraty

                /s/ Marvin L. Kocian                   Director                        March 9, 1999
------------------------------------------------------
                  Marvin L. Kocian


</TABLE>



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