<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
                                   FORM 10-K


     /X/   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934
              For the fiscal year ended December 31, 1997
                                   OR
     / /   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                  THE SECURITIES EXCHANGE ACT OF 1934
           FOR THE TRANSITION PERIOD FROM _______________ TO  _______________

                         Commission file number   0-14484
                                                -----------

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

            DELAWARE                                36-3182868
   ------------------------          ---------------------------------------
   (State of Incorporation)          (I.R.S. Employer Identification Number)


                    1851 WEST GALENA BOULEVARD, AURORA, ILLINOIS 60507
           ----------------------------------------------------------------
             (Address of principal executive offices, including Zip Code)


                                 (630) 896-9000
             ------------------------------------------------------
               (Registrant's telephone number, including Area Code)

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

      Title of Class           Name of each exchange on which registered

          NONE                                    NONE
      --------------           -----------------------------------------


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

                              COMMON STOCK, $1.00 PAR VALUE
                             -------------------------------
                                   (Title of Class)

                             PREFERRED STOCK PURCHASE RIGHTS
                             -------------------------------
                                   (Title of Class)


     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 requirements for the past 90 days.
                               YES   X         NO
                                   -----         -----

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by Reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

<PAGE>

     As of March 9, 1998, the aggregate market value of the registrant's common
stock held by non-affiliates of the registrant was approximately $154,410,640*
based upon the price of the last sale on that date. (This determination includes
841,029 shares of the registrant's common stock held by the trust department of
the registrant's subsidiary, The Merchants National Bank of Aurora.)

     The number of shares outstanding of the registrant's common stock, par
value $1 per share, was 5,168,557 at March 9, 1998.



DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Company's 1997 Annual Report are incorporated by reference
     into Parts I, II and IV.

     Portions of the Company's Proxy Statement for the 1998 Annual Meeting of
     Stockholders are incorporated by reference into Part III.



















------------------
*    Based on the last reported price of an actual transaction in registrant's
     common stock on March 4, 1998, and reports of beneficial ownership filed by
     directors and executive officers of registrant and by beneficial owners of
     more than 5% of the outstanding shares of common stock of registrant;
     however, such determination of shares owned by affiliates does not
     constitute an admission of affiliate status or beneficial interest in
     shares of registrant's common stock.

<PAGE>

                              MERCHANTS BANCORP, INC.
                                     FORM 10-K

                                       INDEX

PART I                                                                  PAGE NO.
------                                                                  --------

Item  1    Business                                                     1 - 15

Item  2    Properties                                                   16

Item  3    Legal Proceedings                                            16

Item  4    Submission of Matters to a Vote of Security Holders          17


PART II
-------

Item  5    Market for the Registrant's Common Stock and
           Related Security Holder Matters                              17

Item  6    Selected Financial Data                                      17

Item  7    Management's Discussion and Analysis of Financial
           Condition and Results of Operations                          17

Item 7A    Quantitative and Qualitative Disclosures about Market Risk   17

Item  8    Financial Statements and Supplementary Data                  17

Item  9    Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure                          17


PART III
--------

Item 10    Directors and Executive Officers of the Registrant           18

Item 11    Executive Compensation                                       18

Item 12    Security Ownership of Certain Beneficial Owners and
           Management                                                   18

Item 13    Certain Relationships and Related Transactions               19


PART IV
-------

Item 14    Exhibits, Financial Statement Schedules and
           Reports on Form 8-K                                          19 - 20

           Signatures                                                   21 - 22

<PAGE>

                                    PART I

ITEM 1.  BUSINESS

                               THE CORPORATION

OVERVIEW

     Merchants Bancorp, Inc. (the "Corporation" or the "Registrant") was
organized under the laws of Delaware on July 1, 1981. It is a registered bank
holding company under the Bank Holding Company Act of 1956 (the "Act"). The
Corporation's office is located at 1851 West Galena Boulevard, Aurora, Illinois
60507, and its telephone number is 630/896-9000.

     The Corporation conducts a full service community banking and trust
business through its wholly-owned subsidiary banks, The Merchants National Bank
of Aurora ("Merchants Bank"), and Valley Banc Services Corp. ("Valley"), and
Valley's wholly owned subsidiaries, Hinckley State Bank and V.B.H. Corporation
and V.B.H. Corporation's wholly-owned subsidiary, Fox Valley Bank. Merchants
Bank, Hinckley State Bank, and Fox Valley Bank are collectively referred to
herein as the "Banks."

     On January 3, 1996, the Company purchased 100% of the outstanding common
stock of Valley for $24,889,000, comprised of $20.5 million in cash, assumption
of Valley's debt of approximately $3.5 million, $304,000 of capitalized
acquisition costs and $532,000 of capitalized incremental interest costs during
the holding period of acquired subsidiaries held for sale. As of the acquisition
date, Valley's wholly-owned subsidiaries included Hinckley State Bank, State
Bank of Osco, Anchor Bank and V.B.H. Corporation and V.B.H. Corporation's
wholly-owned subsidiary, Fox Valley Bank. The acquisition was accounted for
using the purchase method of accounting and, accordingly, the assets and
liabilities have been recorded at their estimated fair values at the date of
acquisition. In addition, when Valley was acquired, the Company's intent was to
sell State Bank of Osco and Anchor Bank. Accordingly, those banks were
classified as held for sale until they were sold on December 12, 1996, and
December 19, 1996, respectively.

     Merchants Bank is a national banking association with its main office
located at 1851 West Galena Boulevard, Aurora, Illinois 60507. Merchants Bank
operates full service banking facilities located at 2998 Ogden Avenue, Aurora,
Illinois 60505, 1851 West Galena Boulevard, Aurora, Illinois 60506, One
Merchants Plaza, Oswego, Illinois 60543, 55 Constitution Drive, Aurora, Illinois
60506, 1771 Merchants Drive, Geneva, Illinois 60134 and Route 31, Mooseheart,
Illinois 60539. The Bank operates a loan production office located at 520
Countryside Center, Yorkville, Illinois 60560. The administration center for
Merchants Bank, in which all operational and support functions are located, is
located at 2255 West Sullivan Road, Aurora, Illinois, 60507.

     Hinckley State Bank is an Illinois banking association with its main office
located at 101 W. Lincoln, Hinckley, Illinois 60520, and a full service facility
located at 80 N. Dugan Road, Sugar Grove, Illinois 60554. Fox Valley Bank is an
Illinois banking association with its main office located at 1600 East Main
Street, St. Charles, Illinois 60174, and full service facilities located at 1525
West Main Street, St. Charles, Illinois 60174, and 629 West State Street,
Geneva, Illinois 60134.

     Aurora is located in the Fox River Valley approximately 40 miles west of
Chicago, Illinois. Hinckley is located approximately 17 miles west of Aurora,
and St. Charles is located approximately 13 miles north of Aurora. Aurora and
its surrounding communities, including Hinckley and St. Charles, are in one of
the fastest growing areas in northeastern Illinois. Aurora's population based
upon the 1990 census was approximately 100,000, an increase of approximately 22%
from the community's population recorded in the 1980 census. The Northeastern
Illinois Planning Commission estimates that Aurora's population will grow by a
further 60% in the 1990's to almost 160,000 by the year 2000.

     The major contributor to this growth in the Aurora area has been the
expansion of the boundaries of metropolitan Chicago. As the Chicago suburbs have
expanded, Aurora has experienced a considerable influx of people as well as a
number of new employers. The local economy has experienced growth as a new
service-oriented business sector has developed to supplement Aurora's historical
manufacturing base. Aurora is located on U.S. Interstate Highway 88 which
provides easy access to the city of Chicago and is a major corridor of suburban
growth for Chicago.

     As a large, community-oriented, independent financial institution in the
Aurora area, the Corporation is well positioned to take advantage of the growth
of Aurora and its surrounding communities. Merchants Bank has continuously
served the Aurora community since it was chartered in 1888. The Corporation's
local management, coupled with its long record of service, has allowed it to
compete successfully in Aurora's banking market. The Corporation operates its
subsidiaries as traditional community banks with conveniently located facilities
and professional, highly motivated staffs which are active in the community,
focus on long-term relationships with customers and provide individualized
quality service.

<PAGE>

SUBSIDIARY OPERATIONS

     The Banks' full service banking businesses include the customary consumer
and commercial products and services which banks provide, including the
following: demand, savings, time deposit, individual retirement and Keogh
deposit accounts; commercial, industrial, consumer and real estate lending,
including installment loans, student loans, farm loans, lines of credit and
overdraft checking; safe deposit operations; trust services, through Merchants
Bank; and an extensive variety of additional services tailored to the needs of
individual customers, such as the acquisition of U.S. Treasury notes and bonds,
the sale of traveler's checks, money orders, cashier's checks and foreign
currency, direct deposit, discount brokerage debit cards, credit cards, and
other special services.

     Commercial and consumer loans are made to corporations, partnerships and
individuals, primarily on a secured basis. Commercial lending focuses on
business, capital, construction, inventory and real estate lending. Installment
lending includes direct and indirect loans to consumers and commercial
customers. The mortgage division of Merchants Bank originates and services
residential mortgages on behalf of the Banks, and handles the secondary
marketing of those mortgages.

MARKET AREAS

     Merchants Bank's primary market area is Aurora, Illinois, and its
surrounding communities. The city of Aurora is located in northeastern Illinois,
approximately 40 miles west of Chicago. Strategically situated on U.S.
Interstate 88 (the East-West Tollway), Aurora is near the center of the four
county area comprised of DuPage, Kane, Kendall and Will counties. Based upon the
1990 census, these counties together represent a market of more than 1.4 million
people. The city of Aurora has a current reported population of approximately
100,000 residents which is forecast by the Northeastern Illinois Planning
Commission to grow by more than 60% through the rest of the decade.

     The median income for households within a five mile radius of Aurora was
approximately $44,000, compared to an Illinois average of approximately $32,000,
as reported from 1990 census data. Major employers in Merchants Bank's market
area include Caterpillar Inc., Hollywood Casino Aurora, Metropolitan Life, Dial
Corporation, Farmers Insurance, and Lyon Metal Products. Retail sales declared
for tax purposes in Aurora reached $989 million in 1990.

     Hinckley is a rural community located approximately 17 miles west of
Aurora. Located along a significant east-west corridor, it is well positioned to
participate in the growth moving west through the Chicago suburbs. Many people
who are employed by the major employers in the Aurora area are buying or
building homes in the Hinckley area.

     St. Charles, like Aurora, is located along the Fox River, and has
experienced similar growth in recent years. As of 1992, median household income
was $66,000, more than double the Illinois average reported in the 1990 census.
Major employers include Central DuPage Hospital, System Sensor, Delnor Community
Hospital, DuKane Corp., and Arthur Andersen.

ACQUISITION AND EXPANSION STRATEGY

     The Corporation seeks to diversify both its market area and asset base
while increasing profitability through acquisitions and expansion. The
Corporation's goal, as reflected by its acquisition policy, is to expand through
the acquisition of established financial service organizations, primarily
commercial banks or thrifts, to the extent suitable candidates can be identified
and acceptable business terms negotiated.

     The Corporation's acquisition strategy is focused on traditional community
banks or thrifts located in potentially high growth areas within 15 miles to the
east of Aurora and up to 30 miles from Aurora in all other directions. At this
time, a large number of such financial institutions are located within this
geographic area. It is possible that as a result of consolidation within the
banking industry generally, as well as in the Aurora area, the Corporation may
in the future look beyond these geographic areas for acquisition opportunities.
In addition to price and terms, other factors considered by the Corporation in
determining the desirability of an acquisition candidate are financial
condition, earnings potential, quality of management, market area and
competitive environment.

     The Corporation will also consider establishing branches, loan production
offices or other business facilities as a means of expanding its presence in
current or new market areas. An example of this is the Corporation's opening a
new branch facility in Geneva in 1996, entry into "supermarket banking" with the
opening of a branch inside the Cub Foods store in Aurora in 1993, and the
opening of its loan production office in 1994. The Corporation will also
consider the expansion into other lines of business closely related to banking
if it believes these lines could be profitable without undue risk to the
Corporation and if the Corporation can be competitive.

                                       2
<PAGE>

OPERATING STRATEGY

     Corporate policy, strategy and goals are established by the Board of
Directors of the Corporation. Pursuant to the Corporation's philosophy,
operational and administrative policies for the Banks are also established by
the Corporation. Within this framework, the Banks focus on providing
personalized services and quality products to its customers to meet the needs of
the communities in which they operate.

     Recognizing the substantial changes and growth opportunities in its market,
the Corporation has created an aggressive sales environment within the
organization. In addition to promotions from within the organization, the
Corporation has hired experienced senior bank executives who were already
familiar with the Aurora market area, with an emphasis on the commercial lending
and trust areas. This has allowed the Corporation to continue to grow with the
community and compete successfully in Aurora's banking market.

     The Corporation operates its subsidiaries as traditional community banks
with conveniently located facilities and professional, highly motivated staffs
which are active in the communities they serve, focusing on long-term
relationships with customers and providing individualized quality service. As
part of its community banking approach, the Corporation encourages officers of
the Banks to actively participate in community organizations. In addition,
within credit and rate of return parameters, the Corporation attempts to ensure
that the Banks meet the credit needs of their communities and that the Banks
invest in local municipal securities.

     The Corporation uses a variety of marketing strategies to attract and
retain customers, the most important of which is its officer call program.
Officers of the Banks regularly call on customers and potential customers to
maintain and develop deposit and other special service relationships, including
payroll, discount brokerage, cash management, lock box and trust services.

     The Corporation has an internal data processing division and has attempted
to remain at the forefront of the banking industry in new technological
innovations. The Corporation believes that retaining control of its data
processing leads to decreased operating costs, more effective service to its
customers and increased efficiencies. To provide a high level of customer
service and to manage effectively its growth, acquisition and operating
strategies, the Corporation also focuses on continued improvement of its
internal operating systems.

LENDING ACTIVITIES

     GENERAL. The Banks provide a range of commercial and retail lending
services to corporations, partnerships and individuals, including, but not
limited to, commercial business loans, commercial and residential real estate
construction and mortgage loans, loan participations, consumer loans, revolving
lines of credit and letters of credit.  The Banks make direct and indirect loans
to consumers and commercial customers, and the mortgage division of Merchants
Bank originates and services residential mortgages and handles the secondary
marketing of those mortgages. Through Merchants Bank, mortgage products are also
made available to Hinckley State Bank and Fox Valley Bank customers.

     The Banks aggressively market their services to qualified lending customers
in both the commercial and consumer sectors. The Banks' commercial lending
officers actively solicit the business of new companies entering their market
areas as well as longstanding members of their business community. Through
personalized professional service and competitive pricing, the Banks have been
successful in attracting new commercial lending customers. At the same time, the
Banks actively advertise their consumer loan products and continuously attempt
to make their lending officers more accessible. Through convenient locations and
regular advertising, the Banks have been successful in capitalizing on the
growing population of their market areas, particularly with regard to
residential mortgages, home equity loans, and installment loans.

     COMMERCIAL LOANS. The Banks aggressively seek new commercial loans in their
market areas and much of the increase in these loans in recent years can be
attributed to the successful solicitation of new business. The Banks' areas of
emphasis include, but are not limited to, loans to wholesalers, manufacturers,
building contractors, developers, business services companies and retailers. The
Banks provide a wide range of commercial business loans, including lines of
credit for working capital purposes and term loans for the acquisition of
equipment and other purposes. Collateral for these loans generally includes
accounts receivable, inventory, equipment and real estate. Loans may be made on
an unsecured basis where warranted by the overall financial condition of the
borrower. Terms of commercial business loans generally range from one to five
years. The majority of the Banks' commercial business loans have floating
interest rates or reprice within one year. Management has also generated loans
which are guaranteed by the U.S. Small Business Administration. Management
believes that making such loans helps the local community as well as providing
the Banks with a source of income and solid future lending relationships as such
businesses grow and prosper. The primary repayment risk for commercial loans is
the failure of the business due to economic or financial factors. In most cases,
the Banks have collateralized these loans and/or taken personal guarantees to
help assure repayment.

     The Banks regularly provide financing to developers who have demonstrated a
favorable record of performance for the construction of pre-sold homes. Home
sales have remained very strong in the greater Aurora area, including Hinckley
and St. Charles,

                                       3
<PAGE>

due to the growth in population. Although development and construction
lending has been a significant portion of the commercial loan activity, these
types of loans represented approximately 12% of the outstanding balance of
the Banks' loan portfolios as of December 31, 1997. No construction or
development loan was on nonaccrual status as of December 31, 1997.

     Each Bank's Board of Directors reviews, on a monthly basis, a report of all
criticized assets and considers all requests for new loans of over $8 million at
Merchants Bank, and $100,000 at Hinckley State Bank and Fox Valley Bank. The
directors' loan committees of Hinckley State Bank and Fox Valley Bank may
approve loans to the same levels as the full board of these banks. Requests for
new loans over $4 million are reviewed by the directors' loan committee at
Merchants Bank. Loan review is centralized for all three Banks, and loan review
personnel and commercial lenders interact with the Banks' Boards of Directors
each month. Management has attempted to identify problem loans at an early stage
and to aggressively seek a resolution of these situations. The result has been a
below average level of problem loans compared to the Banks' industry peer groups
in recent years.

     MORTGAGE BANKING. Merchants Bank conducts a mortgage origination operation
through its mortgage division, and also makes these services available to
Hinckley State Bank and Fox Valley Bank customers. Prior to 1993, Merchants Bank
generally did not hold newly originated residential mortgage loans in its
portfolio, preferring instead to originate the loans for outside investors and
have the outside investors fund and service the loans. Beginning in 1993,
Merchants Bank began funding all residential mortgage loans and selling the
majority of them in the secondary market with servicing retained. In addition,
in June, 1993, Merchants Bank purchased the servicing on most of the residential
mortgage loans it originated in prior periods. In 1995, Merchants Bank purchased
the servicing rights to approximately $62.6 million of mortgage loans. As a
result of such actions, Merchants Bank has built its mortgage servicing
portfolio to approximately $275 million at December 31, 1997. Management
believes that the retention of mortgage servicing provides Merchants Bank with a
relatively steady source of fee income as compared to fees generated solely from
mortgage origination operations.

     CONSUMER LENDING. The Banks' consumer lending department's provide all
types of consumer loans including motor vehicle, home improvement, home equity,
student, signature and small personal credit lines. The Banks have designated
funds to support various special programs to benefit the first time borrower.
During 1994, Merchants Bank entered the credit card market by issuing its own
Visa Card, and offers this product to Hinckley State Bank and Fox Valley Bank
customers. Merchants Bank has entered into a contract with a non-affiliated
third party to provide credit card processing for its operations. Through this
program, Merchants Bank hopes to increase profits and augment its cross-selling
opportunities by increasing its marketing base. The "Phone for a Loan" program
at Merchants Bank will provide easy means for customers to apply for a loan 24
hours a day.

TRUST DEPARTMENT

     Merchants Bank's trust department has been providing trust services to the
Aurora community for over 60 years. Currently, Merchants Bank has over $440
million of assets under management and provides a full complement of trust
services for individuals and corporations. Merchants Bank has targeted the trust
department as one of its primary areas for future growth. Trust services are
also offered to Hinckley State Bank and Fox Valley Bank customers through
Merchants Bank.

     The trust department's current focus is in two major areas: (i) investment
management for individuals and (ii) administration and investment services for
employee benefit plans. The trust department has a staff of professionals with
expertise in the employee benefit administration and new business development
areas. This group provides expanded employee benefit retirement plan
administration and investment services to sole proprietors and corporations. The
trust department has also converted its data processing and delivery system to
enhance the department's ability to continue to provide a quality, highly
personalized trust product to its customers.

COMPETITION

     The Corporation's market area is highly competitive. Many financial
institutions based in Aurora's surrounding communities and in Chicago, Illinois,
operate banking offices in the greater Aurora area or actively compete for
customers within the Corporation's market areas. The Banks also face competition
from finance companies, insurance companies, mortgage companies, securities
brokerage firms, money market funds, loan production offices and other providers
of financial services.

     The Corporation competes for loans principally through the range and
quality of the services it provides, interest rates and loan fees. The
Corporation believes that its long-standing presence in the community and
personal service philosophy enhances its ability to compete favorably in
attracting and retaining individual and business customers. The Corporation
actively solicits deposit-related clients and competes for deposits by offering
customers personal attention, professional service and competitive interest
rates.

EMPLOYEES

     At December 31, 1997, the Corporation employed 347 full-time equivalent
employees. The Corporation places a high priority on staff development which
involves extensive training, including customer service training. New employees
are selected on the basis

                                       4
<PAGE>

of both technical skills and customer service capabilities. None of the
Corporation's employees are covered by a collective bargaining agreement with
the Corporation. The Corporation offers a variety of employee benefits and
management considers its employee relations to be excellent.

                              SUPERVISION AND REGULATION

GENERAL

     Financial institutions and their holding companies are extensively
regulated under federal and state law.  As a result, the growth and earnings
performance of the Corporation can be affected not only by management decisions
and general economic conditions, but also by the requirements of applicable
state and federal statutes and regulations and the policies of various
governmental regulatory authorities including, but not limited to, the Office of
the Comptroller of the Currency (the "OCC"), the Illinois Commissioner of  Banks
and Real Estate (the "Commissioner"), the Board of Governors of the Federal
Reserve System (the "FRB"), the Federal Deposit Insurance Corporation (the
"FDIC"), the Internal Revenue Service and state taxing authorities and the
Securities and Exchange Commission (the "SEC"). 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 Corporation and its subsidiaries, 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. The
system of supervision and regulation applicable to the Corporation and its
subsidiaries establishes a comprehensive framework for their respective
operations and is intended primarily for the protection of the FDIC's deposit
insurance funds and the depositors, rather than the shareholders, of financial
institutions.

     The following references to material statutes and regulations affecting the
Corporation and its subsidiaries are brief summaries thereof and do not purport
to be complete, and are qualified in their entirety by reference to such
statutes and regulations.  Any change in applicable law or regulations may have
a material effect on the business of the Corporation and its subsidiaries.

RECENT REGULATORY DEVELOPMENTS

     PENDING LEGISLATION.  Legislation is pending in the Congress that would
allow bank holding companies to engage in a wider range of nonbanking
activities, including greater authority to engage in securities and insurance
activities.  The expanded powers generally would be available to a bank holding
company only if the bank holding company and its bank subsidiaries remain
well-capitalized and well-managed.  Additionally, the pending legislation would
eliminate the federal thrift charter and merge the FDIC's Bank Insurance Fund
("BIF") and Savings Association Insurance Fund ("SAIF").  At this time, the
Corporation is unable to predict whether the proposed legislation will be
enacted and, therefore, is unable to predict the impact such legislation may
have on the operations of the Corporation and the Bank.

THE CORPORATION

     GENERAL.  The Corporation, as the sole stockholder of the Banks, is a bank
holding company.  As a bank holding company, the Corporation is registered with,
and is subject to regulation by, the FRB under the Act.  In accordance with FRB
policy, the Corporation is expected to act as a source of financial strength to
the Banks and to commit resources to support the Banks in circumstances where
the Corporation might not do so absent such policy.  Under the Act, the
Corporation is subject to periodic examination by the FRB and is required to
file with the FRB periodic reports of its operations and such additional
information as the FRB may require.  The Corporation is also subject to
regulation by the Commissioner under the Illinois Bank Holding Company Act, as
amended.

     INVESTMENTS AND ACTIVITIES.  Under the Act, a bank holding company must
obtain FRB approval before:  (i) acquiring, directly or indirectly, ownership or
control of any voting shares of another bank or bank holding company if, after
such acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank; or (iii) merging or
consolidating with another bank holding company.  Subject to certain conditions
(including certain deposit concentration limits established by the Act), the FRB
may allow a bank holding company to acquire banks located in any state of the
United States without regard to whether the acquisition is prohibited by the law
of the state in which the target bank is located.  In approving interstate
acquisitions, however, the FRB is required to give effect to applicable state
law limitations on the aggregate amount of deposits that may be held by the
acquiring bank holding company and its insured depository institution affiliates
in the state in which the target bank is located (provided that those limits do
not discriminate against out-of-state depository institutions or their holding
companies) or which require that the target bank have been in existence for a
minimum period of time (not to exceed five years) before being acquired by an
out-of-state bank holding company.

                                       5
<PAGE>

     The Act also prohibits, with certain exceptions, the Corporation from
acquiring direct or indirect ownership or control of more than 5% of the voting
shares of any company which is not a bank and from engaging in any business
other than that of banking, managing and controlling banks or furnishing
services to banks and their subsidiaries.  The principal exception to this
prohibition allows bank holding companies to engage in, and to own shares of
companies engaged in, certain businesses found by the FRB to be "so closely
related to banking ... as to be a proper incident thereto."  Under current
regulations of the FRB, the Corporation and its non-bank subsidiaries are
permitted to engage in, among other activities, such banking-related businesses
as the operation of a thrift, sales and consumer finance, equipment leasing, the
operation of a computer service bureau, including software development, and
mortgage banking and brokerage.  The Act generally does not place territorial
restrictions on the domestic activities of non-bank subsidiaries of bank holding
companies.

     Federal law also prohibits acquisition of "control" of a bank or bank
holding company, such as the Corporation, without prior notice to certain
federal bank regulators.  "Control" is defined in certain cases as acquisition
of 10% of the outstanding shares of a bank or bank  holding company.

     CAPITAL REQUIREMENTS.   Bank holding companies are required to maintain
minimum levels of capital in accordance with FRB capital adequacy guidelines.
If capital falls below minimum guideline levels, a bank holding company, among
other things, may be denied approval to acquire or establish additional banks or
non-bank businesses.

     The FRB's capital guidelines establish the following minimum regulatory
capital requirements for bank holding companies:  a risk-based requirement
expressed as a percentage of total risk-weighted assets, and a leverage
requirement expressed as a percentage of total assets.  The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, at least one-half of which must be Tier 1 capital.  The leverage
requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%
for the most highly rated companies, with minimum requirements of 4% to 5% for
all others.  For purposes of these capital standards, Tier 1 capital consists
primarily of permanent stockholders' equity less intangible assets (other than
certain mortgage servicing rights and purchased credit card relationships) and
total capital means Tier 1 capital plus certain other debt and equity
instruments which do not qualify as Tier 1 capital and a portion of the
Corporation's allowance for loan and lease losses.

     The risk-based and leverage standards described above are minimum
requirements, and higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking organizations.
For example, the FRB's capital guidelines contemplate that additional capital
may be required to take adequate account of, among other things, interest rate
risk, or the risks posed by concentrations of credit, nontraditional activities
or securities trading activities.  Further, any banking organization
experiencing or anticipating significant growth would be expected to maintain
capital ratios, including tangible capital positions (i.e., Tier 1 capital less
all intangible assets), well above the minimum levels.

     As of December 31, 1997, the Corporation had regulatory capital in excess
of the FRB's minimum requirements, with a risk-based capital ratio of 10.42% and
a leverage ratio of 6.91%.

     DIVIDENDS.   The FRB has issued a policy statement with regard to the
payment of cash dividends by bank holding companies.  In the policy statement,
the FRB expressed its view that a bank holding company should not pay cash
dividends which exceed its net income or which can only be funded in ways that
weaken the bank holding company's financial health, such as by borrowing.
Additionally, the FRB possesses enforcement powers over bank holding companies
and their non-bank subsidiaries to prevent or remedy actions that represent
unsafe or unsound practices or violations of applicable statutes and
regulations.  Among these powers is the ability to proscribe the payment of
dividends by banks and bank holding companies. In addition to the restrictions
on dividends that may be imposed by the FRB, the Delaware General Corporation
Law (the "DGCL") allows the Corporation to pay dividends only out of its surplus
(as defined and computed in accordance with the provisions of the DGCL), or if
the Corporation has no such surplus, out of its net profits for the fiscal year
in which the dividend is declared and/or the preceding fiscal year.

     FEDERAL SECURITIES REGULATION.  The Corporation's common stock is
registered with the SEC under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended (the "Exchange Act").  Consequently,
the Corporation is subject to the information, proxy solicitation, insider
trading and other restrictions and requirements of the SEC under the Exchange
Act.

THE BANKS

     GENERAL.  Merchants Bank is a national bank, chartered by the OCC under the
National Bank Act.  The deposit accounts of Merchants Bank are insured by the
BIF of the FDIC, and Merchants Bank is a member of the Federal Reserve System.
As a BIF-insured national bank, Merchants Bank is subject to the examination,
supervision, reporting and enforcement requirements of the OCC, as the
chartering authority for national banks, and the FDIC, as administrator of the
BIF.

                                       6
<PAGE>

     Hinckley State Bank and Fox Valley Bank (the "State Banks") are
Illinois-chartered banks, the deposit accounts of which are insured by the BIF
of the FDIC.  As a BIF-insured, Illinois-chartered banks, the State Banks are
subject to the examination, supervision, reporting and enforcement requirements
of the Commissioner, as the chartering authority for Illinois banks, and the
FDIC, as administrator of the BIF.

     DEPOSIT INSURANCE.  As  FDIC-insured institutions, the Banks are required
to pay deposit insurance premium assessments to the FDIC.  The FDIC has adopted
a risk-based assessment system under which all insured depository institutions
are placed into one of nine categories and assessed insurance premiums based
upon their respective levels of capital and results of supervisory evaluations.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions is made by the FDIC for each semi-annual assessment period.

     During the year ended December 31, 1997, BIF assessments ranged from 0% of
deposits to 0.27% of deposits.  For the semi-annual assessment period beginning
January 1, 1998, BIF assessment rates will continue to range from 0% of deposits
to 0.27% of deposits.

     The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written agreement
with, the FDIC.  The FDIC may also suspend deposit insurance temporarily during
the hearing process for a permanent termination of insurance if the institution
has no tangible capital.  Management of the Corporation is not aware of any
activity or condition that could result in termination of the deposit insurance
of any of the Banks.

     FICO ASSESSMENTS.  Since 1987, a portion of the deposit insurance
assessments paid by SAIF members has been used to cover interest payments due on
the outstanding obligations of the FICO, the entity created to finance the
recapitalization of the Federal Savings and Loan Insurance Corporation, the
SAIF's predecessor insurance fund.  Pursuant to federal legislation enacted
September 30, 1996, commencing January 1, 1997, both SAIF members and BIF
members became subject to assessments to cover the interest payments on
outstanding FICO obligations.  Such FICO assessments are in addition to amounts
assessed by the FDIC for deposit insurance.  Until January 1, 2000, the FICO
assessments made against BIF members may not exceed 20% of the amount of the
FICO assessments made against SAIF members.  Between January 1, 2000 and the
maturity of the outstanding FICO obligations in 2019, BIF members and SAIF
members will share the cost of the interest on the FICO bonds on a pro rata
basis.  During the year ended December 31, 1997, the FICO assessment rate for
SAIF members was approximately 0.063% of deposits while the FICO assessment rate
for BIF members was approximately 0.013% of deposits.  During the year ended
December 31, 1997, the Banks paid FICO assessments totaling $92,000.

     SUPERVISORY ASSESSMENTS.  All Illinois banks and national banks are
required to pay supervisory assessments to the Commissioner and the OCC,
respectively,  to fund the operations of such agencies.  The amount of such
supervisory fees is based upon each institution's total assets, including
consolidated subsidiaries.  During the year ended December 31, 1997, the Banks
paid supervisory assessments totaling $156,000.

     CAPITAL REQUIREMENTS.  Under federal regulations, the Banks are subject to
the following minimum capital standards:  a leverage requirement consisting of a
minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated
banks with minimum requirements of 4% to 5% for all others, and a risk-based
capital requirement consisting of a minimum ratio of total capital to total
risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital.
For purposes of these capital standards, Tier 1 capital and total capital
consist of substantially the same components as Tier 1 capital and total capital
under the FRB's capital guidelines for bank holding companies (see "--The
Corporation--Capital Requirements").

     The capital requirements described above are minimum requirements.  Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions.  For example, federal regulations
provide that additional capital may be required to take adequate account of,
among other things, interest rate risk or the risks posed by concentrations of
credit, nontraditional activities or securities trading activities.

                                       7
<PAGE>

     During the year ended December 31, 1997, none of  the Banks was required by
its primary federal regulator to increase its capital to an amount in excess of
the minimum regulatory requirements.  As of December 31, 1997, each of  the
Banks exceeded its minimum regulatory capital requirements. As of December 31,
1997, the capital ratios were as follows:

<TABLE>
<CAPTION>
                       RISK-BASED           LEVERAGE
                      CAPITAL RATIO           RATIO
                      -------------         --------
<S>                   <C>                   <C>
Merchants Bank            10.89%              7.44%

Hinckley State Bank       13.47%              7.84%

Fox Valley Bank           12.37%              7.77%
</TABLE>

     Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions.  The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized."  Depending upon the capital category to which an
institution is assigned, the regulators' corrective powers include:
requiring the submission of a capital restoration plan; placing limits on
asset growth and restrictions on activities; requiring the institution to
issue additional capital stock (including additional voting stock) or to be
acquired; restricting transactions with affiliates; restricting the interest
rate the institution may pay on deposits; ordering a new election of
directors of the institution; requiring that senior executive officers or
directors be dismissed; prohibiting the institution from accepting deposits
from correspondent banks; requiring the institution to divest certain
subsidiaries; prohibiting the payment of principal or interest on
subordinated debt; and ultimately, appointing a receiver for the institution.

     Additionally, institutions insured by the FDIC may be liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with the default of commonly controlled FDIC insured depository institutions or
any assistance provided by the FDIC to commonly controlled FDIC insured
depository institutions in danger of default.

     DIVIDENDS.  The National Bank Act imposes limitations on the amount of
dividends that may be paid by a national bank, such as Merchants Bank.
Generally, a national bank may pay dividends out of its undivided profits, in
such amounts and at such times as the bank's board of directors deems prudent.
Without prior OCC approval, however, a national bank may not pay dividends in
any calendar year which, in the aggregate, exceed the bank's year-to-date net
income plus the bank's adjusted retained net income for the two preceding years.
Under the Illinois Banking Act, Illinois-chartered banks, such as the State
Banks, may not pay dividends in excess of their adjusted profits.

     The payment of dividends by any financial institution or its holding
company is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized.  As described above,
each of the Banks exceeded its minimum capital requirements under applicable
guidelines as of December 31, 1997.  As of December 31, 1997, approximately
$11.7 million was available to be paid as dividends to the Corporation by the
Banks.  Notwithstanding the availability of funds for dividends, however, the
bank regulatory agencies may prohibit the payment of any dividends by the Banks
if such payment is deemed to constitute an unsafe or unsound practice.

     INSIDER TRANSACTIONS.  The Banks are subject to certain restrictions
imposed by the Federal Reserve Act on extensions of credit to the Corporation
and its subsidiaries, on investments in the stock or other securities of the
Corporation and its subsidiaries and the acceptance of the stock or other
securities of the Corporation or its subsidiaries as collateral for loans.
Certain limitations and reporting requirements are also placed on extensions of
credit by each of  the Banks to its directors and officers, to directors and
officers of the Corporation and its subsidiaries, to principal stockholders of
the Corporation, and to "related interests" of such directors, officers and
principal stockholders.  In addition, federal law and regulations may affect the
terms upon which any person becoming a director or officer of the Corporation or
one of its subsidiaries or a principal stockholder of the Corporation may obtain
credit from banks with which any of the Banks  maintains a correspondent
relationship.

     SAFETY AND SOUNDNESS STANDARDS.  The federal banking agencies have adopted
guidelines which establish operational and managerial standards to promote the
safety and soundness of federally insured depository institutions.  The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings.  In general, the guidelines prescribe the goals to be achieved in each
area, and each institution is responsible for establishing its own procedures to
achieve those goals.  If an institution fails to comply with any of the
standards set forth in the guidelines, the institution's primary federal
regulator may require the institution to submit a plan for achieving and
maintaining compliance.  The preamble to the guidelines states that the agencies
expect to require a compliance plan from an institution whose failure to meet
one or more of the guidelines is of such severity that it could threaten the
safety and soundness of the institution.  Failure to submit an acceptable plan,
or failure to comply with a plan that has been accepted by the appropriate
federal regulator, would constitute grounds for further enforcement action.

                                       8
<PAGE>

     BRANCHING AUTHORITY.  Illinois banks, such as the State Banks, have the
authority under Illinois law to establish branches anywhere in the State of
Illinois, subject to receipt of all required regulatory approvals. National
banks headquartered in Illinois, such as Merchants Bank, have the same branching
rights in Illinois as banks chartered under Illinois law.

     Effective June 1, 1997 (or earlier if expressly authorized by applicable
state law), the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act") allows banks to establish interstate branch
networks through acquisitions of other banks, subject to certain conditions,
including certain limitations on the aggregate amount of deposits that may be
held by the surviving bank and all of its insured depository institution
affiliates.  The establishment of de novo interstate branches or the acquisition
of individual branches of a bank in another state (rather than the acquisition
of an out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only
if specifically authorized by state law.  The legislation allows individual
states to "opt-out" of certain provisions of the Riegle-Neal Act by enacting
appropriate legislation prior to June 1, 1997.  Illinois has enacted legislation
permitting interstate mergers beginning on June 1, 1997, subject to certain
conditions, including a prohibition against interstate mergers unless any
Illinois bank involved has been in existence and continuous operation for more
than five years.

     STATE BANK ACTIVITIES.  Under federal law and FDIC regulations, FDIC
insured state banks are prohibited, subject to certain exceptions, from making
or retaining equity investments of a type, or in an amount, that are not
permissible for a national bank.  Federal law and FDIC regulations also prohibit
FDIC insured state banks and their subsidiaries, subject to certain exceptions,
from engaging as principal in any activity that is not permitted for a national
bank or its subsidiary, respectively, unless the bank meets, and continues to
meet, its minimum regulatory capital requirements and the FDIC determines the
activity would not pose a significant risk to the deposit insurance fund of
which the bank is a member.  Impermissible investments and activities must be
divested or discontinued within certain time frames set by the FDIC.  These
restrictions have not had, and are not currently expected to have, a material
impact on the operations of the State Banks.

     FEDERAL RESERVE SYSTEM.  FRB regulations, as presently in effect, require
depository institutions to maintain non-interest earning reserves against their
transaction accounts (primarily NOW and regular checking accounts), as follows:
for transaction accounts aggregating $47.8 million or less, the reserve
requirement is 3% of total transaction accounts; and for transaction accounts
aggregating in excess of $47.8 million, the reserve requirement is $1.434
million plus 10% of the aggregate amount of total transaction accounts in excess
of $47.8 million.  The first $4.7 million of otherwise reservable balances are
exempted from the reserve requirements.  These reserve requirements are subject
to annual adjustment by the FRB.  The Banks are in compliance with the foregoing
requirements.

                                   STATISTICAL DATA

     The statistical data required by Guide 3 of the Guides for Preparation and
Filing of Reports and Registration Statements under the Securities Exchange Act
of 1934 is set forth in the following pages. This data should be read in
conjunction with the consolidated financial statements, related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as set forth in the 1997 Annual Report herein incorporated by
reference (attached hereto as Exhibit 13). All dollars in the tables are
expressed in thousands.



                                       9
<PAGE>

The following table sets forth certain information relating to the Corporation's
average consolidated balance sheets and reflects the yield on average earning
assets and cost of average liabilities for the years indicated. Such yields and
costs are derived by dividing income or expense by the average balance of assets
or liabilities. Average balances are derived from daily balances.

                            ANALYSIS OF AVERAGE BALANCES,
                          TAX EQUIVALENT INTEREST AND RATES
                    YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995

<TABLE>
<CAPTION>
                                                   1997                            1996                            1995
                                      ------------------------------  ------------------------------  ----------------------------
                                       Average                  Rate    Average                 Rate   Average                Rate
                                       Balance    Interest      (%)     Balance    Interest     (%)    Balance    Interest    (%)
                                      ---------   -------       ----  ----------   --------     ----  ---------   --------    ----
<S>                                   <C>         <C>           <C>   <C>          <C>          <C>   <C>         <C>         <C>
ASSETS
Securities:
  Taxable                             $ 139,803   $ 9,177       6.50  $ 156,701    $ 10,119     6.42  $ 128,963   $  8,122      6.23
  Non-taxable (tax equivalent)           56,773     4,387       8.07     52,662       4,177     8.09     51,042      4,264      8.37
                                      ---------   -------       ----  ---------     -------     ----  ---------    -------      ----
     Total securities                   196,576    13,564       6.94    209,363      14,296     6.83    180,005     12,386      6.83
Federal funds sold                        4,399       254       5.77      7,776         415     5.34     11,883        732      6.16
Loans held for sale                       2,208       141       6.39      4,106         245     5.97      2,408        161      9.30
Net loans (tax equivalent)              500,634    45,248       9.04    399,546      37,074     9.28    291,181     28,098      9.63
                                      ---------   -------       ----  ---------     -------     ----  ---------    -------      ----
     Total interest earning assets      703,817    59,207       8.42    620,791      52,030     8.38    485,477     41,377      8.50
Cash and due from banks                  34,734        -          -      32,139          -        -      25,376         -         -
Allowance for loan losses                (7,718)       -          -      (6,534)         -        -      (5,314)        -         -
Premises and equipment, net              11,925        -          -      12,056          -        -       9,353         -         -
Accrued interest and other assets        19,102        -          -      25,326          -        -       6,543         -         -
                                      ---------   -------       ----  ---------     -------     ----  ---------    -------      ----
     Total assets                     $ 761,860    59,207       7.78  $ 683,778      52,030     7.91  $ 521,435     41,377      7.91
                                      ---------   -------       ----  ---------     -------     ----  ---------    -------      ----
                                      ---------                       ---------                       ---------
LIABILITIES AND
 STOCKHOLDERS' EQUITY
Interest bearing deposits:
  NOW accounts                        $  76,664     1,798       2.35  $  74,319       1,777     2.39  $  66,687      1,571      2.36
  Money market accounts                  65,446     2,618       4.00     54,535       1,759     3.23     31,604      1,138      3.60
  Savings                                66,316     1,839       2.77     67,425       1,890     2.80     54,263      1,480      2.73
  Time, $100,000 and over                88,467     4,987       5.64     80,483       4,450     5.53     59,964      3,323      5.54
  Other time                            218,045    12,840       5.89    205,321      12,036     5.86    153,214      8,988      5.87
Federal funds purchased and other
    borrowed funds                       62,411     3,508       5.62     35,366       1,773     5.01     32,848      1,776      5.41
Notes payable                            14,000       969       6.92     14,567         453     3.11      3,000        147      4.90
                                      ---------   -------       ----  ---------     -------     ----  ---------    -------      ----
     Total interest bearing
       liabilities                      591,349    28,559       4.83    532,016      24,138     4.54    401,580     18,423      4.59
Noninterest bearing deposits            105,688        -          -      95,293          -        -      69,167         -         -
Accrued interest and other
  liabilities                             3,884        -          -       2,709          -        -       2,406         -         -
Stockholders' equity                     60,939        -          -      53,760          -        -      48,282         -         -
                                      ---------   -------       ----  ---------     -------     ----  ---------    -------      ----
Total liabilities and
  stockholders' equity                $ 761,860    28,559       3.75  $ 683,778      24,138     3.53  $ 521,435     18,423      3.53
                                      ---------   -------       ----  ---------     -------     ----  ---------    -------      ----
                                      ---------                       ---------                       ---------
Net interest income (tax equivalent)              $30,648                          $ 27,892                       $ 22,954
                                                  -------                           -------                        -------
                                                  -------                           -------                        -------
Net interest income (tax equivalent)
   to total earning assets                                      4.35                            4.49                            4.73
                                                                ----                            ----                            ----
                                                                ----                            ----                            ----
Interest bearing liabilities to
  earnings assets                         84.02%                          85.70%                          82.72%
                                      ---------                       ---------                       ---------
                                      ---------                       ---------                       ---------
</TABLE>

Notes:  Nonaccrual loans are included in the above stated average balances.
        Tax equivalent basis is calculated using a marginal tax rate of 34%.
        Yields on securities available for sale are based on amortized cost.


                                       10
<PAGE>

The following table allocates the changes in net interest income to changes
in either average balances or average rates for earnings assets and interest
bearing liabilities. The changes in interest due to both volume and rate have
been allocated proportionately to the change due to balance and due to rate.
Interest income is measured on a tax equivalent basis using a 34% rate.

                  ANALYSIS OF CHANGES IN NET INTEREST INCOME

<TABLE>
<CAPTION>
                                                              1997 Compared to 1996                   1996 Compared to 1995
                                                       -----------------------------------     ----------------------------------
                                                           Change Due to                           Change Due to
                                                       ---------------------                   ---------------------
                                                        Volume        Rate           Net        Volume        Rate          Net
                                                       --------     --------      --------     --------     --------     --------
<S>                                                    <C>          <C>           <C>          <C>          <C>          <C>
EARNING ASSETS/INTEREST INCOME
Securities:
   Taxable                                             $ (1,107)    $    165      $   (942)    $  1,774     $    222     $  1,996
   Tax-exempt                                               320         (110)          210          134         (221)         (87)
 Federal funds sold                                        (193)          32          (161)        (228)         (89)        (317)
 Loans and loans held for sale                            9,039         (969)        8,070       10,209       (1,148)       9,061
                                                       --------     --------      --------     --------     --------     --------
TOTAL EARNING ASSETS                                      8,059         (882)        7,177       11,889       (1,236)      10,653
                                                       --------     --------      --------     --------     --------     --------

LIABILITIES/INTEREST EXPENSE
Interest bearing deposits:
 NOW accounts                                                55          (34)           21          183           23          206
 Money market accounts                                      391          468           859          751         (130)         621
 Savings                                                    (31)         (20)          (51)         368           42          410
 Time, $100,000 and over                                    449           88           537        1,134           (7)       1,127
 Other time                                                 749           55           804        3,055           (7)       3,048
Federal funds purchased and other
  borrowed funds                                          1,498          237         1,735          131         (134)          (3)
Notes payable                                               (19)         535           516          378          (72)         306
                                                       --------     --------      --------     --------     --------     --------
TOTAL INTEREST BEARING LIABILITIES                        3,092        1,329         4,421        6,000         (285)       5,715
                                                       --------     --------      --------     --------     --------     --------
NET INTEREST INCOME                                    $  4,967     $ (2,211)     $  2,756     $  5,889     $   (951)    $  4,938
                                                       --------     --------      --------     --------     --------     --------
                                                       --------     --------      --------     --------     --------     --------
</TABLE>

The following table presents the composition of the securities portfolio by
major category as of December 31, of each year indicated:

                        SECURITIES PORTFOLIO COMPOSITION

<TABLE>
<CAPTION>
                                                               1997                       1996                        1995
                                                     ---------------------      -----------------------     ----------------------
                                                                   % of                        % of                       % of
                                                       Amount    Portfolio        Amount      Portfolio       Amount     Portfolio
                                                     ----------  ---------      ----------    ---------     ----------   ---------
<S>                                                  <C>         <C>            <C>           <C>           <C>          <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities                             $   14,092     6.88%       $   17,640      9.05%       $   24,860    13.28%
U.S. Government agencies                                 86,254    42.13            76,980     39.52            53,481    28.57
U.S. Government agency mortgage backed securities        26,092    12.74            34,022     17.47            45,175    24.14
States and political subdivisions                        62,981    30.76            54,827     28.15            51,820    27.69
Collateralized mortgage obligations                       8,310     4.06             8,720      4.48             9,960     5.32
Equity securities                                         7,032     3.43             2,591      1.33             1,873     1.00
                                                     ----------   ------        ----------    ------        ----------   ------
    Total                                            $  204,761   100.00%       $  194,780    100.00%       $  187,169   100.00%
                                                     ----------   ------        ----------    ------        ----------   ------
                                                     ----------   ------        ----------    ------        ----------   ------
</TABLE>

Mortgage-backed securities are comprised of investments in pools of
residential mortgages. The mortgage pools are issued and guaranteed by the
Federal Home Loan Mortgage Corporation ("FHLMC"), the Government National
Mortgage Association ("GNMA"), or the Federal National Mortgage Association
("FNMA"). Collateralized mortgage obligations are secured by FHLMC, GNMA, or
FNMA certificates. Other securities consist of FHLB stock and Federal Reserve
Bank Stock.

As of December 31, 1997, and 1996, the Company held structured notes carried
at fair values of $2,247,000 and $4,236,000. The amortized cost of these
securities was $2,250,000 and $4,250,000 as of December 31, 1997, and 1996.
These securities were issued by the FHLB and FNMA.

                                       11
<PAGE>

The following table presents the maturities and weighted average yield of
securities by major category as of December 31, 1997. Securities with call
options are listed according to the earlier of call date or maturity date.
Yields are calculated on a tax equivalent basis using a 34% rate.

                   SECURITIES PORTFOLIO - MATURITY AND YIELDS

<TABLE>
<CAPTION>
                                                          After One But      After Five But
                                          Within              Within             Within           After
                                         One Year           Five Years         Ten Years         Ten Years             Total
                                     ----------------   ----------------   -----------------  --------------    -----------------
                                      Amount    Yield    Amount    Yield    Amount     Yield  Amount   Yield     Amount     Yield
                                     --------   -----   --------   -----   --------   ------  -------  -----    ---------   -----
<S>                                  <C>        <C>     <C>        <C>     <C>        <C>     <C>      <C>      <C>         <C>
SECURITIES AVAILABLE FOR SALE
U.S. Treasury securities             $  8,011   5.44%   $  6,081   5.94%   $      -      -%   $     -      -%   $  14,092   5.66%
U.S. government agencies               49,160   6.54      35,115   6.75       1,979   6.55          -      -       86,254   6.63
U.S. government agency
    mortgage backed securities          3,445   6.11      13,458   6.65       4,078   6.98      5,111   7.09       26,092   6.72
States and political subdivisions       1,367   8.98      31,528   8.24      28,950   7.58      1,136   8.57       62,981   7.96
Collateralized mortgage obligations     4,257   5.71       2,475   6.69           -      -      1,578   6.84        8,310   6.22
Other securities                        7,032   6.00           -      -           -      -          -      -        7,032   6.00
                                     --------   ----    --------   ----    --------   ----    -------   ----    ---------   ----
    Total                            $ 73,272   6.35%   $ 88,657   7.21%   $ 35,007   7.45%   $ 7,825   7.25%   $ 204,761   6.94%
                                     --------   ----    --------   ----    --------   ----    -------   ----    ---------   ----
                                     --------   ----    --------   ----    --------   ----    -------   ----    ---------   ----
</TABLE>

As of December 31, 1997, net unrealized gains of approximately $2.5 million,
reduced by deferred income taxes of approximately $855,000, resulted in an
increase in equity capital of approximately $1.7 million. As of December 31,
1996, net unrealized gains of $429,000, reduced by deferred income taxes of
$112,000, resulted in an increase in equity capital of $317,000.

There were no significant concentrations of investments (greater than 10% of
the Corporation's stockholders' equity) in any individual security issue
except for U.S. Treasury securities and obligations of U.S. Government
agencies and corporations. Although the Corporation held securities issued by
municipalities within the states of Illinois and Wisconsin which in the
aggregate exceeded 10% of stockholders' equity, none of the holdings from
individual municipal issuers exceeded this threshold.

The following table presents the composition of the loan portfolio at
December 31, in the years indicated:

                                LOAN PORTFOLIO

<TABLE>
<CAPTION>
                                                  1997          1996         1995          1994         1993
                                               ---------     ---------    ---------     ---------    ---------
<S>                                            <C>           <C>          <C>           <C>          <C>
Commercial and industrial                      $ 168,899     $ 161,847    $ 109,872     $ 112,828    $ 104,711
Real estate - commercial                          95,755        75,449       67,739        72,305       53,334
Real estate - construction                        69,901        54,513       40,510        24,470       35,249
Real estate - residential                        122,732        85,107       31,673        19,549       11,356
Installment                                      100,869        73,918       50,489        53,806       73,861
Credit card receivables                            8,100         6,697        5,644         4,119            -
Other loans                                          813         1,188          455           937          293
                                               ---------     ---------    ---------     ---------    ---------
  Gross loans                                    567,069       458,719      306,382       288,014      278,804
Unearned discount                                 (1,324)       (1,535)      (1,743)       (2,054)      (3,807)
Deferred loan fees                                  (397)         (382)        (312)         (387)        (330)
                                               ---------     ---------    ---------     ---------    ---------
  Total loans                                    565,348       456,802      304,327       285,573      274,667
Allowance for loan losses                         (8,360)       (7,274)      (5,176)       (5,140)      (4,705)
                                               ---------     ---------    ---------     ---------    ---------
  Loans, net                                   $ 556,988     $ 449,528    $ 299,151     $ 280,433    $ 269,962
                                               ---------     ---------    ---------     ---------    ---------
                                               ---------     ---------    ---------     ---------    ---------
</TABLE>

                                       12
<PAGE>

The following table sets forth the remaining contractual maturities for
certain loan categories at December 31, 1997:

                    MATURITY AND RATE SENSITIVITY OF LOANS

<TABLE>
<CAPTION>
                                                     Over 1 Year
                                                   Through 5 Years           Over 5 Years
                                               ----------------------    ---------------------
                                   One Year      Fixed       Floating      Fixed     Floating
                                   or Less       Rate          Rate        Rate        Rate          Total
                                  ---------    ---------     --------    --------    ---------     ---------
<S>                               <C>          <C>           <C>         <C>         <C>           <C>
Commercial and industrial         $  84,512    $  39,825     $ 20,057    $ 14,018    $  10,487     $ 168,899
Real estate - commercial             18,498       57,724       10,142       7,717        1,674        95,755
Real estate - construction           58,998        7,212        2,683       1,008            -        69,901
Real estate - residential             3,305        8,096          193       6,588      104,550       122,732
Installment                          38,506       59,463        1,001       1,707          192       100,869
Credit card receivables               8,100            -            -           -            -         8,100
Other loans                             813            -            -           -            -           813
                                  ---------    ---------     --------    --------    ---------     ---------
  Total                           $ 212,732    $ 172,320     $ 34,076    $ 31,038    $ 116,903     $ 567,069
                                  ---------    ---------     --------    --------    ---------     ---------
                                  ---------    ---------     --------    --------    ---------     ---------
</TABLE>

The following table sets forth the amounts of nonperforming assets at
December 31, of the years indicated:

                             NONPERFORMING ASSETS

<TABLE>
<CAPTION>
                                          1997        1996       1995       1994        1993
                                        -------     -------    -------    -------     -------
<S>                                     <C>         <C>        <C>        <C>         <C>
Nonaccrual loans                        $ 4,623     $ 2,970    $ 1,135    $ 1,397     $ 1,956
Loans past due 90 days or more
  and still accruing interest                 -           -          -          -           -
Restructured loans                          485         359      1,047      2,102           -
                                        -------     -------    -------    -------     -------
     Total nonperforming loans            5,108       3,329      2,182      3,499       1,956
Other real estate                           178         333        566        845         223
                                        -------     -------    -------    -------     -------
     Total nonperforming assets         $ 5,286     $ 3,662    $ 2,748    $ 4,344     $ 2,179
                                        -------     -------    -------    -------     -------
                                        -------     -------    -------    -------     -------
</TABLE>

Impaired loans were as follows:

<TABLE>
<CAPTION>
                                                                     1997       1996      1995
                                                                   -------    -------   -------
<S>                                                                <C>        <C>       <C>
Year-end loans with no allowance for loan losses allocated         $ 2,234    $   523   $     -
Year-end loans with allowance for loan losses allocated              1,325        905       921
Amount of the allowance allocated                                      473        363       631

Average of impaired loans during the year                            2,705      1,480     2,378
Interest income recognized during impairment                           277        191       305
Cash-basis interest income recognized                                  174         89       302
</TABLE>

Accrual of interest is discontinued on a loan when principal or interest is
ninety days or more past due, unless the loan is well secured and in the
process of collection. When a loan is placed on nonaccrual status, interest
previously accrued but not collected in the current period is reversed
against current period interest income. Interest accrued in prior years but
not collected is charged against the allowance for loan losses. Interest
income of approximately $225,000 was recorded during 1997 on loans in
nonaccrual status at December 31, 1997. Interest income which would have been
recognized during 1997 had these loans been on an accrual basis throughout
the year was approximately $356,000.

                                       13
<PAGE>

The following table summarizes, for the years indicated, activity in the
allowance for loan losses, including amounts charged off, amounts of
recoveries, additions to the allowance charged to operating expense, and the
percentage of net charge-offs to average loans outstanding:

                     ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                                              1997          1996         1995          1994         1993
                                                          ---------     ---------    ---------     ---------    ---------
<S>                                                       <C>           <C>          <C>           <C>          <C>
Average total loans (exclusive of loans held for sale)    $ 500,634     $ 399,546    $ 291,181     $ 278,819    $ 256,888
                                                          ---------     ---------    ---------     ---------    ---------
                                                          ---------     ---------    ---------     ---------    ---------
Allowance at beginning of year                            $   7,274     $   5,176    $   5,140     $   4,705    $   4,161
Increase due to the acquisition of Valley                        -            798           -             -            -
Charge-offs:
     Commercial and industrial                                  650         1,193        1,248         1,321          839
     Real estate - commercial                                   164           126          272           393          375
     Real estate - construction                                  -             -            -             20           -
     Real estate - residential                                   80             5           -            150           *
     Installment and other loans                              1,228           917          993         1,058        1,367
                                                          ---------     ---------    ---------     ---------    ---------
          Total charge-offs                                   2,122         2,241        2,513         2,942        2,581
                                                          ---------     ---------    ---------     ---------    ---------
Recoveries:
     Commercial and industrial                                  162           509          223           384          147
     Real estate - commercial                                    23           658           83           236          147
     Real estate - construction                                  -             -            -             -            -
     Real estate - residential                                   54            -            -             13           *
     Installment and other loans                                333           360          460           446          408
                                                          ---------     ---------    ---------     ---------    ---------
          Total recoveries                                      572         1,527          766         1,079          702
                                                          ---------     ---------    ---------     ---------    ---------
Net charge-offs                                               1,550           714        1,747         1,863        1,879
Provision for loan losses                                     2,636         2,014        1,783         2,298        2,423
                                                          ---------     ---------    ---------     ---------    ---------
Allowance at end of period                                $   8,360     $   7,274    $   5,176     $   5,140    $   4,705
                                                          ---------     ---------    ---------     ---------    ---------
                                                          ---------     ---------    ---------     ---------    ---------
Net charge-offs to average loans                               0.31%         0.18%        0.60%         0.67%        0.73%
Allowance at year end to average loans                         1.67%         1.82%        1.78%         1.84%        1.83%
</TABLE>

*Charge-offs and recoveries of real estate - residential loans are reported
above in real estate - commercial for 1993.

The provision for loan losses is based upon management's estimate of
anticipated loan losses and its evaluation of the adequacy of the allowance
for loan losses.  Factors which influence management's judgement in
estimating loan losses are the composition of the portfolio, past loss
experience, loan delinquencies, nonperforming loans, and other factors that,
in management's judgment, deserve evaluation in estimating loan losses.

The following table shows the Corporation's allocation of the allowance for
loan losses by types of loans and the amount of unallocated allowance, at
December 31, of the years indicated:

                 ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

<TABLE>
<CAPTION>
                                   1997              1996              1995              1994               1993
                            ------------------- ----------------- ----------------- ------------------ -----------------
                                      Loan Type         Loan Type         Loan Type          Loan Type         Loan Type
                                      to Total          to Total          to Total           to Total          to Total
                             Amount    Loans    Amount    Loans   Amount   Loans    Amount    Loans    Amount    Loans
                            -------   --------- ------  --------- ------  --------- ------   --------- ------  ---------
<S>                         <C>       <C>       <C>     <C>       <C>     <C>       <C>      <C>       <C>     <C>
Commercial and industrial   $ 2,259    29.8%    $2,316    35.3%   $3,441   36.1%    $3,227    39.2%    $3,369    37.6%
Real estate - commercial        436    16.9        117    16.4       152   22.3        199    25.1        213    19.1
Real estate - construction      341    12.3        265    11.9       193   13.3        193     8.5         70    12.6
Real estate - residential       270    21.6        383    18.6       135   10.4         55     6.8          -     4.1
Installment and other loans   2,299    19.4      1,209    17.8       594   17.9        865    20.4        966    26.6
Unallocated                   2,755              2,984               661               601                 87
                            -------   -----     ------   -----    ------  -----     ------   -----     ------   -----
Total                       $ 8,360   100.0%    $7,274   100.0%   $5,176  100.0%    $5,140   100.0%    $4,705   100.0%
                            -------   -----     ------   -----    ------  -----     ------   -----     ------   -----
                            -------   -----     ------   -----    ------  -----     ------   -----     ------   -----
</TABLE>

                                       14
<PAGE>

The following table sets forth the amount and maturities of deposits of
$100,000 or more at December 31, 1997:

                        TIME DEPOSITS OF $100,000 OR MORE

<TABLE>
<S>                                    <C>
3 months or less                       $ 44,679
Over 3 months through 6 months           17,908
Over 6 months through 12 months          18,078
Over 12 months                           10,555
                                       --------
                                       $ 91,220
                                       --------
                                       --------
</TABLE>

The following table reflects categories of short-term borrowings having
average balances during the year greater than 30% of stockholders' equity of
the Company at the end of the year. During each year reported, securities
sold under repurchase agreements are the only category meeting this criteria.
Information presented is as of or for the year ended December 31, for the
years indicated:

                            SHORT-TERM BORROWINGS

<TABLE>
<CAPTION>
                                                              1997         1996         1995
                                                            -------      ------       -------
<S>                                                         <C>          <C>          <C>
Balance at end of year                                      $21,754      $19,225      $22,626
Weighted average interest rate                                 5.76%        5.52%        5.26%
Maximum month-end amount outstanding during the year        $28,179      $30,975      $47,892
Average amount outstanding during the year                  $23,849      $26,587      $31,298
Weighted average interest rate during the year                 5.13%        4.94%        5.33%
</TABLE>

The following table presents selected financial ratios as of or for the year
ended December 31, for the years indicated:

                                SELECTED RATIOS

<TABLE>
<CAPTION>
                                            1997        1996        1995
                                           -----       -----       -----
<S>                                        <C>         <C>         <C>
Return on average total assets              0.96%       0.95%       1.19%
Return on average equity                   12.05%      12.14%      12.83%
Average equity to average assets            8.00%       7.86%       9.26%
Tier 1 capital to risk-adjusted assets      9.15%       9.02%      14.54%
Total capital to risk adjusted assets      10.42%      10.26%      15.79%
Tier 1 leverage ratio                       6.91%       6.90%      10.31%
Dividend payout ratio                      23.96%      22.13%      19.91%
</TABLE>

Note:  Unrealized gains (losses) on securities available for sale are included
       in the average balances used to calculate these ratios.


                                       15
<PAGE>

ITEM 2.   PROPERTIES

     The principal offices of the Corporation and Merchants Bank are located in
Merchants Bank's West Plaza location at 1851 West Galena Boulevard in Aurora.
The two-story, 28,100 square foot building is owned by Merchants Bank and was
constructed in 1962. During 1994, the entire first and second floors of this
building were remodeled to provide space for the trust department and mortgage
division. There are two parking lots which can accommodate 90 cars.

     The Merchants Bank's former main office building is located at 34 South
Broadway, Aurora, Illinois. During 1997, Merchants Bank donated the 60,500
square foot building with a carrying value of $850,000, to a charitable
organization. Merchants Bank will lease a portion of the building for a full
service branch. The building was appraised at $4,130,000, which resulted in
charitable contribution tax credits of $1,504,000, which were recorded in 1997.

     Merchants Bank's downtown drive-up facility is located at 205 East Downer
Place in Aurora and comprises approximately 9,950 square feet. The one-story
building is owned by Merchants Bank and has eight drive-up windows.

     In 1997, the Company moved its administrative and operations functions to a
leased location at 2255 West Sullivan Road in Aurora. The Company leases a
single story office wing of approximately 31,000 square feet.

     Merchants Bank's Fox Valley Villages branch is a full-service facility
located at Long Grove Drive and Route 34 in Aurora. The one-story building is
owned by Merchants Bank and comprises approximately 3,400 square feet. The
branch has three drive-up lanes and four teller stations. The basement of this
building contains a safe deposit vault and is also being used for storage, a
conference room and rental space.

     Merchants Bank's Douglas Square branch is a full-service facility located
at 1 Merchants Plaza in Oswego, Illinois. The 16,300 square foot building is
owned by Merchants Bank and was built in 1989. The three-story brick building
has six drive-in lanes and six teller stations. The basement of this building is
being used as a training room, an employee lounge and for storage. There is a
parking lot which can accommodate a total of approximately 85 cars.

     Merchants Bank also has a branch located in the Cub Foods store in
Aurora at 55 Constitution Drive. A Facility License and Construction
Agreement with International Banking Technologies, Inc. was entered into in
June, 1992, under which the Merchants Bank is permitted to operate a bank
branch in the Cub Foods store for a term of 20 years, ending January 25, 2013.

     Merchants Bank's Randall Square branch is a full service facility with 4
drive-up lanes located at 1771 Merchants Drive in Geneva, Illinois. The
one-story, 6,200 square foot building is owned by Merchants Bank and
construction was completed in the first quarter of 1996.

     Merchants Bank has a loan production office located at 3 North Smith
Street in Aurora. Merchants Bank leases approximately 1,200 square feet under
a three year lease entered into in September, 1994, which may be extended for
an additional three years at the option of Merchants Bank.

     Merchants Bank has a loan production office located in Yorkville,
Illinois, at 520 Countryside Center. Approximately 1,100 square feet are
leased under a three year agreement entered into in June, 1994, which may be
extended for an additional three years at the option of the Merchants Bank.

     Hinckley State Bank's main office is located in Hinckley Illinois, at
101 W. Lincoln. The two story, 10,900 square foot building is owned and
occupied entirely by Hinckley State Bank. A full service facility is located
at 80 N. Dugan Road, Sugar Grove. This 1,900 square foot facility was built
by Hinckley State Bank in 1993.

     Fox Valley Bank's main office is located at 1600 East Main Street, in
St. Charles. The location consists of 5,100 square feet of leased office
space. Fox Valley Bank leases a 1,800 square foot full service facility
located at 1525 West Main Street, in St. Charles, Illinois. A full service
facility is located in 1,200 square feet of leased office space located at
629 West State Street, Geneva, Illinois.

ITEM 3.   LEGAL PROCEEDINGS

     The Banks have certain collection suits in the ordinary course of
business against their debtors and are defendants in legal actions arising
from normal business activities. Management, after consultation with legal
counsel, believes that the ultimate liabilities, if any, resulting from these
actions will not have a material adverse effect on the financial position of
the Banks or on the consolidated financial position of the Corporation.

                                       16
<PAGE>

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

     None

                                    PART II

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

     The Corporation incorporates by reference the information contained on page
39 of the 1997 Annual Report (attached hereto as Exhibit 13) under the caption
"Market for the Company's Common Stock and Related Security Holder Matters." As
of March 9, 1998, there were 732 holders of record of the Corporation's common
stock.

     The Corporation also incorporates by reference the information contained on
page 23 of the 1997 Annual Report (attached hereto as Exhibit 13) under the
"Notes to Consolidated Financial Statements Note 16: Stockholder Rights Plan."

     The Corporation also incorporates by reference the information contained on
pages 22 and 23 of the 1997 Annual Report (attached hereto as Exhibit 13) under
the "Notes to Consolidated Financial Statements Note 15: Capital Matters."

ITEM 6.   SELECTED FINANCIAL DATA

     The Corporation incorporates by reference the information contained on page
8 of the 1997 Annual Report (attached hereto as Exhibit 13) under the caption
"Merchants Bancorp, Inc. and Subsidiaries Financial Highlights."

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The Corporation incorporates by reference the information contained on
pages 29 - 37 of the 1997 Annual Report (attached hereto as Exhibit 13) under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Corporation incorporates by reference the information contained on page
38 of the 1997 Annual Report (attached hereto as Exhibit 13) under the caption
"Sensitivity to Market Risk."

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Corporation incorporates by reference the following financial
statements and related notes and independent auditors' report from the 1997
Annual Report (attached hereto as Exhibit 13):

<TABLE>
<CAPTION>
                                                       ANNUAL REPORT
                                                          PAGE NO.
     <S>                                               <C>
     Consolidated Balance Sheets                               9
     Consolidated Statements of Income                        10
     Consolidated Statements of Cash Flows                    11
     Consolidated Statements of Stockholders' Equity          12
     Notes to Consolidated Financial Statements               13-27
     Independent Auditors' Report                             28
</TABLE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
          ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None

                                       17
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The Corporation incorporates by reference the information contained on
pages 1,2 and 3 of the Proxy Statement for the 1998 Annual Meeting of
Stockholders (attached hereto as exhibit 99) under the caption "Election of
Directors."

EXECUTIVE OFFICERS OF THE REGISTRANT AND SUBSIDIARY

<TABLE>
<CAPTION>

NAME, AGE AND YEAR         POSITIONS WITH REGISTRANT AND
BECAME EXECUTIVE OFFICER   BUSINESS EXPERIENCE DURING
OF THE REGISTRANT          PAST FIVE YEARS
------------------------   -----------------------------
<S>                        <C>
Calvin R. Myers            Chairman of the Board, President and Chief
Age 55       1982          Executive Officer (1987-present), Director of the
                           Corporation (1986-present); Chairman of the
                           Board and CEO (1987-1991), Director of First
                           American Bank (1985-1991); Chairman of the
                           Board and CEO (1987-present), President
                           (1989-present), Director of the Bank
                           (1986-present).

Frank K. Voris             Vice President of the Corporation
Age 58       1985          (1993-present); Executive Vice President and
                           Chief Operating Officer (1990-present), Senior
                           Vice President (1985-1987), Director of the
                           Bank (1990-present); President of First
                           American Bank (1987-1991).

Randal A. Wright           Executive Vice President, Commercial Banking
Age 46       1989          Division (1993-present); Senior Vice President
                           and Director of Commercial Banking of the Bank
                           (1989-1993); President and CEO of First
                           National Bank of Oelwein, Iowa (1985-1989).

Terence L. Kothe           Executive Vice President, Trust and Financial
Age 54       1992          Services (1992-present) of the Bank; Vice
                           President, Senior Trust and Investment Officer
                           (1973-1992) of Old Second National Bank of
                           Aurora.

J. Douglas Cheatham        Vice President and Chief Financial Officer of
Age 41       1990          the Corporation (1993-present); Vice President
                           and Financial Officer (1990-present), Financial
                           Officer (1988-1990), Analyst of the Bank
                           (1987-1988).

Gerald M. Lanigan          Senior Vice President and Trust Officer of the
Age 48       1984          Bank (1985-present).

Scott B. Everhart          Senior Vice President of Operations
Age 46       1988          (1990-present), Director of Operations
                           (1988-present), Management Analysis Director of
                           the Bank (1986-1988).
</TABLE>

     There are no arrangements or understandings between any of the executive
officers or any other persons pursuant to which any of the executive officers
have been selected for their respective positions.

ITEM 11.   EXECUTIVE COMPENSATION

     The Corporation incorporates by reference the information contained on page
3 of the Proxy Statement for the 1998 Annual Meeting of Stockholders (attached
hereto as exhibit 99) under the caption "Compensation of Directors," and on
pages 6 - 9 under the caption "Executive Compensation." The sections in the
Proxy Statement marked "Board Compensation Committee Report on Executive
Compensation" and "Stockholder Return Performance Presentation" are furnished
for the information of the Commission and are not deemed to be "filed" as part
of this Form 10-K.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The Corporation incorporates by reference the information contained on
pages 3 - 5 of the Proxy Statement for the 1998 Annual Meeting of Stockholders
(attached hereto as exhibit 99) under the caption "Security Ownership of Certain
Beneficial Owners and Management."

                                       18
<PAGE>

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Corporation incorporates by reference the information contained on page
10 of the Proxy Statement for the 1998 Annual Meeting of Stockholders (attached
hereto as exhibit 99) under the caption "Transactions with Management."

                                     PART IV

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

     (a)(1)  INDEX TO FINANCIAL STATEMENTS

     The Corporation incorporates by reference the following financial
statements and related notes and independent auditors' report from the 1997
Annual Report (attached hereto as Exhibit 13):

<TABLE>
<CAPTION>
                                                       ANNUAL REPORT
                                                          PAGE NO.
                                                       -------------
     <S>                                               <C>
     Consolidated Balance Sheets                              9
     Consolidated Statements of Income                        10
     Consolidated Statements of Cash Flows                    11
     Consolidated Statements of Stockholders' Equity          12
     Notes to Consolidated Financial Statements               13-27
     Independent Auditors' Report                             28
</TABLE>

     (a)(2)  FINANCIAL STATEMENT SCHEDULES

     All financial statement schedules as required by Item 8 and Item 14 of Form
10-K have been omitted because the information requested is either not
applicable or has been included in the consolidated financial statements or
notes thereto.

     (a)(3) EXHIBITS

     The following exhibits required by Item 601 of Regulation S-K are included
along with this 10-K filing:

      ITEM 601
    TABLE II. NO.

   (3)(a)   Its Restated Certificate of Incorporation (filed as an exhibit
            to the Corporation's Registration Statement on Form S-14,
            No. 2-96562, which was filed with the Securities and Exchange
            Commission on March 21, 1985; a Certificate of Amendment to the
            Certificate of Incorporation as filed as an exhibit to the
            Corporation's Form 8-A, which was filed with the Securities and
            Exchange Commission on April 30, 1986 and a Certificate of
            Amendment to the Certificate of Incorporation as filed as
            Exhibit 3(b) of the Corporation's 10-K for the fiscal year ended
            December 31, 1987, a Certificate of Designation, Preferences and
            Rights of Series A Junior Participating Preferred Stock filed as
            Exhibit A to Exhibit 1 to the Corporation's Form 10-K, which was
            filed with the Securities and Exchange Commission on January 12,
            1989, and a Certificate of Designation, Preferences and Rights
            of Series A Junior Participating Preferred Stock filed as
            Exhibit 4.4 to the Corporation's Amendment 1 to Form S-2, No.
            33-68684, which was filed with the Securities and Exchange
            Commission on October 8, 1993, all of which are incorporated
            herein by reference)

   (3)(b)   By-laws of Merchants Bancorp, Inc. (filed as Exhibit 3(c) of the
            Corporation's 10-K for the fiscal year ended December 31, 1987,
            and incorporated herein by reference)

   (4)(a)   Article Fourth of its Restated Certificate of Incorporation
            (filed as Exhibit 3(a) to its Registration Statement on Form
            S-14, No. 2-96562, which was filed with the Securities and
            Exchange Commission on March 21, 1985, and incorporated herein
            by reference)

                                       19
<PAGE>

   (4)(b)   Article II and Article VII, Section 1, of its By-laws, as
            amended February 17, 1987 (filed as Exhibit 3(c) of the
            Corporation's 10-K for the year ended December 31, 1987, and
            incorporated herein by reference)

   (4)(c)   Rights Agreement dated January 4, 1989, between the Corporation
            and The Merchants National Bank of Aurora (filed as Exhibit 1 on
            the Corporation's Form 8-K as filed with the Securities and
            Exchange Commission on January 12, 1989, and incorporated herein
            by reference)

  (10)(a)   Rights Agreement dated January 4, 1989 between the Corporation
            and  The Merchants Bank of Aurora (filed as Exhibit 1 to the
            Corporation's Form 8-K as filed with the Securities and Exchange
            Commission on January 12, 1989, and incorporated herein by
            reference)

  (10)(b)   Agreement for Facility License and Construction Agreement dated
            June 18, 1992, between International Banking Technologies, Inc.,
            a Georgia corporation, and The Merchants National Bank of Aurora
            (filed as Exhibit 10(g) of the Corporation's Form 10-K for the
            year ended December 31, 1992, and incorporated herein by
            reference)

  (10)(c)   Employment Agreement dated August 30, 1993, between the
            Corporation and Calvin R. Myers (filed as Exhibit 10.8 to its
            Registration Statement on Form S-2, No. 33-68684, which was
            filed with the Securities and Exchange Commission on October 8,
            1993, and incorporated herein by reference)

    (13)    The Corporation's 1997 Annual Report to Stockholders

    (22)    A list of all subsidiaries of the Corporation

    (23)    Consent of Crowe, Chizek & Company LLP

    (27)    Financial Data Schedule

    (99)    The Corporation's Proxy Statement for the annual meeting of
            stockholders to be held April 21, 1998. The sections marked
            "Board Compensation Committee Report on Executive Compensation"
            and "Stockholder Return Performance Presentation" are furnished
            for the information of the Commission and are not deemed to be
            "filed" as part of this 10-K.

            (b) REPORTS ON FORM 8-K

                 None



                                       20
<PAGE>

                                   SIGNATURES


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


                                  MERCHANTS BANCORP, INC.


                                  BY:  /S/ CALVIN R. MYERS
                                     -------------------------------
                                     Calvin R. Myers, Chairman of the Board,
                                     President and Chief Executive Officer


                                  BY:  /S/ J. DOUGLAS CHEATHAM
                                     -------------------------------
                                     J. Douglas Cheatham,
                                     Vice President and Chief Financial Officer

DATE:  March 30, 1998

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.


    SIGNATURE                TITLE                                DATE
    ---------                -----                                ----

/S/ CALVIN R. MYERS          Chairman of the Board; Director;     March 30, 1998
-------------------------    President and Chief Executive
Calvin R. Myers              Officer


/S/ C. TELL COFFEY           Director                             March 30, 1998
-------------------------
C. Tell Coffey


/S/ WILLIAM C. GLENN         Director                             March 30, 1998
-------------------------
William C. Glenn


/S/ WILLIAM F. HEJNA         Director                             March 30, 1998
-------------------------
William F. Hejna


/S/ JOHN M. LIES             Director                             March 30, 1998
-------------------------
John M. Lies


/S/ JAMES D. PEARSON         Director                             March 30, 1998
-------------------------
James D. Pearson


/S/ FRANK A. SARNECKI        Director                             March 30, 1998
-------------------------
Frank A. Sarnecki


/S/ JOHN J. SWALEC           Director                             March 30, 1998
-------------------------
John J. Swalec


                                       21
<PAGE>


    SIGNATURE                TITLE                                DATE
    ---------                -----                                ----


/S/ NORMAN L. TITINER        Director                             March 30, 1998
-------------------------
Norman L. Titiner


/S/ J. DOUGLAS CHEATHAM      Vice President and Chief Financial   March 30, 1998
-------------------------    Officer
J. Douglas Cheatham







                                       22
<PAGE>

EXHIBIT                                                          SEQUENTIAL
  NO.                    DESCRIPTION OF EXHIBITS                  PAGE NO.
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(3)(a)   Its Restated Certificate of Incorporation (filed as an        --
         exhibit to the Corporation's Registration Statement on
         Form S-14, No.2-96562, which was filed with the
         Securities and Exchange Commission on March 21, 1985; a
         Certificate of Amendment to the Certificate of
         Incorporation as filed as an exhibit to the
         Corporation's Form 8-A, which was filed with the
         Securities and Exchange Commission on April 30, 1986 and
         a Certificate of Amendment to the Certificate of
         Incorporation as filed as Exhibit 3(b) of the
         Corporation's 10-K for the fiscal year ended December
         31, 1987, a Certificate of Designation, Preferences and
         Rights of Series A Junior Participating Preferred Stock
         filed as Exhibit A to Exhibit 1 to the Corporation's
         Form 10-K, which was filed with the Securities and
         Exchange Commission on January 12, 1989, and a
         Certificate of Designation, Preferences and Rights of
         Series A Junior Participating Preferred Stock filed as
         Exhibit 4.4 to the Corporation's Amendment 1 to Form S-2,
         No. 33-68684, which was filed with the Securities and
         Exchange Commission on October 8, 1993, all of which are
         incorporated herein by reference)
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(3)(b)   By-laws of Merchants Bancorp, Inc. (filed as Exhibit          --
         3(c) of the Corporation's 10-K for the fiscal year ended
         December 31, 1987, and incorporated herein by reference)
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(4)(a)   Article Fourth of its Restated Certificate of                 --
         Incorporation (filed as Exhibit 3(a) to its Registration
         Statement on Form S-14, No. 2-96562, which was filed
         with the Securities and Exchange Commission on March 21,
         1985, and incorporated herein by reference)
---------------------------------------------------------------------------
(4)(b)   Article II and Article VII, Section 1, of its By-laws,        --
         as amended February 17, 1987 (filed as Exhibit 3(c) of
         the Corporation's 10-K for the year ended December 31,
         1987, and incorporated herein by reference)
---------------------------------------------------------------------------
(4)(c)   The Rights Agreement dated January 4, 1989, between the       --
         Corporation and The Merchants National Bank of Aurora
         (filed as Exhibit 1 on the Corporation's Form 8-K as
         filed with the Securities and Exchange Commission on
         January 12, 1989, and incorporated herein by reference)
---------------------------------------------------------------------------
(10)(a)  Rights Agreement dated January 4, 1989 between the            --
         Corporation and The Merchants Bank of Aurora (filed as
         Exhibit 1 to the Corporation's Form 8-K as filed with
         the Securities and Exchange Commission on January 12,
         1989, and incorporated herein by reference)
---------------------------------------------------------------------------
(10)(b)  Agreement for Facility License and Construction               --
         Agreement dated June 18, 1992, between International
         Banking Technologies, Inc., a Georgia corporation, and
         The Merchants National Bank of Aurora (filed as Exhibit
         10(g) of the Corporation's Form 10-K for the year ended
         December 31, 1992, and incorporated herein by reference)
---------------------------------------------------------------------------
(10)(c)  Employment Agreement dated August 30, 1993, between the       --
         Corporation and Calvin R. Myers (filed as Exhibit 10.8
         to its Registration Statement on Form S-2, No. 33-68684,
         which was filed with the Securities and Exchange
         Commission on October 8, 1993, and incorporated herein
         by reference)
---------------------------------------------------------------------------
 (13)    The Corporation's 1997 Annual Report to Stockholders       24 - 55
---------------------------------------------------------------------------
 (22)    A list of all subsidiaries of the Corporation                 56
---------------------------------------------------------------------------
 (23)    Consent of Crowe, Chizek & Company LLP                        57
---------------------------------------------------------------------------
 (27)    Financial Data Schedule                                       --
---------------------------------------------------------------------------
 (99)    The Corporation's Proxy Statement for the annual meeting   58 - 70
         of stockholders to be held April 21, 1998. The sections
         marked "Board Compensation Committee Report on Executive
         Compensation" and "Stockholder Return Performance
         Presentation" are furnished for the information of the
         Commission and are not deemed to be "filed" as part of
         this 10-K.
---------------------------------------------------------------------------

                                       23