<PAGE>
<PAGE>
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 FORM 10-KSB

                Annual Report Pursuant to Section 13 or 15(d)
                    of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 1998      Commission file number 0-28442

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

               Illinois                                 37-1356594        
---------------------------------------    ------------------------------------
    (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)

318 South Park Avenue, Herrin, Illinois                 62948-3604            
----------------------------------------   ------------------------------------
(Address of principal executive offices)                (Zip Code)
                                                              

Registrant's telephone number, including area code: (618) 942-7373
                                                    -------------- 

Securities registered pursuant to Section 12(b) of the Act: None
                                                            ---- 

Securities registered pursuant to Section 12(g) of the Act: 
                                        Common Stock, par value $0.01 per share
                                        ---------------------------------------
                                                       (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-B 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-KSB or any amendment to this Form 10-KSB.  [X]

        For the fiscal year ended December 31, 1998, revenues totaled:
$4,634,000.

        As of March 15, 1999, the aggregate market value of the voting
stock held by non-affiliates of the Registrant was approximately
$8,826,536.  For purposes of this calculation, it is assumed that
directors, officers, the Registrant's Employee Stock Ownership Plan and
the Company's Management Recognition Plan are affiliates.  On such date,
876,875 shares of the Registrant's Common Stock were issued and
outstanding.

            DOCUMENTS INCORPORATED BY REFERENCE
                            None
                              
Transitional Small Business Disclosure Format.  Yes          No   X  
                                                    ------      ------
                              <PAGE>
<PAGE>


<TABLE>

                         HEARTLAND BANCSHARES
                              

                             FORM 10-KSB


                          TABLE OF CONTENTS
<CAPTION>

                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
PART I
     Item 1 -  Description of Business                                      1
     Item 2 -  Description of Properties                                   23
     Item 3 -  Legal Proceedings                                           23
     Item 4 -  Submission of Matters to Vote of Security Holders           23
     Item 4A - Executive Officers of the Registrant                        23
PART II
     Item 5 -  Market for Registrant's Common Equity and Related 
               Stockholders Matters                                        24
     Item 6 -  Management's Discussion and Analysis or Plan of Operation   24
     Item 7 -  Financial Statements                                        38
     Item 8 -  Changes In and Disagreements With Accountants on 
               Accounting and Financial Disclosure                         83
PART III
     Item 9 -  Directors, Executive Officers, Promoters and Control 
               Persons; Compliance With Section 16(a) of the Exchange 
               Act                                                         83
     Item 10 - Executive Compensation                                      85
     Item 11 - Security Ownership of Certain Beneficial Owners and 
               Management                                                  88
     Item 12 - Certain Relationships and Related Transactions              89
     Item 13 - Exhibits and Reports on Form 8-K                            90

</TABLE>


<PAGE>
<PAGE>
                               PART I


ITEM 1.  DESCRIPTION OF BUSINESS
-------------------------------- 

GENERAL

        This report contains certain forward-looking statements with
respect to the financial condition, results of operations and business
of Heartland Bancshares, Inc. (the "Company") and its subsidiaries. 
These forward looking statements involve certain risks and
uncertainties. For example, by accepting deposits at fixed rates, at
different times and for different terms and lending funds at fixed rates
for fixed periods, a bank accepts the risk that the cost of funds may
rise and the use of the funds may be at a fixed rate.  Similarly, the
cost of funds may fall, but a bank may have committed by virtue of the
term of a deposit to pay what becomes an above-market rate.  Investments
may decline in value in a rising interest rate environment.  Loans, and
the reserve for loan losses, have the risk that the borrower will not
repay all funds in a timely manner as well as the risk of total loss. 
Collateral may or may not have the value attributed to it.  The loan
loss reserve, while believed adequate, may prove inadequate if one or
more large borrowers, or numerous mid-range borrowers, or a combination
of both, experience financial difficulty for individual, national or
international reasons.  Because the business of banking is highly
regulated, decisions of governmental authorities, such as the rate of
deposit insurance, can have a major effect on operating results.
Unanticipated events associated with Year 2000 compliance relating to
work on developments or modifications to computer systems and to
software, including work performed by suppliers or vendors, could affect
the Company's future financial condition and operating results.  All of
these uncertainties, as well as others, are present in a banking
operation and shareholders are cautioned that management's view of the
future on which it prices its products, evaluates collateral, sets loan
reserves and estimates costs of operation and regulation may prove to be
other than as anticipated.

        The Company.  The Company was incorporated under the laws of the
State of Illinois in January 1996 at the direction of the Board of
Directors of First Federal Savings and Loan Association of Herrin (the
"Association") for the purpose of serving first as a savings institution
holding company for the Association upon its conversion from mutual to
stock form (the "Stock Conversion"), and then as a bank holding company
upon the subsequent conversion of the Association to a national banking
association (the "Bank Conversion" and together with the Stock
Conversion, the "Conversion") known as Heartland National Bank (the
"Bank").  On June 28, 1996, the Conversion was consummated and the
Company completed its initial public offering of the Company's Common
Stock, $0.01 par value per share (the "Common Stock").  A total of
876,875 shares of Common Stock were sold at $10.00 per share. Net
proceeds from the offering, after deducting expenses and the funds
necessary to fund the Company's employee stock option plan ("ESOP"),
amounted to approximately $7.4 million. Unless otherwise stated herein,
references to the Bank refer to the Bank and its predecessor, the
Association. The Company is registered with and subject to the
regulation and supervision of the Board of Governors of the Federal
Reserve System ("Federal Reserve") as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHCA").

        The Company's principal business is overseeing the business of the
Bank and investing the portion of the net proceeds from its initial
public offering retained by it. The Company has no significant assets
other than its investment in the Bank, a loan to the ESOP and certain
cash and cash equivalents and investment securities. Accordingly, the
information set forth herein relates primarily to the Bank. At December
31, 1998, the Company had consolidated total assets of $63.3 million,
total loans of $36.4
<PAGE>
<PAGE>

million, total investment and mortgage-backed securities of $11.3 million,
total deposits of $51.4 million and total shareholders' equity of $11.3
million.

        The Company's executive offices are located at 318 South Park
Avenue, Herrin, Illinois 62948-3604, and its main telephone number is
(618) 942-7373.

        The Bank.  The Bank is a national banking association operating
through offices in Herrin and Carterville, Illinois, serving Williamson,
Franklin and Jackson Counties in southeastern Illinois.  The principal
business of the Bank historically has consisted of attracting deposits
from the general public and investing these deposits in loans secured by
first mortgages on single-family residences in its market area. At
December 31, 1998, one- to four-family residential mortgage loans
comprised 77.00% of the Bank's total loan portfolio. The Bank derives
its income principally from interest earned on loans and, to a lesser
extent, interest earned on mortgage-backed and related securities and
investment securities and noninterest income. Funds for these activities
are provided principally by operating revenues, deposits and repayments
of outstanding loans and mortgage-backed and related securities.

        The Bank maintains offices in Herrin and Carterville, Illinois,
both located in Williamson County.  There are 3,000 residences in Herrin
and approximately 23,000 occupied housing units in Williamson county. 
The median housing price in Herrin is $43,000.00.  The Bank also serves
Jackson and Franklin counties, which have similar characteristics.

        As a bank holding company, the Company is registered with, and
subject to regulation and examination by, the Federal Reserve.  The Bank
is subject to comprehensive examination, supervision and regulation by
the Office of the Comptroller of the Currency (the "OCC").  Because the
Bank was formerly chartered as a savings association, the Bank's
deposits are insured by the Savings Association Insurance Fund (the
"SAIF") of the Federal Deposit Insurance Corporation (the "FDIC") up to
the applicable limits for each depositor.

CHANGES IN CONTROL

        On December 23, 1998, the Company entered into an Agreement and
Plan of Merger (the "Agreement") by and among Banterra Corp.
("Banterra"), Banterra Acquisitionco, Inc. ("Acquisitionco") and the
Company, pursuant to which the Company will be acquired by Banterra by
means of the merger of Acquisitionco, a wholly owned subsidiary of
Banterra, with and into the Company, with the Company as the surviving
corporation.  Consummation of the transactions contemplated by the
Agreement is subject to a number of conditions, including approval of
the Agreement by the shareholders of the Company and receipt of all
requisite regulatory approvals.

LENDING ACTIVITIES

        General. The Bank's gross loan portfolio totaled $37.0 million at
December 31, 1998, representing 58.40% of the Company's total assets at
that date. It is the Bank's policy to concentrate its lending within the
counties of Williamson, Jackson and Franklin located in southeastern
Illinois.  At December 31, 1998, $28.5 million, or 77.00%, of the Bank's
total loan portfolio, consisted of one- to four-family, residential
mortgage loans.  At December 31, 1998, other loans secured by real
estate included multi-family residential real estate loans, which
amounted to $1.0 million, or 2.78%, of the Bank's total loan portfolio,
church loans, which amounted to $1.7 million, or 4.52%, of the Bank's
total loan portfolio, commercial real estate loans which amounted to
$3.2 million, or 8.57%, of the Bank's gross loan portfolio and
construction loans which amounted to $653,000, or 1.77%, of the Bank's
gross loan portfolio.


                                - 2 -
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<PAGE>

        The Bank also is active in the origination of consumer loans,
which primarily consist of loans secured by savings deposits, home
improvement loans, automobile loans and personal loans.  Consumer loans
amounted to $2.0 million, or 5.36%, of the Bank's total loan portfolio
at December 31, 1998.

        Loan Portfolio Composition. The following table sets forth
selected data relating to the composition of the Bank's loan portfolio
by type of loan at the dates indicated. At December 31, 1998, the Bank
had no concentrations of loans exceeding 10% of total loans other than
as disclosed below.

<TABLE>
<CAPTION>
                                                                        AT DECEMBER 31,
                                                      ---------------------------------------------------
                                                              1998                          1997
                                                      ---------------------         ---------------------
                                                      AMOUNT            %           AMOUNT            %
                                                      ------            -           ------            -
                                                                     (DOLLARS IN THOUSANDS)
<S>                                                 <C>             <C>           <C>             <C>
Type of Loan:
------------
Real estate loans:
     One- to four-family residential                 $28,475          77.00%       $37,546          79.62%
     Multi-family residential                          1,028           2.78          1,433           3.04
     Construction                                        653           1.77            381           0.81
     Church                                            1,671           4.52          1,735           3.68
     Commercial                                        3,171           8.57          3,140           6.66
                                                     -------         ------        -------         ------  
       Total real estate loans                       $34,998          94.64        $44,235          93.81
                                                     -------         ------        -------         ------  

Consumer loans:
     Automobiles                                         466           1.26            508           1.08
     Savings account                                     384           1.04            477           1.01
     Home improvement                                    848           2.29            779           1.65
     Other                                               284            .77          1,157           2.45
                                                     -------         ------        -------         ------  
       Total consumer loans                            1,982           5.36          2,921           6.19
                                                     -------         ------        -------         ------  
                                                             
       Total gross loans                             $36,980         100.00%        47,156         100.00%
                                                     -------         ======        -------         ======  

Less:
     Loans in process                                    182                           375
     Deferred service charge                              44                            74
     Allowance for loan losses                           372                           400
                                                     -------                       -------                 
       Total                                         $36,382                       $46,307
                                                     =======                       =======
</TABLE>
                 

Loan Maturity Schedule

    The following table sets forth certain information at December 31,
1998 regarding the dollar amount of loans maturing in the Bank's
portfolio based on their contractual terms to maturity, including
scheduled repayments of principal. Demand loans, loans having no stated
schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less. The table does not include any
estimate of prepayments which significantly shorten the average life of
all mortgage loans and may cause the Bank's repayment experience to
differ from that shown below.


                                - 3March 27, 1999

<PAGE>
<PAGE>

<TABLE>
<CAPTION>
                                                                   DUE AFTER
                                                  DUE DURING THE   1 THROUGH      DUE AFTER
                                                   YEAR ENDING   5 YEARS AFTER  5 YEARS AFTER
                                                   DECEMBER 31,   DECEMBER 31,   DECEMBER 31,
                                                       1999           1998           1998          TOTAL               
                                                  -------------- -------------  -------------     -------
                                                                        (IN THOUSANDS)
<S>                                                  <C>            <C>           <C>            <C>
One- to four-family residential                       $6,437         $7,459        $14,579        $28,475
Multi-family residential                                 188             --            840          1,028
Construction                                             653             --             --            653
Church                                                   249            505            917          1,671
Commercial                                               163          1,056           2033          3,252
Consumer                                                 638            898            365          1,901
                                                      ------         ------        -------        -------
     Total                                            $8,328         $9,918        $18,734        $36,980
                                                      ======         ======        =======        =======

</TABLE>

    The table below sets forth at December 31, 1998, the dollar amount
of all loans due one year or more after December 31, 1998 which have
predetermined interest rates and have floating or adjustable interest
rates.

<TABLE>
<CAPTION>
                                                  PREDETERMINED                   FLOATING OR
                                                       RATE                     ADJUSTABLE RATES
                                                  -------------                 ---------------- 
                                                                (IN THOUSANDS)
<S>                                                  <C>                            <C>
One- to four-family residential                      $15,598                        $6,440
Multi-family residential                                 840                            --
Construction                                              --                            --
Church                                                 1,347                            75
Commercial                                             2,309                           780
Consumer                                               1,263                            --
                                                     -------                        ------
    Total                                            $21,357                        $7,295
                                                     =======                        ======
</TABLE>

     Scheduled contractual principal repayments of loans do not reflect
the actual life of such assets. The average life of loans is
substantially less than their contractual terms because of prepayments. 
In addition, due-on-sale clauses on loans generally give the Bank the
right to declare a loan immediately due and payable in the event, among
other things, that the borrower sells the real property subject to the
mortgage and the loan is not repaid. The average life of mortgage loans
tends to increase when current mortgage loan market rates are
substantially higher than rates on existing mortgage loans and,
conversely, decreases when current mortgage loan market rates are
substantially lower than rates on existing mortgage loans.

     Originations, Purchases and Sales of Loans.  The Bank generally
has authority to originate and purchase loans secured by real estate
located throughout the United States. Consistent with its emphasis on
being a community-oriented financial institution, the Bank concentrates
its lending activities in its market area.

                                - 4 -
<PAGE>
<PAGE>

     The following table sets forth certain information with respect to
the Bank's loan originations for the periods indicated.  There were nine
fixed rate mortgage loans totaling $510,000 that were originated into
the secondary market during 1998.

<TABLE>
<CAPTION>

                                                          YEAR ENDED DECEMBER 31,         
                                                       ----------------------------  
                                                       1998                    1997
                                                       ----                    ---- 
                                                              (IN THOUSANDS)
<S>                                                  <C>                     <C>
Loans originated:
Real estate loans:
   One- to four-family residential                    $2,773                 $ 9,253
   Multi-family residential                               --                     420
   Construction                                          629                   1,539
   Church                                                 --                     795
   Commercial                                            445                   1,705
Consumer loans                                         1,874                   2,823
                                                      ------                 -------

      Total loans originated                          $5,721                 $16,535
                                                      ======                 =======
</TABLE>


     The Bank's loan originations are derived from a number of sources,
including referrals by realtors, depositors and borrowers, as well as
walk-in customers. The Bank's solicitation programs consist of
advertisements in local media, in addition to occasional participation
in various community organizations and events. Real estate loans are
originated by the Bank's loan officers. All of the Bank's loan officers
are salaried, and the Bank does not compensate loan officers on a
commission basis for loans originated.  Loan applications are accepted
at each of the Bank's offices.

     Loan Underwriting Policies.  The Bank's lending activities are
subject to the Bank's written, non-discriminatory underwriting standards
and to loan origination procedures prescribed by the Bank's Board of
Directors and its management. Detailed loan applications are obtained to
determine the borrower's ability to repay, and the more significant
items on these applications are verified through the use of credit
reports, financial statements and confirmations. Property valuations are
performed by appraisers approved by the Bank's Board of Directors.  All
residential real estate loans and all consumer loans in excess of an
individual loan officer's approval authority must be approved by the
Bank's Loan Committee, which consists of the President of the Bank and
two other directors.  All multi-family real estate loans and commercial
real estate loans must be approved by the full Board of Directors. 
Individual officers of the Bank have been granted authority by the Board
of Directors to approve consumer loans up to varying specified dollar
amounts, depending upon the type of loan.

     Currently, applications for fixed-rate, single-family real estate
loans are underwritten and documented in accordance with the standards
of the Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal
National Mortgage Association ("FNMA"). Prior to October 1994, however,
the Bank did not use FHLMC and FNMA documents to close its loans.  It is
the Bank's policy to record a lien on the real estate securing the loan
and to obtain title insurance or a lawyer's opinion of title which
insures that the property is free of prior encumbrances.  Borrowers also
must obtain hazard insurance policies prior to closing and, when the
property is in a flood plain as designated by the Department of Housing
and Urban Development, paid flood insurance policies.  Earthquake
insurance also is required on all real estate loans except land loans. 
Mine subsidence insurance also is required when the property securing
the loan is located in an area that has been determined to be
undermined.

     Federal regulations require that all appraisals performed in
connection with federally related transactions must be performed by
state-certified or state-licensed appraisers.  Federally related

                                - 5 -
<PAGE>
<PAGE>
transactions are defined to include real estate-related financial
transactions which the OCC regulates, and would include mortgages made
by the Bank.  Appraisals by state-certified appraisers will be required
for all such transactions having a value of $1.0 million or more.  The
OCC is authorized to determine other circumstances in which appraisals
must be performed by state-certified appraisers.  The OCC has adopted
regulations requiring that all real estate-related financial
transactions engaged in by national banking associations having a
transaction value of $250,000 or more, other than those involving
appraisals of one- to four-family residential properties, require an
appraisal performed by a state-certified appraiser. One- to four-family
residential property financing may require an appraisal by a state-
certified appraiser if the amount involved exceeds $1.0 million or the
financing involves a "complex" one- to four-family property appraisal. 
Exceptions are made for financings in which the transaction value is
$250,000 or less or when the lien is not necessary security. Illinois
currently has a certification program in effect. It is the policy of the
Bank that appraisals be obtained in connection with all loans for the
purchase of real estate or to refinance real estate loans where the
existing mortgage is held by a party other than the Bank. 

     The Bank is permitted to lend up to 95% of the appraised value of
the real property securing a mortgage loan.  The Bank is required by
federal regulations to obtain private mortgage insurance on that portion
of the principal amount of any loan that is 80% or greater of the
appraised value of the property.  The Bank will make a single-family
residential mortgage loan with a loan-to-value ratio of up to 95% and to
require private mortgage insurance for loan amounts in excess of 80%. 
The maximum loan-to-value ratio permitted on land loans is 50%.  The
Bank generally limits the loan-to-value ratio on commercial and multi-
family real estate mortgage loans to 70%.

     Under applicable law, with certain limited exceptions, loans and
extensions of credit by a national banking association to a person
outstanding at one time shall not exceed 15% of the institution's
unimpaired capital and surplus. Loans and extensions of credit fully
secured by readily marketable collateral may comprise an additional 10%
of unimpaired capital and surplus. The Bank's loans to one borrower were
limited to $1.5 million at December 31, 1998.  At December 31, 1998, the
Bank had no lending relationships in excess of the loans-to-one-borrower
limit.  At December 31, 1998, the Bank's largest loan was a $567,000
loan to a local law firm and the Bank's next four largest loans ranged
from $410,000 to $522,000.  All five loans were current and continued to
perform in accordance with their terms at December 31, 1998.

     Interest rates charged by the Bank on loans are affected
principally by competitive factors, the demand for such loans and the
supply of funds available for lending purposes.  These factors are, in
turn, affected by general economic conditions, monetary policies of the
federal government, including the Federal Reserve, legislative tax
policies and government budgetary matters.

     One- to Four-Family Residential Real Estate Lending.  The Bank
historically has been and continues to be an originator of one- to four-
family, residential real estate loans in its primary market area.  At
December 31, 1998, one- to four-family, residential mortgage loans,
totaled $28.5 million, or 77.00%, of the Bank's total loan portfolio.

     The Bank originates both fixed rate and adjustable rate mortgage
loans. The Bank offers fixed rate mortgage loans with terms of up to 20
years.  All fixed rate mortgage loans are sold in the secondary market.
The Bank originates one and three-year adjustable rate loans with terms
of up to 30 years.  Since October 1994, the adjustable rate loans
originated by the Bank are indexed to the one or three-year Treasury
Bill rate, adjusted for constant maturity.  Approximately $10.8 million
of the Bank's adjustable rate loans at December 31, 1998 were tied to
this index. Rate adjustments on one-year adjustable rate loans are
limited to a maximum of two percentage points per adjustment and six
percentage points over 

                                - 6 -

<PAGE>
<PAGE>

the life of the loan.  Rate adjustments on three-year adjustable rate
loans are limited to a maximum of three percentage points per adjustment
and six percentage points over the life of the loan.

     Adjustable rate loans originated prior to October 1994 were
indexed to the FHLB Average Interest Rate Paid on Previously Occupied
Homes. Changes in this index generally lag changes in other indices. 
Interest rates on such loans are not adjusted based upon an increment
over such rate but adjust based upon the changes in such rate, subject
to floors and ceilings on the rate.  As of December 31, 1998,
approximately $2.9 million of the Bank's adjustable rate loans had been
originated in accordance with these terms.

     The retention of adjustable-rate mortgage loans in the Bank's loan
portfolio helps reduce the Bank's exposure to changes in interest rates. 
However, there are unquantifiable credit risks resulting from potential
increased costs to the borrower as a result of repricing of adjustable-
rate mortgage loans.  It is possible that during periods of rising
interest rates, the risk of default on adjustable-rate and short-term or
callable fixed-rate mortgage loans may increase due to the upward
adjustment of interest cost to the borrower.  Accordingly, there can be
no assurance that yields on the Bank's adjustable-rate mortgages will
adjust sufficiently to compensate for increases in the Bank's cost of
funds.

     Multi-Family and Commercial Real Estate Lending.  The Bank's
multi-family residential loan portfolio consists primarily of loans
secured by small apartment buildings. The Bank's commercial real estate
loan portfolio consists  primarily of loans to finance the acquisition
of small retail establishments and distribution centers.  Such loans
generally range in size from $3,000 to $567,000.  At December 31, 1998,
the Bank had $1.0 million of multi-family residential loans and $3.2
million of commercial real estate loans, which amounted to 2.78% and
8.57%, respectively, of the Bank's total loan portfolio at such date.
Multi-family and commercial real estate loans are generally underwritten
with loan-to-value ratios of up to 70% of the lesser of the appraised
value or the purchase price of the property. Generally, such loans are
made for ten-year terms and may provide for a balloon payment at the end
of such term.  The maximum term for these types of loans is 20 years. 
Because of the inherently greater risk involved in this type of lending,
the Bank generally limits its multi-family and commercial real estate
lending to borrowers within its market area with which it has had prior
experience.

     Multi-family residential and commercial real estate lending
entails significant additional risks as compared with single-family
residential property lending. Multi-family residential and commercial
real estate loans typically involve large loan balances to single
borrowers or groups of related borrowers. The payment experience on such
loans typically is dependent on the successful operation of the real
estate project. These risks can be significantly impacted by supply and
demand conditions in the market for office and retail and residential
space, and, as such, may be subject to a greater extent to adverse
conditions in the economy generally. To minimize these risks, the Bank
generally limits itself to its market area or to borrowers with which it
has prior experience or who are otherwise well known to the Bank.  It
has been the Bank's policy to obtain annual financial statements of the
project for which commercial and multi-family residential real estate
loans are made. In addition, in the case of commercial mortgage loans
made to a partnership or a corporation, the Bank seeks, whenever
possible, to obtain personal guarantees and annual financial statements
of the principals of the partnership or corporation.

     Church Lending.  The Bank's loan portfolio includes a number of
real estate loans made to finance the construction or acquisition of
church properties located in the Bank's market area.  At December 31,
1998, the Bank had eight church loans aggregating approximately $1.7
million, the largest of which had a balance outstanding of $522,000. 
Such loans are generally originated on a fixed rate basis at a rate
approximately 0.5% higher than the fixed rate charged on one- to four-
family residential real estate loans.  The maximum term on church loans
is generally 15 years.

                                - 7 -

<PAGE>
<PAGE>

     Construction Lending.  On a limited basis, the Bank also offers
construction loans to qualified borrowers for construction of single-
family residences in the Bank's market area. Typically, the Bank limits
its construction lending to individuals who are building their primary
residences or to a limited number of local builders with whom the Bank
has substantial experience for the construction of a maximum of two one-
to four-family residential properties.  These loans generally provide
for a six-month construction period with only interest being paid during
such time and convert to a permanent loan at the end of the construction
period.  Construction loans are underwritten in accordance with the same
standards as the Bank's mortgages on existing properties.  Construction
loans generally have a maximum loan-to-value ratio of 80% of the
appraised value of the property on an "as completed basis."  Borrowers
must satisfy all credit requirements which would apply to the Bank's
permanent mortgage loan financing for the subject property.

     Construction financing generally is considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied
real estate. Risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at
completion of construction or development and the estimated cost
(including interest) of construction. During the construction phase, a
number of factors could result in delays and cost overruns.  If the
estimate of construction costs proves to be inaccurate, the Bank may be
required to advance funds beyond the amount originally committed to
permit completion of the development. If the estimate of value proves to
be inaccurate, the Bank may be confronted, at or prior to the maturity
of the loan, with a project having a value which is insufficient to
assure full repayment. The ability of a developer to sell developed lots
or completed dwelling units will depend on, among other things, demand,
pricing, availability of comparable properties and economic conditions. 
The Bank has sought to minimize this risk by limiting construction
lending to qualified borrowers in the Bank's market area and by limiting
the aggregate amount of outstanding construction loans. At December 31,
1998, construction loans amounted to $653,000, or 1.77%, of the Bank's
loan portfolio.

     Consumer Lending.  The consumer loans originated by the Bank
include loans secured by savings deposits, home improvement loans,
automobile loans, home equity loans, unsecured loans and personal loans. 
 At December 31, 1998, consumer loans totaled $2.0 million, or 5.36%, of
the Bank's total loan portfolio.

     Automobile loans are secured by both new and used cars and,
depending on the creditworthiness of the borrower, may be made for up to
90% of the dealer's invoice plus destination and local charges, or, with
respect to used automobiles, the loan value as published by the National
Automobile Dealers Association.  New cars are financed for a period of
up to five years, while used cars are financed for up to four and one-
half years depending on the age of the vehicle.  Collision insurance is
required for all automobile loans.  At December 31, 1998, automobile
loans totaled $466,000, or 1.26%, of the Bank's total loan portfolio.

     Home improvement loans generally are made on the security of
residences on which the Bank holds the first mortgage.  The maximum size
of home improvement loans is 85% of the "as completed" appraised value
of the residence, less the outstanding principal of the first mortgage,
and have terms of up to 10 years.  The Bank also participates in the
Federal Housing Authority ("FHA") Title I Home Improvement loan program.
Such loans must be to finance only certain types of improvements up to a
maximum loan size of $7,500. The FHA guarantees 90% of the principal
amount of each such loan.  Home improvement loans generally are made on
a fixed-rate basis.  At December 31, 1998, home improvement loans
amounted to $848,000, or 2.29%, of the Bank's total loan portfolio.

                                - 8 -
<PAGE>
<PAGE>

     The Bank makes deposit account loans for up to 90% of the
depositor's deposit account balance.  The interest rate is normally 2%
above the rate paid on the deposit account, and the account must be
pledged as collateral to secure the loan.  Interest generally is billed
on a quarterly basis.  At December 31, 1998, loans on deposit accounts
totaled $384,000, or 1.04%, of the Bank's total loan portfolio.

     Consumer lending affords the Bank the opportunity to earn yields
higher than those obtainable on single-family residential lending or
agricultural lending.  However, consumer loans entail greater risk than
do residential mortgage loans, particularly in the case of loans which
are unsecured or secured by rapidly depreciable assets such as
automobiles.  Repossessed collateral for a defaulted consumer loan may
not provide an adequate source of repayment of the outstanding loan
balance as a result of the greater likelihood of damage, loss or
depreciation. The remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition,
consumer and credit card loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to
be adversely affected by events such as job loss, divorce, illness or
personal bankruptcy.

     Loan Fees and Servicing.  In addition to interest earned on loans,
the Bank receives fees in connection with late payments and for
miscellaneous services related to its loans.  During 1998, the Bank
began charging a $250 loan origination fee on all loans.  The Bank
generally does not service loans for others and has earned minimal
income from this activity.

     Nonperforming Loans and Other Problem Assets. It is management's
policy to continually monitor its loan portfolio to anticipate and
address potential and actual delinquencies.  When a borrower fails to
make a payment on a loan, the Bank takes immediate steps to have the
delinquency cured and the loan restored to current status. All loans
originated since October 1994 provide that a late fee of 5% of principal
and interest due will be due after a payment is 15 days delinquent.
Loans originated prior to October 1994 provided that no late fee would
be assessed until a payment was 40 days or more delinquent, at which
time a late fee was assessed equal to 5% of principal and interest.  As
a matter of policy, the Bank will contact the borrower after a payment
is 45 days delinquent. Computer generated notices are sent out prior to
this time.  If payment is not promptly received, the borrower is
contacted again, and efforts are made to formulate an affirmative plan
to cure the delinquency. Generally, after any loan is delinquent 90 days
or more, formal legal proceedings are commenced to collect amounts owed.

     Loans generally are placed on nonaccrual status if the loan
becomes past due more than 90 days, except in instances where in
management's judgment there is no doubt as to full collectibility of
principal and interest, or management concludes that payment in full is
not likely.  Consumer loans are generally charged off, or any expected
loss is reserved for, after they become more than 120 days past due. All
other loans are charged off when management concludes that they are
uncollectible.

     Real estate acquired by the Bank as a result of foreclosure is
classified as real estate acquired through foreclosure until such time
as it is sold.  When such property is acquired, it is recorded at the
lower of cost or its fair value less estimated selling costs.  Any
required write-down of the loan to its fair value less estimated selling
costs upon foreclosure is charged against the allowance for loan losses. 


                                - 9 -

<PAGE>
<PAGE>

     The following table sets forth information with respect to the
Bank's nonperforming assets at the dates indicated. There were no
restructured loans within the meaning of Statement of Financial
Accounting Standard No. 15.

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                                   ----------------------- 
                                                     1998           1997
                                                     ----           ---- 
                                                   (DOLLARS IN THOUSANDS)
<S>                                                  <C>           <C>
Loans accounted for on a nonaccrual basis:<F1>
Real estate loans:
    One- to four-family residential                  $478           $534
    Multi-family residential                           --             --
    Church                                             --             --
    Commercial                                         --             --
Commercial                                             --             --
Consumer                                               --             85
                                                     ----           ----
    Total                                            $478           $619
                                                     ====           ====

Accruing loans which are contractually
    past due 90 days or more:
    Real estate:
      Residential                                     $--            $--
      Commercial                                       --             --
    Consumer                                           15             --
                                                     ----           ----
      Total                                            15             --
                                                     ----           ----
         Total nonperforming loans                   $493           $619
                                                     ====           ====

Percentage of total loans                            1.36%          1.34%
Other nonperforming assets<F2>                       $293           $239


<FN>
________________
    
<F1> Non-accrual status denotes loans on which, in the opinion of 
     management, the collection of additional interest is unlikely.
     Payments received on a nonaccrual loan are either applied to the
     outstanding principal balance or recorded as interest income,
     depending on management's assessment of the collectibility of the
     loan.

<F2> Other nonperforming assets represents property acquired by the 
     Bank through foreclosure. This property is carried at the lower of
     its fair market value or the principal balance of the related
     loan, whichever is lower.
</TABLE>


     At December 31, 1998, nonaccrual loans amounted to $478,000 as
compared to $619,000 at December 31, 1997.  The residential nonaccrual
loans consisted of 12 single-family home loans with outstanding balances
at December 31, 1998 ranging from $10,000 to $58,000.  Consumer
nonaccrual loans at December 31, 1998 were $0 as compared to $85,000 at
December 31, 1997.  The decrease in total nonaccrual loans was due to
increased collection efforts.

     During the year ended December 31, 1998, gross interest income of
$13,000 would have been recorded on loans accounted for on a nonaccrual
basis if the loans had been current throughout the respective periods.
There were no restructured loans during the periods.

     At December 31, 1998, there were no loans which were not currently
classified as non-accrual, 90 days past due or restructured but where
known information about possible credit problems of borrowers causes
management to have serious concerns as to the ability of the borrowers
to comply with 

                                - 10 -

<PAGE>
<PAGE>

present loan repayment terms and may result in disclosure as non-
accrual, 90 days past due or restructured.

     Real estate acquired through foreclosure is initially recorded at
the lower of cost (net loan receivable balance at date of foreclosure)
or fair value less estimated selling costs.  Fair value is defined as
the amount in cash or cash-equivalent value of other consideration that
a real estate parcel would yield in a current sale between a willing
buyer and a willing seller, as measured by market transactions.  If a
market does not exist, fair value of the item is estimated based on
selling prices of similar items in active markets or, if there are no
active markets for similar items, by discounting a forecast of expected
cash flows at a rate commensurate with the risk involved. Fair value is
generally determined through an appraisal at the time of foreclosure.
The Bank records a valuation allowance for estimated selling costs of
the property immediately after foreclosure.  Subsequent to foreclosure,
real estate acquired through foreclosure is periodically evaluated by
management and an allowance for loss is established if the estimated
fair value of the property, less estimated costs to sell, declines.  At
December 31, 1998, the Bank had $293,000 in estate owned, consisting of
five single-family residences and one parcel of property consisting of
various lots in a subdivision in Murphysboro, Illinois.

     Federal regulations require national banking associations to
classify their assets on the basis of quality on a regular basis. An
asset is classified as substandard if it is determined to be
inadequately protected by the current retained earnings and paying
capacity of the obligor or of the collateral pledged, if any.  An asset
is classified as doubtful if full collection is highly questionable or
improbable.  An asset is classified as loss if it is considered
uncollectible, even if a partial recovery could be expected in the
future.  The regulations also provide for a special mention designation,
described as assets which do not currently expose a national bank to a
sufficient degree of risk to warrant classification but do possess
credit deficiencies or potential weaknesses deserving management's close
attention. Assets classified as substandard or doubtful require a
national bank to establish general allowances for loan losses. If an
asset or portion thereof is classified as loss, a national bank must
either establish a specific allowance for loss in the amount of the
portion of the asset classified as loss, or charge off such amount. 
Federal examiners may disagree with a bank's classifications.  If a bank
does not agree with an examiner's classification of an asset, it may
appeal this determination to the District Manager of the OCC. The Bank
regularly reviews its assets to determine whether any assets require
classification or re-classification.  At December 31, 1998, the Bank had
$1,200,000 in classified assets, which consisted of $1,200,000 in assets
classified as substandard and no assets classified as loss.

     Allowance for Loan Losses.  In originating loans, the Bank
recognizes that credit losses will be experienced and that the risk of
loss will vary with, among other things, the type of loan being made,
the creditworthiness of the borrower over the term of the loan, general
economic conditions and, in the case of a secured loan, the quality of
the security for the loan.  It is management's policy to maintain an
adequate allowance for loan losses based on, among other things, the
Bank's and the industry's historical loan loss experience, evaluation of
economic conditions, regular reviews of delinquencies and loan portfolio
quality and evolving standards imposed by federal bank examiners.  The
Bank increases its allowance for loan losses by charging provisions for
loan losses against the Bank's income.  During the year ended December
31, 1998, the Bank made a $106,000 provision to the allowance for loan
losses on the basis of management's assessment of the level of risk in
the loan portfolio. Among other factors, management believed that this
amount was warranted because of charges made against the reserve during
1998 as well as the risks posed by the Bank's overall loan portfolio.

     Management will continue to monitor the Bank's asset quality and
allowance for loan losses. Management will charge off loans and
properties acquired in settlement of loans against the allowances for
losses on such loans and such properties when appropriate and will
provide specific loss allowances 

                                - 11 -
<PAGE>
<PAGE>

when necessary. Although management believes it uses the best
information available to make determinations with respect to the
allowances for losses and believes such allowances are adequate, future
adjustments may be necessary if economic conditions differ substantially
from the economic conditions in the assumptions used in making the
initial determinations.

     The Bank's methodology for establishing the allowance for loan
losses takes into consideration probable losses that have been
identified in connection with specific assets as well as losses that
have not been identified but can be expected to occur. Management
conducts regular reviews of the Bank's assets and evaluates the need to
establish allowances on the basis of this review.  Assets reviewed
include nonaccrual loans, accruing loans 90 days or more delinquent,
loans modified in troubled debt restructurings and real estate owned, as
well as any additional classified loans or loans not failing within any
of the above categories but where known information about possible
credit problems of borrowers causes management to have serious concerns
as to the ability of the borrowers to comply with loan repayment terms
and may result in disclosure of the loans as nonaccrual, 90 days past
due or restructured.  Allowances are established by the Board of
Directors on a quarterly basis based on an assessment of risk in the
Bank's assets taking into consideration the composition and quality of
the portfolio, delinquency trends, current charge-off and loss
experience, loan concentrations, the state of the real estate market,
regulatory reviews conducted in the regulatory examination process and
economic conditions generally. Additional provisions for losses on loans
are made in order to bring the allowance to a level deemed adequate. 
Specific reserves will be provided for individual assets, or portions of
assets, when ultimate collection is considered improbable by management
based on the current payment status of the assets and the fair value of
the security. At the date of foreclosure or other repossession or at the
date the Bank determines a property is an "in-substance foreclosed"
property, the Bank would transfer the property to real estate acquired
in settlement of loans at the lower of cost or fair value less estimated
selling costs.  Any portion of the outstanding loan balance in excess of
fair value less estimated selling costs would be charged off against the
allowance for loan losses.  If, upon ultimate disposition of the
property, net sales proceeds exceed the net carrying value of the
property, a gain on sale of real estate would be recorded.

     OCC policy requires maintenance of an adequate allowance for loan
and lease losses and an effective loan review system. This policy
includes an arithmetic formula for checking the reasonableness of an
institution's allowance for loan loss estimate compared to the average
loss experience of the industry as a whole.  Examiners will review an
institution's allowance for loan losses and compare it against the sum
of the following:  (i) up to 60% of the portfolio that is classified
doubtful; (ii) up to 25% of the portfolio that is classified as
substandard; and (iii) for the portions of the portfolio that have not
been classified (including those loans designated as special mention),
estimated credit losses over the upcoming 12 months given the facts and
circumstances as of the evaluation date.  This amount is considered
neither a "floor" nor a "safe harbor" of the level of allowance for loan
losses an institution should maintain, but examiners will view a
shortfall relative to the amount as an indication that they should
review management's policy on allocating these allowances to determine
whether it is reasonable based on all relevant factors.

                                - 12 -
<PAGE>
<PAGE>


     The following table sets forth an analysis of the Bank's allowance
for loan losses for the periods indicated.  There were $141,000 of loans
charged off during 1998.

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31, 
                                                         -----------------------
                                                           1998           1997
                                                           ----           ----
                                                         (DOLLARS IN THOUSANDS)
<S>                                                        <C>           <C>
          Balance at beginning of period                   $400           $300
          Charge-offs                                      (141)           (60)
          Recoveries                                          7              4
          Provision for loan losses                         106            156
                                                           ----           ----
          Balance at end of period                         $372           $400
                                                           ====           ====
          Ratio of net charge-offs to average
            loans outstanding during the period            0.32%          0.12%
</TABLE>

     The following table allocates the allowance for loan losses by
loan category at the dates indicated. The allocation of the allowance to
each category is not necessarily indicative of future losses and does
not restrict the use of the allowance to absorb losses in any category.

<TABLE>
<CAPTION>
                                                              AT DECEMBER 31, 
                                           ----------------------------------------------------
                                                   1998                          1997 
                                           ----------------------        ----------------------
                                                       PERCENT OF                    PERCENT OF
                                                       LOANS IN                      LOANS IN
                                                      CATEGORY TO                   CATEGORY TO
                                           AMOUNT     TOTAL LOANS        AMOUNT     TOTAL LOANS 
                                           ------     -----------        ------     -----------
                                                          (DOLLARS IN THOUSANDS)
<S>                                        <C>          <C>              <C>         <C>
Real estate - mortgage:
One- to four-family residential             $286          77.00%          $318          79.62%
Multi-family residential                      10           2.78             12           3.04
Construction                                   7           1.77              3           0.81
Church                                        17           4.52             15           3.68
Commercial                                    32           8.57             27           6.66
Consumer                                      20           5.36             25           6.19
                                            ----         ------           ----         ------
Total allowance for loan losses             $372         100.00%          $400         100.00%
                                            ====         ======           ====         ======
</TABLE>


INVESTMENT ACTIVITIES

     The Bank is permitted under federal law to make certain
investments, including investments in securities issued by various
federal agencies and state and municipal governments, deposits at the
FHLB of Chicago, mortgage-backed and related securities, certificates of
deposits in federally insured institutions, certain bankers' acceptances
and federal funds.  It also may invest, subject to certain limitations,
in commercial paper having one of the two highest investment ratings of
a nationally recognized credit rating agency, and certain other types of
corporate debt securities and mutual funds. Federal regulations require
the Bank to maintain an investment in FHLB and Federal Reserve stock and
a minimum amount of liquid assets which may be invested in cash and
specified securities.

     The investment policy of the Company and the Bank currently allows
for investment in various types of mortgage-backed and related
securities, liquid assets, including United States Government and Agency
securities, time deposits at the FHLB of Chicago, certificates of
deposit or bankers' acceptances at other federally insured depository
institutions subject to certain limitations, and obligations of states
and political subdivisions. Generally, the objectives of the Bank's
investment policy are to  (i) maximize returns, (ii) provide and
maintain liquidity within the guidelines of OCC regulations, (iii)
maintain a balance of high-quality, diversified investments to minimize
risk, (iv) provide collateral for pledging requirements, (v) serve as a
counter-cyclical balance to the loan portfolio, (vi) manage interest
rate risk, 

                                - 13 -
<PAGE>
<PAGE>

and (vii) insure compliance with all regulatory requirements. In
accordance with the investment policy, at December 31, 1998, the Company
and the Bank had investments in U.S. Government and agency notes,
obligations of state and political subdivisions, interest-earning
deposits and certificates of deposit and FHLB of Chicago stock and
Federal Reserve stock. 

     Mortgage-Backed and Related Securities.  Mortgage-backed
securities represent a participation interest in a pool of single-family
or multi-family mortgages, the principal and interest payments on which
are passed from the mortgage originators through intermediaries that
pool and repackage the participation interest in the form of securities
to investors such as the Bank. Such intermediaries may include quasi-
governmental agencies such as GNMA, which are guaranteed as the payment
of principal and interest by the U.S. Government, and FHLMC and FNMA,
which are guaranteed by those agencies only. Mortgage-backed securities
generally increase the quality of the Bank's assets by virtue of the
guarantees that back them, are more liquid than individual mortgage
loans and may be used to collateralize borrowings or other obligations
of the Bank.

     Mortgage-backed securities typically are issued with stated
principal amounts and the securities are backed by pools of mortgages
that have loans with interest rates that are within a range and have
similar maturities. The underlying pool of mortgages can be composed of
either fixed-rate or adjustable-rate mortgage loans. Mortgage-backed
securities generally are referred to as mortgage participation
certificates or pass-through certificates. As a result, the interest
rate risk characteristics of the underlying pool of mortgages, i.e.,
fixed-rate or adjustable-rate, as well as prepayment risk, are passed on
to the certificate holder.  The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages.

     The actual maturity of a mortgage-backed security varies,
depending on when the mortgagors prepay or repay the underlying
mortgages.  Prepayments of the underlying mortgages may shorten the life
of the investment, thereby adversely affecting its yield to maturity and
the related market value of the mortgage-backed security. The yield is
based upon the interest income and the amortization of the premium or
accretion of the discount related to the mortgage-backed security. 
Premiums and discounts on mortgage-backed securities are amortized or
accredited over the estimated term of the securities using a level yield
method.  The prepayment assumptions used to determine the amortization
period for premiums and discounts can significantly affect the yield of
the mortgage-backed security, and these assumptions are reviewed
periodically to reflect the actual prepayment.  The actual prepayments
of the underlying mortgages depend on many factors, including the type
of mortgage, the coupon rate, the age of the mortgages, the geographical
location of the underlying real estate collateralizing the mortgages and
general levels of market interest rates. The difference between the
interest rates on the underlying mortgages and the prevailing mortgage
interest rates is an important determinant in the rate of prepayments. 
During periods of falling mortgage interest rates, prepayments generally
increase, and, conversely, during periods of rising mortgage interest
rates, prepayments generally decrease.  If the coupon rate of the
underlying mortgage significantly exceeds the prevailing market interest
rates offered for mortgage loans, refinancing generally increases and
accelerates the prepayment of the underlying mortgages. Prepayment
experience is more difficult to estimate for adjustable-rate mortgage-
backed securities.

     Mortgage-related securities are typically issued by a special
purpose entity, which may be organized in a variety of legal forms, such
as a trust, a corporation or a partnership.  The entity aggregates pools
of pass-through securities, which are used to collateralize the
mortgage-related securities.  Once combined, the cash flows can be
divided into "tranches" or "classes" of individual securities, thereby
creating more predictable average lives for each security than the
underlying pass-through pools.  Accordingly, under this security
structure, all principal paydowns from the various 

                                - 14 -
<PAGE>
<PAGE>

mortgage pools are allocated to a mortgage-related securities' class or
classes structured to have priority until it has been paid off.  These
securities generally have fixed interest rates, and, as a result,
changes in interest rates generally would affect the market value and
possibly the prepayment rates of such securities.

     Some mortgage-related securities instruments are like traditional
debt instruments due to their stated principal amounts and traditionally
defined interest rate terms. Purchasers of certain other mortgage-
related securities instruments are entitled to the excess, if any, of
the issuer's cash flows.  These mortgage-related securities instruments
may include instruments designated as residual interest and are riskier
in that they could result in the loss of a portion of the original
investment.  Cash flows from residual interests are very sensitive to
prepayments and, thus, contain a high degree of interest rate risk.

     The Bank's mortgage-backed and related securities portfolio
consists primarily of seasoned fixed-rate and adjustable rate mortgage-
backed and related securities.  The Bank makes such investments in order
to manage cash flow, diversify assets and obtain yield.

     The following table sets forth the carrying value of the Company's
investments on a consolidated basis at the dates indicated.

<TABLE>
<CAPTION>
                                                     AT DECEMBER 31, 
                                                 ---------------------- 
                                                 1998              1997 
                                                 ----              ---- 
                                                     (IN THOUSANDS)
<S>                                            <C>               <C>
   Securities available for sale:<F1>
      U.S. Government and agency and
        municipal securities                   $ 1,145           $ 1,714
      Collateral mortgage obligations               --                --
      Mortgage-backed securities                   661             1,249

   Securities held to maturity:
      U.S. government and agency and
        municipal securities                     5,287             5,627
      Mortgage-backed securities                 4,251             5,737
                                               -------           -------
        Total investment securities             11,344            14,327

   Cash and cash equivalents                    10,220             3,319
   Certificates of deposit                       1,379                95
   FHLB and FRB stock                              539               577
                                               -------           -------
        Total investments                      $23,482           $18,318
                                               =======           =======
<FN>
_________________
  
<F1> The carrying value of securities available for sale is the market
value.

</TABLE>


                                - 15 -
<PAGE>
<PAGE>

   The following table sets forth information in the scheduled
maturities, amortized cost, market values and average yields for the
Company's investment and mortgage-backed securities portfolio at
December 31, 1998.

<TABLE>
<CAPTION>

                       ONE YEAR OR LESS    ONE TO FIVE YEARS  FIVE TO TEN YEARS  MORE THAN TEN YEARS  TOTAL INVESTMENT PORTFOLIO 
                       ----------------    -----------------  -----------------  -------------------  --------------------------
                       CARRYING AVERAGE    CARRYING AVERAGE    CARRYING AVERAGE    CARRYING AVERAGE    CARRYING  MARKET AVERAGE
                         VALUE   YIELD       VALUE   YIELD       VALUE   YIELD       VALUE   YIELD      VALUE    VALUE   YIELD 
                       ---------------------------------------------------------------------------------------------------------
Securities available
 for sale:                                                     (DOLLARS IN THOUSANDS)
<S>                     <C>      <C>        <C>      <C>         <C>     <C.        <C>      <C>       <C>      <C>      <C>
  U.S. government,
   agency and
   municipal securities $  252   6.34%      $  893   6.14%       $ --      --%      $   --     --%     $ 1,145  $ 1,145  6.18%
  Mortgage-backed
   securities              532   6.87          129   6.91          --      --           --     --          661      661  6.88

Securities held 
 to maturity:
  U.S. government, 
   agency and
   municipal securities  3,704   5.45        1,358   6.17         225    5.38           --     --        5,287    5,320  5.63
  Mortgage-backed                                        
   securities               --     --        2,649   6.01         548    6.94        1,054   7.45        4,251    4,285  6.49
                        ------              ------               ----               ------             -------  -------       

Total                   $4,488   5.67%      $5,029   6.10%       $773    6.48%      $1,054   7.45%     $11,344  $11,411  6.08%
                        ======              ======               ====               ======             =======  =======       

</TABLE>

                                - 16 -



<PAGE>
<PAGE>

DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS

     General.  Deposits are the primary source of the Bank's funds for
lending, investment activities and general operational purposes. In
addition to deposits, the Bank derives funds from loan principal and
interest repayments, maturities of investment securities and mortgage-
backed and related securities and interest payments thereon. Although
loan repayments are a relatively stable source of funds, deposit inflows
and outflows are significantly influenced by general interest rates and
money market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds, or on a longer
term basis for general operational purposes.

     Deposits.  The Bank attracts deposits principally from within its
market area by offering a variety of deposit instruments, including
checking accounts, NOW accounts, regular savings accounts, Individual
Retirement Accounts, and certificates of deposit which range in maturity
from 90 days to three years. Deposit terms vary according to the minimum
balance required, the length of time the funds must remain on deposit
and the interest rate. Maturities, terms, service fees and withdrawal
penalties for its deposit accounts are established by the Bank on a
periodic basis. The Bank reviews its deposit mix and pricing on a weekly
basis. In determining the characteristics of its deposit accounts, the
Bank considers the rates offered by competing institutions, funds
acquisition and liquidity requirements, growth goals and federal
regulations. Management believes it prices its deposits comparably to
rates offered by its competitors.  The Bank does not accept brokered
deposits.

     The Bank competes for deposits with other institutions in its
market areas by offering deposit instruments that are competitively
priced and by providing customer service through convenient and
attractive offices, knowledgeable and efficient staff and hours of
service that meet customers' needs. Substantially all of the Bank's
depositors are Illinois residents.

     Savings deposits in the Company on a consolidated basis at
December 31, 1998 were represented by the various types of savings
programs described below.

<TABLE>
<CAPTION>

    INTEREST   MINIMUM                                     MINIMUM        BALANCES    PERCENTAGE OF
      RATE      TERM               CATEGORY                 AMOUNT      IN THOUSANDS  TOTAL SAVINGS
    --------   -------             --------                -------      ------------  -------------
<S>           <C>         <C>                              <C>            <C>           <C>
      N/A%    None        Non-interest bearing accounts        N/A         $ 1,042          2.03%
   3.84-4.23  None        Passbook accounts                $ 10.00           7,222         14.04
   2.83-3.33  None        NOW accounts                       50.00           7,669         14.92
     4.08     12 Month    Christmas Club                      5.00              10           .02

                          Certificates of Deposit 
                          -----------------------
   4.30-4.32  91 days     Fixed-term, fixed-rate             2,500             441           .86
   4.74-4.82  6 month     Fixed-term, fixed-rate             2,500           3,708          7.21
   5.30-5.37  12 month    Fixed-term, fixed-rate               500           7,413         14.42
   5.73-5.77  18 month    Fixed-term, fixed-rate               500           5,822         11.32
   5.86-5.91  30 month    Fixed-term, fixed-rate               500           6,364         12.38
   5.60-5.98  3 year      Fixed-term, fixed-rate               500             863          1.68
   5.95-6.05  4 year      Fixed-term, fixed-rate               500             402           .78
   5.43-5.79  5 year      Fixed-term, fixed-rate               500             614          1.19
   6.04-6.26  6 year      Fixed-term, fixed-rate               500           1,095          2.13
   6.49-6.85  8 year      Fixed-term, fixed-rate               500           1,393          2.71
   5.80-5.93  IRAs        Fixed-term, fixed-rate               100           3,292          6.40
   4.29-5.97  Variable    Fixed-term, fixed-rate           100,000           4,007          7.79
     5.98     3 year<F1>  Fixed-term, adjustable-rate        5,000              60           .12
                                                                           -------        -------
                                                                           $51,417        100.00%
<FN>                                                                       =======        ======
_________________
<F1>   Customer has option at any time during term of certificate 
       to request a one-time increase to the then-prevailing 3 year 
       certificate of deposit rate.
</TABLE>


                                - 17 -

<PAGE>
<PAGE>


     The following table sets forth the change in dollar amount of
deposits in the various types of accounts offered by the Company between
the dates indicated.

<TABLE>
<CAPTION>
                                                                         INCREASE
                                           BALANCE AT                (DECREASE) FROM    BALANCE AT               
                                          DECEMBER 31,       % OF      DECEMBER 31,    DECEMBER 31,       % OF
                                              1998         DEPOSITS        1997            1997         DEPOSITS 
                                          ------------     --------  ---------------   ------------     -------- 
                                                                    (DOLLARS IN THOUSANDS)

<S>                                        <C>             <C>          <C>             <C>             <C>
Non-interest bearing accounts               $ 1,042           2.03%      $   375         $   667           1.23%
Passbook and regular savings                  7,222          14.04           167           7,055          13.06
NOW                                           7,669          14.91        (1,199)          8,868          16.42
Christmas club                                   10            .02             2               8           0.01
Certificates of deposit                      32,077          62.39        (1,899)         33,976          62.90
IRA                                           3,397           6.61           (51)          3,448           6.38
                                            -------         ------       -------         -------         ------

   Total                                    $51,417         100.00%      $(2,605)        $54,022         100.00%
                                            =======         ======       =======         =======         ======
</TABLE>


     The following table sets forth the average month-end balances and
interest rates for interest-bearing demand deposits and time deposits
for the periods indicated.

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,       
                                            ----------------------------------------------------- 
                                                     1998                          1997               
                                            -----------------------       ----------------------- 
                                            AVERAGE         AVERAGE       AVERAGE         AVERAGE
                                            BALANCE           RATE        BALANCE           RATE               
                                            -------         -------       -------         ------- 
                                                           (DOLLARS IN THOUSANDS)
<S>                                         <C>               <C>         <C>               <C>
Savings deposits                            $ 7,105           3.92%       $ 6,934           3.96%
Interest-bearing demand deposits              8,062           2.86          9,059           2.83
Certificates of deposits                     36,135           5.69         36,295           5.68
                                            -------                       -------
   Total                                    $51,302                       $52,288               
                                            =======                       =======
</TABLE>
 
      The following table indicates the amount of the Bank's
certificates of deposit of $100,000 or more by time remaining until
maturity as of December 31, 1998 and at such date represented 7.79% of
total deposits and had a weighted average rate of 5.90%.  The Bank's
certificates of deposit in excess of $100,000 primarily consist of
deposits from individual retail customers.  To the extent the Bank is
unable to replace maturing deposits, it may sell investment securities
classified as available for sale.

<TABLE>
<CAPTION>
                                                         CERTIFICATES
MATURITY PERIOD                                           OF DEPOSITS
---------------                                          ------------
                                                        (IN THOUSANDS)
<S>                                                        <C>
Three months or less                                        $  755
Over three months through six months                           868
Over six months through 12 months                              486
Over 12 month                                                1,898
                                                            ------
Total                                                       $4,007
                                                            ======
</TABLE>

     Borrowings.  Savings deposits historically have been the primary
source of funds for the Bank's lending, investments and general
operating activities. The Bank is authorized, however, to use advances
from the FHLB of Chicago to supplement its supply of lendable funds and
to meet deposit withdrawal requirements. The FHLB of Chicago functions
as a central reserve bank providing credit for savings institutions and
certain other member financial institutions. As a member of the FHLB
System, the Bank is required to own stock in the FHLB of Chicago and is
authorized to apply for advances. Advances are made pursuant to several
different programs, each of which has its own interest rate and range of
maturities.  There were no FHLB advances outstanding at December 31,
1998.


                                - 18 -
<PAGE>
<PAGE>

     The following table sets forth certain information regarding short-
term borrowings by the Bank at the dates and for the periods indicated.

<TABLE>
<CAPTION>
                                                                  AT DECEMBER 31,                                           
                                                                ------------------
                                                                1998          1997 
                                                                ----          ----
                                                              (DOLLARS IN THOUSANDS)
<S>                                                           <C>           <C>
    Amounts outstanding at end of period:
      FHLB advances                                            $  --         $  750

    Rate paid on:
      FHLB advances                                               --%          5.86%

    Maximum amount of borrowings outstanding
      at end of any month end:
      FHLB advances                                            $ 750         $1,750

    Approximate average short-term borrowings
      outstanding with respect to:
      FHLB advances                                               45          1,375

    Approximate weighted average rate paid on:
      FHLB advances                                             5.86%          5.69%

<FN>
________________
<F1>  Based on month-end balances.
</TABLE>


SUBSIDIARY ACTIVITIES

    The Bank has one subsidiary service corporation, Herrin First
Service Corporation.  Herrin First Service Corporation was formed in
1971 by the Bank for the purpose of developing a residential subdivision
located in Herrin.  Such development was completed and all lots were
subsequently sold.  No further development activities have been
undertaken or are planned, and the subsidiary is inactive.  Its assets
consist of various liquid assets totaling $243,000.

PERFORMANCE RATIOS

    The table below sets forth certain performance ratios of the
Company at or for the years indicated.

<TABLE>
<CAPTION>
                                                                            AT OR FOR THE YEAR ENDED
                                                                                  DECEMBER 31,        
                                                                              ------------------------
                                                                              1998           1997 
                                                                              ----           ---- 
<S>                                                                         <C>          <C>
  PERFORMANCE RATIOS:
    Return on assets (net income divided by average
      total assets)                                                            -.21%          0.24%
    Return on average shareholders' equity (net income
      divided by average shareholders' equity)                                -1.14           1.33
    Interest rate spread (combined weighted average
      interest rate earned less combined weighted 
      average interest rate cost)                                              2.34           2.41
    Ratio of average interest-earning assets to average
      interest-bearing liabilities                                           118.60         119.63
    Ratio of noninterest expense to average total assets                       3.43           2.84

</TABLE>

                                - 19 -
<PAGE>
<PAGE>

COMPETITION

     The Bank faces strong competition both in originating real
estate, agriculture, automobile, consumer and other loans and in
attracting deposits. The Bank competes for real estate and other loans
principally on the basis of interest rates, the types of loans it
originates and the quality of services it provides to borrowers. Its
competition in originating real estate loans comes primarily from other
savings institutions, commercial banks and mortgage bankers making
loans secured by real estate located in the Bank's market area.
Commercial banks, credit unions and finance companies provide vigorous
competition in consumer lending. Competition may increase as a result
of the continuing reduction of restrictions on the interstate
operations of financial institutions.

EMPLOYEES

     As of December 31, 1998, the Company and the Bank had 22 full-
time employees and 2 part-time employees, none of whom was covered by a
collective bargaining agreement.  Management considers the Company and
the Bank's relationships with such employees to be good.

SUPERVISION AND REGULATION

     General.  As a bank holding company, the Company is subject to
regulation under the BHCA and its examination and reporting
requirements.  Under the BHCA, a bank holding company may not directly
or indirectly acquire the ownership or control of more than 5% of the
voting shares or substantially all of the assets of any company,
including a bank or savings and loan association, without the prior
approval of the Federal Reserve.  In addition, bank holding companies
are generally prohibited under the BHCA from engaging in nonbanking
activities, subject to certain exceptions.

     The Company and the Bank are subject to supervision and
examination by applicable federal banking agencies.  The earnings of
the Bank, and therefore, the earnings of the Company, are affected by
general economic conditions, management policies and the legislative
and governmental actions of various regulatory authorities, including
the Federal Reserve, the FDIC and the OCC.  In addition, there are
numerous governmental requirements and regulations that affect the
activities of the Company and the Bank.

     Certain Transactions with Affiliates.  There are various legal
restrictions on the extent to which a bank holding company and certain
of its nonbank subsidiaries can borrow or otherwise obtain credit from
its bank subsidiaries.  In general, these restrictions require that any
such extensions of credit must be on non-preferential terms and secured
by designated amounts of specified collateral and be limited, as to the
holding company or any one of such nonbank subsidiaries, to 10% of the
lending institution's capital stock and surplus and, as to the holding
company and all such nonbank subsidiaries in the aggregate, to 20% of
such capital stock and surplus.

     Payment of Dividends.  The Company is a legal entity separate and
distinct from the Bank.  The principal source of the Company's revenues
is dividends from the Bank.  Various federal statutory provisions limit
the amount of dividends the Bank can pay to the Company without
regulatory approval.  The approval of the OCC is required for any
dividend if the total of all dividends declared in any calendar year
would exceed the total of the Bank's net profits, as defined by the
OCC, for such year combined with its retained net profits for the
preceding two years.  In addition, a national bank may not pay a
dividend in an amount greater than its net profits then on hand.  The
payment of dividends by the Bank also may be affected by other factors,
such as the maintenance of adequate capital.


                                - 20 -

<PAGE>
<PAGE>
     Capital Adequacy.  The Federal Reserve has issued standards for
measuring capital adequacy for bank holding companies.  These standards
are designed to provide risk-responsive capital guidelines and to
incorporate a consistent framework for use by financial institutions
operating in major international financial markets. The banking
regulators have issued standards for banks that are similar to, but not
identical with, the standards for bank holding companies.

     In general, the risk-related standards require financial
institutions and financial institution holding companies to maintain
certain capital levels based on "risk-adjusted" assets, so that
categories of assets with potentially higher credit risk will require
more capital backing than categories with lower credit risk.  In
addition, banks and bank holding companies are required to maintain
capital to support off balance sheet activities such as loan
commitments.  The Company and the Bank exceed all applicable capital
adequacy standards.

     Support of the Bank.  Under Federal Reserve policy, the Company
is expected to act as a source of financial strength to the Bank and to
commit resources to support the Bank in circumstances where it might
not choose to do so absent such a policy.  This support may be required
at times when the Company may not find itself able to provide it.  In
addition, any capital loans by the Company to the Bank also would be
subordinate in right of payment to deposits and certain other
indebtedness of such subsidiary.

     Consistent with this policy regarding bank holding companies
serving as a source of financial strength for their subsidiary banks,
the Federal Reserve has stated that, as a matter of prudent banking, a
bank holding company generally should not maintain a rate of cash
dividends unless its net income available to common shareholders has
been sufficient to fully fund the dividends, and the prospective rate
of earnings retention appears consistent with the bank holding
company's capital needs, asset quality and overall financial condition.

     FIRREA and FDICIA.  The Financial Institutions Reform, Recovery
and Enforcement Act of 1989, as amended ("FIRREA"), contains a cross-
guarantee provision that could result in insured depository
institutions owned by the Company being assessed for losses incurred by
the FDIC in connection with assistance provided to, or the failure of,
any other insured depository institution owned by the Company.  Under
FIRREA, failure to meet the capital guidelines could subject a banking
institution to a variety of enforcement remedies available to federal
regulatory authorities, including the termination of deposit insurance
by the FDIC.

     The Federal Deposit Insurance Corporation Improvement Act of
1991, as amended ("FDICIA"), made extensive changes to the federal
banking laws.  FDICIA instituted certain changes to the supervisory
process, including provisions that mandate certain regulatory agency
actions against undercapitalized institutions within specified time
limits.  FDICIA contains various other provisions that may affect the
operations of banks and savings institutions.

     The prompt corrective action provision of FDICIA requires the
federal banking regulators to assign each insured institution to one of
five capital categories ("well capitalized," "adequately capitalized"
or one of three "undercapitalized" categories) and to take
progressively more restrictive actions based on the capital
categorization, as specified below.  Under FDICIA, capital requirements
include a leverage limit, a risk-based capital requirement and any
other measure of capital deemed appropriate by the federal banking
regulators for measuring the capital adequacy of an insured depository
institution.  All institutions, regardless of their capital levels, are
restricted from making any capital distribution or paying any
management fees that would cause the institution to fail to satisfy the
minimum levels for any relevant capital measure.

                                - 21 -

<PAGE>
<PAGE>


     The FDIC, the OCC and the Federal Reserve adopted capital-related
regulations under FDICIA.  Under those regulations, a bank will be well
capitalized if it: (i) had a total risk-based capital ratio of 10% or
greater; (ii) had a ratio of Tier I capital to risk-weighted assets of
6% or greater; (iii) had a ratio of Tier I capital to adjusted total
assets of 5% or greater; and (iv) was not subject to an order, written
agreement, capital directive or prompt corrective action directive to
meet and maintain a specific capital level for any capital measure.  An
association will be adequately capitalized if it was not "well
capitalized" and: (i) had a total risk-based capital ratio of 8% or
greater; (ii) had a ratio of Tier I capital to risk-weighted assets of
4% or greater; and (iii) had a ratio of Tier I capital to adjusted
total assets of 4% or greater (except that certain associations rated
"Composite 1" under the federal banking agencies' CAMEL rating system
in their most recent examination may be adequately capitalized if their
ratios of Tier 1 capital to adjusted total assets were 3% or greater). 
The Bank was "well capitalized" as of December 31, 1998.

     Banking agencies have adopted regulations that mandate that
regulators take into consideration concentrations of credit risk and
risks from non-traditional activities, as well as an institution's
ability to manage those risks, when determining the adequacy of an
institution's capital.  This evaluation will be made as part of the
institution's regular safety and soundness examination.  Banking
agencies also have adopted regulations requiring regulators to consider
interest rate risk (when the interest rate sensitivity of an
institution's assets does not match the sensitivity of its liabilities
or its off-balance-sheet position) in the evaluation of a bank's
capital adequacy and have established an explicit risk-based capital
charge for interest rate risk. 

     Depositor Preference Statute.  Legislation enacted in August 1993
provides a preference for deposits and certain claims for
administrative expenses and employee compensation against an insured
depository institution in the liquidation or other resolution of such
an institution by any receiver.  Such obligations would be afforded
priority over other general unsecured claims against such an
institution, including federal funds and letters of credit, as well as
any obligation to shareholders of such an institution in their capacity
as such.

     FDIC Insurance Assessments.  The Bank is subject to FDIC deposit
insurance assessments.  The FDIC has adopted a risk-based premium
schedule.  Each financial institution is assigned to one of three
capital groups well-capitalized, adequately capitalized or
undercapitalized and further assigned to one of three subgroups within
a capital group, on the basis of supervisory evaluations by the
institution's primary federal and, if applicable, state supervisors,
and on the basis of other information relevant to the institution's
financial condition and the risk posed to the applicable insurance
fund.  The actual assessment rate applicable to a particular
institution will, therefore, depend in part upon the risk assessment
classification so assigned to the institution by the FDIC.  See "--
FIRREA and FDICIA."

     Interstate Banking and Other Recent Legislation.  The Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-
Neal"), enacted in 1994, facilitates the interstate expansion and
consolidation of banking organizations by permitting (i) bank holding
companies that are adequately capitalized and managed to acquire banks
located in states outside their home states regardless of whether such
acquisitions are authorized under the law of the host state, (ii) the
interstate merger of banks, except for banks located in Montana and
Texas, which states enacted legislation to "opt out" of this authority,
(iii) banks to establish new branches on an interstate basis provided
that such action is specifically authorized by the law of the host
state, (iv) foreign banks to establish, with approval of the regulators
in the United States, branches outside their home states to the same
extent that national or state banks located in the home state would be
authorized to do so and (v) banks to receive deposits, renew time
deposits, close loans, service loans and receive payments on loans and
other obligations as agent for any bank or thrift affiliate, whether
the affiliate is located in the same state or a different state.  


                                - 22 -

<PAGE>
<PAGE>


     There also have been a number of recent legislative and
regulatory proposals designed to improve the overall financial
stability of the United States banking system and to provide for other
changes in the bank regulatory structure, including proposals to reduce
regulatory burdens on banking organizations and to expand the nature of
products and services banks and bank holding companies may offer.  It
is not possible to predict whether or in what form these proposals may
be adopted in the future and, if adopted, what their effect will be on
the Company.

ITEM 2.  DESCRIPTION OF PROPERTIES
---------------------------------- 

     The following table sets forth the location and certain additional
information regarding the Bank's offices at December 31, 1998.  The
Company believes that its facilities are adequate for its operations.

<TABLE>
<CAPTION>


                                                               BOOK VALUE AT                       DEPOSITS AT
                                YEAR           OWNED OR         DECEMBER 31,       APPROXIMATE     DECEMBER 31,
                               OPENED           LEASED              1998         SQUARE FOOTAGE        1998
                               ------           ------              ----         --------------        ----
MAIN OFFICE:                                               (DOLLARS IN THOUSANDS)
<S>                            <C>              <C>                <C>             <C>             <C>
318 South Park Avenue
Herrin, Illinois 62948          1949             Owned              $362             4,678           $45,173

BRANCH OFFICE:

New Route 13 East
Carterville, Illinois 62918     1975             Owned               124             1,895             6,244
</TABLE>


ITEM 3.  LEGAL PROCEEDINGS
-------------------------- 

     Various claims and lawsuits, incidental to its ordinary course of
business, are pending against the Company.  In the opinion of
management, after consultation with legal counsel, resolution of these
matters is not expected to have a material effect on the Company's
consolidated financial condition or results of operations.

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

      No matters were submitted to a vote of security holders during
the fourth quarter of the fiscal year ended December 31, 1998.

ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT 
----------------------------------------------- 

     The name, age and position with respect to Roger O. Hileman, the
sole executive officer of the Company, are set forth below:

     Roger O. Hileman, 44, has been the President and Chief Executive
Officer of the Company since its inception and the President and Chief
Executive Officer of the Bank since joining the Bank in June 1994.  From
1983 until he joined the Bank, Mr. Hileman was Executive Vice President
and Chief Executive Officer of Chester Savings Bank in Chester,
Illinois.  Mr. Hileman serves as a member of the Knights of Columbus and
the Rotary Club.  He also is a current member and director of the local
Chamber of Commerce, the Shagbark Girl Scout Council Board (and also
serves on the Management Committee), the City of Herrin Economic
Development Committee and the Illinois League of Financial Institutions. 
He also serves on the Finance Committee of Our Lady of Mt. Carmel
Catholic Church and is a member of various other civic organizations. 


                                - 23 -

<PAGE>
<PAGE>

                                  PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
-------------------------------------------------------------------------------

     The Common Stock is listed over the counter through the National
Daily Quotation System "Pink Sheets" published by the National Quotation
Bureau, Inc.  As of March 15, 1999, there were approximately 246
shareholders of record.

     The following table sets forth the reported high and low sale
prices of shares of the Common Stock, as well as the quarterly cash
dividends per share for the past two fiscal years as reported on the
National Daily Quotation System "Pink Sheets."

<TABLE>
<CAPTION>

                                                  MARKET PRICE
                                                 -------------               CASH
              1997                             HIGH           LOW          DIVIDENDS 
              ----                             ----           ---          ---------
<S>                                         <C>            <C>             <C>
          First Quarter                      $15.25         $14.00           $.10
          Second Quarter                      17.0625        15.25            .10
          Third Quarter                       16.25          14.75            .10
          Fourth Quarter                      16.25          15.00            .10
 
              1998
              ----
          First Quarter                      $15.50         $15.00           $.10
          Second Quarter                      15.75          14.8125          .10
          Third Quarter                       14.8125        12.00            .10
          Fourth Quarter                      14.75           9.00             --
</TABLE>

     The Company had no sales of unregistered securities during the
quarter ended December 31, 1998.

     Pursuant to the Agreement and Plan of Merger by and among Banterra
Corp., Banterra Acquisitionco, Inc. and the Company, the Company is
prohibited from declaring or paying any dividends to the shareholders of
the Company without the prior written consent of Banterra Corp.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
------------------------------------------------------------------ 
 
GENERAL

     The Company completed its initial public offering on June 28, 1996
in connection with the Conversion. A total of 876,875 shares of Common
Stock were sold which resulted in net proceeds of $7.4 million. The
Company acquired all of the capital stock of the Association (now, the
Bank) in exchange for a portion of the net proceeds.

     The Bank's net income is dependent primarily on its net interest
income, which is the difference between interest income earned on its
loan and mortgage-backed and related securities portfolio and interest
paid on interest-bearing liabilities. Net interest income is determined
by (i) the difference between yields earned on interest-earning assets
and rates paid on interest-bearing liabilities ("interest rate spread")
and (ii) the relative amounts of interest-earning assets and interest-
bearing liabilities. The Bank's interest rate spread is affected by
regulatory, economic and competitive factors that influence interest
rates, loan demand and deposit flows. To a lesser extent, the Bank's net
income also is affected by the level of non-interest income, including
fees and service charges, and by the level of its operating expenses and
provision for loan losses.

                                - 24 -


<PAGE>
<PAGE>


     The operations of the Bank are significantly affected by
prevailing economic conditions, competition and the monetary, fiscal and
regulatory policies of governmental agencies. Lending activities are
influenced by the demand for and supply of housing, competition among
lenders, the level of interest rates and the availability of funds.
Deposit flows and costs of funds are influenced by prevailing market
rates of interest, primarily on competing investments, account
maturities and the levels of personal income and savings in the Bank's
market area.

ASSET/LIABILITY MANAGEMENT

     The Bank has sought to reduce its exposure to changes in interest
rates by matching more closely the effective maturities or repricing
characteristics of its interest-earning assets and interest-bearing
liabilities. The matching of the Bank's assets and liabilities may be
analyzed by examining the extent to which its assets and liabilities are
interest rate sensitive.

     The Company's Board of Directors reviews the maturities of the
Company's assets and liabilities and establishes policies and strategies
designed to regulate the Company's flow of funds and to coordinate the
sources, uses and pricing of such funds. The first priority in
structuring and pricing the Company's and the Bank's assets and
liabilities is to maintain an acceptable interest rate spread while
reducing the net effects of changes in interest rates.

     The Bank has employed various strategies intended to minimize the
adverse effect of interest rate risk on future operations by providing a
better match between the interest rate sensitivity between its assets
and liabilities. In particular, the Bank's strategies are intended to
stabilize net interest income for the long term by protecting its
interest rate spread from increases in interest rates. Such strategies
include the origination in the loan portfolio of adjustable-rate
mortgage loans secured by one- to four-family residential real estate,
and, to a lesser extent, multi-family and commercial real estate loans
and the origination of other loans with greater interest rate
sensitivities than long-term, fixed-rate, residential mortgage loans.
For the years ended December 31, 1998 and 1997, approximately 89.29% and
40.93%, respectively, of the one- to four-family residential loans
originated by the Bank had adjustable rates. The Bank's origination of
multi-family, church and commercial real estate loans comprised 7.78%
and 17.66% of total loan originations during the same respective
periods.

     In order to increase the interest rate sensitivity of its assets,
the Company also has maintained a consistent level of short and
intermediate term investment securities and other assets. At
December 31, 1998, the Bank had $15.7 million of investment securities
and interest-bearing deposits maturing or repricing within one year and
$5.2 million of investment securities, mortgage-backed securities and
interest-bearing deposits maturing or repricing within one to five
years.

INTEREST RATE SENSITIVITY ANALYSIS

     The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest
rate sensitive" and by monitoring an institution's interest rate
sensitivity "gap." An asset or liability is said to be interest rate
sensitive within a specific period if it will mature or reprice within
that period. The interest rate sensitivity gap is defined as the
difference between the amount of interest-earning assets maturing or
repricing within a specific time period and the amount of interest-
bearing liabilities maturing or repricing within that time period. A gap
is considered positive when the amount of interest rate sensitive assets
exceeds the amount of interest rate sensitive liabilities, and is
considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. At
December 31, 1998, the Bank had a cumulative positive one-year interest
rate sensitivity gap of 21.94%, as a result of which its net interest
income could be slightly positively 

                                - 25 -

<PAGE>
<PAGE>

affected by rising interest rates and slightly negatively affected by
falling interest rates. Generally, during a period of rising interest
rates, a negative gap would adversely affect net interest income while a
positive gap would result in an increase in net interest income, while
conversely during a period of falling interest rates, a negative gap
would result in an increase in net interest income and a positive gap
would adversely affect net interest income.

     The following table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at December 31, 1998
which are expected to mature or reprice in each of the time periods
shown. This table reflects the Bank's assets only and does not reflect
the Company's consolidated balances.

<TABLE>
<CAPTION>
                                                OVER ONE    OVER FIVE   OVER TEN      OVER
                                     ONE YEAR   THROUGH      THROUGH    THROUGH      TWENTY
                                     OR LESS   FIVE YEARS   TEN YEARS TWENTY YEARS   YEARS     TOTAL
                                     --------  ----------   --------- ------------   ------    ----- 
                                                         (DOLLARS IN THOUSANDS)
<S>                                  <C>        <C>          <C>        <C>         <C>       <C>      
Interest-earning assets:
Single-family mortgage loans         $17,662    $ 8,549      $1,980     $  284      $   --    $28,475
Investment securities                  3,704      1,357         225         --          --      5,286
Mortgage-backed securities             2,475      1,975         239         83          11      4,783
Other short-term investments          11,731        198          --         --          --     11,929
Other loans                            4,057      2,975       1,122        351          --      8,505
                                     -------    -------      ------     ------      ------    -------
    Total                             39,629     15,054       3,566        718          11     58,978
                                     -------    -------      ------     ------      ------    -------
 
Interest-bearing liabilities:
NOW accounts                           1,869      3,931       1,388        408          24      7,620
Passbook/Christmas club                1,832      3,758       1,326        389          23      7,328
Time deposits.                        22,339     12,642         193        300          --     35,474
                                     -------    -------      ------     ------      ------    -------
   Total                              26,040     20,331       2,907      1,097          47     50,422
                                     -------    -------      ------     ------      ------    -------
 
Interest sensitivity gap             $13,589    $(5,277)     $  659     $ (379)     $  (36)   $ 8,556
                                     =======    =======      ======     ======      ======    =======
Cumulative interest sensitivity gap  $13,589    $ 8,312      $8,971     $8,592      $8,556    $ 8,556
                                     =======    =======      ======     ======      ======    =======
Ratio of interest-earning assets
   to interest-bearing liabilities    152.19%     74.04%     122.67%     65.45%      23.40%    116.97%
                                     =======    =======      ======     ======      ======    =======
Ratio of cumulative gap to 
   total assets                        21.94%     13.42%      14.49%     13.87%      13.82%     13.82%
                                     =======    =======      ======     ======      ======    =======
</TABLE>

     The preceding table was prepared utilizing certain assumptions
regarding prepayment and decay rates provided by a private data
processing and consulting firm.  While management believes that these
assumptions are reasonable, the actual interest rate sensitivity of the
Bank's assets and liabilities could vary significantly from the
information set forth in the table due to market and other factors.  The
following assumptions were used: (i) adjustable rate mortgage-backed
securities will prepay at the rate of 41.1% per year for six month
securities and 45.0% for one-year securities; (ii) fixed rate mortgage-
backed securities will prepay annually at the rate of 11.2%; (iii)
adjustable rate first mortgage loans on single-family residential
properties will prepay at the rate of 31.1% per year for one-year loans
and 45.0% for three-year loans; (iv) nonresidential mortgage loans will
prepay at the rate of 11.2% per year for fixed rate and 18.0% per year
for adjustable rate; (v) home equity loans will prepay at the rate of
11.2% per year; (vi) consumer loans will prepay at the rate of 16.0% per
year; and (vii) fixed rate mortgage loans on single-family residential
properties will prepay annually as follows:

              COUPON RATE             ANNUAL PREPAYMENT-RATE
              -----------             ----------------------
              7.01 to 8.00%                   21.4%
              8.01 to 9.00%                   26.2
              9.01 to 10.00%                  24.1
              10.01 to 12.00%                 25.7

                                - 26 -
<PAGE>
<PAGE>

     In addition, it is assumed that fixed maturity deposits are not
withdrawn prior to maturity and that other deposits are withdrawn or
repriced at an annual rate of 25%.

     The interest rate sensitivity of the Bank's assets and liabilities
illustrated in the table above could vary substantially if different
assumptions were used or actual experience differs from the assumptions
used.  If passbook and NOW accounts were assumed to mature in one year
or less (which does not reflect actual experience), the Bank's one-year
gap would have been substantially negative.

     Certain shortcomings are inherent in the method of analysis
presented in the preceding table setting forth the maturing and
repricing of interest-earning assets and interest-bearing liabilities. 
For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees
to changes in market interest rates.  The interest rates on certain
types of assets and liabilities may fluctuate in advance of change in
market interest rates, while interest rates on other types may lag
behind changes in market rates.  Additionally, certain assets, such as
adjustable rate loans, have features which restrict changes in interest
rates on a short-term basis and over the life of the assets.  In
addition, the proportion of adjustable rate loans in the Bank's
portfolio could decrease in future periods if market interest rates
remain at or decrease below current levels due to refinancing activity. 
Further, in the event of a change in interest rates, prepayment and
early withdrawal levels would likely deviate significantly from those
assumed in the table.  Finally, the ability of many borrowers to service
their adjustable rate debt may decrease in the event of an interest rate
increase.

                                - 27 -
<PAGE>
<PAGE>

AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND RATES

     The following table sets forth certain information relating to the
Company's average interest-earning assets and interest-bearing
liabilities and reflects the average yield on assets and average cost of
liabilities for the periods and at the date indicated.  Such yields and
costs are derived by dividing income or expense by the average monthly
balance of assets or liabilities, respectively, for the periods
presented.  Average balances are derived from month-end balances. 
Management does not believe that the use of month-end balances instead
of daily balances has caused any material difference in the information
presented.  The table also presents information for the periods and at
the date indicated with respect to the difference between the average
yield earned on interest-earning assets and average rate paid on
interest-bearing liabilities, or "interest rate spread," which savings
institutions have traditionally used as an indicator of profitability. 
Another indicator of an institution's net interest income is its "net
yield on interest-earning assets," which is its net interest income
divided by the average balance of interest-earning assets. Net interest
income is affected by the interest rate spread and by the relative
amounts of interest-earning assets and interest-bearing liabilities. 
When interest-earning assets approximate or exceed interest-bearing
liabilities, any positive interest rate spread will generate net
interest income.

<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                       1998                              1997 
                                         ------------------------------------------------------------------           
                                                                 AVERAGE                            AVERAGE
                                                                  YIELD/                             YIELD/
                                         BALANCE     INTEREST      COST     BALANCE    INTEREST       COST
                                         -------     --------    -------    -------    --------     -------
                                                                (DOLLARS IN THOUSANDS)
<S>                                      <C>          <C>        <C>        <C>         <C>         <C>
Interest-earning assets:
   Loans receivable                      $41,280      $3,355       8.13%    $44,841     $3,526        7.86%
   Investment securities                   6,408         386       6.02       9,097        562        6.18
   Mortgage-backed securities              5,865         371       6.33       8,257        539        6.53
   Short-term investments and other
     interest-earning assets               7,342         335       4.56       2,000        111        5.53
                                         -------      ------                -------     ------
   Total interest-earning assets          60,895       4,447       7.30      64,195      4,738        7.38
                                                      ------                            ------
Noninterest-earning assets                 3,518                              2,683
                                         -------                            -------
   Total assets                          $64,413                            $66,878
                                         =======                            =======

Interest-bearing liabilities:
   Deposits                              $51,302      $2,544       4.96     $52,288     $2,587        4.95
   FHLB advances                              45           3       6.46       1,375         78        5.69
                                         -------      ------                -------     ------
   Total interest-bearing liabilities     51,347       2,547       4.96      53,663      2,665        4.97
                                                      ------                           -------

   Noninterest-bearing liabilities         1,455                                946
                                         -------                            -------
   Total liabilities                      52,802                             54,609

Shareholder's equity                      11,611                             12,269
                                         -------                            -------
   Total liabilities and 
   shareholder's equity                  $64,413                            $66,878
                                         =======                            =======

Net interest income                                   $1,900                            $2,073
                                                      ======                            ======
Interest rate spread                                               2.34%                              2.41%
                                                                 ======                             ======
Net yield on interest-earning assets                               3.12%                              3.23%
                                                                 ======                             ======
Ratio of average interest-earning
   assets to average interest-bearing
   liabilities                                                   118.60%                            119.63%
                                                                 ======                             ======
</TABLE>

RATE/VOLUME ANALYSIS

   The table below sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods
indicated. For each category of interest-earning asset and

                                - 28 -
<PAGE>
<PAGE>

interest-bearing liability, information is provided on changes
attributable to: (i) changes in volume (changes in volume multiplied
by old rate); (ii) changes in rate (change in rate multiplied by old
volume) and (iii) changes in rate-volume (changes in rate multiplied
by the changes in volume).

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                ----------------------------------------            
                                                       1997        VS.        1998
                                                ----------------------------------------           
                                                            INCREASE (DECREASE)
                                                                 DUE TO
                                                ----------------------------------------
                                                                        RATE/           
                                                VOLUME       RATE      VOLUME      TOTAL
                                                ------       ----      ------      -----           
                                                             (IN THOUSANDS)
<S>                                             <C>          <C>        <C>       <C>
Interest income:                                $(282)       $121       $(10)     $(171)
   Loans receivable                              (166)        (14)         4       (176)
   Investment securities                         (156)        (17)         5       (168)
   Mortgage-backed securities                         
   Short-term investments and
     other interest-earning assets                295         (19)       (52)       224
                                                -----        ----       ----      -----
       Total interest-earning assets             (309)         71        (53)      (291) 
                                                -----        ----       ----      -----
 Interest expense:
   Deposits                                       (49)          5          1        (43)
   FHLB advances                                  (76)         11        (10)       (75)
                                                -----        ----       ----      -----
       Total interest-bearing liabilities        (125)         16         (9)      (118) 
                                                -----        ----       ----      -----

 Change in net interest income                  $(184)       $ 55       $(44)     $(173)
                                                =====        ====       ====      =====
</TABLE>

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND DECEMBER 31,
1997

     The Company's total assets decreased by $4.1 million, or 6.13%,
from $67.5 million at December 31, 1997 to $63.3 million at December 31,
1998.  The decrease was due primarily to decreases of $9.9 million in
loans receivable and $3.0 million in investment and mortgage-backed
securities.  These decreases were partially offset by an increase of
$8.5 million in cash, cash equivalents and certificates of deposit from
December 31, 1997 to December 31, 1998.

     The Company's loan portfolio decreased by $9.9 million, or 21.43%,
from $46.3 million at December 31, 1998 to $36.4 million at December 31,
1998.  The decrease in loan activity during the period is attributed to
the level of repayments on existing loans exceeding new loan demand for
the year ended December 31, 1998.

     The allowance for loan losses totaled $372,000 and $400,000 at
December 31, 1998 and 1997, respectively.  The allowance for loan losses
as a percentage of non-performing loans was 75.46% and 64.62% as of
December 31, 1998 and 1997, respectively.  During 1998, net loan charge-
offs amounted to $134,000.  An additional provision of $106,000 was made
during the year.  The determination of the allowance for loan losses is
based on management's analysis, performed on a quarterly basis, of
various factors, including the market value of the underlying
collateral, the decline in the size of the loan portfolio, the
relationship of the allowance for loan losses to outstanding loans,
historical loss experience, delinquency trends and prevailing economic
conditions.  Although management believes its allowance for loan losses
is adequate, there can be no assurance that additional allowances will
not be required or that losses on loans will not be incurred.

     At December 31, 1998, the ratio of non-performing loans to total
loans was 1.36%, as compared to 1.34% at December 31, 1997.  The small
increase in the ratio was primarily due to the decrease in the total
amount of the loan portfolio.  The effect on the ratio caused by this
decrease was largely offset by a decrease in the total amount of
nonperforming loans at December 31, 1998 as compared to December 31,

                                - 29 -
 

<PAGE>
<PAGE>

1997.  At December 31, 1998, the ratio of the allowance for loan losses
to total loans was 1.02%, as compared to 0.86% at December 31, 1997. 
The increase in this ratio was again due to the decrease in the total
amount of loans outstanding at December 31, 1998 as compared to December
31, 1997.

     At December 31, 1998, the Company's investment portfolio included
mortgage-backed and related securities classified as available-for-sale
carried at a market value of $661,000 and mortgage-backed and related
securities classified as held-to-maturity totaling $4.3 million.  The
balance of the Company's investment portfolio at December 31, 1998
consisted of investment securities classified as available-for-sale
totaling $1.1 million and investment securities classified as held-to-
maturity totaling $5.3 million.

     The Company's total portfolio of investment and mortgage-backed
and related securities totaled $11.3 million at December 31, 1998, a
decrease of $3.0 million from $14.3 million at December 31, 1997.  This
decrease was due to maturities and sales of investment and mortgage-
backed securities totaling $3.4 million and principal payments received
on mortgage-backed securities totaling $2.3 million during 1998.  This
decrease was partially offset by securities purchases of $2.7 million
during 1998.  During the year ended December 31, 1998, the Company's
portfolio of investment securities and mortgage-backed and related
securities classified as available-for-sale increased capital by $12,000
(net of taxes) as a result of an increase in the market value of such
securities classified as available-for-sale pursuant to Statement of
Financial Accounting Standards No. 115.

     Total liabilities decreased by $3.3 million, or 5.94%, from $55.3
million at December 31, 1997 to $52.0 million at December 31, 1998. 
Total deposits decreased by $2.6 million, or 4.82%, from $54.0 million
at December 31, 1997 to $51.4 million at December 31, 1998.  The
decrease in total liabilities was primarily attributable to that
decrease in deposits, and to the $750,000 decrease in borrowings from
the FHLB during 1998.  Management attributes the decrease in deposits to
competition from other local banks to attract deposit business.  The
decrease in deposits has primarily affected the Bank's levels of one-
year and five-year maturity certificates of deposit.

     Certificates of deposit at December 31, 1998 included
approximately $2.1 million of deposits with balances of $100,000 or more
that mature within one year.  Such time deposits are inherently risky
because their continued presence in the Bank is usually dependent solely
upon the rates paid by the Bank rather than any customer relationship
and, therefore, are likely to be withdrawn upon maturity if another
institution offers higher interest rates.  The Bank may be required to
resort to other funding sources such as borrowing or sales of its
securities held available-for-sale if the Bank believes that increasing
its rates to maintain such deposits would adversely affect its operating
results.  At this time, the Bank does not believe that it will need to
significantly increase its deposit rates to maintain such certificates
of deposit and, therefore, does not anticipate resorting to alternative
funding sources.

     Historically, the Company has not made significant use of
borrowings.  However, the Bank has obtained FHLB advances as needed for
liquidity purposes.  At December 31, 1998, the Bank had no FHLB advances
outstanding.

     Total shareholders' equity at December 31, 1998 amounted to $11.3
million, a decrease of $850,000, or 7.00%, as compared to $12.1 million
at December 31, 1997.  This decrease was primarily due to the $684,000
repurchase of Company stock performed by the Company during 1998, along
with dividends of $239,000 paid on Company stock and a net loss of
$133,000 from operations.  These decreases were offset by amortization
of ESOP and Management Recognition Plan ("MRP") expense of $194,000 and
$12,000 in unrealized holding gains on securities (net of tax).  See "--
Liquidity and Capital Ratios" for a discussion of the Bank's compliance
with applicable regulatory capital requirements.

                                - 30 -
<PAGE>
<PAGE>

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1998
AND 1997

     Net Income.  The Company incurred a net loss of $133,000 for the
year ended December 31, 1998, as compared to net income of $163,000 for
the year ended December 31, 1997.  The decrease of $296,000, or 181.60%,
reflects a decrease of $173,000, or 8.35%, in net interest income.  Also
contributing to the decrease in net income were an increase of $320,000,
or 16.90%, in non-interest expense, and a decrease of $7,000, or 3.61%,
in non-interest income.  These changes were partially offset by a
$50,000 decrease in the provision for loan losses, and a decrease of
$154,000 in the provision for income taxes.

     Net Interest Income.  Net interest income decreased $173,000, or
8.35%, from $2.1 million for the year ended December 31, 1997 to $1.9
million for the year ended December 31, 1998.  This decrease was
primarily due to the decrease in the ratio of average interest-earning
assets to average interest-bearing liabilities from 119.63% for the year
ended December 31, 1997 to 118.60% for the year ended December 31, 1998,
while the net yield on interest-earning assets decreased from 2.41% for
the year ended December 31, 1997 to 2.34% for the year ended December
31, 1998.  The decrease in the net yield on interest-earning assets
resulted from a decrease in interest yields on securities and short-term
investments.  The average balance of interest-earning assets decreased
from $64.2 million for the year ended December 31, 1997 to $60.9 million
for the year ended December 31, 1998.  The interest rate spread of the
Company decreased by seven basis points from 2.41% for the year ended
December 31, 1997 to 2.34% for the year ended December 31, 1998, as the
one basis point decrease in the average cost of interest-bearing
liabilities was more than offset by the eight basis point decrease in
the average yield on interest-earning assets.

     Interest Income.  Total interest income decreased by $291,000, or
6.14%, from $4.7 million for the year ended December 31, 1997 to $4.4
million for the year ended December 31, 1998.  The decrease was due
primarily to a decrease of $3.3 million, or 5.14%, in average interest-
earning assets from $64.2 million for the year ended December 31, 1997
to $60.9 million for the year ended December 31, 1998.  The decrease in
the average interest-earning assets was primarily due to the decrease in
the average balance of loans receivable for the year ended December 31,
1998 as compared to the year ended December 31, 1997.  The decrease in
interest income also reflects an eight basis point decrease in the
average yield on interest-earning assets from 7.38% for the year ended
December 31, 1997 to 7.30% for the year ended December 31, 1998.

     Interest on loans decreased $171,000, or 4.85%, from $3.5 million
for the year ended December 31, 1997 to $3.4 million for the year ended
December 31, 1998.  The decrease in interest on loans was due to a
decrease of $3.6 million, or 7.94%, in the average balance of loans from
$44.8 million for the year ended December 31, 1997 to $41.3 million for
the year ended December 31, 1998.  The decrease in loans reflects a
decline in the new loans being originated by the Bank compared with the
level of repayments on existing loans.  The decline was primarily
reflected in a decrease in the outstanding balance of one- to four-
family residential loans in 1998 as compared with 1997.

     Interest on investment securities decreased $176,000, or 31.32%,
from $562,000 for the year ended December 31, 1997 to $386,000 for the
year ended December 31, 1998.  Such decrease was due to a decrease of
$2.7 million, or 29.56%, in the average balance of investment securities
from $9.1 million for the year ended December 31, 1997 to $6.4 million
for the year ended December 31, 1998, coupled with a 16 basis point
decrease in the average yield on such securities during the same period. 
Interest on mortgage-backed and related securities decreased $168,000,
or 31.17%, from $539,000 for the year ended December 31, 1997 to
$371,000 for the year ended December 31, 1998.  This decrease was due to
a decrease of $2.4 million, or 28.97%, in the average balance of
mortgage-backed and related securities 

                                - 31 -

<PAGE>
<PAGE>

from $8.3 million for the year ended December 31, 1997 to $5.9 million
for the year ended December 31, 1998, along with a 20 basis point
decrease in the average yield on those securities during the same
period.  Interest on short-term investments increased by $224,000, or
201.80%, from $111,000 for the year ended December 31, 1997 to $335,000
for the year ended December 31, 1998.  Such increase was due to an
increase of $5.3 million, or 267.10%, in the average balance of short-
term investments and other interest-earning assets from $2.0 million for
the year ended December 31, 1997 to $7.3 million for the year ended
December 31, 1998.  This increase was partially offset by a decrease of
97 basis points in the average yield being earned on these securities
for the year ended December 31, 1998 as compared to the year ended
December 31, 1997.  These changes reflect proceeds from sales and
maturities of securities and loan payments being reinvested to a greater
degree in interest-bearing cash and cash equivalent accounts and other
short-term investments.

     Interest Expense.  Interest expense decreased by $118,000, or
4.43%, from $2.7 million for the year ended December 31, 1997 to $2.5
million for the year ended December 31, 1998.  This decrease was
primarily due to a decrease of $2.3 million, or 4.32%, in the average
balance of interest-bearing liabilities from $53.7 million for the year
ended December 31, 1997 to $51.3 million for the year ended December 31,
1998.  This decrease in the average balance of interest-bearing
liabilities is the result of a $1.3 million decrease in the average
balance of borrowings from the FHLB, coupled with a decrease of
$986,000, or 1.89%, in the average balance of deposits from $52.3
million for the year ended December 31, 1997 to $51.3 million for the
year ended December 31, 1998.  The decrease in interest expense also
reflects a one basis point decrease in the average cost of interest-
bearing liabilities from 4.97% for the year ended December 31, 1997 to
4.96% for the year ended December 31, 1998.

     Provision for Loan Losses.  The allowance for loan losses is
established through a provision for loan losses based on management's
evaluation of the risk inherent in its loan portfolio and the general
economy.  Such evaluation is based on an analysis of various factors,
including the market value of the underlying collateral, the decline in
the size of the loan portfolio, the relationship of the allowance for
loan losses to outstanding loans, historical loss experience,
delinquency trends and prevailing and projected economic conditions. 
The Bank established a provision for loan losses of $106,000 for the
year ended December 31, 1998, a decrease of $50,000 from the $156,000
provision for loan losses made during the year ended December 31, 1997. 
The 1998 provision was deemed necessary due to net charged-off loans of
$134,000 during the year ended December 31, 1998.  Although the Company
believes that the present level of the allowance for loan losses is
adequate to reflect the risks inherent in its loan portfolio, there can
be no assurance that the Company will not experience increases in its
nonperforming assets, that it will not increase the level of the
allowance for loan losses in the future or that significant provisions
for losses will not be required based on factors such as deterioration
in market conditions, changes in borrowers' financial conditions,
delinquencies and defaults.

     Non-Interest Income.  Non-interest income decreased $7,000, or
3.61%, from $194,000 for the year ended December 31, 1997 to $187,000
for the year ended December 31, 1998.  The largest components of non-
interest income for the years ended December 31, 1998 and 1997 included
$45,000 and $50,000, respectively, in loan and other service fees and
$134,000 and $121,000, respectively, in other service charges and other
miscellaneous operating income.  In addition, the Company realized
$8,000 of realized gains on the sale of real estate owned during the
year ended December 31, 1998, as compared with $23,000 of realized gains
on the sale of investments and real estate owned during the year ended
December 31, 1997.

     Non-Interest Expense.  Non-interest expense increased $320,000, or
16.90%, from $1.9 million for the year ended December 31, 1997 to $2.2
million for the year ended December 31, 1998.  The components of this
net increase included  increases of $215,000 in legal and professional
fees and an additional expense adjustment for mortgage loan rebates of
$148,000.  These increases were partially 

                                - 32 -

<PAGE>
<PAGE>

offset by decreases of $5,000 in compensation and employee benefits
expense and net decreases of $38,000 in other expense items. 

     The increase in legal and professional services was attributed to
fees connected with ongoing litigation, expenses incurred during 1998
resulting from proxy contests involving the Company and payments for
consulting and other professional services.  The rebate adjustment is a
result of a review of interest rate adjustments made in the past
relating to adjustable rate mortgages.  This review was conducted in the
fourth quarter of 1998 by the Bank.  Based upon this review, the Bank
has determined that it is probable that rebates of excess interest
income should be made to a portion of the Bank's adjustable rate loan
customers.  The Bank currently estimates the amount of these potential
rebates at $148,300.  This amount has been recorded as a liability on
the December 31, 1998 consolidated statement of financial condition, and
has been recorded as a charge to current period operations on the
consolidated statement of income for the year ended December 31, 1998.

     Income Tax Expense.  The provision for income taxes was $(99,000)
for the year ended December 31, 1998 as compared with $55,000 for the
year ended December 31, 1997.  The $154,000 decrease was primarily due
to the decrease in income before income taxes from $218,000 for the year
ended December 31, 1997 to a loss of $232,000 for the year ended
December 31, 1998.  The negative tax expense (or tax benefit) of $99,000
for the year ended December 31, 1998 also reflects the effect of items
such as tax-exempt interest income upon the Company's income tax
computation.

YEAR 2000 COMPLIANCE MATTERS

     As with all providers of financial services, the Bank's operations
are heavily dependent on information technology systems.  The Bank is
addressing the potential problems associated with the possibility that
the computers that control or operate the Bank's information technology
systems and infrastructure may not be programmed to read four-digit date
codes and, upon arrival of the year 2000, may recognize the two-digit
code "00" as the year 1900, causing systems to fail to function or to
generate erroneous data.

     As part of the awareness, inventory and assessment phases of its
action plan related to the Year 2000 problem, the Bank has identified
the operating systems which are considered critical to the ongoing
operations of the Bank and the Company.  The Bank is working with
companies that supply or service its information technology systems to
remedy any perceived Year 2000 problems.  As a part of the
implementation of its Year 2000 action plan, the Bank has purchased a
number of new computers which have been determined to be Year 2000
compliant.

     Of the systems that the Bank has identified as mission critical,
the most significant is the on-line account processing system that is
performed by a third party service provider, NCR.  As of December 31,
1998, NCR has substantially completed its testing of internal systems,
and has completed its proxy testing by user participants and its on-line
testing.  The Bank's review of this proxy test indicates that the
transactions performed, the hardware specifications and other factors
used in the proxy test closely match the Bank's own operational
environment and available hardware.  The Bank intends to continue its
own program of appropriate testing of this and other mission critical
systems.

     The Bank is in the process of evaluating its non-technological
systems to determine whether such systems have embedded technology that
could be affected by the Year 2000 problem.  As of the date hereof, the
Bank does not anticipate that any disruption relating to such systems
will have a material adverse effect on the Bank's operations.

                                - 33 -
<PAGE>
<PAGE>

     During 1998, the Bank developed a contingency plan in the event
the mission-critical systems are not successfully renovated in a timely
manner or such systems were to actually fail at Year 2000 critical
dates.  Among other issues, that plan addresses the possibility that
NCR, the current data service provider, could fail to operate on January
1, 2000.  A business resumption plan was formed to deal with this
possibility.  With respect to a short-term remedy for business
disruptions potentially caused by the Year 2000 problem, the Bank's
Board and management have determined that a manual system is the most
reasonable approach to allow the Bank to continue to effectively serve
its customer base.  The business resumption plan addresses preparation,
logistics, departmental requirements and guidelines for the potential
handling of specific types of banking transactions on such a manual
basis.  

     Management has indicated that, as of December 31, 1998,
approximately $43,000 of expenditures have been incurred resulting from
the Bank's efforts to make its systems Year 2000 compliant.  Management
is currently estimating that approximately $8,000 of additional
expenditures will be incurred during 1999 in connection with this issue. 
No assurance can be given, however, that significant expense will not be
incurred in future periods.  In the event that the Bank is ultimately
required to purchase additional replacement computer systems, programs
and equipment, or if the Bank is required to incur substantial
additional expense to make the Bank's current systems, programs and
equipment Year 2000 compliant, the Bank's net earnings and financial
condition could be adversely affected.

     In addition to possible expense related to its own systems, the
Bank could incur losses if loan payments are delayed due to Year 2000
problems affecting any major borrowers in the Bank's primary market
area.  Because the Bank's loan portfolio is highly diversified with
regard to individual borrowers and types of businesses, and the Bank's
primary market area is not significantly dependent upon one employer or
industry, the Bank does not expect any significant or prolonged
difficulties that will affect net earnings or cash flow.

LIQUIDITY AND CAPITAL RESOURCES

     Liquidity refers to the ability of the Company to convert assets
into cash or cash equivalents without significant loss.  Liquidity
management involves evaluating the Company's and the Bank's daily cash
flow requirements to meet customer demands, whether they are depositors
wishing to withdraw funds or borrowers requiring funds to meet their
credit needs.  Without proper liquidity management, the Company would
not be able to perform the primary function of a financial intermediary
and would, therefore, not be able to meet the production and growth
needs of the communities it serves.

     The Bank's primary sources of funds are deposits and proceeds from
maturing investment securities, mortgage-backed and related securities
and principal and interest payments on loans, investment securities and
mortgage-backed and related securities.  While maturities and scheduled
amortization of investment securities, mortgage-backed and related
securities and loans are a predictable source of funds, deposit flows
and mortgage prepayments are greatly influenced by general interest
rates, economic conditions, competition and other factors.

     The primary investing activity of the Bank is the origination of
loans, the purchase of investment securities and certificates of
deposit, and the purchase of mortgage-backed and related securities. 
During the years ended December 31, 1998 and 1997, the Bank originated
loans totaling $5.7 million and $16.5 million, respectively.  The
primary financing activity of the Bank is accepting savings deposits.

     The Bank has other sources of liquidity if there is a need for
funds.  As stated earlier, the Company has a portfolio of investment
securities and mortgage-backed and related securities with an aggregate
market value of $1.8 million at December 31, 1998 classified as
available-for-sale.  Another 

                                - 34 -

<PAGE>
<PAGE>

source of liquidity is the Bank's ability to obtain advances from the
FHLB of Chicago.  In addition, the Bank maintains a significant portion
of its investments in interest-bearing deposits at other financial
institutions that will be available when needed.

     A strong capital position is important to the continued
profitability of the Bank because it promotes depositor and investor
confidence and provides a solid foundation for future growth.  Under
regulatory guidelines, the Bank's capital strength is measured in two
tiers which are used in conjunction with risk-adjusted assets to
calculate the risk-based capital ratios.  The Bank's Tier 1 risk-based
capital ratio and total risk-based capital ratio were 30.4% and 31.6%,
respectively, at December 31, 1998.  These levels currently exceed the
minimum ratios of 4% and 8%, respectively.  Another important indicator
of capital adequacy in the banking industry is the leverage ratio, which
is a measure of the ratio of the Bank's Tier 1 capital to total average
assets.  The Bank's leverage ratio was 15.7% at December 31, 1998, which
exceeded regulatory minimum guidelines. 

IMPACT OF INFLATION AND CHANGING PRICES

     The Consolidated Financial Statements and Notes thereto presented
herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over
time and due to inflation.  The impact of inflation is reflected in the
increased cost of the Company's operations.  Unlike most industrial
companies, nearly all the assets and liabilities of the Bank are
monetary in nature.  As a result, interest rates have a greater impact
on the Company's performance than do the effects of general levels of
inflation.  Interest rates do not necessarily move in the same direction
or to the same extent as the price of goods and services.

IMPACT OF NEW ACCOUNTING STANDARDS

     Accounting for Stock-Based Compensation.  SFAS No. 123,
"Accounting for Stock Based Compensation" was issued by the Financial
Accounting Standards Board ("FASB") in October, 1995.  SFAS No. 123
establishes a fair value-based method of accounting for stock options
and other equity instruments.  It requires the use of that method for
transactions with other than employees and encourages its use for
transactions with employees.  It permits entities to continue to use the
intrinsic value method included in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees", but regardless of
the method used to account for the compensation cost associated with
stock option and similar plans, it requires employers to disclose
information in accordance with SFAS No. 123.  The general principle
underlying SFAS No. 123 is that equity instruments are recognized at the
fair value of the consideration received for them.  If the fair value of
the consideration received cannot be reasonably determined, the fair
value of the equity instrument itself may be used.  The fair value
method of accounting for stock options and other instruments applies
this general principle measuring compensation cost for employers as the
excess of the fair value of the equity instrument over the amount paid
by the employee.  The definition of fair value in SFAS No. 123 is the
same as that included in SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of."

     SFAS No. 123 requires significantly expanded disclosures,
including disclosure of the pro forma amount of net income (and earnings
per share for public entities) as if the fair value-based method were
used to account for stock-based compensation if the intrinsic value
method of APB-25 is retained.

     The recognition requirements for transactions with other than
employees apply for transactions entered into, after December 15, 1995. 
The recognition alternative of the fair value-based method for
transactions with employees may be implemented immediately upon issuance
of SFAS No. 123.  The 

                                - 35 -

<PAGE>
<PAGE>

disclosure requirements, which apply regardless of the recognition
method chosen, are applicable for financial statements for fiscal years
beginning after December 15, 1995.

     With the adoption in 1997 of stock-based compensation plans (See
Note 12 of Notes to Consolidated Financial Statements), the Company is
accounting for the plan according to the disclosure requirements of SFAS
No. 123.

     Accounting for Transfers and Servicing of Financial Assets.  In
June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."  SFAS
No. 125 establishes accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based
on the consistent application of the financial components approach. 
This approach requires the recognition of financial assets and servicing
assets that are controlled by the reporting entity, the derecognition of
financial assets when control is surrendered, and the derecognition of
liabilities when they are extinguished.  Specific criteria are
established for determining when control has been surrendered in the
transfer of financial assets.  SFAS No. 125 is effective for transfers
and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996.  Subsequent to the issuance of SFAS
No. 125, the FASB issued SFAS No. 127, "Deferral of the Effective Date
of Certain Provisions of FASB Statement No. 125."  This statement defers
for one year the effective date of SFAS No. 125 as applies to secured
borrowings and collateral and certain other transactions.  The Company
has adopted the relevant provisions of the statement.  The provisions of
the statement adopted in 1997 did not have a material effect on the
Company's financial position or operating results.

     Earnings per Share.  In February 1997, the FASB issued SFAS No.
128, "Earnings per Share".  SFAS No. 128 establishes standards for
computing and presenting earnings per share ("EPS") and applies to
entities with publicly held common stock or potential common stock.  The
statement simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15, "Earnings per Share", and makes
them comparable to international EPS standards.  It replaces the
presentation of primary EPS with a presentation of basic EPS.  It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures, and
requires a reconciliation of the two computations.  This statement is
effective for financial statements issued for periods ending after
December 15, 1997, with earlier application not permitted.  The Company
has adopted SFAS No. 128 effective for the year ended December 31, 1997.

     Comprehensive Income.  In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income."  SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements.  This statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.

     This statement requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and
(b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. This statement is
effective for fiscal years beginning after December 15, 1997.  The
management of the Company has adopted the provisions of the statement in
January, 1998, and has presented comprehensive income information in the
consolidated statements of financial condition and statements of
shareholders' equity.

     Disclosures about Segments of an Enterprise and Related
Information.  In June 1997, the FASB issued SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information."  SFAS 

                                - 36 -

<PAGE>
<PAGE>

No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued
to shareholders.  It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. 
This statement is effective for financial statements for periods
beginning after December 15, 1997.  The management of the Company
adopted the appropriate provisions of the statement at January 1, 1998.

     Employers' Disclosure about Pensions and Other Postretirement
Benefits.  In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits."  SFAS No.
132 standardizes the disclosure requirements for pensions and other
postretirement benefits.  This statement is effective for financial
statements for periods beginning after December 15, 1997.  The
management of the Company adopted the appropriate provisions of the
statements at January 1, 1998.

     Accounting for Derivative Instruments and Hedging Activities.  In
June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133").  SFAS No. 133
establishes a new model for accounting for existing standards.  SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal
quarters subsequent to June 15, 1998.  Upon the statement's initial
application, all derivatives are required to be recognized in the
statement of financial position as either assets or liabilities and
measured at fair value.  In addition, all hedging relationships must be
designated, reassessed and documented pursuant to the provisions of SFAS
No. 133.  Adoption of SFAS No. 133 is not expected to have a material
effect on the Company's financial position or operating results.  

     Accounting for Mortgage-Backed Securities.  In October 1998, the
FASB issued SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a
Mortgage Banking Enterprise" ("SFAS No. 134").  SFAS No. 134 amends the
earlier SFAS No. 65, "Accounting for Certain Mortgage Banking
Activities."  SFAS No. 134 requires that, after the securitization of
mortgage loans held for sale, an entity engaged in mortgage banking
activities should classify the resulting mortgage-backed securities or
other retained interests based on its ability and intent to sell or hold
those investments.  The statement is effective for the first fiscal
quarter beginning after December 15, 1998.  The management of the
Company does not currently believe that its activities meet the
definition of "mortgage banking activities," and therefore does not
anticipate that this statement will have a material effect on the
Company's financial position or operating results.

                                - 37 -

<PAGE>
<PAGE>
 
ITEM 7. FINANCIAL STATEMENTS
---------------------------- 

 
                              
           [LETTERHEAD OF GRAY HUNTER STENN, LLP]
                              
                              
               INDEPENDENT AUDITORS' REPORT 
               ----------------------------  
                              
                              
                              
                              
The Board of Directors 
Heartland Bancshares, Inc.
Herrin, Illinois


We have audited the accompanying consolidated statements of financial
condition of Heartland Bancshares, Inc. and Subsidiary (the Company) as
of December 31, 1998 and 1997, and the related consolidated statements
of income, stockholders' equity and cash flows for the years then ended. 
These consolidated financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

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

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


                                          /s/ Gray Hunter Stenn, LLP




Marion, Illinois
January 22, 1999


                                - 38 -
<PAGE>
<PAGE>

<TABLE>
                      HEARTLAND BANCSHARES, INC. AND SUBSIDIARY
                   CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                  (IN THOUSANDS)
<CAPTION>
                                                                         December 31, 
                      ASSETS                                         1998           1997
                      ------                                        -------        -------
<S>                                                                 <C>            <C>
Cash and cash equivalents
   Interest-bearing                                                 $10,220        $ 3,319
   Noninterest-bearing                                                1,982          1,651
Certificates of deposit                                               1,379             95
Investment securities available-for-sale at
   estimated market value (amortized cost of $1,122
   and $1,692, respectively)                                          1,145          1,714
Investment securities held-to-maturity (estimated market 
   value of $5,320 and $5,651, respectively)                          5,287          5,627
Mortgage-backed and related securities available-for-
   sale at estimated market value (amortized cost of
   $663 and $1,269, respectively)                                       661          1,249
Mortgage-backed and related securities held-to- 
   maturity (estimated market value of $4,285 and 
   $5,694, respectively)                                              4,251          5,737
Loans receivable, net                                                36,382         46,307
Investments required by law                                             539            577
Property, equipment, and property held  
   for investment, net                                                  486            461
Accrued interest receivable                                             229            292
Prepaid expenses and other assets                                        60             32
Prepaid income taxes                                                    173             --
Foreclosed real estate                                                  293            239
Deferred tax asset                                                      238            161
                                                                    -------        -------
TOTAL ASSETS                                                        $63,325        $67,461
------------                                                        =======        =======

LIABILITIES AND STOCKHOLDERS' EQUITY 
------------------------------------
Liabilities
-----------
   Deposits                                                         $51,417        $54,022
   Accrued interest on deposits                                          49             63
   Advances from borrowers for taxes and insurance                      205            228
   Other liabilities                                                    359            127
   Accrued income taxes                                                  --            126
   Short-term borrowings                                                 --            750
                                                                    -------        -------
   Total Liabilities                                                $52,030        $55,316
   -----------------                                                -------        -------

Commitments and Contingencies 
-----------------------------

Stockholders' Equity 
--------------------
   Preferred stock, $.01 par value per share: 1,000,000 
     shares authorized, - 0 - issued                                $    --        $    --
   Common stock, $.01 par value per share:  4,000,000  
     shares authorized; 876,875 shares issued; 832,833 and
     876,875 outstanding at December 31, 1998 and 
     December 31, 1997, respectively                                      9              9
   Additional paid-in capital                                         8,255          8,212
   Unearned employee stock ownership plan (ESOP) shares                (429)          (519)
   Management recognition plan (MRP) shares                            (435)          (496)
   Treasury stock (44,042 shares at cost)                              (684)            --
   Retained earnings - substantially restricted                       4,566          4,938
   Accumulated other comprehensive income                                13              1
                                                                    -------        -------
   Total Stockholders' Equity                                       $11,295        $12,145
   --------------------------                                       -------        -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $63,325        $67,461
------------------------------------------                          =======        =======

See accompanying notes to consolidated financial statements. 
</TABLE>

                                - 39 -

<PAGE>
<PAGE>

<TABLE>
                       HEARTLAND BANCSHARES, INC. AND SUBSIDIARY
                           CONSOLIDATED STATEMENTS OF INCOME
                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
                                                                          Year Ended
                                                                    ----------------------             
                                                                         December 31,
                                                                     1998            1997
                                                                    -------         ------               
<S>                                                                 <C>             <C>
 Interest Income
 ---------------
   Interest on first mortgage loans                                 $ 3,136         $3,338
   Interest on other loans                                              219            188
   Interest on investments, securities and 
     deposits with banks                                                721            673
   Interest on mortgage-backed securities                               371            539
                                                                    -------         ------               
        Total Interest Income                                       $ 4,447         $4,738
        ---------------------

 Interest Expense 
 ----------------
   Interest on deposits                                             $ 2,544         $2,587
   Interest on other borrowed funds                                       3             78 
                                                                    -------         ------               
        Total Interest Expense                                      $ 2,547         $2,665 
        ----------------------                                      -------         ------               

 Net Interest Income                                                $ 1,900         $2,073
 -------------------
 Provision for Loan Losses                                              106            156 
 -------------------------                                          -------         ------               

 Net Interest Income After Provision 
 -----------------------------------
    for Loan Losses                                                 $ 1,794         $1,917 
    ---------------                                                 -------         ------               

 Non-Interest Income 
 -------------------
   Initial service charges and other loan fees                      $    45         $   50
   Gain on sale of investment securities                                 --              4
   Gain on sale of mortgage-backed securities                            --              7
   Gain on sale of other real estate                                      8             12
   Other                                                                134            121 
                                                                    -------         ------               
        Total Non-Interest Income                                   $   187         $  194 
        -------------------------                                   -------         ------
               
 Non-Interest Expense 
 --------------------
   Compensation to directors, officers, and
     employees                                                      $   763         $  750
   Pension expense and other employee benefits                          134            152
   Office properties and equipment expense 
     including depreciation                                             143            129
   Advertising                                                           24             44
   Federal insurance premiums                                            48             42
   Stationery, postage, and office supplies                              66             69
   Checking account expense                                              20            132
   Service bureau expense                                               155            102
   Legal and professional services                                      482            248
   Adjustment for mortgage loan rebates                                 148             --
   Other                                                                223            212
   Loss on sale of other real estate                                      6             13
   Loss on sale of investment securities                                  1             -- 
                                                                    -------         ------               
        Total Non-Interest Expense                                  $ 2,213         $1,893 
        --------------------------                                  -------         ------
               
 Income Before Income Taxes                                         $  (232)        $  218
 --------------------------

 Income Tax Expense (Benefit)                                           (99)            55 
                                                                    -------         ------               
 Net Income (Loss)                                                  $  (133)        $  163
 -----------------                                                  =======         ======               
 Earnings (Loss) per Common Share - Basic 
 ----------------------------------------
   Net income                                                       $  (.17)        $  .20
                                                                    =======         ======               
 Earnings (Loss) per Common Share - Assuming Dilution 
 ----------------------------------------------------
   Net income                                                       $  (.17)        $  .20
                                                                    =======         ======               

 See accompanying notes to consolidated financial statements.
</TABLE>

                                - 40 -
   
                                                  <PAGE>
<PAGE>

<TABLE>
                                   HEARTLAND BANCSHARES, INC. AND SUBSIDIARY
                                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                  (IN THOUSANDS)
<CAPTION>
                                                                                                       Accumulated
                                              Additional  Unearned                                        Other 
                                    Common     Paid-In      ESOP        MRP     Treasury   Retained   Comprehensive
                                     Stock     Capital     Shares      Shares     Stock    Earnings      Income       Total
                                    ------    ----------  --------     ------   --------   --------   -------------   -----
<S>                                   <C>      <C>         <C>         <C>        <C>       <C>           <C>        <C>
Balance at December 31, 1996          $ 9      $8,153      $(632)      $  --      $  --     $5,101        $(15)      $12,616
----------------------------
Comprehensive income (loss):
 Net income (loss)                    $--      $   --      $  --       $  --      $  --     $  163        $ --       $   163
 Other comprehensive income, 
   net of tax:
     Unrealized gains (losses) on
      securities:
       Gain arising during year 
       (net of tax of $14)             --          --         --          --         --         --          20            20
       Reclassification adjustment
       (net of tax of $3)              --          --         --          --         --         --          (4)           (4)
                                      ---      ------      -----       -----      -----     ------        ----       -------
Total comprehensive income (loss)     $--      $   --      $  --       $  --      $  --     $  163        $ 16       $   179
Purchase of shares for MRP                                              (552)                                           (552)
Amortization of MRP                                                       56                                              56
Cash dividends paid                    --          --         --          --         --       (326)         --          (326)
Amortization of ESOP expense           --          59        113          --         --         --          --           172 
                                      ---      ------      -----       -----      -----     ------        ----       -------
 
Balance at December 31, 1997          $ 9      $8,212      $(519)      $(496)     $  --     $4,938        $  1       $12,145
----------------------------
Comprehensive income (loss):
 Net income (loss)                    $--      $   --      $  --       $  --      $  --     $ (133)       $ --       $  (133)
 Other comprehensive income, 
   net of tax:
     Unrealized gains (losses) on
      securities:
       Gain arising during year 
       (net of tax of $8)              --          --         --          --         --         --          14            14
       Reclassification adjustment
       (net of tax of $1)              --          --         --          --         --         --          (2)           (2)
                                      ---      ------      -----       -----      -----     ------        ----       -------
Total comprehensive income (loss)     $--      $   --      $  --       $  --      $  --     $ (133)       $ 12       $  (121)
Purchase of treasury stock
 (44,042 shares at cost)               --          --         --          --       (684)        --          --          (684)
Amortization of MRP                                                       61                                              61
Cash dividends paid                    --          --         --          --         --       (239)         --          (239)
Amortization of ESOP expense           --          43         90          --         --         --          --           133 
                                      ---      ------      -----       -----      -----     ------        ----       -------
 Balance at December 31, 1998         $ 9      $8,255      $(429)      $(435)     $(684)    $4,566        $ 13       $11,295
 ----------------------------         ===      ======      =====       =====      =====     ======        ====       =======

See accompanying notes to consolidated financial statements.
</TABLE>

                                - 41 -
     
                                                   <PAGE>
<PAGE>

<TABLE>
                    HEARTLAND BANCSHARES, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)
<CAPTION>
                                                                            Year Ended
                                                                        -------------------        
                                                                            December 31,
                                                                          1998       1997
                                                                        -------     -------
<S>                                                                     <C>         <C>
Cash Flows From Operating Activities
------------------------------------
  Net income (loss)                                                     $  (133)    $   163 
                                                                        -------     -------
  Adjustments to reconcile net income to net
    cash provided (used) by operating activities
      Depreciation                                                      $    65     $    55
      Discount accretion/premium amortization-securities, net               (32)         (2)
      Amortization of deferred loan origination fees                        (30)        (11)
      Amortization of ESOP expense                                          133         172
      Amortization of MRP expense                                            61          56
      Provision for loan losses                                             106         156
      (Gain) loss on sale of investments                                      1         (11)
      (Gain) loss on sale of other real estate                               (2)          1
      (Increase) decrease in accrued interest receivable                     63          24
      (Increase) decrease in prepaid expenses/other assets                  (28)         24
      (Increase) decrease in prepaid income taxes                          (173)         73
      (Increase) decrease in deferred income taxes                          (84)       (107)
      Increase (decrease) in accrued interest payable                       (14)         14
      Increase (decrease) in other liabilities                              232          20
      Increase (decrease) in accrued income taxes                          (126)        126

      Total Adjustments                                                 $   172     $   590
      -----------------                                                 -------     -------
Net Cash Provided by Operating Activities                               $    39     $   753
-----------------------------------------                               -------     -------
Cash Flows From Investing Activities
------------------------------------
  Net (increase) decrease in certificates of deposit                    $(1,284)    $   198
  Proceeds from maturities of investment securities
    and mortgage-backed securities held-to-maturity                       2,420       3,660
  Proceeds from maturities of investment securities and
    mortgage-backed securities available-for-sale                           450         350
  Principal payments on mortgage-backed securities                        2,341       1,433
  Net (increase) decrease in loans receivable                             9,639      (5,122)
  Purchases of property and equipment                                       (90)        (37)
  Purchase of investment securities held-to-maturity                     (2,450)       (251)
  Purchase of mortgage-backed securities held-to-maturity                  (227)         --
  Purchase of investment securities available-for-sale                       --        (200)
  Proceeds from sale of investment securities available-for-sale            374         251
  Proceeds from sale of mortgage-backed securities 
    available-for-sale                                                       --       1,084
  Proceeds from sale of investment securities held-to-maturity              125          --
  Purchase of Federal Home Loan Bank stock                                   (8)        (88)
  Proceeds from the redemption of Federal Home Loan bank stock               46          --
  Proceeds from sale of other real estate                                   158          29
                                                                        -------     -------
  Net Cash Provided by Investing Activities                             $11,494     $ 1,307 
  -----------------------------------------                             -------     -------
Cash Flows From Financing Activities
------------------------------------
  Net increase (decrease) in deposits                                   $(2,605)    $ 1,190
  Net increase (decrease) in mortgage escrow funds                          (23)        (24)
  Dividends on common stock                                                (239)       (326)
  Net increase (decrease) in short term borrowings                         (750)        750
  Shares acquired by MRP                                                     --        (552)
  Purchase of treasury stock                                               (684)         -- 
                                                                        -------     -------
  Net Cash Provided by (Used in) Financing Activities                   $(4,301)    $ 1,038 
  ---------------------------------------------------                   -------     -------
Net Increase (Decrease) in Cash and Cash Equivalents                    $ 7,232     $ 3,098
----------------------------------------------------
Cash and Cash Equivalents at Beginning of Year                            4,970       1,872 
                                                                        -------     -------
Cash and Cash Equivalents at End of Year                                $12,202     $ 4,970
----------------------------------------                                =======     =======
Supplemental Disclosures
------------------------
Cash Paid During the Period for:
  Interest                                                              $ 2,561     $ 2,651
  Income taxes paid (refunded)                                          $   285     $   (37)
Loans Transferred to Foreclosed Real Estate During Period               $   276     $   220
Proceeds From Sales of Foreclosed Real Estate Financed Through Loans    $    19     $    84

See accompanying notes to consolidated financial statements. 
</TABLE>

                                - 42 -
     
                                                   <PAGE>
<PAGE>
                      HEARTLAND BANCSHARES, INC.
                      --------------------------
                    
                           AND SUBSIDIARY
                           --------------
                              
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             ------------------------------------------
                              
                      DECEMBER 31, 1998 AND 1997 
                      --------------------------                          
                              
1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
     ------------------------------------------

     The accounting and reporting policies of Heartland Bancshares,
     Inc. (the "Company") and its subsidiary, Heartland National Bank
     (the "Bank"), are in accordance with generally accepted accounting
     principles and conform to general practices within the financial
     institution industry.  The more significant of the principles used
     in preparing the financial statements are briefly described below.

     BUSINESS
     --------

     The Company (through the Bank) provides a full range of financial
     services to individual and corporate customers from two office
     locations in Herrin and Carterville, Illinois.  The Company is
     subject to competition from other financial institutions in the
     area, is subject to the regulations of certain federal agencies
     and undergoes periodic examinations by those regulatory
     authorities.

     On June 28, 1996, First Federal Savings and Loan Association of
     Herrin (the "Association") completed its conversion from a federal
     mutual savings and loan association to a federal stock savings and
     loan association and then from a stock association to a national
     bank known as Heartland National Bank.  Simultaneously, Heartland
     National Bank was acquired by Heartland Bancshares, Inc. which was
     formed to act as the holding company of the Bank.  At the date of
     the conversion, the Company completed the sale of 876,875 shares
     of $.01 par value common stock (the "Common Stock") at $10.00 per
     share.  Net proceeds from the above transactions, after deducting
     offering expenses, underwriting fees and amounts retained to fund
     the Company's employee stock ownership plan (the "ESOP"), totaled
     approximately $7.4 million.

     The Company is primarily engaged in the business of directing,
     planning and coordinating the business activities of the Bank. 
     These activities primarily consist of accepting deposits from the
     general public and investing these funds in loans in the Bank's
     market area and in investment securities and mortgage-backed
     securities.

     BASIS OF PRESENTATION
     --------------------- 

     The consolidated financial statements have been prepared in
     conformity with generally accepted accounting principles.  In
     preparing the consolidated financial statements, management is
     required to make estimates and assumptions that affect the
     reported amounts of assets and liabilities as of the date of the
     balance sheet and revenues and expenses for the year.  Actual
     results could differ significantly from those estimates.

                                - 43 -
<PAGE>
<PAGE>

     Material estimates that are particularly susceptible to
     significant change in the near-term relate to the determination of
     the allowance for loan losses and the valuation of real estate
     acquired in connection with foreclosures or in satisfaction of
     loans.

     Management believes that the allowances for losses on loans and
     real estate acquired by foreclosures or in satisfaction of loans
     are adequate.  While management uses available information to
     provide for such allowances, future additions to the allowances
     may be necessary based upon changes in economic conditions.  In
     addition, various regulatory agencies, as an integral part of
     their examination process, periodically review the Company's
     allowances for losses.  Such agencies may require the Company to
     recognize additions to the allowances based upon their judgments
     about information available to them at the time of their
     examination.

     PRINCIPLES OF CONSOLIDATION
     ---------------------------

     The accompanying consolidated financial statements include the
     accounts of Heartland Bancshares, Inc., Heartland National Bank
     and Herrin First Service Corporation, a wholly-owned subsidiary of
     Heartland National Bank.  All significant intercompany balances
     and transactions are eliminated in consolidation.

     Herrin First Service Corporation was formed in 1971 by the
     Association for the purpose of developing a residential
     subdivision.  Such development was completed and all lots were
     subsequently sold.  No further development activities have been
     undertaken or are currently planned, although the corporation,
     with regulatory approval, recently purchased and subsequently sold
     one residential real estate property.

     CASH AND CASH EQUIVALENTS
     -------------------------

     Cash and cash equivalents were $12,202,000 and $4,970,000 at
     December 31, 1998 and December 31, 1997, respectively.  For
     purposes of reporting cash flows, cash and cash equivalents
     include cash on hand, amounts of cash due from banks, short-term
     investment accounts and the Bank's Regulation D reserve and all
     highly liquid instruments with original maturities of 3 months or
     less.   The Bank has a reserve requirement pass-thru deposit for
     its deposits at the Federal Home Loan Bank of Chicago.  This
     requirement was $5,000 at December 31, 1998 and December 31, 1997.

     INVESTMENT SECURITIES
     ---------------------

     The Company accounts for its security holdings in accordance with
     Statement of Financial Accounting Standards No. 115 "Accounting
     for Certain Investments in Debt and Equity Securities" ("SFAS No.
     115").  At acquisition, SFAS No. 115 requires that securities be
     classified into one of three categories:  trading; available-for-
     sale; or held-to-maturity.  Trading securities are bought and held
     principally with the intention of selling them in the near-term. 
     The Company has no trading securities.  Investment securities that
     management has the ability and intent to hold to maturity are
     classified as held-to-maturity and carried at cost, adjusted for
     amortization of premium and accretion of discounts using the
     level-yield method over their contractual lives.  Other marketable
     securities are classified as available-for-sale and are carried at
     fair value.  Realized and unrealized gains and losses on trading
     securities are included in net income.  Unrealized gains and
     losses on securities available-for-sale are recognized as other

                                - 44 -
<PAGE>
<PAGE>

     comprehensive income, net of related tax.  Cost of securities sold
     is recognized using the specific identification method.

     Securities available-for-sale are stated at fair value for
     December 31, 1998 and December 31, 1997.  Fair value is based on
     market prices quoted in financial publications or other
     independent sources.  Pursuant to SFAS No. 115, net unrealized
     gains or losses are excluded from earnings and reported, net of
     deferred income taxes, as a separate component of stockholders'
     equity until realized.  The adjusted cost of the specific security
     available-for-sale that is sold is used to compute any gain or
     loss upon sale.

     MORTGAGE-BACKED SECURITIES
     --------------------------

     Mortgage-backed securities represent participating interests in
     pools of long-term first mortgage loans originated and serviced by
     issuers of the securities.  Mortgage-backed securities classified
     as held-to-maturity are carried at unpaid principal balances,
     adjusted for unamortized premiums and unearned discounts.

     Premiums and discounts are amortized using methods approximating
     the level-yield method over the remaining period to contractual
     maturity, adjusted for anticipated prepayments.  Mortgage-backed
     securities classified as available-for-sale are stated at fair
     value at December 31, 1998 and December 31, 1997.  Adjustments for
     unrealized gains and losses on mortgage-backed securities are
     recorded in the same manner as those on investment securities.  In
     the event any securities are sold, the cost of securities sold is
     determined using the specific identification method.

     REAL ESTATE OWNED
     ----------------- 

     Real estate properties acquired through loan foreclosure are
     recorded at the lower of cost (outstanding principal balance of
     the related mortgage loan at the date of foreclosure, adjusted for
     any escrow balance) or estimated fair value, less estimated
     selling expenses.  Costs of holding real estate acquired in
     settlement of loans are reflected in income currently, except for
     significant property improvements, which are capitalized to the
     extent that carrying value does not exceed estimated fair value,
     net of estimated selling cost.

     Valuations are periodically performed by management and an
     allowance for losses is established by a charge to operations if
     the carrying value of a property exceeds its estimated fair value.

     PROPERTY, EQUIPMENT AND RELATED DEPRECIATION
     -------------------------------------------- 

     Land is carried at cost.  Properties and equipment are carried at
     cost, less accumulated depreciation.  Depreciation of properties
     and equipment is being determined by the straight-line method over
     the estimated useful lives of the related assets.  The estimated
     useful lives are ten to forty years for buildings and improvements
     and three to thirty-three years for equipment.

     LOANS RECEIVABLE
     ---------------- 

     Loans are considered a held-to-maturity asset and, accordingly,
     are carried at historical cost.  Loans receivable are stated at
     unpaid principal balances, less the allowance for loan losses and
     net deferred loan origination fees and discounts.  Interest on
     loans is accrued and credited to 

                                - 45 -
<PAGE>
<PAGE>

     operations based upon the principal amount outstanding.  Unearned
     discount on home improvement loans is amortized over the estimated
     lives of the related loans using various methods which approximate
     the effective interest method.

     The Company adopted SFAS No. 114 "Accounting by Creditors for
     Impairment of a Loan" ("SFAS No. 114") and SFAS No. 118
     "Accounting by Creditors for Impairment of a Loan -- Income
     Recognition and Disclosures," ("SFAS No. 118"), an amendment of
     SFAS No. 114, effective January 1, 1995.  These statements address
     the accounting by creditors for impairment of certain loans.  They
     apply to all creditors and to all loans, uncollateralized as well
     as collateralized, except for large groups of smaller-balance
     homogeneous loans that are collectively evaluated for impairment,
     loans measured at fair value or at lower of cost or fair value,
     leases and debt securities.  The Company considers all one- to
     four-family residential mortgage loans, construction loans and all
     consumer loans (as presented in Note 4) to be smaller-balance
     homogeneous loans.  These statements apply to all loans that are
     restructured involving a modification of terms.  Loans within the
     scope of these statements are considered impaired when, based on
     current information and events, it is probable that all principal
     and interest will not be collected in accordance with the
     contractual terms of the loans.  Management determines the
     impairment of loans based on knowledge of the borrower's ability
     to repay the loan according to the contractual agreement and the
     borrower's repayment history.  Pursuant to SFAS No. 114,
     management does not consider an insignificant delay or
     insignificant shortfall to impair a loan.  Management has
     determined that a delay less than 90 days will be considered an
     insignificant delay and that an amount less than $15,000 will be
     considered an insignificant shortfall.  The Company does not apply
     SFAS No. 114 using major risk classifications, but applies SFAS
     No. 114 on a loan by loan basis.  Impaired loans are charged off
     when management determines that principal and interest are not
     collectible.  Any excess of the Company's recorded investment for
     impairment in the loans over the measured value of the loans is
     provided for in the allowance for loan losses.

     Loans are placed on nonaccrual when a loan is specifically
     determined to be impaired.  Any unpaid interest previously accrued
     on those loans is reversed from income.  Interest income generally
     is not recognized on specific impaired loans unless the likelihood
     of further loss is remote.  Income is subsequently recognized only
     to the extent that cash payments are received until, in
     management's judgment, the borrower's ability to make periodic
     interest and principal payments is back to normal, in which case
     the loan is returned to accrual status.

     Loan fees are deferred and amortized using the level-yield method
     over the estimated life of the individual loans, adjusted for
     actual prepayments.  Amortization of deferred loan fees are
     suspended during periods in which the related loan is in
     nonaccrual status.

     VALUATION ALLOWANCE FOR LOANS AND REAL ESTATE OWNED
     --------------------------------------------------- 

     The Company's allowance for loan losses is maintained at a level
     which, in management's judgment, is adequate to absorb probable
     losses inherent in the loan portfolio.  The amount of the
     allowance is based on management's evaluation of the
     collectibility of the loan portfolio, including the nature of the
     portfolio, credit concentrations, trends in historical loss
     experience, specific impaired loans and economic conditions.  The
     Company's allowance is increased by a provision for loan losses
     which is charged to expense and reduced by charge-offs, net of
     recoveries.  Changes in the allowance relating to impaired loans
     are charged or credited to the provision for loan losses.

                                - 46 -
<PAGE>
<PAGE>

     INCOME TAXES
     ------------ 

     Deferred tax assets and liabilities are reflected at currently
     enacted income tax rates applicable to the period in which the
     deferred tax assets or liabilities are expected to be realized or
     settled.  As changes in tax laws or rates are enacted, deferred
     tax assets and liabilities are adjusted through the provision for
     income taxes.

     EARNINGS PER SHARE
     ------------------ 

     In accordance with Statement of Financial Accounting Standards No.
     128, "Earnings per Share" ("SFAS No. 128"), earnings per common
     share are being computed and presented on both a basic and diluted
     basis.  Basic earnings per share are computed based on the
     weighted average number of shares actually outstanding during the
     period in question.  In addition to using the weighted average
     number of outstanding shares, diluted earnings per share
     computations also consider the dilutive effect of stock options. 
     The number of shares that would be issued from the exercise of
     stock options has been reduced by the number of shares that could
     have been purchased from the proceeds at the average market price
     of the Company's stock.  In accordance with Statement of Position
     93-6, "Employers' Accounting for Employee Stock Ownership Plans"
     ("SOP 93-6"), only employee stock ownership plan shares that have
     been committed to be released are considered outstanding shares. 
     The number of shares outstanding has also been reduced by shares
     repurchased by the Company and held as treasury stock (see Note
     23).

     DIVIDENDS PER SHARE
     ------------------- 

     In accordance with the provisions of SOP 93-6, dividends paid on
     unallocated employee stock ownership plan shares are not
     considered dividends for financial reporting purposes.

     ADVERTISING COSTS
     ----------------- 

     Advertising costs are charged to operations when incurred.

     IMPACT OF NEW ACCOUNTING STANDARDS
     ---------------------------------- 

     Accounting for Stock-Based Compensation.  SFAS No. 123,
     "Accounting for Stock Based Compensation" ("SFAS No. 123") was
     issued by the Financial Accounting Standards Board ("FASB") in
     October, 1995.  SFAS No. 123 establishes a fair value-based method
     of accounting for stock options and other equity instruments.  It
     requires the use of that method for transactions with other than
     employees and encourages its use for transactions with employees. 
     It permits entities to continue to use the intrinsic value method
     included in Accounting Principles Board ("APB") Opinion No. 25,
     "Accounting for Stock Issued to Employees" ("APB-25"), but
     regardless of the method used to account for the compensation cost
     associated with stock option and similar plans, it requires
     employers to disclose information in accordance with SFAS No. 123. 
     The general principle underlying SFAS No. 123 is that equity
     instruments are recognized at the fair value of the consideration
     received for them.  If the fair value of the consideration
     received cannot be reasonably determined, the fair value of the
     equity instrument itself may be used.  The fair value method of
     accounting for stock options and other instruments applies this
     general principle measuring compensation cost for employers as the
     excess of the fair value of the equity instrument over the amount
     paid by the employee.  The definition of fair value in 

                                - 47 -
<PAGE>
<PAGE>

     SFAS No. 123 is the same as that included in SFAS No. 121,
     "Accounting for the Impairment of Long-Lived Assets and for Long-
     Lived Assets to Be Disposed of."

     SFAS No. 123 requires significantly expanded disclosures,
     including disclosure of the pro forma amount of net income (and
     earnings per share for public entities) as if the fair value-based
     method were used to account for stock-based compensation if the
     intrinsic value method of APB-25 is retained.

     The recognition requirements for transactions with other than
     employees apply for transactions entered into after December 15,
     1995.  The recognition alternative of the fair value-based method
     for transactions with employees may be implemented immediately
     upon issuance of SFAS No. 123.  The disclosure requirements, which
     apply regardless of the recognition method chosen, are applicable
     for financial statements for fiscal years beginning after
     December 15, 1995.

     The Company accounts for the stock-based compensation plans (see
     Note 12) according to the disclosure requirements of SFAS No. 123.

     Accounting for Transfers and Servicing of Financial Assets.  In
     June, 1996, the FASB issued SFAS No. 125, "Accounting for
     Transfers and Servicing of Financial Assets and Extinguishments of
     Liabilities" ("SFAS No. 125").  SFAS No. 125 establishes
     accounting and reporting standards for transfers and servicing of
     financial assets and extinguishments of liabilities based on the
     consistent application of the financial components approach.  This
     approach requires the recognition of financial assets and
     servicing assets that are controlled by the reporting entity, the
     derecognition of financial assets when control is surrendered and
     the derecognition of liabilities when they are extinguished. 
     Specific criteria are established for determining when control has
     been surrendered in the transfer of financial assets.  SFAS No.
     125 is effective for transfers and servicing of financial assets
     and extinguishments of liabilities occurring after December 31,
     1996.  Subsequent to the issuance of SFAS No. 125, the FASB issued
     SFAS No. 127, "Deferral of the Effective Date of Certain
     Provisions of FASB Statement No. 125" ("SFAS No. 127").  SFAS No.
     127 defers for one year the effective date of SFAS No. 125 as
     applies to secured borrowings and collateral and certain other
     transactions.  The Company has adopted the relevant provisions of
     the statement.  The provisions of the statement did not have a
     material effect on the Company's financial position or operating
     results.

     Earnings per Share.  In February, 1997, the FASB issued SFAS No.
     128.  SFAS No. 128 establishes standards for computing and
     presenting earnings per share ("EPS") and applies to entities with
     publicly held common stock or potential common stock.  The
     statement simplifies the standards for computing earnings per
     share previously found in APB Opinion No. 15, "Earnings per
     Share," and makes them comparable to international EPS standards. 
     It replaces the presentation of primary EPS with a presentation of
     basic EPS.  It also requires dual presentation of basic and
     diluted EPS on the face of the income statement for all entities
     with complex capital structures, and requires a reconciliation of
     the two computations.  This statement is effective for financial
     statements issued for periods ending after December 15, 1997, with
     earlier application not permitted.  The Company has adopted SFAS
     No. 128 effective for the year ended December 31, 1997.

     Comprehensive Income.  In June, 1997, the FASB issued SFAS No.
     130, "Reporting Comprehensive Income" ("SFAS No. 130").  SFAS No.
     130 establishes standards for reporting and display of
     comprehensive income and its components (revenues, expenses, gains
     and losses)

                                - 48 -
<PAGE>
<PAGE>

     in a full set of general purpose financial statements.  This
     statement requires that all items that are required to be
     recognized under accounting standards as components of
     comprehensive income be reported in a financial statement that is
     displayed with the same prominence as other financial statements.

     This statement requires that an enterprise (a) classify items of
     other comprehensive income by their nature in a financial
     statement and (b) display the accumulated balance of other
     comprehensive income separately from retained earnings and
     additional paid-in capital in the equity section of a statement of
     financial position.  This statement is effective for fiscal years
     beginning after December 15, 1997.  The Company adopted the
     provisions of the statement in 1998 and has presented
     comprehensive income information in the consolidated statements of
     financial condition and statements of stockholders' equity.

     Disclosures about Segments of an Enterprise and Related
     Information.  In June, 1997, the FASB issued SFAS No. 131,
     "Disclosure about Segments of an Enterprise and Related
     Information" ("SFAS No. 131").  SFAS No. 131 establishes standards
     for the way that public business enterprises report information
     about operating segments in annual financial statements and
     requires that those enterprises report selected information about
     operating segments in interim financial reports issued to
     shareholders.  It also establishes standards for related
     disclosures about products and services, geographic areas and
     major customers.  This statement is effective for financial
     statements for periods beginning after December 15, 1997.  The
     management of the Company has adopted the appropriate provisions
     of the statement for 1998.

     Employers' Disclosure about Pensions and Other Postretirement
     Benefits.  In February, 1998, the FASB issued SFAS No. 132,
     "Employers' Disclosures about Pensions and Other Postretirement
     Benefits" ("SFAS No. 132").  SFAS No. 132 standardizes the
     disclosure requirements for pensions and other postretirement
     benefits.  This statement is effective for financial statements
     for periods beginning after December 15, 1997.  The management of
     the Company has adopted the appropriate provisions of the
     statements at January 1, 1998.

     Accounting for Derivative Instruments and Hedging Activities.  In
     June, 1998, the FASB issued SFAS No. 133, "Accounting for
     Derivative Instruments and Hedging Activities" ("SFAS No. 133"). 
     SFAS No. 133 establishes a new model for accounting for
     derivatives and hedging activities and supersedes and amends a
     number of existing standards.  SFAS No. 133 is effective for
     fiscal years beginning after June 15, 1999, but earlier
     application is permitted as of the beginning of any fiscal
     quarters subsequent to June 15, 1998.  Upon the statement's
     initial application, all derivatives are required to be recognized
     in the statement of financial position as either assets or
     liabilities and measured at fair value.  In addition, all hedging
     relationships must be designated, reassessed and documented
     pursuant to the provisions of SFAS No. 133.  Adoption of SFAS No.
     133 is not expected to have a material effect on the Company's
     financial position or operating results.

     Accounting for Mortgage-Backed Securities.  In October, 1998, the
     FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
     Securities Retained after the Securitization of Mortgage Loans
     Held for Sale by a Mortgage Banking Enterprise" ("SFAS No. 134"). 
     SFAS No. 134 amends the earlier SFAS No. 65, "Accounting for
     Certain Mortgage Banking Activities."  The new statement requires
     that, after the securitization of mortgage loans held for sale, an
     entity engaged in mortgage banking activities should classify the
     resulting mortgage-backed securities or other retained interests
     based on its ability and intent to sell or hold those investments. 
     The 

                                - 49 -
<PAGE>
<PAGE>

     statement is effective for the first fiscal quarter beginning
     after December 15, 1998.  The management of the Company does not
     currently believe that its activities meet the definition of
     "mortgage banking activities," and therefore does not anticipate
     that this statement will have a material effect on the Company's
     financial position or operating results.

     RECLASSIFICATIONS
     ----------------- 

     Certain reclassifications have been made for 1997 to conform with
     the 1998 financial statement presentation.  The reclassifications
     had no effect on previously reported net income or retained
     earnings.

2.   INVESTMENT SECURITIES 
     ---------------------  

     Securities held-to-maturity and available-for-sale consist of the
     following:

     <TABLE>
     <CAPTION>
                                                         GROSS          GROSS       ESTIMATED
                                       AMORTIZED       UNREALIZED     UNREALIZED     MARKET
                                         COST            GAINS          LOSSES        VALUE
                                       ---------       ----------     ----------    ---------               
                                                              (1,000'S)
                                       ------------------------------------------------------             
     <S>                                <C>               <C>             <C>        <C>
     Held-to-Maturity:
     December 31, 1998
     -----------------

     U. S. government and
      federal agencies                  $4,897            $37             $4         $4,930
     Municipal securities<F*>              390             --             --            390
                                        ------            ---             --         ------
 
       Total                            $5,287            $37             $4         $5,320
       -----                            ======            ===             ==         ======

     <FN>
     <F*>Local issues with no actively traded markets to establish fair
         market value different from amortized cost.

     <CAPTION>
                                                         GROSS          GROSS       ESTIMATED
                                       AMORTIZED       UNREALIZED     UNREALIZED     MARKET
                                         COST            GAINS          LOSSES        VALUE
                                       ---------       ----------     ----------    ---------               
                                                              (1,000'S)
                                       ------------------------------------------------------             
     <S>                                <C>               <C>             <C>        <C>
     Held-to-Maturity:

     December 31, 1997 
     -----------------

     U. S. government and
      federal agencies                  $4,842            $33             $9         $4,866
     Municipal securities<F*>              785             --             --            785
                                        ------            ---             --         ------
 
       Total                            $5,627            $33             $9         $5,651
       -----                            ======            ===             ==         ======
     <FN>
     <F*>Local issues with no actively traded markets to establish fair
         market value different from amortized cost.

                                - 50 -
<PAGE>
<PAGE>

     <CAPTION>
                                                         GROSS          GROSS       ESTIMATED
                                       AMORTIZED       UNREALIZED     UNREALIZED     MARKET
                                         COST            GAINS          LOSSES        VALUE
                                       ---------       ----------     ----------    ---------               
                                                              (1,000'S)
                                       ------------------------------------------------------             
     <S>                                <C>              <C>             <C>        <C>
     Available-for-Sale:
                
     December 31, 1998 
     -----------------

     U. S. government and
      federal agencies                  $  997            $21            $--         $1,018
     Municipal securities                  125              2             --            127
                                        ------            ---            ---         ------
 
      Total                             $1,122            $23            $--         $1,145
      -----                             ======            ===            ===         ======

     <CAPTION>
                                                         GROSS          GROSS       ESTIMATED
                                       AMORTIZED       UNREALIZED     UNREALIZED     MARKET
                                         COST            GAINS          LOSSES        VALUE
                                       ---------       ----------     ----------    ---------               
                                                              (1,000'S)
                                       ------------------------------------------------------             
     <S>                                <C>               <C>             <C>        <C>
     December 31, 1997 
     -----------------

     U. S. government and
      federal agencies                  $1,692            $22            $--         $1,714
     Municipal securities                   --             --             --             --
                                        ------            ---            ---         ------
 
      Total                             $1,692            $22            $--         $1,714
      -----                             ======            ===            ===         ======
</TABLE>

     The amortized cost and estimated market value of debt securities at
     December 31, 1998 and December 31, 1997, by contractual maturity,
     are shown below.  Expected maturities will differ from contractual
     maturities because issuers may have the right to call or prepay
     obligations without call or prepayment penalties.

     Amounts maturing in:

<TABLE>
<CAPTION>
                                             SECURITIES                   SECURITIES
                                          HELD-TO-MATURITY            AVAILABLE-FOR-SALE
                                     -------------------------      -----------------------            
                                                     ESTIMATED                    ESTIMATED
                                     AMORTIZED        MARKET        AMORTIZED       MARKET            
                                        COST           VALUE          COST          VALUE
                                     ---------       ---------      ---------     ---------
                                                             (1,000'S)                       
                                     ------------------------------------------------------
     <S>                               <C>            <C>            <C>            <C>
     December 31, 1998
     -----------------
     One year or less                  $3,704         $3,709         $  250         $  252
     After one year through
      five years                        1,358          1,386            872            893
     After five years through
      ten years                           225            225             --             --
     After ten years                       --             --             --             --
                                       ------         ------         ------         ------
     Total                             $5,287         $5,320         $1,122         $1,145 
     -----                             ======         ======         ======         ======

                                - 51 -
<PAGE>
<PAGE>

<CAPTION>
                                             SECURITIES                   SECURITIES
                                          HELD-TO-MATURITY            AVAILABLE-FOR-SALE
                                     -------------------------      -----------------------            
                                                     ESTIMATED                    ESTIMATED
                                     AMORTIZED        MARKET        AMORTIZED      MARKET            
                                        COST           VALUE          COST          VALUE
                                     ---------       ---------      ---------     ---------
                                                             (1,000'S)                       
                                     ------------------------------------------------------
     <S>                               <C>            <C>            <C>            <C>
     December 31, 1997
     -----------------
     One year or less                  $2,042         $2,041           $100           $100
     After one year through
      five years                        3,360          3,385          1,592          1,614
     After five years through
      ten years                           225            225             --             --
     After ten years                       --             --             --             --
                                       ------         ------         ------         ------ 
     Total                             $5,627         $5,651         $1,692         $1,714
     -----                             ======         ======         ======         ======
</TABLE>
 
 
     No securities were pledged at December 31, 1998 or December 31, 1997
     to secure deposits in excess of $100,000.
     
     For the years ended December 31, 1998 and 1997, the Company sold
     investment securities resulting in net realized losses of $1,000 and
     net realized gains of $4,000, respectively.  These sales had
     approximate net after-tax effects of $(600) and $2,500, respectively. 
     These securities were sold for total proceeds of $499,000 and
     $251,000, respectively.  These totals include the sale of the
     held-to-maturity securities described below.

     During the second quarter of 1998, the holding company (Heartland
     Bancshares, Inc.) sold a municipal security which had been classified
     as held-to-maturity for total proceeds of $124,909, resulting in a net
     loss of $91.  As a result of this transaction, the other securities of
     that issue held by the holding company (which comprise all of the
     held-to-maturity securities held by the holding company) were
     transferred to the available-for-sale category.  These securities are
     currently shown at estimated market value as required by SFAS No. 115. 
     These securities had an amortized cost of approximately $250,000, with
     an unrealized gain of approximately $2,199 at transfer.

                                - 52 -
<PAGE>
<PAGE>

3.   MORTGAGE-BACKED AND RELATED SECURITIES 
     --------------------------------------  

     Mortgage-backed and related securities consist of the following:

     <TABLE>
     <CAPTION>
                                                         GROSS          GROSS       ESTIMATED
                                       AMORTIZED       UNREALIZED     UNREALIZED     MARKET
                                         COST            GAINS          LOSSES        VALUE
                                       ---------       ----------     ----------    ---------               
                                                              (1,000'S)
                                       ------------------------------------------------------             
     <S>                                <C>               <C>             <C>        <C>
      Held-to-Maturity:

      December 31, 1998 
      -----------------

      FNMA                              $1,921            $34             $10        $1,945
      GNMA                                 629             11              --           640
      FHLMC                              1,701              5               6         1,700
                                        ------            ---             ---        ------
        Total                           $4,251            $50             $16        $4,285
        -----                           ======            ===             ===        ======

     <CAPTION>
                                                         GROSS          GROSS       ESTIMATED
                                       AMORTIZED       UNREALIZED     UNREALIZED     MARKET
                                         COST            GAINS          LOSSES        VALUE
                                       ---------       ----------     ----------    ---------               
                                                              (1,000'S)
                                       ------------------------------------------------------             
     <S>                                <C>               <C>             <C>        <C>
     December 31, 1997 
     -----------------

     FNMA                               $2,352            $12             $19        $2,345
     GNMA                                  871             21              --           892
     FHLMC                               2,514              4              61         2,457
                                        ------            ---             ---        ------ 
       Total                            $5,737            $37             $80        $5,694
       -----                            ======            ===             ===        ======

     <CAPTION>
                                                         GROSS          GROSS       ESTIMATED
                                       AMORTIZED       UNREALIZED     UNREALIZED     MARKET
                                         COST            GAINS          LOSSES        VALUE
                                       ---------       ----------     ----------    ---------               
                                                              (1,000'S)
                                       ------------------------------------------------------             
     <S>                                <C>               <C>             <C>         <C>
     Available-for-Sale:

     December 31, 1998 
     -----------------

     FNMA                               $199              $--             $--         $199
     GNMA                                 --               --              --           --
     FHLMC                               464                1               3          462
                                        ----              ---             ---         ----
       Total                            $663              $ 1             $ 3         $661
       -----                            ====              ===             ===         ====

                                - 53 -
<PAGE>
<PAGE>

     <CAPTION>
                                                         GROSS          GROSS       ESTIMATED
                                       AMORTIZED       UNREALIZED     UNREALIZED     MARKET
                                         COST            GAINS          LOSSES        VALUE
                                       ---------       ----------     ----------    ---------               
                                                              (1,000'S)
                                       ------------------------------------------------------             
     <S>                                <C>               <C>             <C>        <C>
     December 31, 1997
     -----------------

     FNMA                               $  433            $--             $ 7        $  426
     GNMA                                   --             --              --            --
     FHLMC                                 836              1              14           823 
                                        ------            ---             ---        ------

       Total                            $1,269            $ 1             $21        $1,249
       -----                            ======            ===             ===        ======
</TABLE>

     The above securities are issued, guaranteed or collateralized by
     one of the following:  the Government National Mortgage Association
     (GNMA), the Federal National Mortgage Association (FNMA) or the
     Federal Home Loan Mortgage Corporation (FHLMC).

     A summary of maturities, by contractual maturity, of
     mortgage-backed and related securities held-to-maturity and
     available-for-sale as of December 31, 1998 is shown below.
     <TABLE>
     <CAPTION>
                                             SECURITIES                   SECURITIES
                                          HELD-TO-MATURITY            AVAILABLE-FOR-SALE
                                     -------------------------      -----------------------            
                                                     ESTIMATED                    ESTIMATED
                                     AMORTIZED        MARKET        AMORTIZED      MARKET            
                                        COST           VALUE          COST          VALUE
                                     ---------       ---------      ---------     ---------
                                                             (1,000'S)                       
                                     ------------------------------------------------------
     <S>                               <C>            <C>             <C>            <C>
     Mortgage-backed securities:
       In one year or less             $    -         $    -          $535           $532
     After one year through
       five years                       2,649          2,662           128            129
     After five years through
       ten years                          548            550             -              -
     After ten years                    1,054          1,073             -              -
                                       ------         ------          ----           ----
       Total                           $4,251         $4,285          $663           $661
       -----                           ======         ======          ====           ====
</TABLE>

                                - 54 -
<PAGE>
<PAGE>

     A summary of maturities, by contractual maturity, of mortgage-backed
     and related securities held-to-maturity and available-for-sale as of
     December 31, 1997 is shown below.

<TABLE>
<CAPTION>
                                             SECURITIES                   SECURITIES
                                          HELD-TO-MATURITY            AVAILABLE-FOR-SALE
                                     -------------------------      -----------------------            
                                                     ESTIMATED                    ESTIMATED
                                     AMORTIZED        MARKET        AMORTIZED      MARKET            
                                        COST           VALUE          COST          VALUE
                                     ---------       ---------      ---------     ---------
                                                             (1,000'S)                       
                                     ------------------------------------------------------
     <S>                               <C>            <C>            <C>            <C>
      Mortgage-backed securities:
        In one year or less            $    -         $    -         $    -         $    -
      After one year through
        five years                      3,366          3,305          1,269          1,249
      After five years through
        ten years                         761            753              -              -
      After ten years                   1,610          1,636              -              -
                                       ------         ------         ------         ------
        Total                          $5,737         $5,694         $1,269         $1,249
        -----                          ======         ======         ======         ======
</TABLE>

     For the year ended December 31, 1997, the Company sold
     mortgage-backed securities resulting in net realized gains of
     $7,000 having a net after-tax effect of $4,300.  These securities
     were sold for total proceeds of $1,084,000.  No mortgage-backed
     securities were sold during 1998.

                                - 55 -
<PAGE>
<PAGE>

4.    LOANS RECEIVABLE, NET
      ---------------------
 
      A comparative summary of loans receivable follows:

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                                 ----------------------              
                                                                   1998          1997
                                                                   ----          ----
                                                                       (1,000'S)
                                                                 ----------------------          
      <S>                                                        <C>            <C>
      Type of Loan:
      ------------
      Real estate loans:
         One- to four-family residential                         $28,475        $37,546
         Multi-family residential                                  1,028          1,433
         Construction                                                653            381
         Church                                                    1,671          1,735
         Commercial                                                3,171          3,140
                                                                 -------        -------
         Total Real Estate Loans                                 $34,998        $44,235
                                                                 -------        -------

      Consumer loans: (Net of unearned
         Discount of $4,000 at December 31,
         1998 and $8,000 at December 31, 1997)
            Automobiles                                             $466           $508
            Savings account                                          384            477
            Home improvement                                         848            779
            Other                                                    284          1,157
                                                                 -------        -------
              Total Consumer Loans                                $1,982         $2,921
                                                                 -------        -------

              Total Gross Loans                                  $36,980        $47,156
                                                                 -------        -------
      Less:
            Loans in process                                     $   182        $   375
            Deferred service charge                                   44             74
            Allowance for loan losses                                372            400
                                                                 -------        -------
              Total                                              $36,382        $46,307
              -----                                              =======        =======
</TABLE>

      A summary of impaired loans at December 31, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                    -------------------               
                                                                    1998           1997
                                                                    ----           ---- 
                                                                         (1,000'S)
                                                                    -------------------              
      <S>                                                           <C>            <C>
      Nonaccrual loans                                              $478           $619
                                                                    ====           ====

      Allowance for loan losses on
        impaired loans                                              $ 72           $ 62
                                                                    ====           ====

      Average balance of impaired loans
        During the year                                             $559           $618
                                                                    ====           ====
</TABLE>

      Additional gross interest income of approximately $13,000 and
      $23,000 for the years ended December 31, 1998 and 1997,
      respectively, would have been recorded on nonaccrual loans if
      interest income had been recognized throughout the periods.  None
      of this income was actually recognized during these periods.

                                - 56 -
<PAGE>
<PAGE>


5.    INVESTMENTS REQUIRED BY LAW
      ---------------------------

      Investments available-for-sale required by law consist of the 
      following:
<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                    -------------------               
                                                                    1998           1997
                                                                    ----           ---- 
                                                                         (1,000'S)
                                                                    -------------------              
      <S>                                                           <C>            <C>
      Federal Home Loan Bank stock                                  $416           $454
      Federal Reserve Bank stock                                     123            123
                                                                    ----           ----
         Total                                                      $539           $577
         -----                                                      ====           ====
</TABLE>

      The above investments are valued at cost, which represents
      redemption value and approximates fair value.  Redemption proceeds
      of $46,000 was received during the year ended December 31, 1998
      resulting in no net realized gain or loss.


6.    ALLOWANCE FOR LOAN LOSSES
      -------------------------

      A summary of the changes in the allowance for loan losses for the 
      years ended December 31, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                    -------------------               
                                                                    1998           1997
                                                                    ----           ---- 
                                                                         (1,000'S)
                                                                    -------------------              
      <S>                                                           <C>            <C>
      Balance at beginning of period                                $ 400          $300
      Write offs                                                     (141)          (60)
      Recoveries                                                        7             4
      Provision for loan loss                                         106           156
                                                                    -----          ----
      Balance at end of period                                      $ 372          $400
                                                                    =====          ====
</TABLE>

                                - 57 -
<PAGE>
<PAGE>

7.    ALLOWANCE FOR OTHER REAL ESTATE 
      -------------------------------

      A summary of the changes in the allowance for other real estate 
      for the years ended December 31, 1998 and 1997 is as follows:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                    -------------------               
                                                                    1998           1997
                                                                    ----           ---- 
                                                                         (1,000'S)
                                                                    -------------------              
      <S>                                                            <C>           <C>
      Balance at beginning of period                                 $ 3           $  5

      Provision for other real estate loss                             -             10
      Sales of other real estate                                      (3)           (12)
                                                                     ---           ----
      Balance at end of period                                       $ -           $  3
                                                                     ===           ====
</TABLE>

                               
8.    ACCRUED INTEREST RECEIVABLE 
      ---------------------------

      Accrued interest receivable is summarized as follows:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                    -------------------               
                                                                    1998           1997
                                                                    ----           ---- 
                                                                         (1,000'S)
                                                                    -------------------              
      <S>                                                           <C>            <C>
      Investment securities                                         $ 75           $110
      Mortgage-backed securities                                      26             36
      Accrued dividends - FHLB stock                                   7              8
      Loans                                                          121            138
                                                                    ----           ----
      Total                                                         $229           $292
      -----                                                         ====           ====
</TABLE>

                                - 58 -
<PAGE>


9.   PROPERTY, EQUIPMENT AND PROPERTY HELD FOR INVESTMENT
     ----------------------------------------------------

     Property, equipment and property held for investment are 
     summarized as follows:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                    -------------------               
                                                                    1998           1997
                                                                    ----           ---- 
                                                                         (1,000'S)
                                                                    -------------------              
      <S>                                                           <C>            <C>
      Land and land improvements                                    $164           $164
      Office buildings and improvements                              286            282
      Furniture property and real estate held                        434            348
      Rental property and real estate held
      For development                                                 81             81 
                                                                    ----           ----

                                                                    $965           $875
      Less  - Accumulated depreciation                               479            414 
      ----                                                          ----           ----

        Total                                                       $486           $461
        -----                                                       ====           ====
</TABLE>

      Depreciation expense for the years ended December 31, 1998 and 
      1997 was $65,000 and $55,000, respectively.

                                - 59 -
<PAGE>
<PAGE>


10.   DEPOSITS
      --------

      Deposit accounts and interest rates at December 31, 1998 
      and 1997 were as follows:

<TABLE>
<CAPTION>
                                                 1998                              1997
                                   -------------------------------    --------------------------------         
                                                          PERCENT                             PERCENT
                                    INTEREST                 OF       INTEREST                   OF
                                      RATE       AMOUNT   ACCOUNTS      RATE       AMOUNT     ACCOUNTS
                                    --------     ------   --------    --------     ------     -------- 
                                                                (1,000'S)
                                   -------------------------------------------------------------------         
      <S>                          <C>           <C>      <C>        <C>           <C>        <C>
      Noninterest-bearing
        accounts                       N/A       $ 1,042    2.03%        N/A       $   667      1.23%

      NOW accounts                 2.83%-3.33%   $ 7,669   14.92%          2.93%   $ 8,868     16.42%

      Passbook                     3.84%-4.23%   $ 7,222   14.04%    3.84%-4.98%   $ 7,055     13.05%

      Christmas Club                     4.08%   $    10     .02%          4.08%   $     8      0.01%

      Certificate of Deposit
        91 day                     4.30%-4.32%   $   441     .86%    4.80%-4.81%   $   433       .80%
        6 month                    4.74%-4.82%     3,708    7.21%    5.30%-5.35%     3,962      7.33%
        12 month                   5.30%-5.37%     7,413   14.42%    5.60%-5.74%     9,508     17.60%
        18 month                   5.73%-5.77%     5,822   11.32%    5.68%-5.75%     2,107      3.90%
        30 month                   5.86%-5.91%     6,364   12.28%    5.86%-5.96%     6,238     11.55%
        3 year                     5.60%-5.98%       923    1.80%    5.70%-6.98%     2,047      3.79%
        4 year                     5.95%-6.05%       402     .78%    5.94%-6.05%       551      1.02%
        5 year                     5.43%-5.79%       614    1.19%    6.00%-6.08%     2,488      4.61%
        6 year                     6.04%-6.26%     1,095    2.13%    6.03%-6.30%     1,151      2.13%
        8 year                     6.49%-6.85%     1,393    2.71%    6.53%-6.85%     1,355      2.51%
        Jumbo                      4.29%-5.97%     4,007    7.79%    5.33%-6.25%     4,136      7.66%
                                   ----------    -------  ------     ----------    -------    ------

                                                 $32,182   62.59%                  $33,976     62.90%
                                                 -------   -----                   -------     -----

      Individual retirement
        Accounts                   5.80%-5.93%   $ 3,292    6.40%    5.75%-5.92%   $ 3,448      6.38%
                                   ----------    -------  ------     ----------    -------    ------

      Total                                      $51,417  100.00%                  $54,022    100.00%
                                                 =======  ======                   =======    ======
</TABLE>

                                - 60 -
<PAGE>
<PAGE>

      The following schedule sets forth the amount and maturities 
      of time deposits at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                             DECEMBER 31,
                                          -----------------               
                                           1998      1997 
                                           ----      ----
                                              (1,000'S)
                                          -----------------       
      <S>                                 <C>       <C>
      Maturing in - Less than one year    $21,605   $25,571
      - From one to two years               8,681     6,766
      - From two to three years             3,571     2,268
      - From three to four years              775     1,732
      - From four to five years               326       529
      - Over five years                       516       558
                                          -------   -------
      Total                               $35,474   $37,424
      -----                               =======   =======
</TABLE>


      The aggregate amount of time deposits with a minimum denomination
      of $100,000 was approximately $4,007,000 at December 31, 1998 and
      $4,136,000 at December 31, 1997.

      The Bank did not have brokered deposits at December 31, 1998 and
      1997.  Deposits in excess of $100,000 are not federally insured.

      Deposits by officers, directors and employees were $748,000 at
      December 31, 1998 and $734,000 at December 31, 1997.

      Interest expense on deposits for the years ended December 31, 1998
      and 1997 is summarized as follows:

<TABLE>
<CAPTION>
                                             DECEMBER 31,
                                          ----------------               
                                           1998      1997 
                                           ----      ----
                                              (1,000'S)
                                          ----------------       
      <S>                                 <C>       <C>
      Interest on passbooks               $  283    $  266
      Interest on NOW accounts               221       260
      Interest on time deposits            2,049     2,074
      Early withdrawal penalties              (9)      (13) 
                                          ------    ------
      Total                               $2,544    $2,587
      -----                               ======    ======
</TABLE>

                                - 61 -
<PAGE>
<PAGE>

11.   INCOME TAXES 

      The Company and the Bank file consolidated federal income tax 
      returns on a calendar year basis.

      Income tax expense is summarized as follows:

<TABLE>
<CAPTION>
                                            DECEMBER 31,
                                          ---------------               
                                          1998       1997 
                                          ----       ----
                                             (1,000'S)
                                          ---------------       
      <S>                                 <C>       <C>
   
      Current Tax Expense (Benefit)
      -----------------------------
        Federal                           $ (2)     $ 151
        State                              (10)        11
                                          ----      -----

      Total Current                       $(12)     $ 162
      -------------                       ----      -----

      Deferred Tax Expense (Benefit)
      ------------------------------
        Federal                           $(75)     $ (87)
        State                              (12)       (20)
                                          ----      -----

      Total Deferred                      $(87)     $(107)
      --------------                      ----      -----

      Total Expense (Benefit)             $(99)     $  55
      -----------------------             ----      -----
</TABLE>

      A reconciliation of income taxes at the federal statutory 
      rates to the income tax expense in the financial statements is 
      as follows:

<TABLE>
<CAPTION>
                                                  DECEMBER 31,
                                                 --------------               
                                                 1998      1997 
                                                 ----      ----
                                                    (1,000'S)
                                                 --------------       
      <S>                                        <C>       <C>
      Income tax at statutory rates              $ (79)   $  74
      State income tax - Net of federal tax
        Effect                                      (6)      (7)
      Tax exempt income                            (11)     (14)
      Other                                         (3)       2
                                                 -----    -----

      Income tax expense (benefit)               $ (99)   $  55
                                                 =====    =====

      Effective tax rates                        42.67%   25.23%
                                                 =====    =====
</TABLE>

      The Tax Reform Act of 1986 set the statutory rate at 34% effective 
      July 1, 1987.  For the periods presented, deferred tax expense 
      results from timing differences in the recognition of income and 
      expense for tax and financial reporting purposes.

                                - 62 -
<PAGE>
<PAGE>

      The tax effects of temporary differences that give rise to the 
      deferred tax assets and deferred tax liabilities at December 31, 
      1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                                     DECEMBER 31,
                                                    -------------          
                                                    1998     1997
                                                    ----     ----
                                                      (1,000'S)
                                                    -------------
      <S>                                           <C>      <C>
      Deferred tax assets:
       Allowance for loan losses                    $144     $155
       Deferred loan fees                             12       19
       Benefits not currently deductible             123       87
       Mortgage adjustment not currently
         deductible                                   57        -
       Other                                          (2)       -
                                                    ----     ----
      Total Deferred Tax Assets                     $334     $261 
      -------------------------                     ----     ----
            
<CAPTION>
                                                     DECEMBER 31,
                                                    -------------          
                                                    1998     1997
                                                    ----     ---- 
                                                      (1,000'S)
                                                    -------------
      <S>                                           <C>      <C>
      Deferred tax liabilities:
        Federal Home Loan Bank
          Stock dividends                           $ 18     $ 18
        Allowance for unrealized gains
          on securities available-for-sale             8        1
        Tax basis bad debt reserve                    38       51
        Difference between book and tax
          Depreciation                                32       30
                                                    ----     ----

          Total Deferred Tax Liabilities            $ 96     $100
          ------------------------------            ----     ----

      Net Deferred Tax Asset (Liability)            $238     $161
      ----------------------------------            ====     ====
</TABLE>

    The net deferred tax asset shown for the year ended December 31,
    1998 has been reduced by a valuation allowance of $3,000.  This
    allowance has been provided to reduce the estimated net realizable
    value of the Company's 1998 Illinois net operating loss to the
    amount of tax benefit management believes it will realize.

    No valuation allowance was required for the net deferred tax asset
    at December 31, 1997.

    There was no material tax effect relating to gains or losses on
    security sales for the year ended December 31, 1998.

    Taxes relating to gains on security sales were approximately
    $4,000 for the year ending December 31, 1997.

                                - 63 -
<PAGE>
<PAGE>

12.  PENSION PLAN, BENEFIT PLANS AND AGREEMENTS
     ------------------------------------------

     Financial Institutions Retirement Fund
     --------------------------------------

     The Bank participates in an industry-wide tax qualified pension
     trust administered by the Financial Institutions Retirement Fund
     (the "Fund").  An employee will be eligible for membership in the
     Comprehensive Retirement Program on the first day of the month
     following the employee's first year of service and attainment of
     age 21.  A member will be considered active or inactive depending
     on whether or not he or she completes 1,000 hours of service each
     calendar year.

     For the plan year beginning July 1, 1998, the full funding
     limitation will continue to be applied on an employer-by-employer
     basis.  Each employer in an overfunded position will use its
     excess designated "Future Employer Contribution Offset" to absorb
     future contribution requirements.  Employers who are in an
     unfunded position are billed by the Fund for their required
     contributions.

     The actuarial cost method used to value all benefits except pre-
     retirement death and disability benefits is the projected unit
     credit cost method.  For the pre-retirement death and disability
     benefits, a one year term cost method is used to determine the
     employer contribution.  In the actuarial valuation, assumptions
     are made as to future compensation levels, mortality and turnover,
     among other things.  Unfunded accrued liabilities and actuarial
     experience gains and losses are amortized over various periods
     prescribed by law.  Actuarial gains and losses are spread as a
     part of the valuation method.  The market value of the net assets
     of the Fund exceeds the liabilities for the present value of
     accrued benefits.

     Separate actuarial valuations are not made with respect to each
     employer, nor are the plan assets so segregated.  The Bank's
     (formerly the Association's) prior service costs have been funded
     and are being amortized over a ten-year period.  Current funding
     costs are charged to operations.  Total pension expense for the
     years ended December 31, 1998 and 1997 was $0 for both years.

     EMPLOYEE STOCK OWNERSHIP PLAN
     -----------------------------

     The Company has established a tax qualified ESOP for employees of
     the Company and its subsidiary.  Employees who have attained age
     21 and completed one year of service are eligible to participate
     in the ESOP.  On June 28, 1996, the Company loaned the ESOP
     $701,500 to finance the plan's initial purchase of 70,150 shares. 
     The loan is due and payable in ten (10) annual payments of
     principal and interest beginning December 31, 1996.  The principal
     is to be repaid in equal installments with interest at a variable 
     rate of 1% above prime.  The Company intends to contribute
     sufficient funds to the ESOP to enable it to repay the loan plus
     such other amounts as the Company's Board of Directors may
     determine in its discretion.  The Company accounts for its ESOP in
     accordance with SOP 93-6.  As shares are committed to be released
     to participants, the Company reports employee benefits expense
     based on the average market price of the shares during the period
     and the shares become outstanding for earnings per share
     computations.  Dividends on allocated ESOP shares are recorded as
     a reduction of retained earnings; dividends on unallocated ESOP
     shares are recorded as a reduction of debt.  ESOP benefits expense
     recorded during the years ended December 31, 1998 and 1997 was
     $128,378 and $153,762, respectively.

                                - 64 -
<PAGE>
<PAGE>

      The ESOP shares were as follows:

<TABLE>
<CAPTION>
                                                    1998         1997
                                                    ----         ----
     <S>                                           <C>          <C>
     Allocated shares                              18,239        8,418
     Shares ratably released for allocation         8,985        9,821
     Unallocated shares                            42,926       51,911
     Shares distributed                            (1,211)           -
                                                   ------       ------ 
       Total ESOP Shares                           68,939       70,150
       -----------------                           ======       ======
</TABLE>

     Fair value of unreleased shares at December 31, 1998 and 1997 
     was $633,000 and $811,000, respectively.

     DIRECTOR RETIREMENT PLAN
     ------------------------ 

     In connection with the stock conversion of the Association to the
     Bank, the Board of Directors of the Association (now the Bank) has
     adopted a director retirement plan (the "Director Retirement
     Plan"), effective December 31, 1995, for its directors who are
     members of the Board of Directors at some time on or after the
     Director Retirement Plan's effective date.  Under the Director
     Retirement Plan, a bookkeeping account in each participant's name
     is credited with "Performance Units" according to the following
     formula: (i) 70 Performance Units for each full year of service as
     a director prior to 1996 plus (ii) 100 Performance Units for each
     full year of service as a director after 1995 with the value of
     each Performance Unit equal to the average fair market value of
     one share of the Company's Common Stock as of December 31st of
     each of the three years preceding the determination date (or such
     shorter period as to which trading information is available). 
     Additional Performance Units are to be credited at the end of each
     year after 1995 based upon the amount of dividends paid on the
     Company's Common Stock.  A participant's interest in Performance
     Units credited on the effective date of the Director Retirement
     Plan becomes 50% vested if the participant serves on the Board for
     less than a year after 1995, 75% vested after the second year and
     100% vested after the third year.  In the event a participant's
     service on the Board is terminated due to death or disability, the
     vested percentage becomes 100% regardless of the number of years
     of service.  Performance Units credited after the Director
     Retirement Plan's effective date are fully vested at all times.

     As of December 31, 1998 and 1997, liabilities in the amounts of
     $120,709 and $82,657, respectively, have been recognized in the
     financial statements based on the vested value of the interests in
     the director retirement plan as of these dates.  The amount of
     expense recognized in the financial statements for the years ended
     December 31, 1998 and 1997 was $38,052 and $38,738, respectively.

     MANAGEMENT RECOGNITION PLAN
     --------------------------- 

     On January 28, 1997, the shareholders of the Company approved a
     management recognition plan ("MRP").  With funds contributed by
     the Company, the MRP has purchased, in the aggregate, 35,075
     shares of the Company's Common Stock (the maximum number of shares
     allowed to be purchased).  Such shares were purchased in the open
     market.  In June, 1997, the MRP's administrative committee voted
     to grant awards of Common Stock totaling 21,917 shares to certain
     executive officers and directors of the Company and the Bank. 
     These awards are deemed to be effective as of the date of
     shareholder approval of the MRP.  Common Stock granted under the
     MRP vests over a five year period at twenty percent per year.
     Under current accounting 

                                - 65 -
<PAGE>
<PAGE>
     standards, when MRP awards are granted, the Company will recognize
     compensation expense based on the fair market value of the Common
     Stock on the date the awards are granted with such amount being
     amortized over the expected vesting period for the award.  As of
     December 31, 1997, 35,075 shares had been purchased on the open
     market by the MRP to fund the plan at a total cost of
     approximately $552,000.  This amount has been recorded in the
     consolidated financial statements as an increase in a contra
     equity account.  This contra equity account will be amortized to
     expense over the period over which the MRP awards become vested. 
     The amount of expense recognized in the financial statements for
     the year ended December 31, 1998 and 1997 was $61,368 and $56,254,
     respectively.

     STOCK OPTION AND INCENTIVE PLAN
     ------------------------------- 

     Also on January 28, 1997, the shareholders of the Company approved
     a stock option and incentive plan (the "Option Plan").  The Option
     Plan provides for the granting of stock options and stock
     appreciation rights to certain employees and directors of the
     Company and the Bank and has a term of ten years from the
     effective date of the Option Plan after which no awards may be
     granted.  The Option Plan intends to reserve 87,687 authorized,
     but unissued shares (or treasury shares) of Common Stock for
     issuance upon the future exercise of options or stock appreciation
     rights.  At the effective date of the plan, certain executive
     officers and directors of the Company and the Bank will receive a
     grant of an option under the plan to purchase up to 87,683 shares
     of Common Stock at an exercise price per share equal to its fair
     market value on that date.  The plan provides for one-fifth of the
     options granted to be exercisable on each of the first five
     anniversaries of the date the option was granted.  The Company
     applies APB-25 in accounting for the Option Plan.  Recognition of
     compensation expense for stock options is not required when
     options are granted at an exercise price equal to or exceeding the
     fair market value of the Company's Common Stock on the date the
     option is granted.  Therefore, no expense related to the Option
     Plan is reflected on the accompanying financial statements.

     Had compensation cost been determined on the basis of fair value
     pursuant to FASB Statement No. 123, net income and earnings per
     share would have been reduced as follows:

<TABLE>
<CAPTION>
                                         1998            1997
                                         ----            ----
<S>                                 <C>              <C>        
      Net Income
      ----------
        As reported                   $(133,000)       $163,000
                                      =========        ========
        Pro forma                     $(171,000)       $113,000
                                      =========        ========

      Basic earnings per share
      ------------------------
        As reported                   $    (.17)       $    .20
                                      =========        ========
        Pro forma                     $    (.21)       $    .14
                                      =========        ========

      Diluted earnings per share
      --------------------------
        As reported                   $    (.17)       $    .20
                                      =========        ========
        Pro forma                     $    (.21)       $    .14
                                      =========        ========
</TABLE>

                                - 66 -

<PAGE>
<PAGE>

        The following is a summary of the status of the Option Plan during
        1998 and 1997:

<TABLE>
<CAPTION>

                                           1998                    1997
                                    --------------------    -------------------            
                                               WEIGHTED                WEIGHTED
                                                AVERAGE                AVERAGE
                                    NUMBER OF  EXERCISE     NUMBER OF  EXERCISE
                                      SHARES     PRICE        SHARES    PRICE
                                    --------- ----------    ---------  ---------  
<S>                                 <C>       <C>           <C>        <C>
Outstanding at January                87,683  $1,227,618           -  $        -
Granted                                    -           -      87,683   1,227,618
Exercised                                  -           -           -           -
Forfeited                                  -           -           -           -
                                      ======  ==========      ======  ==========

Outstanding at December 31            87,683  $1,227,618      87,683  $1,227,618
                                      ======  ==========      ======  ==========

  Options exercisable at
December 31                           17,537  $  245,518           -  $        -
                                      ======  ==========      ======  ==========

  Weighted average fair value of
options granted during the year               $        -              $1,227,618
                                              ==========              ==========
</TABLE>


     The following is a summary of the status of options outstanding 
     at December 31, 1998:

<TABLE>
<CAPTION>

                             OUTSTANDING OPTIONS            EXERCISABLE OPTIONS
                    ------------------------------------    --------------------
                                   WEIGHTED
                                   AVERAGE      WEIGHTED                WEIGHTED
                                  REMAINING      AVERAGE                 AVERAGE
      EXERCISE                   CONTRACTUAL    EXERCISE                EXERCISE
       PRICE         NUMBER          LIFE        PRICE      NUMBER       PRICE  
      --------      -------      -----------    --------    ------      --------
     <S>            <C>          <C>            <C>         <C>         <C>  
      $14.00        87,683         8 years      $14.00      17,537      $14.00

</TABLE>

     EMPLOYMENT AGREEMENTS
     --------------------- 

     The Company and the Bank have entered into separate employment
     agreements with certain officers of the Company and the Bank. 
     These agreements provide for salary terms, potential severance
     benefits and potential benefits which could be due to these
     officers in the event of a change in control of the Company.


13.  REGULATORY MATTERS
     ------------------

     The Company is regulated by the Board of Governors of the Federal
     Reserve System ("FRB") and is subject to securities registration
     and public reporting regulations of the Securities and Exchange
     Commission.  The Bank is regulated by the Federal Deposit
     Insurance Corporation ("FDIC") and the Office of the Comptroller
     of the Currency ("OCC").

                              - 67 -
<PAGE>
<PAGE>

     The Bank is subject to the capital requirements of the FDIC and
     the OCC.  The FDIC requires the Bank to maintain minimum ratios of
     Tier 1 capital to total risk-weighted assets and total capital to
     risk-weighted assets of 4% and 8%, respectively.  Tier 1 capital
     consists of total shareholders' equity calculated in accordance
     with generally accepted accounting principles less intangible
     assets, and total capital is comprised of Tier 1 capital plus
     certain adjustments, the only one of which is applicable to the
     Bank is the allowance for possible loan losses.  Risk-weighted
     assets refer to the on- and off-balance sheet exposures of the
     Bank adjusted for relative risk levels using formulas set forth in
     FDIC regulations.  The Bank is also subject to an FDIC leverage
     capital requirement, which calls for a minimum ratio of Tier 1
     capital to quarterly average total assets of 3% to 5%, depending
     on the institution's composite ratings as determined by its
     regulators.

     At December 31, 1998 and 1997, the Bank was in compliance with all
     of the aforementioned capital requirements as summarized below.

<TABLE>
<CAPTION>
                                   
                                                     DECEMBER 31,
                                                --------------------
                                                   1998         1997
                                                   ----         ----
                                                     (1,000'S)      
                                                --------------------       
<S>                                             <C>          <C>
Tier I Capital:
   Common stockholders' equity                  $ 9,585      $ 9,543
   Unrealized holding gain on
       securities available-for-sale                  2           13
                                                -------      ------- 

           Total Tier I Capital                 $ 9,587      $ 9,556
           --------------------                 =======      =======

Tier II Capital:
   Total Tier I capital                         $ 9,587      $ 9,556
   Qualifying allowance for loan losses             372          400
                                                -------      -------  

           Total Capital                        $ 9,959      $ 9,956
           -------------                        =======      =======

Risk-weighted assets                            $31,561      $35,404
Average assets                                  $61,255      $65,988

</TABLE>


                              - 68 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>



                                                                                   TO BE WELL
                                                                             CAPITALIZED UNDER THE
                                                            FOR CAPITAL        PROMPT CORRECTIVE
                                          ACTUAL         ADEQUACY PURPOSES     ACTION PROVISIONS
                                          ------         -----------------     ----------------- 
                                    AMOUNT     RATIO    AMOUNT       RATIO   AMOUNT         RATIO
                                    ------     -----    ------       -----   ------         -----
<S>                                 <C>       <C>       <C>     <C>  <C>     <C>     <C>   <C> 
As of December 31, 1998:
  Total Risk-Based Capital
    (to Risk-Weighted Assets)       $9,959    31.55%    $2,525   >=   8.0%   $3,156   >=    10.0%
  Tier I Capital
    (to Risk-Weighted Assets)        9,587    30.38%     1,262   >=   4.0%    1,894   >=     6.0%
  Tier I Capital
    (to Average Assets)              9,587    15.65%     2,450   >=   4.0%    3,063   >=     5.0%

As of December 31, 1997:
  Total Risk-Based Capital
    (to Risk-Weighted Assets)       $9,956    28.12%    $2,833   >=   8.0%   $3,541   >=    10.0%
  Tier I Capital
    (to Risk-Weighted Assets)        9,556    26.99%     1,416   >=   4.0%    2,125   >=     6.0%
  Tier I Capital
    (to Average Assets)              9,556    14.48%     2,640   >=   4.0%    3,299   >=     5.0%

</TABLE>


     Subject to applicable law, the Boards of Directors of the Company
     and the Bank may each provide for the payment of dividends. 
     Future declarations of cash dividends, if any, by the Company may
     depend upon dividend payments by the Bank to the Company.  Subject
     to regulations of the OCC, the Bank may not declare or pay a cash
     dividend if its stockholder's equity would thereby be reduced
     below either the aggregate amount then required for the
     liquidation account of the minimum regulatory capital requirements
     imposed by federal regulations.  The Bank may not declare or pay a
     cash dividend to the Company in excess of 100% of its net income
     to date, less dividends paid, during the current calendar year
     plus the preceding year's net income, less any dividends paid or
     declared during that year without prior regulatory approval.

     Retained earnings at December 31, 1998 include approximately
     $1,200,000 for which federal income tax has not been provided. 
     The Bank was allowed a special bad debt deduction limited
     generally to 8 percent of otherwise taxable income and subject to
     certain limitations based on aggregate loans and savings account
     balances at the end of the year.  If the amounts that qualify as
     deductions for federal income tax purposes are later used for
     purposes other than for bad debt losses, they will be subject to
     federal income tax at the then current corporate rate.  The
     unrecorded deferred tax liability on the above amount is
     approximately $450,000.

     On June 3, 1998, the Bank entered into a formal agreement with the
     OCC.  The agreement requires that the Bank adopt a formal
     strategic plan, including a written plan with timetables to ensure
     that all of its information systems are Year 2000 compliant, and
     to take certain other actions with respect to the internal audit
     and compliance functions and its policies and procedures.  The
     Bank does not expect that such written agreement will have a
     material adverse effect on its operations.

                              - 69 -
<PAGE>
<PAGE>

14.  OTHER NONINTEREST INCOME AND EXPENSE
     ------------------------------------ 

     Other noninterest income and expense amounts are summarized as 
     follows:

<TABLE>
<CAPTION>

                                        DECEMBER 31,
                                      -----------------            
                                      1998         1997
                                      ----         ---- 
                                         (1,000'S)
                                      -----------------
<S>                                  <C>          <C>            
 Other Noninterest Income
 ------------------------ 

   Service charges                    $102         $103
   Other                                32           18
                                      ----         ---- 
       Total                          $134         $121
       -----                          ====         ====
<CAPTION>


                                         DECEMBER 31,
                                      -----------------                        
                                      1998         1997
                                      ----         ----  
                                          (1,000'S)  
                                      ----------------- 
<S>                                  <C>          <C>                                 
 Other Noninterest Expense 
 ------------------------ 
   Contributions                      $  8         $  6
   Dues and subscriptions               11           10
   General assessment                   37           28
   Insurance and surety bond            22           19
   Payroll taxes                        41           41
   Real estate owned expense            37           10
   Other                                42           46
   Filing fees                           8            9
   Printing                             --           28
   Conventions and meetings              2            8
   Employee education and seminars      10            2
   Miscellaneous fees                    5            5 
                                      ----         ---- 
       Total                          $223         $212
       -----                          ====         ====

</TABLE>

                              - 70 -
<PAGE>
<PAGE>



15.  RELATED PARTY TRANSACTIONS
     --------------------------

     Officers and directors of the Company and the Bank, and
     individuals related to such individuals, incurred indebtedness in
     the form of loans as customers.  These loans were made on
     substantially the same terms, including interest rates and
     collateral, as those prevailing at the time for comparable
     transactions with other customers and did not involve more than
     the normal risk of collectibility.  The balance of these loans at
     December 31, 1998 and 1997, totaled approximately $270,000 and
     $585,000, respectively.

<TABLE>
<CAPTION>

                                         DECEMBER 31,
                                      -----------------                        
                                      1998         1997 
                                      ----         ----
                                          (1,000'S)
                                      ----------------- 
    <S>                               <C>         <C>                                   

     Balance at January 1             $585         $542

     New Loans                           8          112
     Payments                         (323)         (69)
                                      ----         ----

     Balance at December 31           $270         $585
                                      ====         ====

</TABLE>


16.  DEFERRED COMPENSATION
     ---------------------

     The Company has an agreement with certain directors to invest a
     part of current directors fees.  These fees are held in Company
     accounts at the Bank's highest certificate rate until the
     permanent disability, resignation or removal from office of the
     director, at which time the fees are payable in either a lump sum
     or on a monthly installment basis as directed by an election made
     by the director.

     The total liability is $67,000 and $65,000 for the years ended
     December 31, 1998 and 1997, respectively.  A $4,000 payment was
     made from the accounts during 1998.  Deferred compensation
     contributions charged to income for the years ended December 31,
     1998 and 1997 were $3,000 and $0, respectively.


17.  COMMITMENTS AND CONTINGENCIES
     -----------------------------

     The Bank is, in the normal course of business, a party to certain
     off-balance-sheet financial instruments with inherent credit risk. 
     These instruments, which include commitments to extend credit and
     standby letters of credit, are used by the Bank to meet the
     financing needs of its customers.  These instruments involve, to
     varying degrees, credit risk in excess of the amount recognized in
     the Company's statements of financial condition.

                              - 71 -
<PAGE>
<PAGE>


     Financial instruments with off-balance-sheet credit risk for which
     the contract amounts represent potential risk were as follows:

<TABLE>
<CAPTION>

                                                                        DECEMBER 31,           
                                                 ------------------------------------------------------
                                                        1998                             1997
                                                        ----                             ----
                                                                        (1,000'S)
                                                 ------------------------------------------------------                  
                                                             INTEREST                        INTEREST
                                                 AMOUNT        RATE                AMOUNT      RATE 
                                                 ------        ----                ------      ----
<S>                                               <C>      <C>                     <C>      <C>

Commitments to extend credit - Fixed                $189    7.75%-9.50%              $113   8.75%-9.50%
                             - Variable              292   7.25%-7.875%                45      7.88%
Letters of credit                                     20         N/A                   --        N/A
                                                    ----                             ----

     Total                                          $501                             $158
     -----                                          ====                             ====

</TABLE>
 

     The Company's maximum exposure to credit loss under commitments to
     extend credit and standby letters of credit is the equivalent of
     the contractual amount of those instruments.  The same credit
     policies are used by the Company in granting commitments and
     conditional obligations as are used in the extension of credit.

     The commitments noted above consist of loans approved by the Bank
     with the funds not yet being disbursed.  Commitments to extend
     credit are legally binding agreements to lend to a borrower as
     long as the borrower performs in accordance with the terms of the
     contract.  Commitments generally have fixed expiration dates or
     other termination clauses.  As a portion of the commitments may
     expire without being drawn upon, the total commitment amount does
     not necessarily represent future cash requirements.

     Standby letters of credit are commitments issued by the Bank to
     guarantee the specific performance of a customer to a third party.

     Collateral may be required by both commitments and standby letters
     of credit in accordance with the normal credit evaluation process
     based upon the creditworthiness of the customer and the credit
     risk associated with the particular transaction.  Collateral held
     varies but may include residential and commercial real estate,
     accounts receivable, inventory and equipment.

     The Company is a defendant in lawsuits filed by three former
     employees asking for damages in excess of $240,000.  Outside
     counsel for the Company has advised the Company that, at this
     stage in the proceedings, they cannot offer an opinion as to the
     probable outcome.  The Company is vigorously defending its
     position.  No amounts have been recorded in the financial
     statements for these matters.


18.  CONCENTRATION OF CREDIT RISK
     ----------------------------

     Most of the Bank's business activity is with customers located
     within Williamson, Jackson and Franklin counties in Illinois.  At
     December 31, 1998 and 1997, the Bank was considered to have a
     significant concentration of credit risk for loans made to various
     local churches.  Loans made to 

                              - 72 -
<PAGE>
<PAGE>


     various churches total $1,671,000 and $1,735,000 at December 31,
     1998 and 1997, respectively.  This comprises 5% of the total loan
     portfolio and 15% of tangible capital at December 31, 1998.

     At December 31, 1998, the Company had cash balances in excess of
     the FDIC limits at other institutions of approximately
     $12,098,000.


19.  LIQUIDATION ACCOUNT
     -------------------

     At the time of the conversion from mutual to stock form, the Bank
     established a liquidation account for the benefit of eligible
     savings account holders who continue to maintain their savings
     accounts with the Bank after conversion.  In the event of a
     complete liquidation of the Bank (and only in such event),
     eligible savings account holders who continue to maintain their
     accounts with the Bank shall be entitled to receive a distribution
     from the liquidation account after payment to all creditors but
     before any liquidation distribution with respect to common stock. 
     The initial liquidation account will be proportionately reduced
     for any subsequent reduction in the eligible holder's deposit
     accounts.  The creation and maintenance of the liquidation account
     will not restrict the use or application of any of the capital
     accounts of the Company, except that the Company may not declare
     or pay a cash dividend on, or repurchase any of, its capital stock
     if the effect of such dividend or repurchase would be to cause the
     Company's equity to be reduced below the aggregate amount then
     required for the liquidation account or the amount required by
     federal or state law.


20.  FAIR VALUE OF FINANCIAL INSTRUMENTS
     -----------------------------------

     The following methods and assumptions were used by the Company in
     estimating fair values of financial instruments as disclosed
     herein:

     Cash and cash equivalents and certificates of deposit - The
     carrying amount of cash and short-term instruments approximate
     their fair value.

     Securities held-to-maturity and securities available-for-sale -
     Fair values for investment securities, excluding restricted equity
     securities, are based on quoted market prices.  The carrying
     values of restricted equity securities approximate fair values.

     Loans receivable and loan commitments - For variable-rate loans
     that reprice frequently and have no significant change in credit
     risk, fair values are based on carrying values.  Fair values for
     certain mortgage loans (e.g., one-to-four family residential),
     other consumer loans, commercial real estate and commercial loans
     are estimated using discounted cash flow analyses, using interest
     rates currently being offered for loans with similar terms to
     borrowers of similar credit quality.  Fair values for impaired
     loans are estimated using discounted cash flow analyses or
     underlying collateral values, where applicable.

     The fair value of commitments to extend credit is estimated using
     fees currently charged to enter into similar agreements and the
     creditworthiness of the customers.  The fair value of letters of
     credit is based on fees currently charged for similar agreements
     or on the estimated cost to terminate them or otherwise settle the
     obligations with the counterparties at the reporting date.

                              - 73 -

<PAGE>
<PAGE>


     Investments required by law - Stock in Federal Home Loan Bank and
     stock in Federal Reserve Bank are valued at cost which represents
     redemption value and approximates fair value.

     Deposit liability - The fair values disclosed for demand deposits
     are, by definition, equal to the amount payable on demand at the
     reporting date (that is, their carrying amounts).  The carrying
     amounts of variable-rate, fixed-term money market accounts and
     certificates of deposit approximate their fair values at the
     reporting date.  Fair values for fixed-rate certificates of
     deposit are estimated using a discounted cash flow calculation
     that applies interest rates currently being offered on
     certificates to a schedule of aggregated expected monthly
     maturities on time deposits.

     Accrued interest - The carrying amounts of accrued interest
     approximate their fair values.

     Short-term borrowings - As a result of the short-term nature of
     these instruments, the carrying amount approximates their fair
     value.

                               - 74 -
<PAGE>
<PAGE>

     The Company, in accordance with SFAS No. 107, has estimated fair
     values of the financial instruments as follows:

<TABLE>
<CAPTION>

                                                   DECEMBER 31,                  DECEMBER 31,
                                                      1998                           1997 
                                                -------------------           ------------------        
                                                    (1,000'S)                      (1,000'S)
                                                -------------------           ------------------                 
                                                CARRYING     FAIR             CARRYING    FAIR
                                                 AMOUNT      VALUE             AMOUNT     VALUE 
                                                 ------      -----             ------     -----
<S>                                             <C>         <C>               <C>        <C>
Financial Assets:
  Cash and cash equivalents                     $12,202     $12,202           $ 4,970    $ 4,970

  Certificates of deposit                         1,379       1,379                95         95

  Investment securities and mortgage-
  backed and related securities                  11,344      11,411            14,327     14,308

  Loans                                          36,754      38,392            46,707     45,839
  Allowance for loan losses                        (372)         --              (400)        --
                                                -------     -------           -------    ------- 

  Loans, net of allowance                        36,382      38,392            46,307     45,839

  Investments required by law                       539         539               577        577

  Accrued interest receivable                       229         229               292        292

Financial Liabilities:
  Deposits                                       51,417      51,699            54,022     54,145

  Escrow accounts                                   205         205               228        228

  Accrued interest on deposits                       49          49                63         63

  Short-term borrowings                              --          --               750        750

Off Balance Sheet Financial Instruments:
  Loan Commitments                                   --          --                --         --
  Letters of Credit                                  --          --                --         --

</TABLE>

                               - 75 -
<PAGE>
<PAGE>



21. PARENT COMPANY FINANCIAL INFORMATION 
    ------------------------------------

    The following are condensed balance sheets as of December 31, 1998
    and 1997 and condensed statements of income and cash flows for the
    periods ended December 31, 1998 and 1997 for Heartland Bancshares,
    Inc. (parent company only):

<TABLE>
<CAPTION>

                         CONDENSED BALANCE SHEETS
                         ------------------------
 
                                                                    DECEMBER 31,                  
                                                             ------------------------
                                                               1998              1997
                                                               ----              ---- 
                                                                      (1,000'S) 
                                                             ------------------------
<S>                                                          <C>               <C>                 
Assets:
    Cash                                                     $  268            $  439
    Investment securities and mortgage-
       backed securities                                      1,275             2,104
    Investment in subsidiary                                  4,735             4,694
    Other assets                                                219               233
                                                             ------            ------ 

         Total Assets                                        $6,497            $7,470
                                                             ======            ======

Liabilities and Stockholders' Equity:
    Other liabilities                                        $   52            $  175
    Stockholders' equity                                      6,445             7,295
                                                             ------            ------  

         Total Liabilities and Stockholders' Equity          $6,497            $7,470
                                                             ======            ======

</TABLE>

                              - 76 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>

                          CONDENSED STATEMENTS OF INCOME
                          ------------------------------
 
                                                                   DECEMBER 31,
                                                             ------------------------           
                                                               1998              1997
                                                               ----              ----  
                                                                      (1,000'S)
                                                             ------------------------ 
<S>                                                          <C>              <C>                 

Interest income                                              $  157            $  245
Other                                                            (1)                4 
                                                             ------            ------ 

                                                             $  156            $  249
Operating expenses                                              433               337 
                                                             ------            ------ 

    Income (loss) before income taxes and equity
    in undistributed earnings of subsidiary                  $ (277)           $  (88)

Income tax expense (benefit)                                   (113)              (46)
                                                             ------            ------ 

    Income (loss) before equity in undistributed
    earnings of subsidiary                                   $ (164)           $  (42)

Equity in undistributed earnings of subsidiary                   31               205
                                                             ------            ------ 

         Net Income                                          $ (133)           $  163
                                                             ======            ======

</TABLE>

                                  - 77 -

<PAGE>
<PAGE>

<TABLE>
<CAPTION>



                        CONDENSED STATEMENTS OF CASH FLOWS
                        ----------------------------------
 
                                                                   DECEMBER 31,
                                                             ------------------------                      
                                                               1998              1997
                                                               ----              ----  
                                                                     (1,000'S) 
                                                             ------------------------  
<S>                                                          <C>              <C>                                
Operating activities:
    Net income                                               $ (133)           $  163
    Equity in undistributed earnings of subsidiary              (31)             (205)
    Other, net                                                   87               271 
                                                             ------            ------ 

         Net Cash Used in Operating Activities               $  (77)           $  229 
                                                             ------            ------ 

Investing activities:
    Net (increase) decrease in investment
    securities                                               $  829            $  641 
                                                             ------            ------ 
                                                  
         Net Cash Used in Investing Activities               $  829            $  641 
                                                             ------            ------ 

Financing activities:
    Dividends paid                                           $ (239)           $ (326)
    Shares acquired by MRP                                       --              (552)
    Purchase of treasury stock                                 (684)               -- 
                                                             ------            ------ 

         Net Cash Provided by Financing Activities           $ (923)           $ (878) 
                                                             ------            ------ 

         Net Change in Cash and Cash Equivalents             $ (171)           $   (8)

Cash and Cash Equivalents at Beginning of Year                  439               447 
                                                             ------            ------ 

Cash and Cash Equivalents at End of Year                     $  268            $  439
                                                             ======            ======

</TABLE>

                                  - 78 -



<PAGE>
22. SHORT-TERM BORROWINGS
    --------------------- 

    The following information relates to the short-term borrowings of
    the Company for the years ended December 31, 1998 and 1997.

<TABLE>
<CAPTION>

                                                                    DECEMBER 31,
                                                             ------------------------                                 
                                                               1998              1997
                                                               ----              ---- 
                                                                      (1,000'S)
                                                             ------------------------
<S>                                                          <C>            <C>                                 
   Federal Home Loan Bank borrowings:
     Balance at year end                                        $  --          $  750

     Weighted average interest rate
     at year end                                                   --%           5.86%

     Average amount outstanding during
     the year                                                   $  45          $1,375

     Maximum amount outstanding at
     any month                                                  $ 750          $1,750

     Weighted average interest rate
     during the year                                             5.86%           5.69%

</TABLE>


     Short-term borrowings consisted of borrowings from the Federal
     Home Loan Bank with maturities greater than one business day.

                              - 79 -

<PAGE>
<PAGE>


23.  EARNINGS PER SHARE
     ------------------

     The following data shows the amounts used in computing earnings
     per share and the effect on income and the weighted average number
     of shares of dilutive potential common stock.

<TABLE>
<CAPTION>

                                                            1998               1997 
                                                            ----               ----
<S>                                                      <C>                <C>      
     Income (loss) available to common stockholders
      used in basic EPS                                  $(133,000)          $163,000
                                                         =========           ========

     Income (loss) available to common stockholders
      after assumed conversions of dilutive
      securities                                         $(133,000)          $163,000
                                                         =========           ========

     Weighted average number of common shares
      used in basic EPS                                    800,174            819,736

     Effect of dilutive securities:
      Stock options                                          1,767              7,784
                                                         ---------           -------- 

     Weighted number of common shares and
      dilutive potential common stock used
      in diluted EPS                                       801,941            827,520
                                                         =========           ========

</TABLE>


24.  SEGMENT INFORMATION
     -------------------

     As discussed in Note 1, during 1998, the Company adopted the
     appropriate provisions of SFAS No. 131.  The principal business of
     the Company is overseeing the business of the Bank and investing
     the portion of the net proceeds from its initial public offering
     retained by it.  The Company has no significant assets other than
     its investment in the Bank, a loan to the ESOP plan and certain
     investment securities and cash and cash equivalents.  The Bank's
     principal business consists of attracting deposits from the
     general public and investing these deposits in loans to its
     customers.  The Bank's operating facilities are contained in
     Williamson County, Illinois, and its lending is concentrated
     within the counties of Williamson, Jackson and Franklin located in
     southeastern Illinois.  The Bank has no customer from which it
     derives 10% or more of its revenue.  With these facts in mind, the
     Company's management believes that the Company is comprised of
     only one reportable operating segment, and that the consolidated
     financial statements adequately reflect the financial condition
     and operations of that segment.


25.  PROPOSED MERGER
     ---------------

     On December 23, 1998, an Agreement and Plan of Merger (the
     "Agreement") was entered into by the following parties:  (1) the
     Company; (2) Banterra Corp. ("Banterra"); and (3) Banterra
     Acquisitionco, Inc. ("Acquisitionco"), a wholly owned subsidiary
     of Banterra.  The Agreement provides for the acquisition of the
     Company by Banterra by means of a merger (the "Merger"), with the
     Company surviving the Merger and becoming a wholly owned
     subsidiary of Banterra.  The Agreement provides that the Merger is
     subject to the approval of all applicable regulatory agencies, the
     approval by the holders of the Company's Common Stock and the
     satisfaction or 

                              - 80 -
<PAGE>
<PAGE>

     waiver of a number of other conditions.  Subject to these
     conditions, the Agreement provides that each outstanding share of
     the Company's Common Stock will be cancelled and converted into
     the right to receive $15.75 in cash.  Also, under conditions
     specified in the Agreement, each holder of an option to acquire
     the Company's Common Stock that is outstanding and fully vested
     will be cancelled and converted into the right to receive $1.75 in
     cash multiplied by the number of shares covered by the option. 
     Approval of the Agreement and the Merger will require the
     affirmative vote of at least two-thirds of all votes entitled to
     be cast by the Company's shareholders.  The Agreement has been
     approved and adopted by the Board of Directors of the Company and
     Banterra.  A special meeting of the Company's shareholders is
     scheduled to be held in the first half of 1999 to vote on the
     proposed Merger.


26.  STOCK REPURCHASE PLAN AND TREASURY STOCK 
     ----------------------------------------  

     During 1998, the Board of Directors of the Company adopted a
     program to repurchase 43,843 shares, or 5%, of the Company's
     outstanding Common Stock.  It is management's current intention
     that all repurchased shares will be held as treasury stock and
     will be used for general corporate purposes, including the
     exercise of stock options.  As of December 31, 1998, the
     repurchase program has been completed, with 43,843 shares being
     repurchased under the Stock Repurchase Plan.  During the third
     quarter of 1998, the Company acquired another 199 shares of
     treasury stock in a transaction unrelated to the Stock Repurchase
     Plan.


27.  MORTGAGE RATE ADJUSTMENT 
     ------------------------  

     During the fourth quarter of 1998, the Bank conducted a review of
     interest rate adjustments made in the past relating to adjustable
     rate mortgages.  Based upon this review, the Bank has determined
     that it is probable that rebates of excess interest income should
     be made to a portion of the Bank's adjustable rate loan customers. 
     The Bank currently estimates the amount of these potential rebates
     at $148,300.  This amount has been recorded as a liability on the
     December 31, 1998 consolidated statement of financial condition,
     and has been recorded as a charge to current period operations on
     the consolidated statements of income.  The after-tax effect of
     this charge is approximately $87,000.


28.  YEAR 2000 COMPLIANCE MATTERS 
     ----------------------------  

     As with all providers of financial services, the Bank's operations
     are heavily dependent on information technology systems.  The bank
     is addressing the potential problems associated with the
     possibility that the computers that control or operate the Bank's
     information technology systems and infrastructure may not be
     programmed to read four-digit date codes and, upon arrival of the
     year 2000, may recognize the two-digit code "00" as the year 1900,
     causing systems to fail to function or to generate erroneous data.
 
     As part of the awareness, inventory and assessment phases of its
     action plan related to the Year 2000 problem, the Bank has
     identified the operating systems which are considered critical to
     the ongoing operations of the Bank and the Company.  The Bank is
     working with companies that supply or service its information
     technology systems to remedy any perceived Year 2000 

                              - 81 -
<PAGE>
<PAGE>

     problems.  As a part of the implementation of its Year 2000 action
     plan, the Bank has purchased a number of new computers which have
     been determined to be Year 2000 compliant.

     Of the systems that the Bank has identified as mission critical,
     the most significant is the on-line account processing system that
     is performed by a third party service provider, NCR.  As of
     December 31, 1998, NCR has substantially completed its testing of
     internal systems, and has completed its proxy testing by user
     participants and its on-line testing.  The Bank's review of this
     proxy test indicates that the transactions performed, the hardware
     specifications and other factors used in the proxy test closely
     match the Bank's own operational environment and available
     hardware.  The Bank intends to continue its own program of
     appropriate testing of this and other mission critical systems.

     The Bank is in the process of evaluating its non-technological
     systems to determine whether such systems have embedded technology
     that could be affected by the Year 2000 problem.  As of the date
     hereof, the Bank does not anticipate that any disruption relating
     to such systems will have a material adverse effect on the Bank's
     operations.

     During 1998, the Bank developed a contingency plan in the event
     the mission-critical systems are not successfully renovated in a
     timely manner or such systems were to actually fail at Year 2000
     critical dates.  Among other issues, that plan addresses the
     possibility that NCR, the current data service provider, could
     fail to operate on January 1, 2000.  A business resumption plan
     was formed to deal with this possibility.  With respect to a
     short-term remedy for business disruptions potentially caused by
     the Year 2000 problem, the Bank's Board and management have
     determined that a manual system is the most reasonable approach to
     allow the Bank to continue to effectively serve its customer base. 
     The business resumption plan addresses preparation, logistics,
     departmental requirements and guidelines for the potential
     handling of specific types of banking transactions on such a
     manual basis.

     Management has indicated that, as of December 31, 1998,
     approximately $43,000 of expenditures have been incurred resulting
     from the Bank's efforts to make its systems Year 2000 compliant. 
     Management is currently estimating that approximately $8,000 of
     additional expenditures will be incurred during 1999 in connection
     with this issue.  No assurance can be given, however, that
     significant expense will not be incurred in future periods.  In
     the event that the Bank is ultimately required to purchase
     additional replacement computer systems, programs and equipment,
     or if the Bank is required to incur substantial additional expense
     to make the Bank's current systems, programs and equipment Year
     2000 compliant, the Bank's net earnings and financial condition
     could be adversely affected.

     In addition to possible expense related to its own systems, the
     Bank could incur losses if loan payments are delayed due to Year
     2000 problems affecting any major borrowers in the Bank's primary
     market area.  Because the Bank's loan portfolio is highly
     diversified with regard to individual borrowers and types of
     businesses, and the Bank's primary market area is not
     significantly dependent upon one employer or industry, the Bank
     does not expect any significant or prolonged difficulties that
     will affect net earnings or cash flow. 
                              



                              - 82 -
<PAGE>
<PAGE>

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

        Not applicable.


                                PART III



ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
        COMPLIANCE WITH SECTION  16(a) OF THE EXCHANGE ACT        
        -------------------------------------------------------------

     The following table sets forth information regarding each of the
directors of the Company.  With the exception of Messrs. Burns, Cripps
and Rochman, all such individuals also serve as directors of the Bank.

<TABLE>
<CAPTION>
                                           YEAR FIRST            CURRENT
NAME                            AGE   ELECTED DIRECTOR<F1>   TERM TO EXPIRE 
---                             ---   --------------------   -------------- 
<S>                             <C>          <C>            <C>
David A. Burns                   36           1998                2001
Paul R. Calcattera               48           1992                2000
James L. Cripps                  42           1998                1999
B.D. Cross                       68           1976                2000
Roger O. Hileman                 45           1995                2000
Barrett R. Rochman               56           1998                2001
Charles Stevens                  64           1973                2001
James C. Walker                  72           1959                1999
Randall A. Youngblood            46           1991                1999

<FN>
_________________

<F1>  Year first elected director of the Company or the Bank.
</TABLE>

     The following are brief summaries of the business experience
during the past five years of each of the directors and executive
officers of the Company.  Roger O. Hileman is currently the sole
executive officer of the Company.

     DAVID A. BURNS is a director and officer of Custom Software
Solutions, Inc., a nationwide provider of software for the
transportation industry.  Mr. Burns is also a general partner of the
Burns Partnership and a director of EC Development Corporation.

     PAUL R. CALCATERRA is a self-employed merchant in the wholesale
food and beverages industry.  Mr. Calcaterra is also a current member of
the Herrin Chamber of Commerce, the Herrin Elks and Knights of Columbus.

     JAMES L. CRIPPS owns and operates Drivers World in Energy,
Illinois.  Prior to purchasing Drivers World in January 1999, Mr. Cripps
served as Salesman/FIA Manager of Drivers World from 1997 to December
1998.  From 1995 to 1997, he was employed by Absher Motor Sales in
Marion, Illinois.  Mr. Cripps also opened and operated PAR for the
Course Driving Range in Marion, Illinois from 1992 until 1996.

                              - 83 -
<PAGE>
<PAGE>

     B.D. CROSS is a retiree of Southern Illinois University.  Prior to
his retirement, he was Director of Off-Campus Educational Programs in
England, Germany and the United States.  He has a degree in Finance, an
advanced degree in Management, and was a certified computer
professional.  He supervised the Bank Simulation Game for the Illinois
Banker's School and served as an executive officer for Mercantile
Mortgage Co. and the Olin Corporation.

     ROGER O. HILEMAN has been President and Chief Executive Officer of
the Company since its inception and President and Chief Executive
Officer of the Bank since joining the Bank in June 1994.  From 1983
until he joined the Bank, Mr. Hileman was Executive Vice President and
Chief Executive Officer of Chester Savings Bank in Chester, Illinois. 
Mr. Hileman serves as a member of the Knights of Columbus and the Rotary
Club.  He is also a current member and director of the local Chamber of
Commerce, the Shagbark Girl Scout Council Board (also serving on the
Management Committee) and the City of Herrin Economic Development
Committee and the Illinois League of Financial Institutions.  He also
serves on the Finance Committee Of Our Lady of Mt. Carmel Catholic
Church and is a member of various other civic organizations.

     BARRETT R. ROCHMAN is a graduate of Southern Illinois University
with additional graduate work in economics, marketing, rehabilitation,
sociology and industrial psychology.  Mr. Rochman established the
Rochman Investment Group which includes businesses in mobile catering,
real estate investments and entertainment.  The Rochman Investment Group
has two offices, one in Carbondale, Illinois and one in Chicago,
Illinois.

     CHARLES E. STEVENS owns and operates two Dairy Queen/Brazier
restaurants in Carterville and Johnston City, Illinois, and the Country
Cupboard Restaurant in Carterville, Illinois.  Mr. Stevens is a former
board member of 1st Bank and Trust of Mt. Vernon/Mercantile and a former
chairman of National Dealer Marketing Council Board of International
Dairy Queen.  Mr. Stevens is a member and director of the Carterville
Chamber of Commerce and has served on the John A. Logan College
Foundation Board.  He is chairman of the Trustees and a Deacon at First
Baptist Church in Carterville.

     JAMES C. WALKER has been retired since 1981.  Prior to his
retirement, Mr. Walker owned a chain of men's clothing stores.  Mr.
Walker is a current member of the Herrin Chamber of Commerce and the
Herrin Rotary Club.

     RANDALL A. YOUNGBLOOD is a self-employed certified public
accountant in Herrin, Illinois.  He is also a Board member of Herrin
Youth Sports and a member of the Herrin Rotary Club and the
Accounting/Business Administration Advisory Committee.

     On February 17, 1999, Barrett R. Rochman consented to the entry
of a cease-and-desist order by the Securities and Exchange Commission
relating to violations by Mr. Rochman of Section 13(d) of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"). Such violations
were a result of late filings during 1996 by Mr. Rochman relating to his
ownership of shares of Common Stock of the Company.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Exchange Act requires that the Company's 
officers and directors, and persons who own more than ten percent of
the Company's outstanding stock, file reports of ownership and changes
in ownership with the Securities and Exchange Commission.  To the knowledge
of the Company, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were
complied with during the year ended December 31, 1998.


                              - 84 -
<PAGE>
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION
          ----------------------

     SUMMARY COMPENSATION TABLE.  For the years ended December 31,
1998, 1997 and 1996, the following table presents summary information
concerning compensation awarded to or earned by the Chief Executive
Officer for services rendered in all capacities to the Company and its
subsidiaries.  No other executive officer earned salary and bonus in
excess of $100,000.


<TABLE>
<CAPTION>
                                                                                  LONG-TERM
                                          ANNUAL COMPENSATION                COMPENSATION AWARDS     
                              ------------------------------------------  -------------------------
                                                                          RESTRICTED    SECURITIES
NAME AND              FISCAL                           OTHER ANNUAL         STOCK       UNDERLYING       ALL OTHER
PRINCIPAL POSITION     YEAR   SALARY ($)  BONUS ($)  COMPENSATION<F1>($)  AWARD(S)($)   OPTIONS (#)   COMPENSATION ($) 
------------------     ----   ----------  ---------  -------------------  -----------   -----------   ----------------
<S>                    <C>     <C>         <C>             <C>            <C>             <C>            <C>
Roger O. Hileman       1998    $91,700     $    --          $--           $     --             --        $45,945<F2>
 President and Chief   1997     88,400      10,093           --            122,752<F3>     21,921         47,511<F4>
 Executive Officer     1996     84,000       8,405           --                 --             --             --

<FN>
________________

<F1> The aggregate amounts of other annual compensation do not exceed 
     the lesser of either $50,000 or 10% of the total annual salary and
     bonus reported for that fiscal year.
<F2> Consists of director's fees in the amount of $12,350 and the value 
     of shares currently anticipated to be allocated to Mr. Hileman's
     ESOP account in the amount of $33,595.
<F3> As of December 31, 1998, Mr. Hileman held 8,768 shares of 
     restricted Common Stock awarded under the Heartland Bancshares,
     Inc. Management Recognition Plan ("MRP").  Such shares had an
     aggregate value of $129,328 based on the closing price of $14.75
     per share of the Common Stock on December 31, 1998.  Such shares
     vest at the rate 20% per year from the date of award, subject to
     accelerated vesting upon death or disability.  Dividends are paid
     on such vested shares to the extent paid on the Common Stock
     generally.
<F4> Consists of director's fees in the amount of $12,450 and the value 
     of shares allocated to Mr. Hileman's ESOP account in the amount of
     $35,061.
</TABLE>

     OPTION YEAR-END VALUE TABLE.  The following table sets forth
information concerning the value of options held by Mr. Hileman at the
end of the fiscal year.  No options were exercised during 1998.

<TABLE>
<CAPTION>
                              NUMBER OF                             VALUE OF
                        SECURITIES UNDERLYING                      UNEXERCISED
                         UNEXERCISED OPTIONS                   IN-THE-MONEY OPTIONS
                          AT FISCAL YEAR-END                  AT FISCAL YEAR-END<F1>
                   -------------------------------        -------------------------------
NAME               EXERCISABLE       UNEXERCISABLE        EXERCISABLE       UNEXERCISABLE 
----               -----------       -------------        -----------       -------------
<S>                   <C>                <C>                 <C>                <C>
Roger O. Hileman      4,384              17,537              $3,288             $13,153

<FN>
__________

<F1> Based on aggregate fair market value of the shares of Common Stock 
     underlying the options at December 31, 1998 less the aggregate
     exercise price.  For purposes of this calculation, the fair market
     value of the Common Stock at December 31, 1998 is assumed to be
     equal to the closing market price of $14.75 per share.  All
     options granted to Mr. Hileman were granted at an exercise price
     of $14.00 per share.
</TABLE>

     DIRECTOR FEES.  Each member of the Company's Board of Directors
receives a monthly retainer of $200 plus $150 per Board meeting attended
for their services as directors of the Company.  In addition, each
member of the Bank's Board of Directors receives $400 per month plus
$250 per Board meeting attended for their services as directors of the
Bank.  Members of the Board's Loan Committee receive an additional $25
per Loan Committee meeting attended.  During the year ended December 31,

                              - 85 -
<PAGE>
<PAGE>

1998, directors' fees for service on the Company's and the Bank's Board
of Directors totaled $78,275.

     DIRECTOR RETIREMENT PLAN.  The Bank's Board of Directors adopted
the First Federal Savings and Loan Association of Herrin Retirement Plan
for Directors (the "Directors' Plan"), effective December 31, 1995, for
its directors who were members of the Bank's Board of Directors at some
time on or after the plan's effective date.  On June 28, 1996, the date
of completion of the Conversion, the Bank assumed the obligations of the
Directors' Plan.  Under the Director Retirement Plan, a bookkeeping
account in each participant's name is credited with "Performance Units"
according to the following formula: (i) 70 Performance Units for each
full year of service as a director prior to 1996 plus (ii) 100
Performance Units for each full year of service as a director after 1995
with the value of each Performance Unit equal to the average fair market
value of one share of the Company's Common Stock as of December 31st of
each of the three years preceding the determination date (or such
shorter period as to which trading information is available). 
Additional Performance Units are to be credited at the end of each year
after 1995 based upon the amount of dividends paid on the Company's
Common Stock.   A participant's vested interest ("Vested Percentage") in
Performance Units credited on the plan's effective date equals 50% if
the participant serves on the Board for less than a year after
December 31, 1995, increases to 75% if the participant completes 2 years
of service after 1995, and becomes 100% if the participant completes a
third year of service after 1995.  In the event a participant's service
on the Board is terminated due to death or disability, the participant's
Vested Percentage becomes 100% regardless of the number of years of
service. Performance Units credited after the plan's effective date are
fully vested at all times.

     A participant's vested benefits under the Directors' Plan will be
paid in substantially equal installments over a 10-year period after the
participant's service as a director terminates for any reason.
Notwithstanding the foregoing, a participant may elect, within 30 days
after becoming, a participant, to have his or her account paid in a
single lump sum distribution or in annual payments over a period of less
than ten years.  If a participant dies before receiving all benefits
payable under the Directors' Plan, such payments shall be made to his or
her beneficiary or, if no beneficiary has been designated or if the
designated beneficiary has predeceased the participant, to the
participant's estate.  Benefits under the Directors' Plan are
nontransferable.  The Bank will pay all benefits in cash from its
general assets, and expects to establish a trust in order to hold assets
with which to pay benefits.  Trust assets will be subject to the claims
of the Bank's general creditors.  In the event a participant prevails
over the Bank in a legal dispute as to the terms or interpretation of
the Directors' Plan, he or she will be reimbursed for his or her legal
and other expenses.

     EMPLOYMENT AGREEMENTS.  The Bank entered into an employment
agreement (the "Employment Agreement") with Mr. Roger O. Hileman,
President and Chief Executive Officer of the Bank and of the Company. 
In such capacities, Mr. Hileman is responsible for overseeing all
operations of the Bank and the Company, and for implementing the
policies adopted by the Board of Directors.  The Board of Directors of
the Bank believes that the Employment Agreement assures fair treatment
of Mr. Hileman in relation to his career with the Bank by assuring him
of some financial security.

     The Employment Agreement became effective on June 28, 1996 (the
"Effective Date") and provides for a term of three years, with an annual
base salary of $91,700.  On each anniversary date from the Effective
Date, the term of his employment under the Employment Agreement may be
extended for an additional one-year period beyond the then effective
expiration date, upon a determination by the Board of Directors that the
performance of Mr. Hileman has met the required performance standards
and 

                              - 86 -
<PAGE>
<PAGE>

that such Employment Agreement should be extended.  The Employment
Agreement provides Mr. Hileman with a salary review by the Board of
Directors not less often than annually, as well as with inclusion in any
discretionary bonus plans, retirement and medical plans, customary
fringe benefits, and vacation and sick leave.  The Employment Agreement
will terminate upon Mr. Hileman's death or disability, and is terminable
by the Bank for "just cause" as defined in the Employment Agreement.  In
the event of termination for just cause, no severance benefits are
available under the Employment Agreement.  If the Bank terminates
Mr. Hileman's employment without just cause or takes action constituting
a constructive discharge, Mr. Hileman will be entitled to a payment of
his salary up to the Employment Agreement's expiration date, plus said
salary for an additional 12-month period, and, at Mr. Hileman's
election, either cash in an amount equal to the cost to him of obtaining
health, life, disability and other benefits through the Employment
Agreement's expiration date, or continued participation under the
benefit plans of the Bank through the Employment Agreement's expiration
date, but only to the extent Mr. Hileman continues to qualify for
participation therein.  Amounts payable to Mr. Hileman will be paid, at
the option of Mr. Hileman, either in periodic payments through the
Employment Agreement's expiration date, or in one lump sum within ten
(10) days of such termination.  If the Employment Agreement is
terminated due to Mr. Hileman's "disability" (as defined in the
Employment Agreement), Mr. Hileman will be entitled to a continuation of
his salary and benefits for up to 180 days following such termination. 
In the event of Mr. Hileman's death during the term of the Employment
Agreement, his estate will be entitled to receive his salary through the
end of the month in which Mr. Hileman's death occurred.  Severance
benefits payable to Mr. Hileman or to his estate will be paid in a lump
sum or in installments, as he (or his estate) elects. Mr. Hileman is
able to voluntarily terminate his Employment Agreement by providing 90
days' written notice to the Board of Directors of the Bank, in which
case he is entitled to receive only his compensation, vested rights and
benefits up to the date of termination.

     The Employment Agreement contains provisions stating that in the
event of Mr. Hileman's involuntary termination of employment in
connection with, or within one year after, any change in control of the
Bank or the Company, other than for just cause, Mr. Hileman will be paid
within 10 days of such termination an amount equal to the difference
between (i) 2.99 times his "base amount," as defined in Section
280G(b)(3) of the Internal Revenue Code and (ii) the sum of any other
parachute payments, as defined under Section 280G(b)(2) of the Internal
Revenue Code, that Mr. Hileman receives on account of the change in
control.  "Change in control" generally refers to the acquisition, by
any person or entity, of (a) the ownership or power to vote more than
25% of the Bank's or Company's voting stock, (b) the ability to control
the election of a majority of the Bank's or the Company's directors or
(c) a controlling influence over the management or policies of the Bank
or the Company.  In addition, under the Employment Agreement, a change
in control occurs when, during any consecutive two-year period,
directors of the Company or the Bank who were directors at the beginning
of such period cease to constitute at least a majority of the Board of
Directors of the Company or the Bank, provided that no change of control
shall have occurred if the election of said directors was approved by at
least a majority of the initial directors then in office.  The
Employment Agreement provides that within 5 business days of a change in
control, the Bank shall fund, or cause to be funded, a trust in the
amount of 2.99 times his base amount, that will be used to pay
Mr. Hileman amounts owed to him upon termination, other than for just
cause, within one year of the change in control.  The Employment
Agreement also provides for a similar lump sum payment to be made in the
event of his voluntary termination of employment within 30 days of a
change in control of the Bank or the Company.  Alternatively,
Mr. Hileman may voluntarily terminate his employment within one year of
a change in control and be entitled to receive a similar payment, within
90 days following the occurrence of certain specified events, which have
not been consented to in writing by him, including (i) the requirement
that he perform his principal executive functions more than 30 miles
from his current primary office, (ii) a material reduction in his base 

                              - 87 -
<PAGE>
<PAGE>

compensation as then in effect, (iii) the failure of the Bank to
maintain existing or substantially similar employee benefit plans,
(iv) the assignment to him of duties and responsibilities which are
other than those normally associated with his position, (v) a material
reduction in his authority and responsibility, (vi) the failure to re-
elect him to the Bank's Board of Directors and (vii) a material
reduction in his administrative support.

     The aggregate payments that would be made to Mr. Hileman, assuming
his termination of employment under the foregoing circumstances at
December 31, 1998, would have been approximately $310,000.  In the event
that Mr. Hileman prevails over the Company and the Bank in a legal
dispute as to the Employment Agreement, he will be reimbursed for his
legal and other expenses.


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
         --------------------------------------------------------------

SECURITY OWNERSHIP

     The following table sets forth, as of March 15, 1999, certain
information as to those persons who were beneficial owners of more than
five percent (5%) of the Common Stock and as to the shares of the Common
Stock beneficially owned by each of the Company's directors and
executive officers and by all executive officers and directors of the
Company as a group.  Persons and groups owning in excess of 5% of the
Common Stock are required to file certain reports regarding such
ownership pursuant to the Exchange Act.  Based upon such reports,
management knows of no persons, other than those set forth below, who
owned more than 5% of the outstanding shares of the Common Stock as of
March 15, 1999.

<TABLE>
<CAPTION>
                                                                   NUMBER OF SHARES      PERCENT OF OUTSTANDING
                  NAME AND ADDRESS<F1>                           BENEFICIALLY OWNED<F2>     COMMON STOCK<F3> 
                  --------------------                           ----------------------     ----------------
<S>                                                                   <C>                      <C>
Roger O. Hileman                                                        40,333<F4>                4.6%
Charles E. Stevens                                                      27,453<F5>                3.1
James C. Walker                                                         24,453<F5>                2.8
Randall A. Youngblood                                                   27,453<F5>                3.1
Paul R. Calcaterra                                                      27,453<F5>                3.1
B. D. Cross                                                             27,453<F5>                3.1
James L. Cripps                                                         15,092<F6>                1.7
David A. Burns                                                           5,000                    <F*>
Barrett R. Rochman                                                      80,312                    9.2
Heartland Bancshares, Inc. Employee Stock Ownership Plan                68,939                    7.9
Tontine Financial Partners, L.P.                                        80,800<F7>                9.2
Tontine Overseas Associates, L.L.C.                                      6,800<F7>                <F*>
Directors and executive officers as a group (9 persons)                274,997<F8>               30.7

<FN>
---------
<F*>less than one percent

<F1> Unless otherwise indicated, the address for each person is 318 
     South Park Avenue, Herrin, Illinois  62948-3604.

<F2> Includes the following:  stock held in joint tenancy; stock owned 
     as tenants in common; stock owned or held by a spouse or other
     member of the individual's household; stock allocated through
     certain employee benefit plans of the Company; stock in which the
     individual either has or shares voting and/or investment power;
     and shares that the individual has the right to acquire at any
     time within 60 days of the Record Date.  Each person or relative
     of such person whose shares are included herein exercises sole or
     shared voting and dispositive power as to the shares reported. 
     Does not include shares with respect to which directors Walker,
     Stevens, Youngblood, Cross and Calcaterra have "voting power" by
     virtue of their positions as trustees of the trust holding 68,939
     shares under the Company's ESOP.  The ESOP trustees must vote all
     allocated shares held in the ESOP in accordance with the
     instructions of the participants.  Unallocated shares and
     allocated shares for which 

                              - 88 -
<PAGE>
<PAGE>


     no timely direction is received are voted by the ESOP trustees in
     proportion to the participant-directed voting of allocated shares.

<F3> The percentage calculations for beneficial ownership are based 
     upon 876,875 shares of Common Stock that were issued and
     outstanding as of March 15, 1999.  In calculating the percentage
     ownership by each named individual, the number of shares
     outstanding is deemed to include any shares of Common Stock that
     the individual has the right to acquire within 60 days of
     March 15, 1999.

<F4> Includes 8,768 shares that Mr. Hileman has the right to acquire 
     within 60 days of March 15, 1999 upon the exercise of stock
     options.  Also includes 4,059 shares under the ESOP and 3,506
     shares under the MRP that have vested or are subject to vesting
     within 60 days of March 15, 1999.

<F5> Includes 1,752 shares that each of Messrs. Stevens, Walker, 
     Youngblood, Calcaterra and Cross has the right to acquire within
     60 days of March 15, 1999 upon the exercise of stock options and
     701 shares under the MRP for each such individual that have vested
     or are subject to vesting within 60 days of March 15, 1999.
                               
<F6> Includes 876 shares under the MRP held by Mr. Cripps' spouse that 
     have vested or are subject to vesting within 60 days of March 15,
     1999.  Also includes 1,715 shares under the ESOP owned by Mr.
     Cripps' spouse.

<F7> The information is based on a Schedule 13D (Amendment No. 1), 
     dated May 14, 1998, of Tontine Financial Partners, L.P., Tontine
     Management, L.L.C., Tontine Overseas Associates, L.L.C. and
     Jeffrey L. Gendell (collectively, the "Tontine Group").  The
     information in the Schedule 13D indicates that Tontine Financial
     Partners, L.P., Tontine Management, L.L.C. and Jeffrey L. Gendell
     share voting and dispositive power with respect to 80,800 shares
     and that Tontine Overseas Associates, L.L.C. and Jeffrey L.
     Gendell share voting and dispositive power with respect to 6,800
     shares.  The address for the Tontine Group is 31 West 52nd Street,
     17th Floor, New York, New York  10017.

<F8> Includes 17,528 shares that all directors and executive officers 
     as a group have the right to acquire within 60 days after the
     Record Date upon the exercise of stock options.  Also includes
     4,059 shares under the ESOP and 7,887 shares under the MRP that
     have vested or are subject to vesting within 60 days of March 15,
     1999.
</TABLE>


CHANGES IN CONTROL

     On December 23, 1998, the Company entered into an Agreement and
Plan of Merger with Banterra Corp. and Banterra Acquisitionco, Inc.
which provides for the acquisition of the Company by Banterra by means
of the merger of Acquisitionco with and into the Company with the
Company as the surviving entity. Consummation of the transactions
contemplated by the Agreement and Plan of Merger is subject to a number
of conditions, including approval of the Agreement and Plan of Merger by
the shareholders of the Company and receipt of all requisite regulatory
approvals.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ---------------------------------------------- 

     The Bank offers loans to its directors and officers.  These loans
currently are made in the ordinary course of business with the same
collateral, interest rates and underwriting criteria as those of
comparable transactions prevailing at the time and to not involve more
than the normal risk of collectibility or present other unfavorable
features.  The Bank's loans to directors and executive officers are
required to be made on substantially the same terms, including interest
rates, as those prevailing for comparable transactions and must not
involve more than the normal risk of repayment or present other
unfavorable features.  Furthermore, all loans to such persons must be
approved in advance by a disinterested majority of the Board of
Directors.  At December 31, 1998, the Bank's loans to directors and
executive officers totaled $271,375, or 2.82% of stockholders' equity at
that date.

                              - 89 -
<PAGE>
<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K 
          --------------------------------  
                              
     (a)  Exhibits:  See Exhibit Index on page 92 hereto.
                              
     (b)  Reports on Form 8-K:  On December 23, 1998, the Company
filed a Current Report on Form 8-K announcing the Agreement and Plan of
Merger entered into by the Company and Banterra Corp.

                              - 90 -
<PAGE>
<PAGE>

                         SIGNATURES

     In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                         HEARTLAND BANCSHARES, INC.

March 26, 1999           By: /s/ Roger O. Hileman
                             ----------------------------------------
                             Roger O. Hileman
                             President and Chief Executive Officer
                             (Duly Authorized Representative)

     In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

By:  /s/ Roger O. Hileman                                 March 26, 1999
     -----------------------------------------------
     Roger O. Hileman
     President, Chief Executive Officer and Director
     (Principal Executive, Financial and Accounting
     Officer)

By:  /s/ Randall A. Youngblood                            March 26, 1999
     -----------------------------------------------
     Randall A. Youngblood
     Chairman of the Board

By:  /s/ David A. Burns                                   March 26, 1999
     -----------------------------------------------
     David A. Burns
     Director

By:  /s/ Paul R. Calcaterra                               March 26, 1999
     -----------------------------------------------
     Paul R. Calcaterra
     Director

By:  /s/ James L. Cripps                                  March 26, 1999
     -----------------------------------------------
     James L. Cripps
     Director

By:  /s/ B. D. Cross                                      March 18, 1999
     -----------------------------------------------
     B. D. Cross
     Director

By:  /s/ Barrett R. Rochman                               March 26, 1999
     -----------------------------------------------
     Barrett R. Rochman
     Director

By:  /s/ Charles Stevens                                  March 26, 1999
     -----------------------------------------------
     Charles Stevens
     Director

By:  /s/ James C. Walker                                  March 26, 1999
     -----------------------------------------------
     James C. Walker
     Director


                              - 91 -
<PAGE>
<PAGE>
<TABLE>
                                  EXHIBIT INDEX
<CAPTION>                              
     No.    Description
     ---    -----------
<C>         <S> 
     2.1    Agreement and Plan of Merger, dated as of December 23, 
            1998, by and among Banterra Corp., Banterra
            Acquisitionco, Inc. and the Registrant, filed as Exhibit
            2.1 to the Registrant's Current Report on Form 8-K dated
            December 30, 1998, is hereby incorporated by reference. 

     3.1    Articles of Incorporation of Heartland Bancshares, Inc., 
            filed as Exhibit 3.1 to the Registrant's Registration
            Statement on Form SB-2 (File No. 333-798), is hereby
            incorporated by reference.

     3.2    Bylaws of Heartland Bancshares, Inc., filed as Exhibit 
            3.2 to the Registrant's Registration Statement on Form
            SB-2 (File No. 333-798), is hereby incorporated by
            reference.

<F*>10.1    Heartland Bancshares, Inc. 1996 Stock Option and 
            Incentive Plan, filed as Exhibit 10.1 to the Registrant's
            Registration Statement on Form SB-2 (File No. 333-798),
            is hereby incorporated by reference.

<F*>10.2    Heartland Bancshares, Inc. Management Recognition Plan, 
            filed as Exhibit 10.2 to the Registrant's Registration
            Statement on Form SB-2 (File No. 333-798), is hereby
            incorporated by reference.

<F*>10.3    Employment Agreement by and between Heartland National 
            Bank and Roger O. Hileman.

<F*>10.4    First Federal Savings and Loan Association of Herrin 
            Retirement Plan for Directors, filed as Exhibit 10.4 to
            the Registrant's Registration Statement on Form SB-2
            (File No. 333-798), is hereby incorporated by reference.

     21     Subsidiaries of the Registrant.

     23     Consent of Gray Hunter Stenn LLP.

     27     Financial Data Schedule.

<FN>
_______________
<F*> Management contract or compensatory plan.

</TABLE>

                              - 92 -