<PAGE>

                                     UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                                Washington, D. C.  20549


                                     FORM 10-K

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

For the Fiscal Year Ended December 31, 1997         Commission File No.0-25914
 

                               CASTLE BANCGROUP, INC.
               (Exact name of registrant as specified in its charter)

             Delaware                                          36-3238190
   (State or other jurisdiction of                           (I.R.S. Employer
    incorporation or organization)                          Identification No.)

                              121 West Lincoln Highway
                                 DeKalb, IL  60115
            (Address including zip code, of principal executive offices)

Registrant's telephone number, including area code:  (815) 758-7007

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 $.33 1/3 Per Share

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

    Aggregate market value of voting stock held by non-affiliates of the 
registrant as of March 2, 1998, based upon average market price at that date: 
The registrant's Common Stock is not listed on an established exchange and is 
infrequently traded.  The most recent known trading price is $23.00 per 
share. Based on this price the aggregate market value of voting shares held 
by non-affiliates of the registrant is $34,959,000.  

The registrant had 2,156,084 shares of Common Stock outstanding as of March 2,
1998.

The following documents are incorporated by reference in this report:
1.   Portions of the registrant's Proxy Statement for the 1998 Annual Meeting of
     Stockholders are incorporated by reference to Part III hereof.

<PAGE>

                                TABLE OF CONTENTS

Part I.
     
     Item 1.   Business
     Item 2.   Properties
     Item 3.   Legal Proceedings
     Item 4.   Submission to Matters to a Vote of Security Holders.

Part II.
     
     Item 5.   Market for the Registrant's Common Equity and Related
               Stockholder Matters
     Item 6.   Selected Financial Data
     Item 7.   Management's Discussion and Analysis of Financial Condition and
               Results of Operations
     Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
     Item 8.   Financial Statements and Supplementary Data
     Item 9.   Changes in and Disagreements with Accountants on Accounting and
               Financial Disclosures

Part III.

     Item 10.  Directors and Executive Officers of the Registrant
     Item 11.  Executive Compensation
     Item 12.  Security Ownership of Certain Beneficial Owners and Management
     Item 13.  Certain Relationships and Related Transactions

Part IV.

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

Signatures

                                       2
<PAGE>

                                    PART I

ITEM 1.   BUSINESS

     Castle BancGroup, Inc. (Company) is a registered bank holding company
organized in 1984 under Delaware law.  The operations of the Company and its
subsidiaries consist primarily of those financial activities common to the
commercial financial services industry, including trust, data processing,
mortgage banking, and consumer finance services.  Unless the context otherwise
requires, the term "Company" as used herein includes the Company and its
subsidiaries on a consolidated basis.  Substantially all of the operating income
of the Company is attributable to its subsidiaries.

     The primary function of the Company is to coordinate the policies and
operations of its subsidiaries in order to improve and expand their products and
services and to effect operating economies of scale.  The Company provides
auditing, marketing, and data processing services to the subsidiaries.  It also
provides management services, training, human resource and business development
assistance.

     The Company is also responsible for the identification and evaluation of
potential financial industry acquisition targets within the strategic market
area, defined as the corrider bounded by Chicago's western suburbs on the east,
Interstate 39 on the west, southern Wisconsin on the north, and northwestern
Indiana on the southeast.  On May 24, 1995, the Company, through its subsidiary
CasBanc Mortgage, Inc. (formerly known as Castle Mortgage, Inc.), completed the
acquisition of substantially all the assets and assumed substantially all the
liabilities of Premier Home Financing, Inc. (Premier), a residential mortgage
loan originator and broker.

     The Sandwich State Bank (SSB), First National Bank in DeKalb (FNB), Castle
Bank Harvard, N.A. (CBH) (formerly known as First State Bank of Harvard) and The
Bank of Yorkville (BOY) (collectively, Subsidiary Banks) are 100% owned banking
subsidiaries of the Company. The Subsidiary Banks provide banking services
common to the industry, including but not limited to, demand, savings and time
deposits, loans, cash management, electronic banking services, trust services
and credit and debit cards.  The Subsidiary Banks serve a diverse customer base
including individuals, businesses, governmental units, and institutional
customers.  The Subsidiary Banks have banking offices in DeKalb, Sycamore,
Sandwich, Harvard, and Yorkville, Illinois and mortgage loan origination offices
in Sandwich, and Sugar Grove, Illinois. 

     Castle Finance Company (CFC), an Illinois corporation, is a 100% owned
consumer finance company that engages in making small consumer loans, as well as
acting as an agent to sell insurance relating to those loans.  CFC is
headquartered in DeKalb, with loan origination offices in DeKalb, Plano,
LaSalle, Dixon, Loves Park, Morris, and Harvard, Illinois.
 
     CasBanc Mortgage, Inc. (CMI), an Illinois corporation, is a residental
mortgage originator and broker that engages in the origination of residental
mortgages which are subsequently sold in the secondary market.  CMI is
headquartered in Oak Brook, Illinois and has loan origination offices in Oak
Brook, Rolling Meadows, Matteson, Chicago, and Naperville, Illinois and
Merrillville, Indiana.  CMI also provides processing services and delivery in
the secondary market for residental mortgage loans orginated by the Subsidiary
Banks.

COMPETITION

     Active competition exists in all principal areas where the Company and 
its subsidiaries operate, not only with other commercial banks, finance 
companies and mortgage bankers, but also with savings and loan associations, 
credit unions and other financial service companies serving the Company's 
defined market area. The principal methods of competition between the Company 
and its competitors are price and service.  Price competition, primarily in 
the form of interest rate competition, is a standard practice within the 
Company's market place as well as the financial services industry. Service 
and product quality are also significant factors in competing and allow for 
differentiation from competitors.

                                       3

<PAGE>

     Deposits in Subsidiary Banks are well balanced, with a large customer 
base and no dominant segment of accounts.  Each Subsidiary Bank's loan 
portfolio is also characterized by a large customer base, including loans to 
commercial, agricultural and consumer customers, with no dominant 
relationships.  There is no readily available source of information that 
delineates the market for financial services offered by non-bank competitors 
in the Company's market.

REGULATION AND SUPERVISION

     Bank holding companies and banks are extensively regulated under both 
federal and state law.  To the extent that the following information 
describes statutory and regulatory provisions, it is qualified in its 
entirety by reference to the particular statutes and regulations.  Any 
significant change in applicable law or regulation may have an effect on the 
business and prospects of the Company and its subsidiaries.

     The Company is registered under and is subject to the provisions of the 
Bank Holding Company Act of 1956, as amended, and is regulated by the Board 
of Governors of the Federal Reserve System (Federal Reserve Board).  Under 
the Bank Holding Company Act, the Company is required to file annual reports 
and such additional information as the Federal Reserve Board may require and 
is subject to examination by the Federal Reserve Board.  The Federal Reserve 
Board has jurisdiction to regulate virtually all aspects of the Company's 
business.  See "The Company's Subsidiaries" section of this report for 
discussion of regulators of the subsidiaries.

     The Bank Holding Company Act requires every bank holding company to 
obtain the prior approval of the Federal Reserve Board before merging with or 
consolidating into another bank holding company, acquiring substantially all 
the assets of any bank or acquiring directly or indirectly any ownership or 
control of more than 5% of the voting shares of any bank.

     The Bank Holding Company Act also prohibits a bank holding company, with 
certain exceptions, from acquiring direct or indirect ownership or control of 
more than 5% of the voting shares of any company which is not a bank and from 
engaging in any business other than that of banking, managing and controlling 
banks, or furnishing services to banks and their subsidiaries.  The Company, 
however, may engage in certain businesses determined by the Federal Reserve 
Board to be so closely related to banking or managing and controlling banks 
as to be a proper incident thereto.  The Bank Holding Company Act does not 
place territorial restrictions on the activities of bank holding companies or 
their non-bank subsidiaries.

     Deposits of all the Subsidiary Banks are insured by the Federal Deposit 
Insurance Corporation (FDIC) and are subject to the provisions of the Federal 
Desposit Insurance Act.  Areas subject to regulation by federal and state 
authorities include capital adequacy, reserves, investments, loans, mergers, 
issuance of securities, payments of dividends by the banking affiliates, 
establishment of branches, and other aspects of banking operations.

     The FDIC Board of Directors voted December 11, 1996 to finalize a rule 
lowering the rates on assessments paid to the Savings Association Insurance 
Fund (SAIF), effective as of October 1, 1996.  As a result of the special 
assessment required by the Deposit Insurance Funds Act of 1996 (Funds Act), 
the SAIF was capitalized at the target Designated Reserve Ratio (DRR) of 
1.25% of estimated insured deposits on October 1, 1996.  The Funds Act 
required the FDIC to set assessments in order to maintain target DRR.  The 
Board has, therefore, lowered the rates on assessments paid to the SAIF, 
while simultaneously widening the spread between the lowest and highest rates 
to improve the effectiveness of the FDIC's risk-based premium system.  The 
Board has also established a process, similar to that which was applied to 
the Bank Insurance Fund (BIF), adjusting the rate schedules for both the SAIF 
and the BIF within a limited range, without notice and comment to maintain 
each of the fund balances at the target DRR. Commencing in 1997 and 
continuing through 1999, annual premium rates for the healthiest banks (1A 
category) are 1.29 cents for every $100 of BIF-assessable deposits.

                                       4

<PAGE>

All Subsidiary Banks paid the 1.29 cents rate during 1997. Commencing in 2000 
and continuing through 2017, banks will be required to pay a flat annual 
assessment of 2.43 cents for every $100 of BIF-assessable deposits.

     Since September 29, 1995, adequately capitalized and adequately managed 
bank holding companies have been able to acquire banks across state lines, 
without regard to whether the transaction is prohibited by state law; 
however, they are required to maintain the acquired institutions as 
separately chartered institutions.  Any state law relating to the minimum age 
of target banks (not to exceed five years) is applicable. The Federal Reserve 
Board is not permitted to approve any acquisition if, after the acquisition, 
the bank holding company would control more than 10% of the deposits of 
insured depository institutions nationwide or 30% or more of the deposits in 
the state where the target bank is located.  The Federal Reserve Board could 
approve an acquisition, notwithstanding the 30% limit, if the state waives 
the limit either by statute, regulation or order of the appropriate state 
official.

     In addition, beginning June 1, 1997, banks were permitted to merge with 
one another across state lines and thereby create a main bank with branches 
in separate states.  After establishing branches in a state through an 
interstate merger transaction, the bank could establish and acquire 
additional branches at any location in the state where any bank involved in 
the merger could have established or acquired branches under applicable 
federal or state law.

     National banking regulations restrict the amount of dividends that a 
bank may pay to its stockholders.  Generally, the regulations provide that 
dividends are limited to net earnings for the current and two preceding 
years, reduced by dividends paid and transfers to permanent capital.  At 
December, 31, 1997, subject to minimum regulatory capital guidelines, FNB and 
CBH could, without prior approval of regulatory authorities, declare 
dividends of approximately $1,768,000 and $88,000 respectively.

     SSB and BOY are subject to state banking regulations which provide that 
dividends can be paid up to the amount of available undivided profits (as 
defined), subject to total capital adequacy considerations.

THE COMPANY'S SUBSIDIARIES

     SSB and BOY are state chartered banks.  They are therefore subject to 
regulation and examination by the Illinois Office of Banks and Real Estate.  
CBH converted to a nationally chartered bank effective April 1, 1997.  CBH 
and FNB are nationally chartered banks and Federal Reserve members, and are 
therefore subject to regulation and examination by the Office of the 
Comptroller of the Currency, as well as the Federal Reserve Board.  All of 
the Subsidiary Banks are subject to the provisions of the Federal Deposit 
Insurance Act and examination by the FDIC. The examinations by the various 
regulatory authorities are designed for the protection of bank depositors.

     The federal and state laws and regulations generally applicable to banks 
regulate, among other things, the scope of their business, their investments, 
their reserve against deposits, the nature and amount of and collateral for 
loans, and the location of banking offices and types of activities which may 
be performed at such offices.

     Subsidiary banks of a bank holding company are subject to certain 
restrictions under the Federal Reserve Act and the Federal Deposit Insurance 
Act on loans and extension of credit to the bank holding company or to its 
other subsidiaries, investments in the stock or other securities of the bank 
holding company or its other subsidiaries, or advances to any borrower 
collateralized by such stock or other securities.

     CFC is a finance company and is therefore subject to licensing, 
regulation, and examination by the Department of Financial Institutions for 
the State of Illinois.  Examinations by this regulator are designed for the 
protection of the consumer borrowers and not for the finance company 
shareholders.

                                       5

<PAGE>


     CMI is a residental mortgage originator and broker and is therefore 
subject to licensing, regulation and examination by the Illinois Office of 
Banks and Real Estate, as well as the appropriate agencies in Indiana and 
Wisconsin. Examinations by this regulator are designed for the protection of 
the consumer borrowers and not for the mortgage company shareholders.  

CAPITAL REQUIREMENTS

     All federal bank regulatory agencies have adopted risk-based capital 
guidelines.  These guidelines establish required levels of capital that are 
monitored by certain ratios.   Capital is divided into two components; Tier 1 
capital which includes common stock, additional paid-in capital, retained 
earnings and certain types of perpetual preferred stock less goodwill, and 
Tier 2 capital that includes among other things, limited life preferred 
stock, subordinated debt and the allowance for possible loan losses. These 
components of capital are compared to both total assets as reported on the 
balance sheet and assets that have been adjusted to compensate for associated 
risk to the organization.  This allocation separates assets and specified 
off-balance sheet commitments into four categories that are risk-weighted 
from 0 percent to 100 percent according to predefined levels of average risk. 
The guidelines require a tangible leverage capital ratio (defined as Tier 1 
capital to average assets) of 4.0%.  The Company had a tangible leverage 
capital ratio of 6.38% as of December 31, 1997.  The guidelines require a 
total capital ratio (defined as the total of both Tier 1 and Tier 2 capital 
to risk weighted assets) of 8.00%.  The Company had a total capital to risk 
weighted assets ratio of 10.67% as of December 31, 1997. The guidelines also 
require a Tier 1 ratio (defined as Tier 1 capital to risk weighted assets) of 
4.00%.  The Company had a Tier 1 ratio of 9.42% as of December 31, 1997.  The 
regulatory requirements are considered minimums and actual ratios should be 
commensurate with the level and nature of all risks of a company (as 
determined by the regulatory agencies).  Regulators generally expect 
organizations that are experiencing internal growth or are making 
acquisitions to maintain capital levels substantially above the minimum 
supervisory levels and comparable to peer groups, without significant 
reliance on intangible assets. Management intends to continue its emphasis on 
a strong capital position.

MONETARY POLICY AND ECONOMIC CONDITIONS

     The earnings of commercial banks, finance companies, mortgage bankers and
bank holding companies are affected not only by general economic conditions, but
also by the policies of various governmental regulatory authorities.  In
particular, the Federal Reserve Board influences conditions in the money and
capital markets, which affect interest rates and growth in bank credit and
deposits.  Federal Reserve Board monetary policies have had a significant effect
on the operating results of commercial banks in the past and this is expected to
continue in the future.  The general effect, if any, of such policies on future
business and earnings of the Company and its Subsidiary Banks cannot be
predicted.

EMPLOYEES

     As of December 31, 1997, the Company and its subsidiaries had a total of 
317 full-time equivalent employees.  None of these employees are subject to a 
collective bargaining agreement.  Management believes it has excellent 
relations with its staff.  

ITEM 2.  PROPERTIES

     The Company operates its executive offices at 121 West Lincoln Highway, 
DeKalb, Illinois. This recently remodeled commercial building is owned by FNB 
and leased to the Company and contains approximately 15,000 square feet of 
office space.  This facility houses all administrative, accounting, data 
processing, human resource, and marketing functions of the Company.

     FNB operates its main office at 141 West Lincoln Highway, DeKalb, 
Illinois. This facility includes approximately 19,600 square feet. A drive-in 
facility is located at the same address with approximately 1,200 square feet 
of space.  FNB also operates a remote drive-up banking facility with 
approximately 1,800 square

                                       6

<PAGE>


feet located less than 1 mile north of the main office at 1007 North First 
Street, DeKalb, Illinois.  FNB also operates a commercial building at 121 
West Lincoln Highway and leases the entire space to the Company. FNB owns all 
of these buildings as well as the underlying land.  FNB also operates a full 
service branch facility with approximately 9,400 square feet located at 511 
West State in Sycamore, Illinois.  The Bank owns the building and 
approximately 60% of the underlying land and has a long-term lease with 
option to buy the remaining land.  FNB operates an automated teller machine 
at a local university and leases space on a month-to-month basis.  FNB also 
operates two additional automated teller machines, one located at a local 
university housing complex and the other located at a local hospital.  No 
rent is paid for the space of these two ATM's.  

     SSB conducts its operations from its main office facility located at 100 
West Church Street, Sandwich, Illinois.  This facility has approximately 
13,000 square feet of space.  SSB owns the building as well as the underlying 
land.  A drive-in facility is contiguous to the main office.  SSB also leases 
two office spaces used for mortgage loan origination offices.  Each of these 
sites are less than 1,000 square feet and are located at 44 West Church 
Street, Sandwich, Illinois and 91 Sugar Lane, Sugar Grove, Illinois.  Both 
sites are rented at rates and terms that are standard in the area.  In 
addition, SSB operates an automated teller machine at a local grocery store, 
and no rent is paid for the space.  

     CBH operates from its main office facility at 201 West Diggins Street, 
Harvard, Illinois.  This facility has approximately 11,000 square feet of 
space. CBH owns both the building and the underlying land.  A drive-in 
facility is contiguous to the main office.  CBH also operates a remote branch 
facility with approximately 5,400 square feet at a local shopping center 
located at 1265 South Division Street, Harvard, Illinois.   The Bank owns 
both the building and the underlying land.  CBH also leases two office spaces 
formerly used as mortgage loan origination offices.  Each of these sites is 
less than 1,000 square feet of office space.  They are located at 62 North 
Ayer Street, Harvard, Illinois and 695 North Perryville Road, Suite 2, 
Rockford, Illinois.  Effective December 1997, the Rockford office was closed 
and the entire office space was subleased. Effective March 1998, the 62 North 
Ayer Street, Harvard, location will be closed, and CBH is currently searching 
for a tenant to sublease the office space.

     BOY operates from its main office facility at 606 Countryside Center, 
Yorkville, Illinois.  The Bank utilizes 50% of the approximately 22,000 
square feet of space.  BOY leases the remaining 50% of the space to medical 
organizations under leases that are standard in the area as to terms and 
rental income.  BOY owns the building and the underlying land.  A drive-in 
facility is contiguous to the main office.  In addition, BOY operates a 
drive-up automated teller machine located near a high traffic intersection 
and leases space on a month-to-month basis.

     CFC operates offices in the following seven towns in northern Illinois: 
Plano, LaSalle, DeKalb, Dixon, Loves Park, Morris and Harvard.  The DeKalb 
office includes both CFC's executive offices as well as an operating office 
and is approximately 3,500 square feet of leased space with rental costs and 
lease terms that are standard for the area.  Offices for the other six 
locations are less than 1,000 square feet and are leased with rental costs 
and lease terms that are standard for the areas.

     CMI operates offices in Oak Brook, Rolling Meadows, Chicago, Matteson, 
and Naperville in Illinois and Merrillville in Indiana.  The Oak Brook office 
includes both executive and operating functions and is located at 1315 West 
22nd Street, Suite 100, Oak Brook, Illinois which consists of  approximately 
4,000 square feet of leased space.  The office in Rolling Meadows houses an 
operating function in approximately 1,400 square feet  of leased space at 
5105 Tollview, Suite 110, Rolling Meadows, Illinois. The Chicago office is 
located in a space of approximately 2,000 square feet at 2549 North Racine 
Avenue, Chicago, Illinois. The Matteson office leases approximately 3,500 
square feet at 600 Holiday Plaza Drive, Suite 205, Matteson, Illinois. The 
Merrillville office leases approximately 3,200 square feet at 101 West 79th 
Avenue, Merrillville, Indiana.  All the leased offices have rental costs and 
terms that are standard for the areas.  CMI owns a facility at 847 North 
Center Road, Naperville, Illinois, with approximately 2,100 square feet of 
office space.  CMI owns both the building and the underlying land. 

                                       7

<PAGE>


ITEM 3.  LEGAL PROCEEDINGS

     Neither the Company nor any subsidiary is a party to, and none of their 
property is subject to, any material legal proceedings, other than routine 
litigation incidental to the business of the Company and its subsidiaries.

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

     No matters, through the solicitation of proxies or otherwise, were 
submitted to a vote of security holders during the quarter ended December 31, 
1997.

                                      PART II

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

     The Company's stock is not traded on an established public trading 
market. During the period from January 1, 1996 through December 31, 1997, 
management of the Company believes that there were approximately 66 trades in 
the Company's common stock.  Management of the Company does not have 
information with respect to the prices at which all such trades were effected 
but believes that the prices ranged from $16.25 to $22.50 per share on those 
transactions with respect to which it does have information.

     The approximate number of beneficial owners of Common Stock of the 
Company on December 31, 1997 was 923.

     Cash dividends on the above referenced common stock are paid annually. 
Dividends for the years ended December 31, 1997 and 1996 were $0.22 and $0.20 
per share, respectively.

     The amount of dividends payable by the Company on its common stock is 
limited by the provisions of its long-term debt agreement.  Dividends are 
limited to 50% of the net earnings, less dividends paid, in the previous 
eight quarters.  As of December 31, 1997, the Company was limited to 
$1,556,000 for dividend purposes.

     On May 24, 1995, the Company issued 45,500 shares to Premier.  These 
shares were issued in conjunction with the acquisition by CMI of 
substantially all the assets and the assumption of substantially all the 
liabilities of Premier.  This transaction was exempt from registration 
pursuant to Section 4(2) thereof and Rule 506 thereafter.  Premier 
represented to the Company its status as an accredited investor.

     On December 31, 1997, the Company issued 66,311 shares of Common Stock to
four preferred stockholders.  These shares were issued in combination with a
cash payment of $841,158 to redeem 2,300 shares of the Company's Perpetual
Preferred Stock.   This transaction was exempt from registration pursuant to
Section 3(a)(9) of the Securities Act of 1933.

                                       8

<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

Five Year Summary of Selected Consolidated Financial Data

<TABLE>
<CAPTION>


                                                     FOR THE YEARS ENDED DECEMBER 31, (000'S OMITTED EXCEPT PER SHARE DATA)
-------------------------------------------------------------------------------------------------------------------------------
                                                             1997           1996           1995           1994           1993*
-------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>             <C>            <C>            <C>            <C>

Interest income                                            $39,063         36,437         32,650         28,903         26,529
Interest expense                                            19,468         17,858         15,927         12,487         11,825
-------------------------------------------------------------------------------------------------------------------------------
Net interest income before provision for loan losses        19,595         18,579         16,723         16,416         14,704
Provision for loan losses                                    1,128          1,113            488            323          1,328
-------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses         18,467         17,466         16,235         16,093         13,376
Other operating income                                       9,553          8,339          7,931          3,366          3,123
Investment securities gains (losses)                           210             41           (284)           (29)          (260)
Other operating expenses                                    23,749         23,076         19,061         14,702         12,387
-------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                                 4,481          2,770          4,821          4,728          3,852
Applicable income taxes                                      1,468            926          1,457          1,368            572
-------------------------------------------------------------------------------------------------------------------------------
Net earnings                                                 3,013          1,844          3,364          3,360          3,280
-------------------------------------------------------------------------------------------------------------------------------
Net earnings applicable to common stock                      2,811          1,643          3,026          2,885          2,993
-------------------------------------------------------------------------------------------------------------------------------
Per share data - common stock

   Net earnings - basic                                      $1.35            .80           1.49           1.46           1.58
   Net earnings - diluted                                     1.34            .79           1.46           1.42           1.39
   Cash dividends                                              .22            .20            .18            .16            .125

Financial position-year end

   Investment securities                                  $129,479        133,072        135,566        137,826         137,749
   Mortgage loans held for sale                             44,761         20,343         13,484              -               -
   Net loans                                               308,542        285,394        251,291        232,557         223,296
   Allowance for possible loan losses                        4,646          3,775          3,309          3,475           3,940
   Non-interest bearing deposits                            42,589         43,233         40,524         37,517          36,629
   Interest bearing deposits                               381,094        360,876        345,646        317,436         318,867
   Long-term debt                                           10,250         10,150         11,000         11,800          12,550
   Preferred stock                                             300          2,600          2,600          5,350           5,350
   Total stockholders' equity                               36,862         34,962         34,346         30,671          28,749

   Total assets                                            515,550        473,424        443,637        407,505         404,747
-------------------------------------------------------------------------------------------------------------------------------
*1993 balances include the results of operations for The Bank of Yorkville, since the date of acquisition of December 7, 1993.
Included in applicable income taxes is a $346,000 benefit from implementation of Financial Accounting Standards Statement 109.
</TABLE>

                                       9

<PAGE>

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

     The following discussion is management's analysis of the consolidated 
financial condition and results of operations of the Company, which may not 
otherwise be apparent from the consolidated financial statements included in 
this report at Item 8.  Reference should be made to those statements, the 
notes thereto and the selected financial data presented elsewhere in this 
report for an understanding of the following discussion and analysis.

RESULTS OF OPERATIONS

     The Company's net earnings in 1997 totaled $3,013,000, a 63% increase 
from 1996 earnings of $1,844,000.  This represents a $.55 increase in basic 
earnings per share.  Net earnings for 1995 were $3,364,000.

     Two major factors contributed to the improvement in performance at the 
Company during 1997. First, net interest income after provision for possible 
loan losses was $18,467,000 for the year ended December 31, 1997 versus 
$17,466,000 for 1996, representing a 5.7% increase.  Net interest income will 
be discussed in detail below.  Second, CMI recorded net earnings of $88,000 
for the year ended December 31, 1997 versus a net loss of $700,000 for the 
year ended December 31, 1996.  This represents a $788,000 increase in income 
at CMI in 1997 as compared to 1996. A favorable interest rate environment 
during the fourth quarter of 1997 helped to increase CMI's net mortgage loan 
origination income 7.8% for the year ended December 31, 1997, as compared to 
1996.  Also, secondary marketing losses experienced by CMI in 1996 did not 
occur in 1997 due to CMI eliminating its wholesale hedging operation.  CMI 
now is producing loans for "best efforts" delivery to mortgage investors on 
an individual loan-by-loan basis. 

     This $788,000 increase excludes decreased interest earnings at the 
Subsidiary Banks relating to the portfolio of mortgage loans held for sale. 
This interest income is generated as a result of mortgage loans held for sale 
that have been originated through CMI, but not yet sold in the secondary 
market. The Subsidiary Banks purchase these loans from CMI when the loans are 
made to the borrowers.  The Subsidiary Banks then hold these interest earning 
assets until they are sold into the secondary market, providing short-term 
liquid investments for the banks that averaged a yield of 7.29% for 1997.

     Net earnings attributable to common stock increased to $2,811,000 in 
1997 from $1,643,000 in 1996.  Net earnings attributable to common stock for 
1995 was $3,026,000.  Dividends paid on preferred stock totaled $202,000 in 
1997, as compared to $201,000 in 1996 and $338,000 in 1995.  Basic earnings 
per share increased to $1.35 for 1997 as compared to $.80 for 1996.  Basic 
earnings per share for 1995 was $1.49.  The following table highlights 
significant factors that have contributed to these changes in earnings per 
share:

                                      10

<PAGE>

<TABLE>
<CAPTION>

                                                        Changes in Basic Earnings per Share
                                                        1996 to 1997           1995 to 1996
--------------------------------------------------------------------------------------------
<S>                                                     <C>                    <C>
Prior period basic earnings per share                    $    .80               $    1.49
Changes due to:
   Net Interest income                                       0.43                    0.77
   Provision for possible loan losses                        0.00                   (0.30)
--------------------------------------------------------------------------------------------
      Net interest income after provision
         for possible loan losses                            0.43                    0.47
--------------------------------------------------------------------------------------------
   Other operating income
      Investment securities gains (losses), net              0.08                    0.16
      Gain on sale of land and buildings                    (0.01)                  (0.15)
      Mortgage revenues                                      0.65                    0.55
      Other operating income items                          (0.08)                  (0.04)
--------------------------------------------------------------------------------------------
   Total other operating income                              0.64                    0.52
--------------------------------------------------------------------------------------------
   Other operating expenses
      Salaries and employee benefits                        (0.37)                  (1.31)
      Net occupancy and furniture expenses                   0.03                   (0.38)
      Outside services                                       0.18                   (0.16)
      FDIC insurance assessment                             (0.02)                   0.20
      Goodwill amortization                                  0.00                   (0.02)
      Other operating expense items                         (0.08)                  (0.35)
--------------------------------------------------------------------------------------------
   Total other operating expenses                           (0.26)                  (2.02)
   Income tax expenses                                      (0.26)                   0.27
   Preferred stock dividends                                 0.00                    0.07
--------------------------------------------------------------------------------------------
   Current period basic earnings per share               $   1.35               $    0.80
--------------------------------------------------------------------------------------------
</TABLE>


     The Company's return on average equity for 1997 was 8.43%, as compared 
to 5.36% in 1996 and 9.94% in 1995.  Return on average assets was .62% in 
1997 versus .40% in 1996 and .80% in 1995.  The increase in these ratios for 
1997 were primarily due to the increase in net interest income and the 
increase in net income at CMI as described above.

NET INTEREST INCOME

     Net interest income before provision for possible loan losses, the 
Company's primary source of earnings, totaled $19,595,000 in 1997, a 
$1,016,000, or 5.5% increase over 1996.  This increase can primarily be 
attributed to a $2,318,000 increase in interest and fees on loans due to 
volume growth in the loan portfolio.  Interest and dividends on investment 
securities also increased $1,215,000 during 1997 as compared to 1996.  48% of 
the increase was due to volume increases in the portfolio.  The volume 
increase was due to the average outstanding balance for mortgage loans held 
for sale for the year being $8,279,000 lower than the prior year which 
allowed for some of the average excess funds to be invested.  These increases 
were partially off-set by a $628,000 reduction in interest income on mortgage 
loans held for sale.  This decrease was due to the average volume reduction 
described above.  Total interest expense increased $1,610,000 for the year 
ended December 31, 1997, as compared to 1996.  62% of the increase was due to 
volume increases used to fund the loan portfolio increase.  Net interest 
income before provision for possible loan losses increased $1,856,000 in 1996 
as compared to 1995, which represented a 11.1% increase.

     Management believes that net interest margins will continue to narrow as 
competitive pressures in the market place expand.  Competition from both 
financial institutions and non-traditional competitors, as well as general 
economic trends, will continue to impact future earnings.  Earning asset mix, 
as well as the net interest margin, are monitored and evaluated by management 
to develop strategies to help maintain and improve earnings.

                                       11

<PAGE>

     On a tax equivalent basis, net interest income increased to $20,041,000 
in 1997 from $19,111,000 and $17,257,000 in 1996 and 1995, respectively.  The 
tax equivalent net interest margin remained relatively constant in 1997, 
averaging 4.40% as compared to 4.42% in 1996 and 4.40% in 1995.  While net 
interest income increased during 1997 as a result of loan and investment 
growth, higher rate time deposits and borrowed funds were used to fund this 
growth.  As a result, the net interest margin remained flat during 1997.

     Total average earning assets in 1997 were $455,238,000 an increase of 
$23,216,000 or 5.4% over 1996.  Average earning assets as a percentage of 
total average assets increased to 94.1% during 1997 as compared to 93.8% in 
1996 and 93.3% in 1995.  The total average loan portfolio represented 66.2% 
of total average earning assets in 1997, an increase from 62.3% in 1996 and 
61.3% in 1995.  Mortgage loans held for sale represented 4.7% of average 
earning assets in 1997, a decrease from 6.9% in 1996.  Mortgage loans held 
for sale represented 1.9% of average earning assets in 1995.  In 1997, 
average total interest-bearing liabilities were $402,637,000, a $21,050,000 
or 5.5% increase over 1996.  This increase can be attributed to a $3,313,000 
increase in average borrowed funds as well as growth of $17,737,000 or 5.0% 
in interest-bearing deposit liabilities. The proportion of average 
interest-bearing liabilities to average earning assets in 1997 increased 
slightly to 88.4% as compared to 1996 of 88.3%.  

PROVISIONS FOR POSSIBLE LOAN LOSSES

     Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting 
by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by 
Creditors for Impairment of a Loan - Income Recognition and Disclosures."  
These standards require that loans be considered impaired when, based on 
current information, it is probable that the Company will not collect all 
principal and interest due.  A portion of the allowance for loan losses must 
be set aside for impaired loans and is calculated based on the present value 
of the estimated future cash flows of principal and interest, discounted at 
the loan's effective rate, or on the fair value of the collateral for 
collateral dependent loans.  See Note 5 to the Consolidated Financial 
Statements included in Item 8 for the required disclosures in relation to 
impaired loans.

     The adequacy of each Subsidiary Bank's allowance for possible loan 
losses is determined by calculating the allocated and unallocated portions of 
the reserve using a combination of internal loan classifications, weighted 
historical charge-off experience, and an evaluation of estimated losses on 
existing problem credits.  The allowance is maintained to cover the allocated 
requirement plus an unallocated portion, which considers economic conditions, 
industry concentrations, peer-group comparisons, lending staff experience, 
and other risk factors.

     The coverage of the allowance for loan losses to non-performing loans 
and loans past due 90 days or more and still accruing was 100.8% at the end 
of 1997 versus 131.9% and 140.8% at the end of 1996 and 1995, respectively.  
This decrease was due to an increase in non-accrual loans from $2,348,000 at 
the end of 1996 to $3,968,000 at the end of 1997.  This increase in 
non-accrual loans can primarily be attributed to a few commercial real estate 
loans being transferred to non-accrual status.  The allowance for loan losses 
as a percentage of net outstanding loans increased to 1.48% at December 31, 
1997 as compared to 1.31% at December 31, 1996.  The allowance level was at 
1.30% of net loans at December 31, 1995.  Gross charge-offs decreased 
$368,000 from 1996 to 1997, primarily due to commercial and agricultural 
charge-offs which decreased $210,000.  The ratio of net charge-offs to 
average total loans outstanding improved during 1997 to .10% as compared to 
 .28% in 1996.  The net charge-off ratio during 1995 was .29%.  The 
improvement in this ratio was due to the decrease in charge-offs as described 
above and an increase in recoveries of $107,000 primarily due to consumer 
loan recoveries.  

     The provision for possible loan losses is based on management's analysis 
of risk in the loan portfolio which takes into account portfolio growth and 
historical charge-offs, among many other factors.  The provision totaled 
$1,128,000 in 1997 as compared to $1,113,000 in 1996, which represents a 
$15,000 increase.  The provision for possible loan losses increased $625,000 
from 1995 to 1996.  Management's analysis of the

                                       12

<PAGE>

allowance for possible loan losses indicates that the current level of 1.48% 
of net outstanding loans appears to cover the risk of potential losses in the 
loan portfolio at December 31, 1997.

     Non-performing assets (defined as loans 90 days or more past due but 
still accruing interest, loans in non-accrual status, restructured loans and 
other real estate owned) totaled $4,607,000, or .89% of total assets, at 
December 31, 1997.  This represents an increase from $2,937,000 and .62% at 
December 31, 1996.  As mentioned previously this increase can be attributed 
to a few commercial real estate loans being transferred to non-accrual status 
in late 1997.  Non-performing assets at December 31, 1996 increased as 
compared to $2,350,000 or .53% of total assets, at December 31, 1995.

NON-INTEREST INCOME

     Total other operating income is comprised of fee based revenues from 
mortgage, trust, and data processing services, as well as deposit and other 
customer service charges.  Excluding security gains and losses, other 
operating income totaled $9,553,000 for 1997, increasing from $8,339,000 in 
1996 and $7,472,000 in 1995.  This change represents a $.56 basic earnings 
per share increase from 1996 to 1997, most of which can be attributed to 
mortgage revenues at CMI during this period.  Mortgage loan origination 
income represents the largest source of fee based revenue for the Company and 
includes income generated from processing and closing fees, commission 
income, servicing release premiums, and net gains (losses) on the sales of 
these loans.  Net mortgage loan origination income increased $1,374,000 from 
1996 as compared to 1997.  Net mortgage loan origination income increased 
$1,192,000 from 1995 as compared to 1996.  

     Trust fee revenues increased 3% to $662,000 in 1997 as compared to 
$644,000 in 1996 and $547,000 in 1995.  The Company continues to focus on 
growth of trust services in light of corporate goals to diversify revenue 
sources.  The market value of assets managed by the Asset and Trust 
Management Group grew to $155.7 million at December 31, 1997 as compared to 
$123.2 million and $115.8 million at year end 1996 and 1995, respectively.  
Net security gains, on a pre-tax basis, totaled $210,000 in 1997 as compared 
to net gains of $41,000 in 1996 and net losses of $284,000 in 1995.  The 
entire investment portfolio is classified as available-for-sale and all sales 
during the last three years were made from the available-for-sale 
classification.  During 1997 several securities were sold at a gain to take 
advantage of market conditions at the time of the sale.  During the first 
quarter of 1995, several securities were sold at a loss in an effort to 
reinvest in higher yielding investments.  The portfolio is recorded at 
current market value in the accompanying financial statements at Item 8.  It 
is management's expectation to classify all investment securities purchased 
as available for sale for the foreseeable future.  Changes in the market 
value of these securities are made by a charge to equity, net of applicable 
income taxes. The decision to purchase or sell a security is based on a 
number of factors including (but not limited to) the potential for increased 
yield, improved liquidity, asset mix adjustment, or improvement in the 
interest rate gap.

OTHER OPERATING EXPENSES

     Other operating expenses totaled $23,749,000 in 1997 as compared to 
$23,076,000 and $18,602,000 in 1996 and 1995, respectively.  This increase in 
expenses reduced basic earnings per share by $.26 from 1996 to 1997 and $2.02 
per share from 1995 to 1996.  As a percentage of average assets, total 
operating expenses decreased to 4.91% in 1997 versus 5.01% in 1996.  The 
total operating expenses as a percentage of total average assets was 4.74% 
for 1995.  The efficiency ratio, which measures the level of non-interest 
expense to total net revenues, was 80.9% in 1997 as compared to 85.6% and 
77.8% in 1996 and 1995, respectively.  The decrease in the efficiency ratio 
is primarily due to the increase in net interest income and non-interest 
income as described previously. 

     Salaries and employee benefits expense represents the largest component 
of other operating expenses.  This category increased $871,000, or  6.0% from 
1996 to 1997.  During 1996, this expense increased $2,895,000, or 25.0%, when 
compared to 1995.  The Company employed 317 full-time equivalent (FTE) 
employees at December 31, 1997 as compared to 334 and 278 at December 31, 
1996 and 1995, respectively.  The decrease

                                       13

<PAGE>


in FTEs during 1997 was primarily due to the significant reduction in the CBH 
mortgage loan operation.  The increase during 1996 was a result of additional 
mortgage loan originators and lending officers at the Subsidary Banks, as 
well as increased production and operations staff at CMI.  The total cost per 
FTE increased 11.71% during 1997 as compared to 1996. Total cost per FTE 
during 1996 increased 4.06% when compared to 1995.  The increase in cost per 
FTE during 1997 relates to normal salary increases and compensation pay-outs 
for former members of management.

     Occupancy and furniture and fixtures expenses totaled $3,150,000 in 
1997, a decrease of $38,000, or 1.2%, from 1996.  During 1996, occupancy and 
furniture and fixture expenses increased $815,505, or 34.4%, over 1995 
expenses as a result of the start-up of two new mortgage origination offices 
during 1996, as well as increased equipment costs relating to computer 
hardware and software upgrades.  Outside services and other expense decreased 
0.6% to $3,765,000 during 1997 as compared to $3,786,000 in the prior year.  
Advertising expense decreased 21.84% in 1997 to $494,000 versus $632,000 in 
1996.  Subsidiary management continues to control overhead expenses by 
emphasizing cost containment and by taking advantage of available economies 
of scale at the holding company level.  However, management's cost 
containment measures are tempered by the need to maintain consistently high 
levels of customer service and the need to attract and retain qualified 
staff.  

FINANCIAL CONDITION

     Total assets at December 31, 1997 were $515,550,000, a $42,126,000 or 
8.9% increase over December 31, 1996 total assets of $473,424,000.  Average 
assets for 1997 grew by $22,874,000 or 5.0% to $483,550,000 as compared to 
$460,676,000 for 1996.  Growth of $23,148,000, or 8.1% in the net loan 
portfolio and $24,418,000, or 120.0%, of mortgage loans held-for-sale 
accounted for the increase in total assets.  Cash and cash equivalents are 
continually monitored and maintained at operational minimums to utilize 
resources in historically higher yielding assets such as loans and mortgage 
loans held for sale.  The Company's asset growth has been funded primarily by 
growth in deposit accounts and short-term borrowings.  Management continues 
to view "core" deposits (individuals, partnerships and corporate deposits) as 
the primary long term funding source for internal growth of the Company.  
Average deposits increased $19,026,000, or 4.9%, during 1997, while average 
short-term borrowings increased $4,174,000, or 21.0%.  Brokered deposits 
totaled $4,059,000 at December 31, 1997, with interest rates ranging from 
6.10% to 6.75% and maturities ranging from January 1998 through August 2000.

CAPITAL

     The Company is committed to maintaining strong capital positions in both 
the Subsidiary Banks as well as on a consolidated basis.  Management 
monitors, analyzes and forecasts capital positions for each entity to ensure 
that adequate capital is available to support growth and maintain financial 
soundness.  During 1997, stockholders' equity increased $1.9 million over 
December 31, 1996, after a $130,000 increase in unrealized gains on 
investment securities available-for-sale.  The Company issued 10,190 shares 
of stock through its Employee Stock Purchase Plan during 1997, which 
generated $224,180 of new shareholders' equity. The Company's Tier 1 Leverage 
ratio at December 31, 1997 was 6.38%, which decreased slightly from 6.39% as 
of December 31, 1996.  This ratio exceeds the regulatory capital minimum and 
management believes the Company is maintaining a strong capital position.  
The Company's Total Risk Weighted Capital ratio increased slightly to 10.67% 
as of December 31, 1997 from 10.66% as of December 31, 1996.  The Tier 1 
Capital ratio decreased from 9.45% at December 31, 1996 to 9.42% at December 
31, 1997.  For further discussion of the regulatory capital requirements, see 
note 14 to the Financial Statements included in Item 8.

LIQUIDITY

     The Company ensures the Subsidiary Banks maintain appropriate liquidity and
provides access to secondary sources of liquidity in case of unusual or
unanticipated demand for funds.  Primary bank sources of liquidity are repayment
of loans, high-quality marketable investment securities available for sale, and
the bank's federal funds position which, together, are more than sufficient to
satisfy liquidity needs arising in the normal course of

                                       14

<PAGE>


business.  The Company is a secondary source of liquidity for its Subsidiary 
Banks through its discretionary access to short-term funding sources in case 
of unanticipated demand for funds.

     As presented in the Consolidated Statement of Cash Flows included in 
Item 8, the Company has experienced significant changes in the cash flows 
from operating, investing, and financing activities during 1997 as compared 
to prior years.  These fluctuations primarily related to increases in the 
loan portfolio and mortgage loans held-for-sale at year-end which have 
primarily been funded by increases in short-term borrowings and deposit 
accounts.

INTEREST RATE SENSITIVITY

     The Company's overall success is dependent upon its ability to manage 
interest rate risk.  Interest rate risk can be defined as the exposure of the 
Company's net interest income to adverse movements in interest rates.  
Because the Company has no trading portfolio, the Company is not exposed to 
significant market risk from trading activities.  Other types of market risk, 
such as foreign currency exchange and commodity price risk, do not arise in 
the normal course of the Company's business activities.  The Company does not 
currently use derivatives to manage market and interest rate risks.  A 
derivative financial instrument includes futures, forwards, interest rate 
swaps, option contracts, and other financial instruments with similar 
characteristics.  

     The Company is party to financial instruments with off-balance sheet 
risk in the normal course of business to meet the financing needs of its 
customers. These financial instruments include commitments to extend credit 
and standby letters of credit (see note 15 included in Item 8).  These 
instruments involve to varying degrees, elements of credit and interest rate 
risk in excess of the amount recognized in the consolidated balance sheets.  
Commitments to extend credit are agreements to lend to a customer as long as 
there is no violation of any condition in the contract.  Commitments 
generally have fixed expiration dates and may require collateral from the 
borrower if deemed necessary by the Company.  Standby letters of credit are 
conditional commitments issued by the Company to guarantee the performance of 
a customer to a third party up to a stipulated amount and with specified 
terms and conditions.  Commitments to extend credit and standby letters of 
credit are not recorded as an asset or liability by the Company until the 
instrument is exercised.  

     The Subsidiary Bank's interest rate exposure is reviewed on a regular 
basis by the Asset/Liability Committee (ALCO) for each bank.  The principal 
objective of the Company's interest rate risk management function is to 
evaluate the interest rate risk included in certain balance sheet accounts, 
determine the level of risk appropriate given the Company's business 
strategy, operating environment, capital and liquidity requirements and 
performance objectives, and manage the risk consistent with the funds 
management policy of the Company. Through such management, the Company seeks 
to monitor the vulnerability of its operations to changes in interest rates.  
The extent of the movement of interest rates is an uncertainty that could 
have a negative effect on the earnings of the Company.  

     Interest rate exposure is reviewed and managed, to the extent possible, 
by matching maturities of interest bearing assets and interest bearing 
liabilities. The difference between the amount of interest earning assets 
that are scheduled to mature or reprice during a period and the amount of 
interest bearing liabilities maturing or repricing in the same period 
significantly affects the Company's interest rate risk.  This difference is 
generally referred to as the interest sensitivity gap.  A positive gap, or 
asset sensitive position, indicates there are more rate-sensitive assets than 
rate-sensitive liabilities repricing or maturing within specified time 
frames, which generally has a favorable impact on net interest income in 
periods of rising interest rates. Conversely, a negative gap, or liability 
sensitive position, would generally imply a favorable impact on net interest 
income in periods of declining interest rates.  In periods of changing 
interest rates, net interest margin is not only impacted by the amounts of 
repricing assets and liabilities, but also by the rate at which repricings 
occur.  Earnings may also be impacted by variances in repayment of loans and 
securities.

                                       15

<PAGE>

      The following table indicates the Company's interest sensitive assets 
and liabilities over specific time horizons as well as its interest 
sensitivity gap at December 31, 1997:

<TABLE>
<CAPTION>

       (DOLLARS IN THOUSANDS)                 Balances Subject to Repricing Within
                                              -------------------------------------
                                                                                   OVER
                                              90 DAYS     180 DAYS     1 YEAR     1 YEAR     TOTAL
------------------------------------------------------------------------------------------------------------
<S>                                          <C>          <C>          <C>        <C>        <C>
Interest earning cash and due from banks     $     0            0           0           0         0
Execess funds sold                                 0            0           0           0         0
Investment securities available for sale      10,738        9,394      31,044      78,303   129,479
Mortgage loans held for sale                  44,761            0           0           0    44,761
Net Loans                                     95,333       22,426      26,798     168,631   313,188
------------------------------------------------------------------------------------------------------------
   Total earning assets                      150,832       31,820      57,842     246,934   487,428
------------------------------------------------------------------------------------------------------------
NOW and Savings deposits                     $98,859            0           0           0    98,859
Cds and other interest-bearing deposits       95,648       34,142      36,189     116,256   282,235
Short-term borrowings                         39,057            0           0           0    39,057
Long-term borrowings                           9,250            0           0       1,000    10,250
============================================================================================================
   Total interest-bearing liabilities        242,814       34,142      36,189     117,256   430,401
------------------------------------------------------------------------------------------------------------
Net asset (liability) repricing difference  $(91,982)      (2,322)     21,653     129,678    57,027
============================================================================================================
Cummulative asset (liability) repricing
  difference                                $(91,982)     (94,304)    (72,651)     57,027
=========================================================================================
Cumulative earnings assets to cumulative
  interest=bearing liabilities                  0.62         0.66        0.77        1.13
=========================================================================================
Cumulative asset (liability) repricing
  difference as a percent of total earning
  assets                                      -18.87%      -19.35%     -14.91%      11.70%
=========================================================================================
</TABLE>


   The entire mortgage held for sale portfolio is included in the 90 day 
category as the vast majority of these loans will be sold to investors within 
90 days.  The interest rates on lines-of-credit included in short-term 
borrowings, as well as the interest rate on the majority of the Company's 
long-term debt, reprice every 90 days or are priced at LIBOR.  As a result, 
these liabilities are also included in the 90 day category in the above 
table.  Non-maturing interest bearing NOW and savings accounts and certain 
other interest-bearing deposit accounts are contractually subject to 
repricing within 90 days and therefore are included in the 90 day category in 
the above table.  Using historical analysis, management believes that these 
deposits are less interest rate sensitive and are less likely to reprice, 
regardless of the contractual ability to do so.  As a result, management 
believes that the interest rate gap is overstated in the short-term as it 
relates to these deposits.

     Interest rate sensitivity analysis is used to measure the Company's 
interest rate risk by computing estimated changes in the market value of 
equity derived from the changes in discounted cash flows from assets and 
liabilities in the event of a range of assumed changes in market interest 
rates.  The market value of equity is equal to the market value of assets 
minus the market value of liabilities.  This analysis assesses the risk of 
loss in market risk sensitive instruments in the event of a sudden and 
sustained one hundred to two hundred basis points increase or decrease in the 
market interest rates.  The following table presents the Company's projected 
change in the market value of equity for the various rate shock levels at 
December 31, 1997.  All market risk sensitive instruments of the Company are 
held to maturity or available for sale.

                                       16

<PAGE>

<TABLE>
<CAPTION>

(DOLLARS IN THOUSANDS)                                                          ESTIMATED INCREASE
                                                                               (DECREASE) IN MARKET
                                                                                  VALUE OF EQUITY
                                             ------------------------------------------------------------
                                                   ESTIMATED MARKET
CHANGE IN INTEREST RATES                            VALUE OF EQUITY              AMOUNT          PERCENT
------------------------                     --------------------------         --------        ---------
<S>                                                <C>                          <C>
200 basis point rise                                  $35,276                   $(8,195)           (19)%
100 basis point rise                                   39,082                    (4,389)           (10)
Base Scenario                                          43,471                         -              -
100 basis point decline                                48,787                     5,316             12
200 basis point decline                                57,134                    13,663             31

</TABLE>

     The calculation is based on the net present value of estimated 
discounted cash flows utilizing market prepayment assumptions and market 
rates of interest provided by independent broker quotations and other public 
sources as of December 31, 1997, with adjustments made to reflect the shift 
in the Treasury yield curve as appropriate.  The preceding table indicates 
that at December 31, 1997, in the event of a sudden and sustained increase in 
prevailing market interest rates, the Company's market value of equity would 
be expected to decrease and that in the event of a sudden and sustained 
decrease in prevailing market interest rates, the Company's market value of 
equity would be expected to increase.

     Computation of prospective effects of hypothetical interest changes are 
based on numerous assumptions, including relative levels of market interest 
rates, discount rates, loan prepayments, investment call options, and 
deposits decay, and should not be relied upon as indicative of actual 
results.  Further, the computations do not contemplate any actions the ALCO 
could undertake in response to changes in interest rates.  Certain 
shortcomings are inherent in the method of analysis presented in the 
computation of the change in the market value of equity.  Actual values may 
differ from those projections presented, should market conditions vary from 
assumptions used.  

YEAR 2000

     The Company is aware of the issues associated with the programming code 
in existing systems as the millennium (year 2000) approaches.  The "year 
2000" problem is pervasive and complex as virtually every computer operation 
and every system with an embedded date chip will be affected in some way by 
the rollover of the two digit year value to 00.  The "year 2000" issue will 
affect almost every area of the Company.  The issue is whether systems and 
date chips will properly recognize date sensitive information when the year 
changes to 2000. Systems that do not properly recognize such information 
could generate erroneous data or cause a system to fail.

     The Company is utilizing both internal and external resources to 
identify, correct, and test the systems for the year 2000 compliance.  It is 
anticipated that testing of mission critical applications will be complete by 
December 31, 1998, allowing 1999 to be used for testing of non-mission 
critical applications and other problem solving.  To date, confirmations have 
been received from the Company's primary system vendors that testing plans 
are being developed to address processing of transactions in the year 2000.  
Testing, upgrades, and replacement of equipment is expected to cost 
approximately $50,000 to $100,000 over the next two years; however these 
amounts may change significantly as the Company continues to analyze year 
2000 issues.  This estimate excludes internal staff costs.  The amount 
expensed in 1997 was immaterial.

ACCOUNTING STANDARDS

     In 1995 the Financial Accounting Standards Board (FASB) issued Statement 
of Financial Accounting Standards (SFAS) No. 122, "Accounting for Mortgage 
Servicing Rights," which requires capitalization of servicing rights on 
mortgage loans when the loans are to be sold and the servicing retained.  In 
addition, SFAS No. 125, "Accounting for Transfer and Servicing of Financial 
Assets and Extinguishments of Liabilities,"

                                       17

<PAGE>


superseded SFAS No. 122 and was effective in 1997.  Currently, the Company 
primarily sells all mortgage loans with servicing released, thus 
implementation of this accounting statement was not material to the Company's 
business practices or results of operations as of December 31, 1997.

     In February 1997, SFAS No. 128, "Earnings Per Share" was issued.  SFAS 
No. 128 supersedes APB Opinion No. 15, "Earnings Per Share" and specifies the 
computation, presentation, and disclosure requirements for earnings per share 
(EPS) for entities with publicly held common stock or potential common stock. 
SFAS No. 128 was issued to simplify the computation of EPS and to make the 
U.S. standard more compatible with the EPS standards of other countries and 
that of the International Accounting Standards Committee.  It replaces the 
presentation of primary EPS with a presentation of basic EPS and replaces 
fully diluted EPS with diluted 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 
numerator and denominator of the basic EPS computation to the numerator and 
denominator of the diluted EPS computation.

     Basic EPS, unlike primary EPS, excludes dilution and is computed by 
dividing income available to common stockholders by the weighted-average 
number of common shares outstanding for the period.  Diluted EPS reflects the 
potential dilution that could occur if securities or other contracts to issue 
common stock were exercised or converted into common stock or resulted in the 
issuance of common stock that then shared in the earnings of the entity.  
Diluted EPS is computed similarly to fully diluted EPS under APB 15.  SFAS 
No. 128 was effective for financial statements for both interim and annual 
periods ending after December 15, 1997.  All prior-period EPS data presented 
has been restated to conform with SFAS No. 128.  The adoption of SFAS No. 128 
did not have a significant impact on the Company's financial statements.  

     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive 
Income."  The statement establishes standards for reporting and display of 
comprehensive income and its components 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.  The statement is 
effective for fiscal years beginning after December 15, 1997.  
Reclassification of financial statements for earlier periods provided for 
comparative purposes is required. The Company will adopt this statement in 
the first quarter of 1998.  

     In June, 1997, the FASB issued SFAS No. 131, "Disclosures about Segments 
of an Enterprise and Related Information."  The statement establishes 
standards for the way that public business enterprises report information 
about operating segments and certain other information in annual financial 
statements and requires that those enterprises report selected information 
about operating segments in interim financial reports issued to shareholders. 
The statement is effective for financial statements for periods beginning 
after December 15, 1997.  The Company will adopt this statement in the first 
quarter of 1998.

     The following supplementary financial information of the registrant for 
each of the last three years (unless otherwise stated) is included on pages 
19 through 25 of this Report:

     Table 1   Comparison of Average Balance Sheets
     Table 2   Analysis of Net Interest Income - Tax Equivalent Basis
     Table 3   Maturity Of Investment Securities
     Table 4   Analysis of Loan Portfolio and Loss Experience (for last five
               years)
     Table 5   Allocation of Allowance for Loan Losses (for last five years)
     Table 6   Maturity and Interest Sensitivity of Loans
     Table 7   Average Deposits (for last five years)
     Table 8   Short-term Borrowings
     Table 9   Return on Equity and Assets (for last five years)


                                      18

<PAGE> 


<TABLE>
<CAPTION>

                                                                TABLE 1
                                                  COMPARISON OF AVERAGE BALANCE SHEETS

The following table sets forth the registrant's consolidated average daily condensed balance sheet for each of the last three 
years (dollar figures in thousands):

                                                                                  Years ended December 31,
                                                            --------------------------------------------------------------
                                                                   1997                 1996                 1995*
                                                            --------------------   ------------------   ------------------
                                                                          % of                % of                   % of
                                                              Amount      Total    Amount     Total        Amount    Total
                                                              ------      -----    ------     -----        ------    -----
<S>                                                           <C>         <C>      <C>        <C>          <C>       <C>
ASSETS:
   Cash and due from banks                                    $10,070      2.1     $9,757      2.1         $10,166    2.4
   Interest-bearing deposits in banks                               0        0        376      0.1             113      0
   Excess funds sold                                              547      0.1     10,426      2.3          10,743    2.6
                                                              -------     ----     ------     ----         -------    ---
     Total cash and cash equivalents                           10,617      2.2     20,559      4.5          21,022    5.0

   Taxable securities                                         122,190     25.3   $110,313     23.9        $117,051   27.8
   Tax-exempt securities                                        9,710      2.0     12,165      2.6          16,296    3.9

   Mortgage loans held for sale                                21,372      4.4     29,651      6.4           7,610    1.8

   Loans and leases, net of unearned income                   301,419     62.3    269,091     58.5         240,778   57.2
      Less:  Allowance for loan losses                          4,122      0.8      3,469      0.8           3,441    0.8
                                                              -------     ----     ------     ----         -------    ---
         Loans, net                                           297,297     61.5    265,622     57.7         237,337   56.4

   Premises and Equipment                                      10,694      2.2     10,217      2.2          10,550    2.4

   Goodwill, net of amortization                                4,779      1.0      5,328      1.2           4,964    1.2
   Other Assets                                                 6,891      1.4      6,821      1.5           6,133    1.5
                                                             --------    ------  --------    ------       --------  -----
TOTAL ASSETS                                                 $483,550    100.0%  $460,676    100.0%       $420,963  100.0%
                                                             --------    ------  --------    ------       --------  -----
                                                             --------    ------  --------    ------       --------  -----

LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:

   Non-interest bearing deposits                             $ 40,589      8.4     39,300      8.5        $ 36,732    8.7
   Interest bearing deposits                                  368,655     76.2    350,918     76.2         323,581   76.9
                                                             --------    ------  --------    ------       --------  -----
      Total Deposits                                          409,244     84.6    390,218     84.7         360,313   85.6
                                                             --------    ------  --------    ------       --------  -----
   Short-term borrowings                                       24,061      5.0     19,887      4.3          11,260    2.8
   Long-term borrowings                                         9,921      2.1     10,782      2.3          11,575    2.7
   Other liabilities                                            4,598      0.9      5,375      1.2           3,961    0.9
                                                             --------    ------  --------    ------       --------  -----
      TOTAL LIABILITIES                                      $447,824     92.6   $426,262     92.5        $387,109   92.0

STOCKHOLDERS' EQUITY:
   Preferred Stock                                              2,591      0.5      2,600      0.6           3,956    0.9
   Common Stock                                                   693      0.1        689      0.1             686    0.2
   Additional paid-in capital                                   5,100      1.1      4,875      1.1           4,270    1.0
   Unrealized gain/(loss) on investment securities                198      0.0        475      0.1           1,497    0.4

   Retained earnings                                           27,144      5.7     25,775      5.6          23,445    5.5
                                                             --------    ------  --------    ------       --------  -----
     TOTAL STOCKHOLDERS' EQUITY                               $35,726      7.4    $34,414      7.5         $33,854    8.0
                                                             --------    ------  --------    ------       --------  -----
       STOCKHOLDERS' EQUITY                                  $483,550    100.0%  $460,676    100.0%       $420,963  100.0%
                                                             --------    ------  --------    ------       --------  -----
                                                             --------    ------  --------    ------       --------  -----
</TABLE>

*    Castle BancGroup, Inc. acquired substantially all the assets and assumed 
     substantially all the liabilities of Premier Home Financing, Inc. on May
     24, 1995, in a transaction that was accounted for as a purchase.  Assets,
     liabilities, and equity balances were included in the averages from that
     date forward.

                                       19
<PAGE>
                                      TABLE 2
               ANALYSIS OF NET INTEREST INCOME - TAX EQUIVALENT BASIS
                                   (IN THOUSANDS)
                                          
THE TABLE BELOW SHOWS THE CHANGES IN INTEREST INCOME (TAX EQUIVALENT) AND
INTEREST EXPENSE ATTRIBUTABLE TO VOLUME AND RATE VARIANCES.  THE CHANGE IN
INTEREST INCOME (TAX EQUIVALENT) DUE TO BOTH VOLUME AND RATE HAS BEEN ALLOCATED
TO VOLUME AND RATE CHANGES IN PROPORTION TO THE RELATIONSHIP OF THE ABSOLUTE
DOLLAR AMOUNTS OF THE CHANGE IN EACH.

<TABLE>
<CAPTION>

                                                      AVERAGE BALANCE                      AVERAGE RATE
                                             --------------------------------          ----------------------------
    INTEREST EARNING ASSETS                    1997        1996       1995(1)             1997        1996      1995
                                             --------    --------   --------            -----       ------    -----
<S>                                          <C>         <C>        <C>                 <C>         <C>       <C>

Taxable securities                           $122,190    $110,313   $117,051            6.81%       6.30%     6.22%
Tax-exempt securities                           9,710      12,165     16,296            9.78%      10.03%     9.62%
                                             --------    --------   --------            -----       ------    -----
Total Securities                             $131,900    $122,478   $133,347            7.03%       6.67%     6.64%
                                             --------    --------   --------            -----       ------    -----
Time deposits                                       0         376        113            0.00%       2.39%     4.32%
Excess funds sold                                 547      10,426     10,743            6.03%       2.91%     4.21%
Mortgage loans held for sale(3)                21,372      29,651      7,610            7.29%       7.37%     6.82%
Loans, net of unearned income(2), (4)         301,419     269,091    240,778            9.50%       9.78%     9.68%
                                             --------    --------   --------            -----       -----     -----
Total Earning Assets (FTE)                   $455,238    $432,022   $392,591            8.68%       8.56%     8.45%
                                             --------    --------   --------            -----       -----     -----
                                             --------    --------   --------            -----       -----     -----

    INTEREST BEARING LIABILITIES:
Interest bearing deposits                    $368,655    $350,918   $323,581            4.67%       4.59%     4.49%
Short-term borrowings                          24,061      19,887     11,260            6.21%       4.91%     4.42%
Long-term borrowings                            9,921      10,782     11,575            7.53%       7.35%     7.79%
                                             --------    --------   --------            -----       ------    -----
Total Interest Bearing Liabilities           $402,637    $381,587   $346,416            4.83%       4.68%     4.60%
                                             --------    --------   --------            -----       ------    -----
Interest Rate Spread (FTE)                   --------    --------   --------            3.85%       3.88%     3.85%
Net interest  margin (FTE)                                                              4.40%       4.42%     4.40%
                                                                                        -----       ------    -----
                                                                                        -----       ------    -----

                                          INTEREST EARNED OR PAID            1997/96 CHANGE DUE TO       1996/95 CHANGE DUE TO 
                                      --------------------------------     -----------------------      ---------------------
    INTEREST EARNING ASSETS            1997        1996       1995(1)        VOLUME          RATE         VOLUME       RATE
                                      --------    --------   --------      --------        ------       ---------------------
Taxable securities                     $8,325      $6,945     $7,281          783             597          (423)        87
Tax-exempt securities(2)                  950       1,220      1,568         (241)            (29)         (412)        63
                                      --------    --------   --------      --------        ------      ---------    ------
Total securities:                      $9,275      $8,165     $8,849         $542            $568         ($835)      $150
                                      --------    --------   --------      --------        ------      ---------    ------
Time deposits                               0           9         54           (5)             (4)           41        (86)
Excess funds sold                          33         303        452         (432)            162        (1,665)     1,516
Mortgage loans held for sale(3)         1,557       2,185        519         (603)            (25)        1,846       (180)
Net loans (2), (4)                     28,644      26,307     23,310        3,089            (752)        3,277       (280)
                                      --------    --------   --------      -------         ------      ---------   -------
Total Earnings Asset (FTE)            $39,509     $36,969    $33,184       $2,591            ($51)       $2,664     $1,120
                                      --------    --------   --------      -------         ------      ---------   -------
                                      --------    --------   --------      -------         ------      ---------   -------

    INTEREST BEARING LIABILITIES:
Interest bearing deposits             $17,228     $16,090    $14,527          826             312        $1,262     $  300
Short-term borrowings                   1,493         976        498          229             288           430         48
Long-term borrowings                      747         792        902          (64)             19           (40)       (70)
                                      --------    --------   --------      -------         ------       --------   -------
Total Interest Bearing Liabilities    $19,468     $17,858    $15,927         $991            $619        $1,652     $  278
                                      --------    --------   --------      -------         ------       --------   -------
Net interest income (FTE)             $20,041     $19,111    $17,257       $1,600           ($670)       $1,012     $  842
                                      --------    --------   --------      -------         ------      ---------   -------
                                      --------    --------   --------      -------         ------      ---------   -------
</TABLE>
__________________________


(1) Castle BancGroup, Inc. acquired substantially all the assets and assumed
    substantially all the liabilities of Premier Home Financing, Inc. on
    May 24, 1995 in a transaction that was accounted for as a purchase. 
    Assets, liabilities and equity balances were included in the averages
    from that date forward.

(2) The interest on tax-exempt investment securities and tax-exempt loans is
    calculated on a tax equivalent basis assuming a blended federal and state
    tax rate of 38.75% in 1997 and 1996 and a federal tax rate of 34% in
    1995.

(3) The yield-related fees recognized from the origination of mortgage loans
    held for sale are in addition to the interest earned on the loans
    during the period in which they are warehoused for sale as shown above.

(4) The balances of nonaccrual loans are included in average loans outstanding.
    Interest on loans includes yield-related loan fees.

                                       20

<PAGE>
                                  TABLE 3
                   MATURITY OF INVESTMENT SECURITIES


THE FOLLOWING TABLE SETS FORTH THE MATURITY OF THE REGISTRANT'S INVESTMENT 
PORTFOLIO: (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                            AS OF DECEMBER 31, 1997
                                           --------------------------------------------------------------------------------------
                                                                                                                        CORPORATE
                                                                 U.S. GOVERNMENT AGENCIES      STATE AND POLITICAL     OBLIGATIONS
                                             U.S. TREASURY                                       SUBDIVISIONS(1)        AND OTHER
                                           ------------------       -------------------       --------------------       ------
                                            AMOUNT      YIELD        AMOUNT       YIELD        AMOUNT       YIELD        AMOUNT
                                            ------      -----        ------       -----        ------       -----        ------
<S>                                        <C>          <C>         <C>           <C>         <C>           <C>          <C>
SECURITIES AVAILABLE FOR SALE(2):
One year or less                           $ 4,022      6.99%       $ 3,485       5.08%       $ 1,569       10.12%           --
After one through five years                15,314      6.49%        13,946       6.36%         6,200        9.45%           --
After five through ten years                 2,892      6.45%        28,260       7.06%         1,579        8.37%           --
After ten years                                 --        --         34,060       7.66%           776        8.17%           --
Mortgage backed securities(3)                   --        --         15,570       7.02%            --          --            --
                                           -------      ----        -------       ----        -------       -----        ------
     Total debt securities                 $22,228      6.58%       $95,321       7.09%       $10,124        9.29%            0

Federal Home Loan Bank stock                                                                                             $1,472
Other equity securities                                                                                                     334
                                           -------      ----        -------       ----        -------       -----        ------
          Total securities available
           for sale                        $22,228      6.58%       $95,321       7.09%       $10,124        9.29%       $1,806
                                           -------      ----        -------       ----        -------       -----        ------
                                           -------      ----        -------       ----        -------       -----        ------
</TABLE>
____________________
1     Yields were calculated on a tax equivalent basis assuming a blended 
      federal and state tax rate of 38.75%.
2     At December 31, 1997, the Company did not own any investment securities 
      from a single issuer other than the U.S. Federal Government, that 
      represents greater than 10% of total equity capital.
3     Mortgage-backed security maturities may differ from contractual 
      maturities because the underlying mortgages may be called or prepaid 
      without any penalties. Therefore, these securities are not included within
      the maturity categories above.

                                       21
<PAGE>
                                      TABLE 4
                   ANALYSIS OF LOAN PORTFOLIO AND LOSS EXPERIENCE
                                   (IN THOUSANDS)
                                          
THE FOLLOWING TABLE SETS FORTH THE REGISTRANT'S LOAN PORTFOLIO BY MAJOR CATEGORY
FOR EACH OF THE LAST FIVE YEARS.

<TABLE>
<CAPTION>

                                                                     DECEMBER 31,
                                                 ----------------------------------------------------
                                                   1997       1996       1995       1994       1993
                                                   ----       ----       ----       ----       ----
<S>                                              <C>        <C>        <C>        <C>        <C>
Commercial, financial and agricultural           $ 73,908   $ 69,594   $ 63,197   $ 59,131   $ 59,014
Real estate mortgages                             208,502    186,613    159,928    141,651    135,984
Consumer                                           32,606     35,242     33,094     32,040     33,986
Leases                                                524        892      1,455        711        952
Student loans held for sale                             0          0          0      5,450          0
                                                 --------   --------   --------   --------   --------
     Gross Loans                                 $315,540   $292,341   $257,674   $238,983   $229,936

Less:
Unearned discount and deferred loan fees            2,352      3,172      3,074      2,951      2,700
Allowance for possible loan losses                  4,646      3,775      3,309      3,475      3,940
                                                 --------   --------   --------   --------   --------
     Net Loans                                   $308,542   $285,394   $251,291   $232,557   $223,296
                                                 --------   --------   --------   --------   --------
                                                 --------   --------   --------   --------   --------

SUMMARY OF LOAN LOSS EXPERIENCE:

Allowance for loan and lease losses, beginning   $  3,775   $  3,309   $  3,475   $  3,940   $  2,964
Amounts charged-off:
     Commercial, financial and agricultural            60        270        268        570        382
     Real estate mortgages                              0         53        175          0         47
     Consumer                                         678        783        547        398        348
                                                 --------   --------   --------   --------   --------
Total Charge-Offs                                $    738   $  1,106   $    990   $    968   $    777
                                                 --------   --------   --------   --------   --------

Recoveries on amounts previously charged-off:
     Commercial, financial and agricultural           274        236        133         90         55
     Real estate mortgages                              0         17          0         14          0
     Consumer                                         174         88        151         75         55
                                                 --------   --------   --------   --------   --------
Total Recoveries                                 $    448   $    341   $    284   $    179   $    110
                                                 --------   --------   --------   --------   --------

     Net Charges-Offs                            $    290   $    765   $    706   $    789   $    667

Provision charged to expense                        1,128      1,113        488        323      1,329
Addition to dealer reserve                             33        118         51          1          0
Addition due to purchase of subsidiary                  0          0          1          0        314
                                                 --------   --------   --------   --------   --------
     Allowance for Loan and Lease Losses, Ending $  4,646   $  3,775   $  3,309   $  3,475   $  3,940
                                                 --------   --------   --------   --------   --------
                                                 --------   --------   --------   --------   --------
Non-performing loans at year-end:
     Non-accrual                                 $  3,968   $  2,348   $  2,064   $  2,699   $  3,652
     Restructured                                     139        314        270        630        209
                                                 --------   --------   --------   --------   --------
Total Non-Performing Loans                       $  4,107   $  2,662   $  2,334   $  3,329   $  3,861
                                                 --------   --------   --------   --------   --------
                                                 --------   --------   --------   --------   --------

Past due 90 days or more, not included above          500        201         16        256        716
Other real estate, not included above                   0         75          0          0         48

RATIOS:
Allowance to year-end loans, net of unearned         1.48%      1.31%      1.30%      1.47%      1.73%
Allowance to non-performing loans                  113.12     141.81     141.77     104.39     102.05
Net charge-offs to average loans (gross)             0.10       0.28       0.29       0.34       0.33
Recoveries to charge-offs                           60.70      30.83      28.69      18.49      14.16
Non-performing loans to loans, net of unearned
     discount and deferred loan fees                 1.31       0.92       0.92       1.41       1.70

</TABLE>
                                       22
<PAGE>


                                      TABLE 5
                      ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
                                   (IN THOUSANDS)

THE FOLLOWING TABLE SHOWS THE REGISTRANT'S ALLOWANCE FOR LOAN LOSSES FOR THE
LAST FIVE YEARS.

<TABLE>
<CAPTION>

                                      COMMERCIAL,
                                      FINANCIAL &      REAL ESTATE
                                      AGRICULTURAL     MORTGAGE          CONSUMER         LEASES         UNALLOCATED      TOTAL
                                      ------------     -----------       --------         ------         -----------      -----
<S>                                   <C>              <C>               <C>              <C>            <C>              <C>

December 31, 1997                       $1,779           $1,407           $1,247             $13             $200          $4,646
% of loans in category to total loans   23.42%           66.08%           10.33%           0.17%              N/A         100.00%

December 31, 1996                       $1,376           $1,130           $1,054             $15             $200          $3,775
% of loans in category to total loans   23.81%           63.83%           12.06%           0.30%              N/A         100.00%

December 31, 1995                       $1,420           $1,144           $  519             $26             $200          $3,309
% of loans in category to total loans   24.53%           62.07%           12.84%           0.56%              N/A         100.00%

December 31, 1994                       $1,655           $1,030           $  464             $26             $300          $3,475
% of loans in category to total loans   24.74%           59.27%           15.69%           0.30%              N/A         100.00%

December 31, 1993                       $2,237           $  963           $  414             $26             $300          $3,940
% of loans in category to total loans   25.67%           59.14%           14.78%           0.41%              N/A         100.00%
</TABLE>


                                      TABLE 6
                     MATURITY AND INTEREST SENSITIVITY OF LOANS
                                   (IN THOUSANDS)

THE FOLLOWING TABLE SHOWS THE MATURITY OF THE REGISTRANT'S LOAN PORTFOLIO.

<TABLE>
<CAPTION>

                                                                     AS OF DECEMBER 31, 1997
                                       ---------------------------------------------------------------------------
                                            TIME REMAINING TO MATURITY                    LOANS DUE AFTER ONE YEAR
                                       ------------------------------------               ------------------------
                                          DUE         ONE TO                                FIXED       FLOATING
                                         WITHIN     FIVE YEARS   AFTER FIVE                INTEREST     INTEREST
                                        ONE YEAR                   YEARS       TOTAL         RATE         RATE
                                        --------    ----------   ----------    -----       --------     --------
<S>                                     <C>         <C>          <C>          <C>          <C>          <C>
Commercial, financial & agricultural    $ 54,054     $ 18,053     $  1,801    $ 73,908     $ 16,872     $  2,982
Real estate mortgages                     81,170       90,387       36,945     208,502       79,807       47,525
Consumer                                   4,116       25,118        3,372      32,606       28,324          166
Leases                                       272          252        --            524           77          175
                                        --------     --------     --------    --------     --------     --------
    Total                               $139,612     $133,810     $ 42,118    $315,540     $125,080     $ 50,848
                                        --------     --------     --------    --------     --------     --------
                                        --------     --------     --------    --------     --------     --------
</TABLE>
                                       23
<PAGE>


                                      TABLE 7
                                  AVERAGE DEPOSITS
                                   (IN THOUSANDS)

THE FOLLOWING TABLE SETS FORTH THE REGISTRANT'S AVERAGE DAILY DEPOSITS AND
AVERAGE RATE PAID ON THE INTEREST BEARING DEPOSITS FOR EACH OF THE LAST FIVE
YEARS:

<TABLE>
<CAPTION>

                                 DECEMBER 31,
               ------------------------------------------------
               NON-
               INTEREST  INTEREST
               BEARING   BEARING
               DEMAND    DEMAND    SAVINGS   TIME      TOTAL
               DEPOSITS  DEPOSITS  ACCOUNTS  DEPOSITS  DEPOSITS
               --------  --------  --------  --------  --------
<S>            <C>       <C>       <C>       <C>       <C>
1997 AVERAGE
     Balance   $40,589   $70,454   $72,899   $225,302  $409,244
     Rate          ---     2.74%     3.10%      5.79%     4.67%
1996 AVERAGE
     Balance    39,300    67,583    76,087    207,248   390,218
     Rate          ---     2.52%     3.14%      5.79%     4.59%
1995 AVERAGE
     Balance    36,732    65,951    75,884    181,746   360,313
     Rate          ---     2.51%     3.39%      5.67%     4.49%
1994 AVERAGE
     Balance    36,360    79,208    81,105    155,481   352,154
     Rate          ---     2.46%     2.96%      4.69%     3.69%
1993 AVERAGE
     Balance    32,263    70,882    72,008    133,434   308,587
     Rate          ---     2.89%     3.24%      5.06%     4.03%

</TABLE>


THE FOLLOWING TABLE SETS FORTH THE REGISTRANT'S MATURITY DISTRIBUTION FOR ALL
TIME DEPOSITS OF $100,000 OR MORE AS OF DECEMBER 31, 1997.


          MATURITY DISTRIBUTION FOR ALL TIME DEPOSITS OF $100,000 OR MORE
                                   (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                DECEMBER 31, 1997
                                   -----------------------------------------------
                                                         6
                                     3          3     THROUGH
                                   MONTHS    THROUGH     12       OVER
                                   OR LESS   6 MONTHS  MONTHS   12 MONTHS    TOTAL
                                   -------   -------- --------  ---------    -----
<S>                                <C>       <C>      <C>       <C>        <C>
Time Deposits of $100,000 or more  $23,270   $13,075   $6,266    $16,944   $59,555

</TABLE>

                                       24

<PAGE>
                                      TABLE 8
                               SHORT-TERM BORROWINGS
                           (DOLLAR FIGURES IN THOUSANDS)

THE FOLLOWING TABLE SETS FORTH A SUMMARY OF THE REGISTRANT'S SHORT-TERM
BORROWINGS FOR EACH OF THE LAST THREE YEARS.


<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                -----------------------------
                                                  1997      1996       1995  
                                                --------  --------  ---------
        <S>                                     <C>        <C>        <C>
        Repurchase agreements                   $ 4,268    $ 2,756    $ 2,374
        Federal funds purchased                  21,850     10,000          0
        Federal Home Loan Bank Borrowings         7,932          0          0
        Other short-term borrowings               5,007      6,832      4,217
                                                -------    -------    -------
          Total                                 $39,057    $19,588    $ 6,591
                                                -------    -------    -------
                                                -------    -------    -------
</TABLE>









                                      TABLE 9
                            RETURN ON EQUITY AND ASSETS
                                          
THE FOLLOWING TABLE SETS FORTH THE REGISTRANT'S RETURN ON AVERAGE ASSETS, RETURN
ON AVERAGE EQUITY, DIVIDEND PAYOUT RATIO, AND AVERAGE EQUITY TO AVERAGE ASSET
RATIO FOR THE LAST FIVE YEARS:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                ---------------------------------------------
                                                 1997      1996      1995      1994      1993
                                                ------    ------    ------    ------    ------
        <S>                                     <C>       <C>       <C>       <C>       <C>
        Return on average assets                 0.62%     0.40%     0.80%      0.84%    0.94%

        Return on average equity                 8.43%     5.36%     9.94%     11.22%   13.56%

        Common stock dividend payout ratio      15.20%    22.44%    10.97%      9.43%    7.26%

        Average equity to average asset ratio    7.39%     7.47%     8.04%      7.44%    6.97%
</TABLE>



ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Item 7, above.


                                                  25
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
-----------------------------------------------------------------------------------------------------------
                     ASSETS                                                                1997       1996 
-----------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>          <C>
Cash and due from banks (note 3)                                                        $  11,377    10,617
Excess funds sold                                                                               0     1,950
-----------------------------------------------------------------------------------------------------------
Total cash and cash equivalents                                                            11,377    12,567
-----------------------------------------------------------------------------------------------------------
Investment securities available for sale (note 4)                                         129,479   133,072
-----------------------------------------------------------------------------------------------------------
Mortgage loans held for sale, lower of cost or market                                      44,761    20,343
-----------------------------------------------------------------------------------------------------------
Loans     (note 5)                                                                        315,540   292,341
     Less:
          Allowance for possible loan losses  (note 5)                                      4,646     3,775
          Unearned income and deferred loan fees                                            2,352     3,172
-----------------------------------------------------------------------------------------------------------
Net loans                                                                                 308,542   285,394

Premises and equipment  (note 6)                                                           10,854    10,234
Goodwill, net of amortization                                                               4,495     5,062
Other assets                                                                                6,042     6,752
-----------------------------------------------------------------------------------------------------------
                                                                                        $ 515,550   473,424
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
          LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------
Liabilities:
     Deposits:
          Non-interest-bearing                                                             42,589    43,233
          Interest-bearing  (note 7)                                                      381,094   360,876
-----------------------------------------------------------------------------------------------------------
Total deposits                                                                            423,683   404,109
     Short-term borrowings  (note 8)                                                       39,057    19,588
     Long-term debt   (note 9)                                                             10,250    10,150
     Other liabilities                                                                      5,698     4,615
-----------------------------------------------------------------------------------------------------------
Total liabilities                                                                         478,688   438,462
-----------------------------------------------------------------------------------------------------------
Stockholders' equity:
     Preferred stock, authorized 100,000 shares:  
          7.75% cumulative preferred stock, no par value, 300 and
          2,600 shares issued and outstanding in 1997 and 1996, respectively (note 12)        300     2,600
     Common stock, $.33 par value; 5,000,000 shares authorized, 2,152,593 and
          2,072,619 shares issued and outstanding in 1997 and 1996, respectively              718       691
     Additional paid-in capital                                                             6,691     5,001
     Net unrealized gain on investment securities, net of tax  (note 10)                      577       447
     Retained Earnings  (Notes 13 and 14)                                                  28,576    26,223
-----------------------------------------------------------------------------------------------------------
Total stockholders' equity                                                                 36,862    34,962
Commitments and contingent liabilities (notes 15 and 16)
-------------------------------------------------------------------------------------------------------------
                                                                                        $ 515,550     473,424
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLDIATED FINANCIAL STATEMENTS.

                                       26
<PAGE>

CONSOLIDATED STATEMENTS OF EARNINGS

YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) 
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                                  1997       1996      1995
-------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>          <C>       <C>
Interest income:
     Interest and fees on loans                                                $  28,566    26,248    23,310
     Interest and dividends on investment securities:
          Taxable                                                                  8,325     6,945     7,281
          Nontaxable                                                                 582       747     1,035
     Interest on time deposits                                                         0         9        54
     Interest on excess funds sold                                                    33       303       452
     Interest on mortgage loans held for sale                                      1,557     2,185       518
-------------------------------------------------------------------------------------------------------------
Total interest income                                                             39,063    36,437    32,650
-------------------------------------------------------------------------------------------------------------
Interest expense:
     Interest on deposits                                                         17,228    16,090    14,526
     Interest on short-term borrowings                                             1,493       976       498
     Interest on long-term debt                                                      747       792       903
-------------------------------------------------------------------------------------------------------------
Total interest expense                                                            19,468    17,858    15,927
-------------------------------------------------------------------------------------------------------------
Net interest income before provision
     for possible loan losses                                                     19,595    18,579    16,723
Provision for possible loan losses  (note 5)                                       1,128     1,113       488
-------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses                      18,467    17,466    16,235
-------------------------------------------------------------------------------------------------------------
Other operating income:
     Trust fees                                                       662            644       547        547
     Deposit service charges                                                         373       397        470
     Other service charges                                                         1,178     1,153      1,185
     Investment securities gains (losses), net  (note 4)                             210        41       (284)
     Gain on sale of land and buildings                                                0        23        322
     Mortgage loan origination income, net                                         6,546     5,172      3,980
     Other income                                                                    794       950        968
-------------------------------------------------------------------------------------------------------------
Total other operating income                                                       9,763     8,380      7,188
-------------------------------------------------------------------------------------------------------------
Other operating expenses:
     Salaries and employee benefits  (note 11)                                    15,336    14,465     11,570
     Net occupancy expense of premises                                             1,630     1,508      1,261
     Furniture and fixtures                                                        1,520     1,680      1,111
     Office supplies                                                                 436       474        394
     Outside services                                                                760     1,142        803
     Advertising expense                                                             494       632        416
     FDIC insurance assessment                                                        49         8        418
     Amortization expense-goodwill                                                   519       523        471
     Other expenses                                                                3,005     2,644      2,158
-------------------------------------------------------------------------------------------------------------
Total other operating expenses                                                    23,749    23,076     18,602
-------------------------------------------------------------------------------------------------------------
Earnings before income taxes                                                       4,481     2,770      4,821
Income tax expense  (note 10)                                                      1,468       926      1,457
-------------------------------------------------------------------------------------------------------------
Net earnings                                                                    $  3,013     1,844      3,364
-------------------------------------------------------------------------------------------------------------
Net earnings applicable to common stock                                         $  2,811     1,643      3,026
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Basic earnings per common share                                                 $   1.35      .80       1.49
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Diluted earnings per common share                                               $   1.34      .79       1.46
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                       27
<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
                                                                                       Net unrealized
                                                                                         gain (loss)
                                                                                             on
                                                          Preferred  Common              investment    Retained
                                                            stock    stock    Surplus    securities    earnings    Total
-------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>         <C>       <C>         <C>           <C>      <C>   
Balance at January 1, 1995                                $  5,350    664       3,772       (1,450)       22,337   30,673

Issuance of 66,553 shares of
     common stock                                              -       22         923          -             -        945
Redemption of preferred stock                               (2,750)    -          -            -             -     (2,750)
Change in unrealized gain (loss) on
     investment securities, net of tax                                 -          -          2,822           -      2,822
Net earnings                                                   -       -          -            -           3,364    3,364
Cash dividends on preferred stock                              -       -          -            -            (338)    (338)
Cash dividends on common stock
      (.18 per share)                                          -       -          -            -            (369)    (369)
--------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995                                  2,600   686       4,695        1,372        24,994   34,347

Issuance of 15,488 shares of
     common stock                                              -        5         306          -             -        311
Change in unrealized gain (loss) on
     investment securities, net of tax                         -       -          -           (925)          -       (925)
Net earnings                                                   -       -          -            -           1,844    1,844
Cash dividends on preferred stock                              -       -          -            -            (201)    (201)
Cash dividends on common stock
      (.20 per share)                                          -       -          -            -            (414)    (414)
--------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996                              $  2,600    691       5,001          447        26,223   34,962

Issuance of 79,974 shares of
     common stock                                              -       27       1,690          -             -      1,717
Redemption of preferred stock                               (2,300)    -          -            -             -     (2,300)
Change in unrealized gain (loss) on
     investment securities, net of tax                         -       -          -            130           -        130
Net earnings                                                   -       -          -            -           3,013    3,013
Cash dividends on preferred stock                              -       -          -            -            (202)    (202)
Cash dividends on common stock
      (.22 per share)                                          -       -          -            -            (458)    (458)
--------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997                              $    300    718       6,691          577        28,576   36,862
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       28
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                                               1997       1996      1995
----------------------------------------------------------------------------------------------------------
<S>                                                                         <C>         <C>       <C>
Cash flows from operating activities:
     Interest received                                                      $  38,535    35,721    33,359
     Fees received                                                              9,807     9,332     6,196
     Net increase in mortgage loans held for sale                             (24,418)   (6,859)  (13,484)
     Interest paid                                                            (19,041)  (17,872)  (15,427)
     Cash paid to suppliers and employees                                     (20,542)  (21,544)  (16,553)
     Income taxes paid                                                         (1,784)   (1,178)     (685)
----------------------------------------------------------------------------------------------------------
Net cash used in operating activities                                         (17,443)   (2,400)   (6,594)
----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
     Proceeds from:                                                        
          Maturities of investment securities available for sale               30,060    46,554    29,178
          Sales of investment securities available for sale                    59,152    23,162    16,657
     Purchases of investment securities available for sale                    (85,310)  (68,622)  (40,622)
     Net increase in loans                                                    (23,519)  (35,378)  (20,776)
     Premises and equipment expenditures                                       (2,029)   (1,626)   (1,349)
     Proceeds from sale of land and building                                      -          45       912
     Net cash and cash equivalents used for acquisition                    
          of Subsidiary                                                           -         -      (2,028)
----------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                         (21,646)  (35,865)  (18,028)
----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
     Net increase (decrease) in demand deposits,           
          NOW accounts, and savings accounts                                   (1,841)    5,030     1,686
     Net increase in certificates of deposit                                   21,415    12,909    32,334
     Dividends paid on preferred stock                                           (202)     (201)     (338)
     Dividends paid on common stock                                              (458)     (414)     (369)
     Net proceeds from short-term debt                                         19,468    12,997    (2,047)
     Net proceeds of long-term debt                                               100      (850)     (800)
     Redemption of preferred stock                                             (2,300)       -     (2,750)
     Issuance of common stock                                                   1,717       311       945
----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                      37,899    29,782    28,661
----------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents                                        (1,190)   (8,483)    4,039

Cash and cash equivalents at beginning of year                                 12,567    21,050    17,011
----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                    $  11,377    12,567    21,050
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
</TABLE>


                                                      29
<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
                                                                                        1997    1996     1995
---------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>       <C>      <C>
Reconciliation of net earnings to net cash provided
  by operating activities:                                         
      Net earnings                                                                   $  3,013   1,844    3,364
      Adjustments to reconcile net earnings to net                 
        cash provided by operating activities:                  
          Depreciation and amortization                                                 2,065   2,122    1,732
          Provision for possible loan losses                                            1,128   1,113      488
          Losses (gains) on sale of investment                     
            Securities                                                                   (210)    (41)     284
          Gain on sale of land and building                                                -      (23)    (322)
          Increase (decrease) in:                                 
            Income taxes payable                                                         (316)   (252)     774
            Interest payable                                                              426      51      499
            Unearned income                                                              (821)     98      123
            Other liabilities                                                           1,142     167    1,380
          Decrease (increase) in:                                 
            Interest receivable                                                           363    (373)    (322)
            Other assets                                                                  254     194     (620)
          Increase in mortgage loans held for sale                                    (24,418) (6,859) (13,484)
          Discount accretion recorded as income                                          (380)   (794)    (877)
          Premium amortization charged against income                                     311     353      387
----------------------------------------------------------------------------------------------------------------
                                                                                     $(17,443) (2,400)  (6,594)
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Schedule of Non-Cash Financing and Investing Activities:
----------------------------------------------------------------------------------------------------------------
Issuance of common stock for the acquisition of Premier
  Home Financing                                                                     $    -       -        637
----------------------------------------------------------------------------------------------------------------
A summary of the transactions in connection with the
  acquisition of and substantially all the assets and liabilities              
  of Premier Home Financing in 1995 are as follows:                            
    Fair value of assets acquired                                                         -       -      9,723
    Excess of acquisition cost over fair value                                 
      of assets acquired                                                                  -       -      1,922
    Acquisition cost                                                                      -       -     (2,968)
----------------------------------------------------------------------------------------------------------------
  Liabilities assumed                                                                $    -       -      8,677
----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.


                                       30
<PAGE>

YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
--------------------------------------------------------------------------------
 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     The consolidated financial statements of Castle BancGroup, Inc. and
     subsidiaries (Company) are prepared in conformity with generally accepted
     accounting principles and prevailing practices of the financial services
     industry which requires management to make estimates that affect the
     reported financial position and results of operations.  Actual results
     could differ from those estimates.  The following is a summary of the
     significant accounting and reporting policies used in preparing the
     consolidated financial statements.

     (a)  BASIS OF CONSOLIDATION
     The accompanying consolidated financial statements include the accounts of
     the Company and the Company's wholly owned subsidiaries, The Sandwich State
     Bank (SSB), First National Bank in DeKalb (FNB), Castle Finance Company
     (CFC), CasBanc Mortgage, Inc. (CMI), and SBI Illinois, Inc., which owns
     100% of Castle Bank Harvard, N.A. (CBH) and The Bank of Yorkville (BOY)
     (Subsidiaries).  Significant intercompany transactions and accounts have
     been eliminated in consolidation.

     (b)  INVESTMENT SECURITIES
     Investments in debt and equity securities have been classified as available
     for sale and reported at fair value.  The amortized valued is adjusted for
     amortization of premiums and accretion of discounts using a method that
     approximates level yield.  Unrealized gains and losses, net of related
     deferred income taxes, are reported in stockholder's equity.
     
     Gains and losses from the sale of investment securities prior to maturity
     are computed under the specific identification method and are included in
     investment securities gains (losses), net, in the consolidated statement of
     earnings.

     (c)  MORTGAGE LOANS HELD FOR SALE
     Mortgage loans held for sale are valued at the lower of cost or market
     value as determined by outstanding commitments from investors or current
     investor yield requirements on an aggregate basis.  Holding costs are
     treated as period costs.

     (d)  MORTGAGE LOAN ORIGINATION INCOME     
     Gains or losses on sales and service release premiums of mortgage loans
     held for sale are recognized at the time the loans are purchased by the
     permanent investor and are based upon the difference between the selling
     price and the carrying value of the related mortgage loan sold.  All
     mortgage loans are sold servicing released, and the related premiums are
     recognized at the time loans are sold. Points, application and other
     origination fees, net of appraisal, credit report and inspection costs, 
     are recognized at closing on mortgage loans held for sale.

     (e)  LOANS
     Loans are carried at the principal balance outstanding.  Interest on loans
     is computed on the principal balance outstanding, except that interest on
     certain consumer loans is recognized using the sum-of-the-months-digit
     method which is not materially different than the level yield method.  No
     interest income on non-accrual and impaired loans is recognized until the
     principal is collected.  Loans are generally placed on non-accrual status
     when they are past due 90 days as to either interest or principal. 
     However, loans well secured and in the process of collection may remain on
     accrual status, at the judgment of senior credit management.  A 
     non-accrual loan may be restored to accrual basis when interest and 
     principal payments are current and prospects for future payments are no 
     longer in doubt.
 
     Loans are considered impaired when, based on current information and 
     events, it is probable that the Company will not be able to collect all 
     amounts due according to the contractual terms of the loan agreement. 
     Impairment is measured based on the present value of expected future 
     cash flows, or alternatively, the observable market price of the loans 
     or the fair value of the collateral. However, for

                                         31
<PAGE>

     those loans that are collateral dependent, and for which management has 
     determined foreclosure is probable, the measure of impairment is based 
     on the fair value of the collateral less estimated disposal costs.

     (f)  LOAN FEES
     The Subsidiaries defer all material fees and costs associated with the 
     origination of loans and leases.  Such fees and costs are amortized, 
     using a level yield method, over the period to maturity or sale date of 
     the loans and leases.

     (g)  ALLOWANCE FOR POSSIBLE LOAN LOSSES
     An allowance for possible loan losses is maintained at a level deemed 
     adequate by management to provide for known and inherent risks in the 
     loan portfolio.  The allowance is based upon a continuing review of 
     specific loans, past loan loss experience, current economic conditions 
     which may affect the borrowers' ability to pay, and the underlying 
     collateral value of the loans.  Loans deemed to be uncollectible are 
     charged off and deducted from the allowance.  The provision for possible 
     loan losses and recoveries on loans previously charged off are added to 
     the allowance.

     (h)  PREMISES AND EQUIPMENT
     Premises and equipment are stated at cost less accumulated depreciation. 
     Depreciation is charged to expense on a straight-line or accelerated 
     basis over the estimated useful lives of the respective assets, as 
     follows: building and improvements, 15 to 40 years; and furniture, 
     fixtures, and equipment, 3 to 10 years.

     (i)  GOODWILL
     The total cost of the Company's acquisitions of various subsidiaries 
     exceeded their fair value of net assets acquired by approximately 
     $7,814,000.  This amount, net of accumulated amortization of $3,319,000 
     and $2,752,000 at December 31, 1997 and 1996, respectively, is shown as 
     goodwill in the accompanying consolidated balance sheets and is being 
     amortized on a straight line basis over 15 years.

     (j)  OTHER REAL ESTATE
     Other real estate owned includes foreclosures and property acquired in 
     forgiveness of debt, and is included in other assets in the accompanying 
     consolidated balance sheets.  These properties are carried at the lower 
     of cost or fair market value, less the estimated costs of disposal.  
     Losses arising from the acquisition of property in full or partial 
     satisfaction of loans are treated as loan losses.  Any subsequent losses 
     are charged to other expenses.

     (k)  INCOME TAXES
     Deferred tax assets and liabilities are recognized for the future tax 
     consequences attributable to differences between the financial statement 
     carrying amounts of existing assets and liabilities and their respective 
     tax bases and net operating loss (NOL) and tax credit carryforwards. 
     Deferred tax assets and liabilities are measured using enacted tax rates 
     expected to apply to taxable income in the years in which those 
     temporary differences are expected to be recovered or settled.  The 
     effect on deferred tax assets and liabilities of a change in tax rates 
     is recognized in income in the period that includes the enactment date.

     The Company and Subsidiaries file a consolidated Federal income tax 
     return.

     (l)  EARNINGS PER SHARE
     Effective December 31, 1997, the Company adopted Statement of Financial 
     Accounting Standards (SFAS) No. 128, "Earnings Per Share" retroactively 
     for all years presented.  Income for basic earnings per share (EPS) is 
     based on the weighted average number of common shares outstanding.  
     Diluted EPS is based on the weighted average number common shares 
     outstanding, increased by the assumed conversion of the convertible 
     preferred stock and exercise of the Company's stock options. 

                                        32
<PAGE>

     The components of basic and diluted EPS for the years ended December 31,
     1997, 1996, and 1995 were as follows:  (DOLLARS IN THOUSANDS, EXCEPT SHARE
     DATA)

<TABLE>
<CAPTION>

                                                                              1997         1996          1995
--------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>         <C>          <C>
Basic EPS:
    Net Income                                                                3,013       1,844         3,364
    Less:  preferred stock dividends:                                          (202)       (201)         (338)
                                                                              -----       -----         -----
       Income available to common stockholders                                2,811       1,643         3,026
                                                                              -----       -----         -----
                                                                              -----       -----         -----
    Average common shares                                                 2,079,251   2,066,213     2,034,479
                                                                          ---------   ---------     ---------
                                                                          ---------   ---------     ---------
    Basic EPS                                                                  1.35         .80          1.49
                                                                               ----         ---          ----
                                                                               ----         ---          ----
Diluted EPS:
    Income available to common stockholders                                   2,811       1,643         3,026
    Assumed conversion of preferred stock (anti-dilutive in 1997 and 1996)      N/A         N/A           338
                                                                                ---         ---         -----
    Income available to common stockholders after assumed conversion          2,811       1,643         3,364
                                                                              -----       -----         -----
                                                                              -----       -----         -----
    Average common shares                                                 2,079,251   2,066,213     2,034,479

    Assumed conversion of preferred stock (anti-dilutive in 1997 and 1996)      N/A         N/A       272,762

    Assumed exercise of stock options                                        22,188      19,359         2,724
                                                                             ------      ------         -----

    Average common shares after assumed conversions                       2,101,439   2,085,572     2,309,965
                                                                          ---------   ---------     ---------
                                                                          ---------   ---------     ---------

    Diluted EPS                                                                1.34         .79          1.46
                                                                               ----         ---          ----
                                                                               ----         ---          ----
--------------------------------------------------------------------------------------------------------------
</TABLE>

 (2) ACQUISITION
     On May 24, 1995, the Company, through its subsidiary CMI, acquired
     substantially all the assets and assumed substantially all liabilities of
     Premier Home Financing, Inc. (Premier) in a transaction that was accounted
     for as a purchase.  The cost of the acquisition was approximately
     $2,968,000 which was paid in cash and common stock of the Company, which
     exceeded the fair value of net assets of Premier by approximately
     $1,922,000.

 (3) CASH AND DUE FROM BANKS
     Certain of the Company's subsidiary banks, which are members of the Federal
     Reserve System, are required to maintain certain daily reserve balances in
     accordance with Federal Reserve Board requirements.  The reserves required
     to be maintained at the Federal Reserve Bank averaged $1,005,000 and
     $950,000 in 1997 and 1996, respectively.

                                          33
<PAGE>

 (4) INVESTMENT SECURITIES
     A comparison of amortized cost and fair value of investment securities
     available-for-sale at December 31, 1997 and 1996 follows:  (DOLLARS IN
     THOUSANDS)

<TABLE>
<CAPTION>

                                                                     December 31, 1997
                                                           ---------------------------------------
                                                                         Gross      Gross
                                                           Amortized  unrealized  unrealized  Fair
                                                             cost       gains       losses    value
-----------------------------------------------------------------------------------------------------
     <S>                                                  <C>          <C>        <C>        <C>
     U.S. Treasury and agency 
          obligations                                     $  101,495      657       (173)     101,979
     Obligations of state and political
          subdivisions                                         9,873      253         (2)      10,124
     Mortgage-backed securities                               15,397      218        (45)      15,570
-----------------------------------------------------------------------------------------------------
     Total debt securities                                $  126,765    1,128       (220)     127,673
-----------------------------------------------------------------------------------------------------
     Federal Home Loan Bank stock                         $    1,472      -           -         1,472
     Other equity securities                                     334      -           -           334
-----------------------------------------------------------------------------------------------------
     Total securities                                     $  128,571    1,128       (220)     129,479
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
                                                                     December 31, 1996
-----------------------------------------------------------------------------------------------------
                                                                         Gross     Gross
                                                          Amortized   unrealized unrealized  Fair
                                                             cost       gains      losses    value
-----------------------------------------------------------------------------------------------------
     <S>                                                  <C>         <C>      <C>       <C>
     U.S. Treasury and agency 
          obligations                                     $  101,081      898       (634)     101,345
     Obligations of state and political
          subdivisions                                        10,628      350        (73)      10,905
     Mortgage-backed securities                               19,574      290       (133)      19,731
-----------------------------------------------------------------------------------------------------
     Total debt securities                                   131,283    1,538       (840)     131,981
-----------------------------------------------------------------------------------------------------
     Federal Home Loan Bank stock                         $      967      -           -           967
     Other equity securities                                     124      -           -           124
-----------------------------------------------------------------------------------------------------
     Total securities                                     $  132,374    1,538       (840)     133,072
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
</TABLE>

     The amortized cost and fair value of securities available-for-sale at
     December 31, 1997 and 1996 by contractual maturity, are shown below
     (dollars in thousands).  Actual maturities may differ from contractual
     maturities because borrowers may have the right to call or prepay
     obligations with or without call or prepayment penalties.


<TABLE>
<CAPTION>
                                                          December 31, 1997      December 31, 1996
                                                          -----------------      -----------------
                                                         Amortized      Fair    Amortized     Fair
                                                           cost         value      cost       value
------------------------------------------------------------------------------------------------------
     <S>                                                 <C>          <C>       <C>          <C>
     Due in one year or less                              $  9,033      9,076     14,872      14,908
     Due after one year through five years                  35,121     35,460     54,661      54,954
     Due after five years through ten years                 32,474     32,731     42,176      42,388
     Due after ten years                                    34,740     34,836       -           -
------------------------------------------------------------------------------------------------------
                                                           111,368    112,103    111,709     112,250
     Mortgage-backed securities                             15,397     15,570     19,574      19,731
------------------------------------------------------------------------------------------------------
     Total debt securities                                 126,765    127,673    131,283     131,981
------------------------------------------------------------------------------------------------------
     Federal Home Loan Bank stock                            1,472      1,472        967         967
     Other equity securities                                   334        334        124         124
------------------------------------------------------------------------------------------------------
     Total securities                                     $128,571    129,479    132,374     133,072
------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------
</TABLE>

                                           34
<PAGE>

     Gross gains of approximately $409,000, $162,000, and $79,000 occurred from
     security activity during 1997, 1996, and 1995, respectively.  Gross losses
     of approximately $199,000, $121,000, and $363,000 occurred from security
     activity during 1997, 1996, and 1995, respectively.  All security gains 
     and losses were as a result of transactions involving available-for-sale
     securities.  

     Investment securities carried at approximately $66,445,000 and $66,519,000
     at December 31, 1997 and 1996, respectively, were pledged to secure
     deposits and for other purposes permitted or required by law.

 (5) LOANS
     The composition of the loan portfolio at December 31 is as follows: 
     (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                            1997       1996
---------------------------------------------------------------------------------------------
     <S>                                                                 <C>         <C>
     Commercial, financial, and agricultural                             $  73,908    69,594
     Real estate mortgage                                                  208,502   186,613
     Consumer                                                               32,606    35,242
     Lease financing receivables                                               524       892
---------------------------------------------------------------------------------------------
     Total                                                               $ 315,540   292,341
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>

     The Company provides several types of loans to customers, including
     residential, construction, commercial and installment loans.  The largest
     component of the loan portfolio is secured by residential and commercial
     real estate, or other interests in real property.  Lending activities are
     conducted with customers in a wide variety of industries as well as with
     individuals with varying credit requirements.  The Company does not have a
     concentration of loans in any specific industry.  Credit risk, as it
     relates to the Company's business activities, tends to be geographically
     concentrated in that the majority of the customer base lies within the
     cities and surrounding communities served by the Company's Subsidiaries.

     The components of non-performing loans and leases are as follows at 
     December 31: (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           1997       1996 
---------------------------------------------------------------------------------------------
     <S>                                                                 <C>         <C>
     Non-accrual loans and leases                                        $  3,968    2,348
     Restructured loans                                                       139      314 
---------------------------------------------------------------------------------------------
     Total non-performing loans and leases                               $  4,107    2,662 
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>

     Loans past due 90 days or more and still accruing interest are not included
     above and totaled $500,000 and $201,000 at December 31, 1997 and 1996,
     respectively.
     
     Non-accrual and restructured loans and leases had the following effect on 
     interest income for the years ended December 31: (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          1997 1996 1995 
---------------------------------------------------------------------------------------------
     <S>                                                                 <C>   <C>  <C>
     Income recognized                                                   $  27  138  105
     Income which would have been recognized under original terms          344  357  195 
---------------------------------------------------------------------------------------------
</TABLE>

                                       35
<PAGE>


    Impaired loan information at December 31, 1997 and 1996 is
    as follows:
    (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                           1997    1996   1995 
----------------------------------------------------------------------------------------------------
    <S>                                                                  <C>      <C>    <C>
    Impaired loans for which a related allowance has been allocated      $   821  1,376  1,081
    impaired loans for which no allowance has been allocated               1,841    267    135
----------------------------------------------------------------------------------------------------
    Total loans determined to be impaired                                $ 2,662  1,643  1,216
----------------------------------------------------------------------------------------------------
    Allowance allocated to impaired loans, included in the allowance
    for possible loan losses                                             $   260    401    243
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
</TABLE>

    Impaired loans averaged $2,152,000, $1,429,000, and $1,385,000 for the    
    years ended December 31, 1997, 1996, and 1995, respectively.  No 
    interest was either recognized or received on these impaired loans 
    during 1997, 1996 and 1995.  The entire balance of impaired loans at 
    December 31, 1997 and 1996 is classified as non-accrual and is included 
    in the non-accrual loan and lease total presented above.

    At various times throughout the year, certain officers and directors of the
    Company and its affiliates have borrowed money from the subsidiary banks.
    These loans were made in the ordinary course of business on substantially
    the same terms, including interest rates and collateral, as those
    prevailing at the time for comparable transactions with other bank
    customers.

    The following summarizes activity on loans, including renewals, made to
    related parties during 1997 and 1996: (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   1997              1996
-------------------------------------------------------------------------------------------
    <S>                                                          <C>               <C>
    Loans outstanding, beginning of year                         $  3,445           3,345
    New loans, renewals, and advances                               4,375           1,772
    Loan payments                                                  (3,652)         (1,672)
-------------------------------------------------------------------------------------------
    Loans outstanding, end of year                               $  4,168           3,445
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>

    The following is a summary of activity in the allowance for possible loan 
    losses: (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    1997    1996     1995 
-------------------------------------------------------------------------------------------
      <S>                                                        <C>        <C>     <C>
      Balance, beginning of year                                 $  3,775   3,309   3,475
      Addition from acquisition of subsidiary                         -       -         1
      Provision charged to expense                                  1,128   1,113     488
      Additions to dealer reserves                                     33     118      51
      Recoveries on loans previously charged off                      448     341     284
-------------------------------------------------------------------------------------------
                                                                    5,384   4,881   4,299
      Less loans charged off                                          738   1,106     990
-------------------------------------------------------------------------------------------
      Balance, end of year                                       $  4,646   3,775   3,309
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>

(6) PREMISES AND EQUIPMENT
    The components of premises and equipment at December 31 were as follows:
    (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          1997    1996
-----------------------------------------------------------------------------------------
<S>                                                                    <C>       <C>
     Land and land improvements                                        $  1,806   1,802
     Building and improvements                                           10,861  10,094
     Furniture, fixtures, and equipment                                   7,786   7,184
-----------------------------------------------------------------------------------------
                                                                         20,453  19,080
     Less accumulated depreciation                                        9,599   8,846
-----------------------------------------------------------------------------------------
     Total                                                             $ 10,854  10,234
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>

                                       36

<PAGE>

 (7) DEPOSITS
     The aggregate amount of jumbo time deposits, each with a minimum
     denomination of $100,000, was $59,555,000 and $49,542,000 at
     December 31, 1997 and 1996, respectively.  Included in these
     totals were $4,059,000 and $2,080,000 of brokered deposits
     at December 31, 1997 and 1996, respectively, with interest
     rates ranging from 6.10% to 6.75% in 1997 and 6.30% to 6.75%
     in 1996.

 (8) SHORT-TERM BORROWINGS
     The components of short-term borrowings at December 31 are as 
     follows: (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                             1997      1996
-------------------------------------------------------------
     <S>                                  <C>        <C>
     Repurchase agreements                $  4,268     2,756
     Federal funds purchased                21,850    10,000
     Federal Home Loan Bank borrowings       7,932         -
     Other short-term borrowings             5,007     6,832
--------------------------------------------------------------
     Total                                $ 39,057    19,588
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>

     The weighted average interest rate on short-term borrowings was 
     6.41% and 7.47% at December 31, 1997 and 1996, respectively.

     Other short-term borrowings (excluding treasury, tax, and loan
     borrowings) consists of the following line-of-credit agreements 
     at December 31:

<TABLE>
<CAPTION>
                                                  1997
                                               Outstanding
                                                Principal   Rate
-------------------------------------------------------------------------------
     <S>                                       <C>         <C>
     $5,000,000 maturing January 27, 1998      3,250,000   7.59%
     $3,000,000 payable on demand                857,000   8.50%
-------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                                           1996
                                                        Outstanding
                                                         Principal   Rate
---------------------------------------------------------------------------------------
     <S>                                                <C>          <C>
     $5,000,000 maturing January 29, 1997                5,000,000   7.31%
     $3,000,000 maturing November 12, 1997, unsecured    1,124,000   8.25%
---------------------------------------------------------------------------------------
</TABLE>

     The $5,000,000 line of credit is secured by outstanding stock 
     of the Subsidiaries, which are 100% owned by the Company.  
     Unsued lines of credit at December 31, 1997, and December 31, 
     1996, totaled $2,000,000 and $3,000,000, respectively.
     
     Federal Home Loan Bank borrowings are collateralized by 
     Federal Home Loan Bank stock and first mortgage real estate 
     loans.  As of December 31, 1997, the notes mature from 1998 
     through 2004 and have variable interest rates with an average 
     of 5.34%.  Certain Federal Home Loan Bank borrowings with 
     call features have been classified as short-term borrowings 
     by the Company. SSB, FNB, and BOY have collateral pledge 
     agreements whereby they have agreed to keep on hand at all 
     time, free of all other pledges, loans, and encumbrances, 
     whole first mortgages on improved residential property with 
     unpaid principal balances aggregating no less than 167% of 
     the outstanding advances from the Federal Home Loan Bank.

                                       37
<PAGE>

 (9) LONG-TERM DEBT
     Long-term debt at December 31, 1997 and 1996 consists of the following:
     (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                              1997      1996
----------------------------------------------------------------------------------------------
     <S>                                                                    <C>        <C>
     Amendment to the secured term loan dated May 1, 1992 with interest at 
       the 180 day LIBOR rate plus 1.625% (7.53% at December 31, 
       1997), principal payable in 6 semi-annual payments remaining
       from June 30, 1998 through December 31, 2000                         $  9,250   10,150
     Federal Home Loan Bank Borrowing
       (6.10% payable on December 22, 2000)                                 $  1,000        -
----------------------------------------------------------------------------------------------
                                                                            $  10,250  10,150
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
</TABLE>

     Scheduled principal payments on long-term debt for the next five years,
     through maturity, are:
<TABLE>
<CAPTION>

       Year ended
       December 31                                                    Amount
----------------------------------------------------------------------------
       <S>                                                            <C>
        1998                                                          $  950
        1999                                                           1,000
        2000                                                           8,300
----------------------------------------------------------------------------
</TABLE>

     The long-term debt agreement with a balance outstanding of $9,250,000 at
     December 31, 1997, is secured by the stock of the subsidiaries and contains
     certain restrictive convenants, as further described in Note 13.  The
     Company is required to maintain certain financial covenants related to its
     secured term loan.  At December 31, 1997, CBH's ratio of non-performing
     assets to total loans and real estate loans was 5.3%, which was in excess
     of the quarterly maximum ratio required by the secured term loan of 3%. 
     The Company has received a waiver from its lender regarding this violation
     as of December 31, 1997, and its lender has increased the maximum ratio to
     4.5% through September 30, 1998.   

(10) INCOME TAXES
     The components of Federal income tax expense (benefit) for 1997, 1996, and
     1995 were as follows: (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                 1997         1996         1995
--------------------------------------------------------------------------------
     <S>                                       <C>            <C>          <C>
     Current                                   $  2,088       1,290          986
     Deferred                                      (620)       (364)         471
--------------------------------------------------------------------------------
     Total                                     $  1,468         926        1,457
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>

                                       38
<PAGE>

     The reasons for the difference between income taxes in the statements of
     earnings and the amount computed by applying the statutory Federal income
     tax rate of 34% in 1997, 1996 and 1995 are as follows: (DOLLARS IN 
     THOUSANDS)
<TABLE>
<CAPTION>
                                                         1997      1996      1995
------------------------------------------------------------------------------------
     <S>                                               <C>         <C>       <C>
     Tax expense at statutory rate                     $  1,523     942      1,639
     Tax-exempt interest, net of premium amortization      (211)   (250)      (308)
     Nondeductible amortization                             156     169        174
     Investment losses                                        -       -        (82)
     Other, net                                               -      65         34
------------------------------------------------------------------------------------
     Total income tax expense                          $  1,468     926      1,457
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>

     The tax effects of temporary differences that give rise to significant
     portions of the deferred tax assets and deferred tax liabilities at 
     December 31, 1997 and 1996 are as follows: (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                          1997          1996
--------------------------------------------------------------------------------
     <S>                                              <C>             <C>
     Deferred tax assets:
          Deferred loan fees                           $   85            139
          Allowance for loan losses                     1,127            578
          Other                                            13              -
          Deferred compensation                           257            248
          State net operating loss carryforwards           83            130
--------------------------------------------------------------------------------
     Total gross deferred tax assets                    1,565          1,095
     Less valuation allowance                             (33)           (34)
--------------------------------------------------------------------------------
     Net deferred tax assets                            1,532          1,061
--------------------------------------------------------------------------------
     Deferred tax liabilities:
          Purchase accounting adjustments                (554)          (591)
          Accretion on investments                        (57)          (149)
          Depreciation                                   (258)          (218)
          Unrealized gains on investment securities      (330)          (250)
          Net lease adjustment                            (63)           (80)
          Other, net                                      (43)           (86)
--------------------------------------------------------------------------------
     Total gross deferred tax liabilities              (1,305)        (1,374)
--------------------------------------------------------------------------------
     Net deferred tax assets (liabilities)             $  227           (313)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>

     In assessing the realizability of deferred tax assets, management considers
     whether it is more likely than not that some portion or all of the deferred
     tax assets will not be realized.  The ultimate realization of deferred tax
     assets is dependent upon the generation of future taxable income during the
     periods in which those temporary differences become deductible.  Management
     considers the capacity to carry back net operating losses, scheduled
     reversal of deferred tax liabilities, projected future taxable income, and
     tax planning strategies in making this assessment.  Based on the level of
     historical taxable income and projections for future taxable income over
     the periods which the deferred tax assets are deductible, management
     believes it is more likely than not the Company will realize the benefits
     of these deductible differences, net of the valuation allowance at December
     31, 1997 and 1996.  The valuation allowance consists of Illinois NOL
     carryforwards relating to the acquisition of  The Bank of Yorkville that
     are available for use only at this subsidiary.

     The Company has Illinois NOL carryfowards of $1,155,000 which will expire
     in varying amounts beginning December 31, 2005 through December 31, 2006.

                                       39
<PAGE>

(11) EMPLOYEE BENEFIT PLANS
     The Company maintains a profit-sharing plan which was amended in 1990.  The
     amended plan covers substantially all officers and employees of the
     Company.  Under provisions of the plan, the Company  is required to make
     minimum annual contributions of 7.5% of net operating profits, as defined
     in the plan.  Contributions by the Company to the plan totaled $672,000,
     $620,000, and $673,000 in 1997, 1996, and 1995, respectively.

     In 1995, the Company instituted a non-qualified supplemental employee
     profit sharing plan.  The supplemental plan covers all officers and
     employees of the Company whose contributions under the qualified profit
     sharing plan were limited by the Internal Revenue Code of 1986 (the Code),
     as amended. Under the non-qualified plan, the Company is required to accrue
     a liability for the contribution that was limited by the Code. 
     Contributions paid by the Company to the plan totaled approximately
     $15,000, $53,000, and $77,000 in 1997, 1996, and 1995, respectively.

     In 1992, the Company instituted an Employee Stock Purchase Plan (Plan)
     covering substantially all officers and employees of the Company.  The
     Company incurs no costs associated with the Plan except for nominal
     administration expenses.  The employees may purchase original issue Company
     stock at market prices up to a maximum limit established within the Plan.

     On December 23, 1994, the Company adopted a Stock Benefit Plan covering key
     managerial employees and non-employee directors of the Company and its
     Subsidiaries.  The Stock Benefit Plan provides for the grant of incentive
     stock options, non-qualified stock options, limited rights, stock
     appreciation rights, and restricted stock.  The Company may award options
     to acquire up to 150,000 shares of its outstanding common stock, with no
     options being granted after October 31, 2004.  The exercise price on
     outstanding non-qualified stock options ranges from $14.00 to $22.00 per
     share at December 31, 1997.  Non-qualified stock options issued are
     exercisable at not less than the current common stock market value at the
     date of grant.  The outstanding options vest ratably over a four year term.
     The following table presents certain information pursuant to the Stock
     Benefit Plan, at December 31:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
                                                   December 31, 1997   December 31, 1996
                                                   -----------------   -----------------
                                                             Average             Average
                                                    Shares    Price    Shares     Price
-----------------------------------------------------------------------------------------
     <S>                                            <C>      <C>       <C>       <C>
     Options outstanding at beginning of year       113,100   $14.39    105,700   $14.13
     Options granted                                 17,750   $22.00      7,600   $18.00
     Options exercised                               (9,275)  $14.42         --       --
     Options forfeited                              (12,325)  $15.06       (200)  $15.00
-----------------------------------------------------------------------------------------
     Options outstanding at end of year             109,250   $15.55    113,100   $14.39
-----------------------------------------------------------------------------------------
     Options exercisable at end of year              47,800   $14.20     35,325   $14.11
-----------------------------------------------------------------------------------------
     Options available to grant under plan at end 
       of year                                       31,675              37,100
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>

                                       40
<PAGE>

     The Company applies APB opinion No. 25 and related 
     interpretations in accounting for the Stock Benefit Plan.  Had 
     compensation cost for the plan been determined consistent with 
     FASB Statement No. 123, the Company's net income and earnings 
     per share would have been reduced to the pro forma amounts 
     indicated below:

<TABLE>
<CAPTION>
                                                     1997            1996
     ----------------------------------------------------------------------
     <S>                        <C>                  <C>             <C>
     Net Income                 As reported          $3,013          1,844
                                Pro forma             2,944          1,820
     ----------------------------------------------------------------------
     Basic earnings per share   As reported          $ 1.35            .80
                                Pro forma              1.32            .79
     ----------------------------------------------------------------------
</TABLE>

     The fair value of each option grant is estimated on the date of 
     the grant using the Black-Scholes option-pricing model.

(12) PREFERRED STOCK

     In 1993, the Company issued 2,600 shares of Perpetual 
     Preferred Stock.  On December 31, 1997, the Company redeemed 
     2,300 shares of its outstanding Perpetual Preferred Stock.  Of 
     the 2,300 shares, 649 shares were redeemed for cash, and 1,651 
     shares were exchanged into 66,311 shares of the Company's 
     common stock.  

     The dividend rate on the remaining 300 shares of cumulative 
     Perpetual Preferred Stock is fixed at 7.75% through December 
     7, 1998.  This dividend rate then increases 25 basis points 
     per year from December 7, 1999, through December 7, 2003, when 
     the rate will be fixed at 9%.  These shares are redeemable at 
     the Company's discretion after five years from the issue date. 
     Upon liquidation, these shares are entitled to the then 
     calculated redemption value.

(13) DIVIDEND LIMITATIONS

     The amendment to the secured term loan agreement contains 
     several restrictive covenants, including restrictions on 
     dividends to stockholders, maintenance of various capital 
     adequacy levels, and certain restrictions with regard to other 
     indebtedness.  Future cash dividends, in addition to dividends 
     on preferred stock are limited to 50% of the Company's net 
     after-tax earnings for the immediately preceding eight fiscal 
     quarters of the Company.  As of December 31, 1997, the Company 
     had $1,556,000 of unrestricted earnings available for 
     additional cash dividends.

     National banking regulations restrict the amount of dividends 
     that a bank may pay to its stockholders.  Generally, the 
     regulations provide that dividends are limited to net earnings 
     for the current and two preceding years, reduced by dividends 
     paid and transfers to permanent capital.  At December 31, 
     1997, subject to minimum regulatory capital guidelines, FNB 
     could, without prior approval of regulatory authorities, 
     declare dividends of approximately $1,768,000, and CBH could, 
     without prior approval of regulatory authorities, declare 
     dividends of approximately $88,000.

     SSB and BOY are subject to state banking regulations which 
     provide that dividends can be paid up to the amount of 
     available undivided profits (as defined), subject to total 
     capital adequacy considerations.

(14) REGULATORY CAPITAL REQUIREMENTS

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

                                             41

<PAGE>

     Quantitative measures established by regulation to ensure 
     capital adequacy require the Company to maintain minimum 
     amounts and ratios of total Tier I capital to risk-weighted 
     assets, and of Tier I capital to average assets, as defined in 
     the regulations.  Management believes, as of December 31, 1997 
     and 1996, that the Company meets all capital adequacy 
     requirements to which it is subject.
    
     The Company and subsidiaries were categorized as well 
     capitalized at December 31, 1997 and 1996 under the regulatory 
     capital framework for prompt corrective action.  Minimum 
     capital requirements and actual capital amounts and ratios as 
     of December 31, 1997 and 1996 are as follows:
     (DOLLARS IN THOUSANDS)
    

<TABLE>
<CAPTION>

                                                                         December 31, 1997
                                                              Actual            Regulatory     Minimum
                                                              Amount    Ratio     Amount        Ratio
--------------------------------------------------------------------------------------------------------
<S>                                                          <C>        <C>     <C>            <C>
Total risk-based capital to risk-weighted assets: 
     Castle BancGroup, Inc.                                  $35,988    10.67%   $26,994         8.00%
     First National Bank in DeKalb                            18,669    11.03%    13,539         8.00%
     The Sandwich State Bank                                   9,498    12.93%     5,878         8.00%
     Castle Bank Harvard, N.A.                                 6,679    13.28%     4,024         8.00%
     The Bank of Yorkville                                     5,248    13.05%     3,218         8.00%
--------------------------------------------------------------------------------------------------------
Tier I capital to risk-weighted assets: 
     Castle BancGroup, Inc.                                  $31,770     9.42%   $13,497         4.00%
     First National Bank in DeKalb                            17,033    10.06%     6,769         4.00%
     The Sandwich State Bank                                   8,558    11.65%     2,939         4.00%
     Castle Bank Harvard, N.A.                                 6,045    12.02%     2,012         4.00%
     The Bank of Yorkville                                     4,817    11.98%     1,609         4.00%
--------------------------------------------------------------------------------------------------------
Tier I capital to average assets:
     Castle BancGroup, Inc.                                  $31,770     6.38%   $19,919         4.00%
     First National Bank in DeKalb                            17,033     6.93%     9,839         4.00%
     The Sandwich State Bank                                   8,558     7.65%     4,476         4.00%
     Castle Bank Harvard, N.A.                                 6,045     8.11%     2,983         4.00%
     The Bank of Yorkville                                     4,817     7.49%     2,572         4.00%
</TABLE>

                                            42

<PAGE>

<TABLE>
<CAPTION>

                                                                         December 31, 1996
                                                              Actual            Regulatory     Minimum
                                                              Amount    Ratio     Amount        Ratio
--------------------------------------------------------------------------------------------------------
<S>                                                          <C>        <C>     <C>            <C>
Total risk-based capital to risk-weighted assets: 
     Castle BancGroup, Inc.                                  $33,206    10.66%   $24,925         8.00%
     First National Bank in DeKalb                            17,093    12.43%    10,998         8.00%
     The Sandwich State Bank                                   9,058    12.70%     5,705         8.00%
     Castle Bank Harvard, N.A.                                 6,517    12.02%     4,339         8.00%
     The Bank of Yorkville                                     4,601    12.84%     2,866         8.00%
--------------------------------------------------------------------------------------------------------
Tier I capital to risk-weighted assets: 
     Castle BancGroup, Inc.                                  $29,431     9.45%   $12,463         4.00%
     First National Bank in DeKalb                            15,788    11.48%     5,499         4.00%
     The Sandwich State Bank                                   8,167    11.45%     2,853         4.00%
     Castle Bank Harvard, N.A.                                 5,839    10.77%     2,170         4.00%
     The Bank of Yorkville                                     4,217    11.77%     1,433         4.00%
--------------------------------------------------------------------------------------------------------
Tier I capital to average assets:
     Castle BancGroup, Inc.                                  $29,431     6.39%   $18,414         4.00%
     First National Bank in DeKalb                            15,788     7.19%     8,778         4.00%
     The Sandwich State Bank                                   8,167     7.62%     4,285         4.00%
     Castle Bank Harvard, N.A.                                 5,839     7.93%     2,946         4.00%
     The Bank of Yorkville                                     4,217     7.25%     2,325         4.00%
--------------------------------------------------------------------------------------------------------
</TABLE>

(15)  FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

      The Company is party to financial instruments with off-balance sheet risk
      in the normal course of business to meeting the financing needs of its
      customers and to effectively manage its exposure to interest rate risk.
    
      Credit risk is the possibility that the Company will incur a loss due 
      to the other party's failure to perform under its contractual 
      obligations.  The Company's exposure to credit loss in the event of 
      non-performance by the other party with regard to commitments to extend 
      credit and standby letters of credit is represented by the contractual 
      amount of these instruments.  The Company uses the same credit policies 
      in making commitments and conditional obligations as it does for actual 
      extensions of credit.
    
      Financial instruments representing potential credit risk at December 31, 
      1997 and 1996 are as follows: (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                       1997             1996
      ------------------------------------------------------------------------
      <S>                                            <C>               <C>
      Standby letters of credit                      $  3,943          $ 4,999
      Commitments to extend credit                    138,647           90,657
      ------------------------------------------------------------------------
                                                     $142,590          $95,656
      ------------------------------------------------------------------------
      ------------------------------------------------------------------------
</TABLE>
 
      Standby letters of credit are conditional commitments issued by the 
      Company to guarantee the performance of a customer to a third party.  
      Commitments to extend credit are agreements to lend to a customer as 
      long as there is no violation of any condition established by the 
      contract.  Commitments generally have fixed expiration dates or other 
      termination clauses and may require payment of a fee.  Since many of 
      the commitments are expected to expire without being drawn upon, the 
      total commitment amounts do not necessarily represent future cash 
      requirements.  The credit risk involved for commitments to extend 
      credit and in issuing standby letters of credit is essentially the same 
      as that involved in extending loans to customers.
    
                                       43

<PAGE>


      The commitments to extend credit presented above included $81,250,000
      and $34,000,000 at December 31, 1997 and 1996, respectively, relating
      to approved mortgage loan applications at CMI. 

      At December 31, 1997 and 1996, the Company had commitments to sell
      approximately $68,131,000 and $23,023,000 of first mortgage loans.  At
      December 31, 1997, commitments to sell consisted of loan-by-loan
      commitments with investors.  At December 31, 1996, commitments to sell
      consisted of forward sales contracts for future sale to investors in the
      secondary market.

(16)  COMMITMENTS AND CONTINGENT LIABILITIES
      Because of the nature of their activities, the Company and Subsidiaries
      are subject to pending and threatened legal actions which arise in the
      normal course of business.  In the opinion of management, based on the
      advice of legal counsel, the disposition of any known pending legal
      actions will not have a material adverse effect on the financial
      position of the Company.

(17)  FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
      Statement of Accounting Standards No 107, "Disclosures about Fair
      Value of Financial Instruments" (Statement 107), requires that the
      Company disclose estimated fair value for its financial instruments.
      Fair value estimates, methods, and assumptions are set forth below
      for the Company's financial instruments.

      (A)  CASH AND CASH EQUIVALENTS, AND EXCESS FUNDS SOLD 
      The carrying amount of cash and cash equivalents approximate fair value
      because they mature daily and do not represent unanticipated credit risks.

      (B)  INVESTMENT SECURITIES 
      The fair value of investment securities available-for-sale, with the
      exception of certain state and municipal securities, is estimated based on
      bid prices published in financial newspapers or bid quotations received
      from securities dealers.  The fair value of certain state and municipal
      securities is not readily available through market sources other than
      dealer quotations, so fair value estimates are based on quoted market
      values of similar instruments, adjusted for differences between the quoted
      instruments, and the instruments being valued.

      (C)  MORTGAGE LOANS HELD FOR SALE
      As of December 31, 1997 and 1996, the carrying value of the Company's
      mortgage loans held for sale was $44,761,000 and $20,343,000,
      respectively.  The estimated fair value of these loans was $44,940,000
      and $20,410,000 at December 31, 1997 and 1996, based on commitments to
      purchase from the end investors.

      (D)  LOANS
      Fair values are estimated for portfolios of loans with similar financial
      characteristics.  Loans are segregated by type such as commercial,
      commercial real estate, residential real estate, and consumer.  Each loan
      category is further segmented into fixed and variable rate interest terms.

      The fair value of loans is calculated by discounting scheduled cash flows
      through the estimated maturity using estimated market discount rates that
      reflect the credit and interest rate risk inherent in the loan.

                                       44

<PAGE>

      (E)  DEPOSIT LIABILITIES
      Under Statement 107, the fair value of deposits with no stated maturity,
      such as noninterest-bearing demand deposits, savings and NOW accounts, and
      money market and checking accounts, is equal to the amounts payable on
      demand as of December 31, 1997 and 1996.  The fair value of certificates
      of deposit is based on the discounted value of contractual cash flows.
      The discounted rate is estimated using the rates currently offered for
      deposits of similar maturities.

      (F)   SHORT-TERM BORROWINGS
      For these short-term instruments, the carrying amount is a reasonable
      estimate of fair value.

      (G)   LONG-TERM BORROWINGS
      Rates currently available to the Corporation for debt with similar terms
      and remaining maturities are used to estimate fair value of existing
      borrowings.

      (H)  LOAN COMMITMENTS AND LETTERS OF CREDIT
      The subsidiary banks' letters of credit, lines of credit, and loan
      commitments are financial instruments as defined by Statement 107.
      The fair value of these financial instruments is based on the present
      value of the fees received for these services, which are not significant
      at December 31, 1997 and 1996.

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

<TABLE>
<CAPTION>

(DOLLARS IN THOUSANDS)
               
                                               1997                  1996
                                         -------------------  ---------------------
                                         CARRYING    FAIR       CARRYING     FAIR
                                          AMOUNT     VALUE       AMOUNT      VALUE
                                         -------------------  ---------------------
<S>                                      <C>        <C>        <C>           <C>
      Financial Assets:
        Cash and due from banks          $ 11,377   $ 11,377   $ 10,617      $ 10,617
        Excess funds sold                       -          -      1,950         1,950
        Investment securities available
          for sale                        129,479    129,479    133,072       133,072
        Mortgage loans held for sale       44,761     44,940     20,343        20,410
        Loans                             315,540    315,814    292,341       294,531
      Financial Liabilities
        Non-interest-bearing deposits      42,589     42,589     43,233        43,233
        Interest-bearing deposits         381,094    383,279    360,876       369,705
        Short-term borrowings              39,057    39,057      19,588        19,588
        Long-term borrowings               10,250    10,249      10,150        10,150
</TABLE>

      LIMITATIONS
      Fair value estimates are made at a specific point in time, based on
      relevant market information and information about the financial
      instrument. These estimates do not reflect any premium or discount
      that could result from offering for sale at one time the Company's
      entire holdings of a particular financial instrument.  Because no market
      exists for a significant portion of the Company's financial instruments,
      fair value estimates are based on judgments regarding future expected
      loss experience, current economic conditions, risk characteristics of
      various financial instruments, and other factors.  These estimates
      are subjective in nature and involve uncertainties and matters of
      significant judgment and therefore cannot be determined with precision.
      Changes in assumptions could significantly affect the estimates.

      Fair value estimates are based on existing on- and off-balance sheet
      financial instruments without attempting to estimate the value of
      anticipated future business and the value of assets and liabilities that
      are not considered financial instruments.  For example, the Company has a
      substantial trust department that annually contributes net fee income.
      The trust department is not considered a financial instrument, and its
      value has not been incorporated into the fair value estimates.  Other
      significant assets and

                                       45
<PAGE>

      liabilities that are not considered financial assets or liabilities
      include the mortgage banking operation, deferred tax liabilities,
      property, plant, equipment, and goodwill. In addition, the tax
      ramifications related to the realization of the unrealized gains and
      losses can have a significant effect on fair value estimates and have not
      been considered in many of the estimates.

(18)  CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
      The following is a summary of condensed financial information for the
      Parent Company only:
      (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>

                                               December 31
                                          ----------------------
      CONDENSED BALANCE SHEETS                1997        1996
      ----------------------------------------------------------
      <S>                                   <C>           <C>
      Assets:
         Investments in subsidiaries        $  43,453     41,462
         Other assets                           6,412      8,702
      ----------------------------------------------------------
      Total assets                          $  49,865     50,164
      ----------------------------------------------------------
      ----------------------------------------------------------
      Liabilities and stockholders' equity:
         Liabilities                           13,003     15,202
         Stockholders' equity                  36,862     34,962
      ----------------------------------------------------------
      ----------------------------------------------------------
      Total liabilities and
         stockholders' equity               $  49,865     50,164
      ----------------------------------------------------------
      ----------------------------------------------------------

                                                           Years ended 
                                                            December 31
                                                    ------------------------------
         CONDENSED STATEMENTS OF EARNINGS            1997       1996       1995
      ----------------------------------------------------------------------------
      <S>                                           <C>         <C>        <C>
      Income - primarily subsidiary dividends       $ 5,405     5,611      8,413
      ----------------------------------------------------------------------------
      Expenses:
         Interest                                     1,081     1,082        902
         Other                                        4,420     3,867      3,228
      ----------------------------------------------------------------------------
      Total expense                                   5,501     4,949      4,130
      ----------------------------------------------------------------------------
      Earnings (loss) before income tax benefit and
         equity in undistributed earnings
         of subsidiaries                                (96)      662      4,283
      Income tax benefit                              1,248     1,128        796
      ----------------------------------------------------------------------------
      Earnings before equity in undistributed
         earnings of subsidiaries                     1,152     1,790      5,079
      Equity in undistributed earnings of
         subsidiaries                                 1,861        54          -
      Dividends received in excess of equity in
         earnings of subsidiaries                         -         -     (1,715)
      ----------------------------------------------------------------------------
      Net earnings                                 $  3,013     1,844      3,364
      ----------------------------------------------------------------------------
      ----------------------------------------------------------------------------
      Net earnings applicable to common stock      $  2,811     1,643      3,026
      ----------------------------------------------------------------------------
      ----------------------------------------------------------------------------
</TABLE>

                                       46
<PAGE>

<TABLE>
<CAPTION>
                                                                                            Years ended
                                                                                             December 31
                                                                                    ----------------------------
      CONDENSED STATEMENTS OF CASH FLOWS                                              1997       1996       1995
      ----------------------------------------------------------------------------------------------------------
      <S>                                                                            <C>         <C>       <C>
      Reconciliation of net earnings to net cash provided by operating activities:
         Net earnings                                                                $ 3,013     1,844     3,364
         Adjustments to reconcile net earnings to net cash provided
            by operating activities:
              Equity in undistributed earnings of subsidiaries                        (1,861)      (54)        -
              Dividends received in excess of subsidiary earnings                          -         -     1,715
              Depreciation and amortization                                              514       595       420
              (Gain) loss on sale of fixed assets                                          1       (22)      (87)
            Increase (decrease) in:
              Income taxes payable                                                       141      (234)      (13)
              Other liabilities                                                          353        87       (27)
              Decrease (increase) in other assets                                         22       262      (605)
      ----------------------------------------------------------------------------------------------------------
         Cash flows provided by operating activities                                 $ 2,183     2,478     4,767
      ----------------------------------------------------------------------------------------------------------
         Cash flows from investing activities:
              Capital contribution to  subsidiary                                          -      (700)   (3,073)
              Loans to subsidiary                                                          -    (5,000)        -
              Other                                                                     (340)     (154)      267
      ----------------------------------------------------------------------------------------------------------
         Net cash used by investing activities                                          (340)   (5,854)   (2,806)
      ----------------------------------------------------------------------------------------------------------
         Cash flows from financing activities:
              Issuance of short-term debt                                                  -     5,000         -
              Repayment of short-term debt                                            (1,750)        -         -
              Redemption of preferred stock                                           (2,300)        -    (2,750)
              Issuance of common stock                                                 1,717       311       945
              Repayment of long-term debt                                               (900)     (850)     (800)
              Dividends paid                                                            (660)     (615)     (707)
       ----------------------------------------------------------------------------------------------------------
       Net cash provided (used in) financing activities                               (3,893)    3,846    (3,312)
      ----------------------------------------------------------------------------------------------------------
       Increase (decrease) in cash and cash equivalents                               (2,050)      470    (1,351)
       Cash and cash equivalents at beginning of year                                  2,050     1,580     2,931
      ----------------------------------------------------------------------------------------------------------
       Cash and cash equivalents at end of year                                      $    (0)    2,050     1,580
      
      ----------------------------------------------------------------------------------------------------------
      ----------------------------------------------------------------------------------------------------------
       Supplemented disclosure:
              Interest received                                                      $   334       290         -
              Interest paid                                                           (1,081)   (1,082)     (902)
      ----------------------------------------------------------------------------------------------------------
              Income taxes received from subsidiaries                                  2,794     2,248     1,600
              Income taxes paid by Parent Company                                     (1,784)   (1,370)     (725)
              Net income taxes received by Parent Company                              1,010       878       875
      ----------------------------------------------------------------------------------------------------------
      ----------------------------------------------------------------------------------------------------------
</TABLE>

                                       47
<PAGE>

INDEPENDENT AUDITORS' REPORT




Board of Directors

Castle BancGroup, Inc.:


We have audited the accompanying consolidated balance sheets of Castle 
BancGroup, Inc. and subsidiaries (Company) as of December 31, 1997 and 1996, 
and the related consolidated statements of earnings, changes in stockholders' 
equity, and cash flows for each of the years in the three-year period ended 
December 31, 1997.  These consolidated financial statements are the 
responsiblity 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 audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement.  An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements.  
An audit also includes assessing the accounting principles used and 
significant estimates made by managment, 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 the 
Company at December 31, 1997 and 1996, and the results of their operations 
and their cash flows for each of the years in the three-year period ended 
December 31, 1997, in conformity with generally accepted accounting 
principles.

/s/ KPMG Peat Marwick LLP


February 3, 1998
Chicago, Illinois


                                       48

<PAGE>

                                      PART III

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

         None.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Information regarding directors and executive officers of the 
Company is included in the Company's Definitive Proxy Statement  for the 
Annual Meeting of Stockholders to be held April 22, 1998 (Proxy Statement) 
under the captions "Proposal No. 1 - Election of Directors" (page 2) and 
"Section 16(a) Beneficial Ownership Reporting Compliance" which information 
is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information contained under the captions "Directors' Compensation," 
"Executive Compensation" and "Compensation Committee Interlocks and Insider 
Participation" in the Proxy Statement is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained under the caption "Security Ownership of Certain 
Beneficial Owners and Management" in the Proxy Statement is incorporated 
herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained under the caption "Transactions with Management" in 
the Proxy Statement is incorporated herein by reference.

                                       49
<PAGE>
                                          
                                      PART IV
                                          

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

     (a)  FINANCIAL STATEMENTS:

          The following financial statements are submitted herewith in response
          to Part II Item 8:

          Consolidated Balance Sheets as of December 31, 1997 and 1996.

          Consolidated Statements of Earnings for the years ended December 31,
          1997, 1996 and 1995.

          Consolidated Statements of Changes in Stockholders' Equity for the
          years ended December 31, 1997, 1996 and 1995.

          Consolidated Statements of Cash Flows for the years ended December 31,
          1997, 1996, and 1995.

     (b)  REPORTS ON FORM 8-K

          The registrant has not filed any reports on Form 8-K for the quarter
          ended December 31, 1997.

     (c)  EXHIBITS:

          3.1  Certificate of Incorporation of registrant as amended is
               incorporated herein by reference to Exhibit 3.1 of the
               registrant's Form 10-Q for the quarter end March 31, 1997.

          3.2  By-laws of the registrant as amended.

          4.2  Certificate of Designation by the Board of Directors establishing
               Class B Perpetual Preferred Stock dated November 15, 1993 is
               incorporated herein by reference to exhibit 4.1 of the
               registrant's Form 10-K for the year ended December 31, 1993.

          10.1 Castle BancGroup, Inc. Stock Benefit Plan is incorporated herein
               by reference to Exhibit 4.1 of the registrant's Form S-8,
               Registration Statement, filed on December 22, 1994, Registration
               No. 33-87658.

          21.1 Subsidiaries of Registrant.

          23.1 Consent of KPMG Peat Marwick LLP.

          27.1 Financial Data Schedule

                                       50
<PAGE>


                                     SIGNATURES
                                          

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

CASTLE BANCGROUP, INC.
(REGISTRANT)


     /s/  John W. Castle
----------------------------------------------
BY:    John W. Castle, Chairman of the
       Board, Chief Executive Officer
       and Director
Date:  March 11, 1998

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

  /s/  John W. Castle                     /s/  James N. McInnes
------------------------------          --------------------------
By:    John W. Castle                   By:    James N. McInnes
       Chairman of the Board,                  Director
       Chief Executive Officer          Date:  March 11, 1998
       (Principal Executive Officer)
       and Director
Date:  March 11, 1998      



  /s/  Victoria S. Maher                  /s/  Donald E. Kieso
-------------------------------         ---------------------------
By:    Victoria S. Maher                By:    Donald E. Kieso
       Vice President and Controller           Director
       (Principal Financial Officer
       and Principal Accounting         Date:  March 11, 1998
       Officer) 
Date:  March 11, 1998 



  /s/  Robert T. Boey                     /s/  William R. Monat
-------------------------------         ---------------------------
By:    Robert T. Boey                   By:    William R. Monat
       Director                                Director
Date:  March 11, 1998                   Date:  March 11, 1998


                                       51
<PAGE>


                                   EXHIBIT INDEX
                                          
EXHIBIT 
  NO.                              DESCRIPTION
-------                            -----------

3.1            Certificate of Incorporation of registrant as amended is
               incorporated herein by reference to Exhibit 3.1 of the
               registrant's Form 10-Q for the year ended December 31, 1997.

3.2            By-laws of the registrant as amended.

4.2            Certificate of Designation by the Board of Directors
               establishing Class B Perpetual Preferred Stock dated November
               15, 1993 is incorporated herein by reference to Exhibit 4.1 of
               the registrant's Form 10-K for the year ended December 31, 1993.

10.1           Castle BancGroup, Inc. Stock Benefit Plan is incorporated here
               by reference to Exhibit 4.1 of the registrant's Form S-8,
               Registration Statement, filed on December 22, 1994,
               Registration No. 33-87658.

21.1           Subsidiaries of Registrant.

23.1           Consent of KPMG Peat Marwick LLP.

27.1           Financial Data Schedule


                                       52
<PAGE>

                                    EXHIBIT 3.2
                                      BY-LAWS
                                         OF
                               CASTLE BANCGROUP, INC.
                                          
                              (A DELAWARE CORPORATION)
                                          
                                     ARTICLE 1
                                          
                             OFFICES; REGISTERED AGENT

         Section 1.1  REGISTERED OFFICE AND AGENT.  The corporation shall 
maintain in State of Delaware a registered office and a registered agent 
whose business office identical with such registered office.

         Section 1.2. PRINCIPAL BUSINESS OFFICE.  The corporation shall 
have its Principal business office at such location within or without the 
State of Delaware as the boar of directors may from time to time determine.  
The corporation may have other office within or without the State of Delaware.


                                     ARTICLE 2

                                  THE STOCKHOLDERS

         Section 2.1. ANNUAL MEETING.  The annual meeting of the stockholders 
shall b held on the fourth Wednesday in April each year, at the hour of 2:00 
p.m. or, if such date in any year shall be a legal holiday, such meeting 
shall be held on the next succeeding business day, provided, however, that a 
different date and/or time for holding the annual meeting of stockholders may 
be fixed from time to time by resolution of the Board of Directors.  Each 
annual meeting of stockholders shall be the purpose of electing directors and 
for the transaction of such other business as m come before the meeting.

         Section 2.2. SPECIAL MEETING. Special meetings of the stockholders 
of the corporation may be called at any time by the board of directors, the 
chairman of the board, the president or the vice chairman and shall be called 
promptly by or at the direction of the secretary at the request in writing of 
the holders of outstanding share of stock of the corporation having not less 
than 33% of the voting power of all of the outstanding shares of stock of the 
corporation entitled to vote at elections of director provided that such 
request shall state the purpose or purposes of the proposed meeting.

         Section 2.3. PLACE OF MEETINGS.  The board of directors may 
designate any place, either within or without the State of Delaware, as the 
place of meeting for any annual meeting or for any special meeting called by 
the board of directors, but if no designation is made, or if a special 
meeting be otherwise called, the place of meeting shall be the principal 
business office of the corporation; provided, however, that for any meeting 
of the stockholders for which a waiver of notice designating a: place is 
signed by all of the stockholders, then that shall be the place for the 
holding of such meeting.

         Section 2.4. NOTICE OF MEETINGS. written or printed notice stating 
the place, date and hour of the meeting of the stockholders and, in the case 
of a special meeting, the purpose or purposes for which the meeting is 
called, shall be given to each stockholder of record entitled to vote at the 
meeting, not less than 10 nor more than 60 days before the date of the 
meeting, or in the case of a meeting called for the purpose of acting upon a 
merger or consolidation not less than 20 nor more than 60 days before the 
meeting.  Such notice shall be given by or at the

                                       53
<PAGE>

direction of the secretary. If mailed, such notice shall be deemed to be 
given when deposited in the United States mail addressed to the stockholder 
at his or her address as it appears on the records of the corporation, with 
postage thereon prepaid.  If delivered (rather than mailed) to such address, 
such notice shall be deemed to be given when so delivered.

         When a meeting is adjourned to another time or place, notice need 
not be given of the adjourned meeting if the time and place thereof are 
announced at the meeting at which the adjournment is taken, unless the 
adjournment is for more than 30 days or unless a new record date is fixed for 
the adjourned meeting.

         Section 2.5. WAIVER OF NOTICE. A waiver of notice in writing signed 
by a stockholder entitled to such notice, whether before or after the time 
stated therein, shall be deemed equivalent to the giving of such notice.  
Attendance of a stockholder in person or by proxy at a meeting of 
stockholders shall constitute a waiver of notice of such meeting except when 
the stockholder or his or her proxy attends the meeting for the express 
purpose of objecting, at the beginning of the meeting, to the transaction of 
any business because the meeting is not lawfully called or convened.

         Section 2.6. MEETING OF ALL STOCKHOLDERS. If all of the stockholders 
shall meet at any time and place, either within or without the State of 
Delaware, and shall, in writing signed by all of the stockholders, waive 
notice of, and consent to the holding of, a meeting at such time and place, 
such meeting shall be valid without call or notice, and at such meeting any 
corporate action may be taken.

         Section 2.7. RECORD DATES.

         (a)  In order that the corporation may determine .the stockholders 
entitled to notice of or to vote at any meeting of stockholders or any 
adjournment thereof, or to express consent to corporate action in writing 
without a meeting, or entitled to receive payment of any dividend or other 
distribution or allotment of any rights, or entitled to exercise any rights 
in respect of any change, conversion or exchange of stock or for the purpose 
of any other lawful action, the board of directors may fix, in advance, a 
record date, which shall not be more than 60 nor less than 10 days before the 
date of such meeting (or 20 days if a merger or consolidation is to be acted 
upon at such meeting), nor more than 60 days prior to any other action.

         (b)  If a record date has not been fixed as provided in preceding
subsection (a), then:

              (i)  The record date for determining stockholders entitled to
                   notice of or to vote at a meeting of stockholders of the
                   corporation shall be at the close of business on the day
                   next preceding the day on which notice is given, or, if
                   notice is waived, at the close of business on the day next
                   preceding the day on which the meeting is held;

             (ii)  The record date for determining stockholders entitled to
                   express consent to corporate action in writing without a
                   meeting, when no prior action by the board of directors is
                   necessary, shall be the day on which the first written
                   consent is expressed; and The record date for determining
                   stockholders entitled to express consent to corporate action
                   in writing without a meeting, when no prior action by the
                   board of directors is necessary, shall be the day on which
                   the first written consent is expressed; and

            (iii)  The record date for determining stockholders for any other
                   purpose shall be at the close of business on the day on
                   which the board of directors adopts the resolution relating
                   thereto.

         (c)  Only those who shall be stockholders of record on the record date
              so fixed as aforesaid shall be entitled to such notice of, and to
              vote at, such meeting and any adjournment thereof, or to express
              such consent, or to receive payment of such dividend or other
              distribution, or to receive such allotment of rights, or to
              exercise such rights, as the case may be,

                                       54
<PAGE>

              notwithstanding the transfer of any stock on the books of the
              corporation after the applicable record date.
               
         Section 2.8. LISTS OF SHAREHOLDERS. The officer who has charge of 
the stock ledger of the corporation shall prepare and make, at least 10 days 
before each meeting of stock-holders, a complete list of the stockholders 
entitled to vote thereat, arranged in alphabetical order, and showing the 
address of and the number of shares registered in the name of each 
stockholder.  Such list shall be open to the examination of any stockholder, 
for any purpose germane to the meeting, during ordinary business hours, for a 
period of at least 10 days prior to the meeting, either at a place within the 
municipality where the meeting is to be held, which place shall be specified 
in the notice of the meeting, or, if not so specified, at the place where 
said meeting is to be held, and the list shall be produced and kept at the 
time and place of meeting during the whole time thereof, for inspection by 
any stockholder who may be present.

         Section 2.9. QUORUM AND VOTE REQUIRED FOR ACTION. A majority of the 
outstanding stock of the corporation entitled to vote at the meeting, 
represented in person or by proxy, shall constitute a quorum at any meeting 
of the stockholders; provided that if a quorum is not present, then holders 
who are present in person or by proxy representing a majority of the votes 
cast, may adjourn the meeting from time to time without further notice.  If a 
quorum is present at any meeting of the stockholders, a majority of the votes 
entitled to be cast by those stockholders present in person or by proxy shall 
be the act of the stockholders, unless a different number of votes is 
required by statute or the certificate of incorporation of the corporation.  
At any adjourned meeting at which a quorum is present, any business may be 
transacted which might have been transacted at the original meeting.  
Withdrawal of stockholders from any meeting shall not cause failure of a duly 
constituted quorum at that meeting.

         Section 2.10. CUMULATIVE VOTING. At all elections of directors of 
the corporation each stockholder entitled generally to vote for the election 
of directors shall be entitled to as many votes as shall equal the number of 
votes which (except for this provision as to cumulative voting) he would be 
entitled to cast for the election of directors with respect to his shares of 
stock multiplied by the number of directors to be elected, and he may cast 
all of such votes for a single director or may distribute them among the 
number to be voted for, or for any two or more of them as he may see fit.

         Section 2.11. PROXIES. Each stockholder entitled to vote at a 
meeting 6f--the stockholders or to express consent to corporate action - in 
writing without a meeting may authorize another person or persons to act for 
him by proxy, but no proxy shall be valid after three years from its date 
unless otherwise provided in the proxy.  Such proxy shall be in writing and 
shall be filed with the secretary of the corporation before or at the time of 
the meeting or the giving of such written consent, as the case may be.

         Section 2.12. VOTING OF SHARES. Each stockholder of the corporation 
shall be entitled to such vote (in person or by proxy) for each share of 
stock having voting power held of record by such stockholder as shall be 
provided in the certificate of incorporation of the corporation or, absent 
provision therein fixing or denying voting . rights, shall be entitled to one 
vote per share.

         Section 2.13. VOTING BY BALLOT. Voting in any election of directors 
shall be by ballot unless otherwise provided in the certificate of 
incorporation of the corporation.

         Section 2.14. INSPECTORS. At any meeting of the stockholders the 
presiding officer may, or upon the request of any stockholder shall, appoint 
one or more persons as inspectors for such meeting.  Such inspectors shall 
ascertain and report the number of shares represented at the meeting, based 
upon their determination of the validity and effect of proxies; count all 
votes and report the results; and do such other acts as are proper to conduct 
the election and voting with impartiality and fairness to all the 
stockholders.  Each report of an inspector shall be in writing and signed by 
him or a majority of them if there is more than one inspector acting at such 
meeting.  If there is more than one inspector, the report of a majority shall 
be the report of the inspectors. The report of the inspector or inspectors on 
the number of shares represented at the meeting and the results of the voting 
shall be prima facie evidence thereof.

                                       55
<PAGE>

                                     ARTICLE 3

                                     DIRECTORS

         Section 3.1. POWERS. The business and affairs of the corporation 
shall be managed under the direction of its board of directors which may do 
all such lawful acts and things as are not by statute or by the certificate 
of incorporation of the corporation or by these by-laws directed or required 
to be exercised or done by the stockholders.

         Section 3.2. NUMBER, ELECTION, AND QUALIFICATIONS. The number of 
directors shall -be not less than five (5) nor more than fifteen (15), with 
the exact number to be fixed from time to time pursuant to a resolution 
adopted by a majority of the Board of Directors then in office.  The election 
of directors is subject to any provisions contained in the Certificate of 
Incorporation relating thereto, including any provisions for a classified 
Board of Directors. Directors need not be stockholders of the corporation.

         Section 3.3. VACANCY. Newly created directorships resulting from any 
increase in the authorized number of directors or any vacancies in the board 
of directors resulting from death, resignation, retirement, disqualification, 
removal from office or other cause shall be filled by a majority vote of the 
directors then in office, although less than a quorum, or by a sole remaining 
director.  Directors so chosen shall hold office for a term expiring at the 
annual meeting of stockholders at which the term of the class to which they 
have been elected expires.  No decrease in the number of directors 
constituting the board of directors shall shorten the term of any incumbent 
director.  Newly created directorships shall be allocated among the classes 
of directors so that each class of directors shall consist, as nearly as 
possible, of one-third of the total number of directors.

         Section 3.4. REGULAR MEETINGS. A regular organizational meeting of 
the board of directors shall be held immediately following the 'close of, 
and at the same place as each annual meeting of stockholders.  The board of 
directors shall also hold quarterly meetings on the third Thursday.  No 
notice of any such meetings, other than this by-law, shall be necessary in 
order legally to constitute the meeting, provided a quorum shall be present.  
In the event such meeting is not held at such time and place, the meeting may 
be held at such time and place as shall be specified in a notice given as 
hereinafter provided for special meetings of the board of directors or as 
shall be specified in a written waiver signed by all of the directors.  The 
board of directors may provide, by resolution, the time and place for the 
holding of additional regular meetings without notice other than such 
resolution.

         Section 3.5. SPECIAL MEETINGS. Special meetings of the board may be 
called by the chairman of the board, the president, the vice chairman or any 
three (3) directors.  The person or persons calling a special meeting of the 
board shall fix the time and place at which the meeting shall be held and 
such time and place shall be specified in the notice of such meeting.

         Section 3.6. NOTICE. Notice of any special meeting of the board of 
directors shall be given at least 12 hours previous thereto by written notice 
to each director at his or her business address or such other address as he 
or she may have advised the secretary of the corporation to use for such 
purpose.  If delivered, such notice shall be deemed to be given when 
delivered to such address or to the person to be notified.  If mailed, such 
notice shall be deemed to be given two business days after deposit in the 
United States mail so addressed, with postage thereon prepaid.  If given by 
telegraph, such notice shall be deemed to be given the next business day 
following the day the telegram is given to the telegraph company.  Such 
notice may also be given by telephone or other means not specified herein, 
and in each such case shall be deemed to be given when actually received by 
the director to be notified.  Notice of any meeting of the board of directors 
shall set forth the time and place of the meeting.  Neither the business to 
be transacted at, nor the purpose of, any meeting of the board of directors 
(regular or special) need be specified in the notice or waiver of notice of 
such meeting.

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<PAGE>

         Section 3.7. WAIVER OF NOTICE. A written waiver of notice, signed by 
a director entitled to notice of a meeting of the board of directors or of a 
committee of such board of which the director is a member, whether before or 
after the time stated therein, shall be deemed equivalent to the giving of 
such notice to that director.  Attendance of a director at a meeting of the 
board of directors or of a committee of such board of which the director is a 
member shall constitute a waiver of notice of such meeting except when the 
director attends the meeting for the express purpose of objecting, at the 
beginning of the meeting, to the transaction of any business because the 
meeting is not lawfully called or convened.

         Section 3.8. QUORUM. At all meetings of the board of directors, a 
majority of the number of directors fixed by these by-laws shall constitute a 
quorum for the transaction of business and the act of a majority of the 
directors present at any meeting at which there is a quorum shall be the act 
of the board of directors except as may be otherwise specifically provided by 
statute, the certificate of incorporation of the corporation or these 
by-laws. If a quorum shall not be present at any meeting of the board of 
directors, a majority of the directors present thereat may adjourn the 
meeting from time to time, without notice other than announcement at the 
meeting, until a quorum shall be present.

         Section 3.9. ATTENDANCE BY CONFERENCE TELEPHONE. Members of the 
board of directors or any committee designated by the board may participate 
in a meeting of such board or committee by means of conference telephone or 
similar communications equipment by means of which all persons participating 
in the meeting can hear each other, and such participation in a meeting shall 
constitute presence in person at such a meeting.

         Section 3.10. PRESUMPTION OF ASSENT. A director of the corporation 
who is present at a duly convened meeting of the board of directors at which 
action on any corporate matter is taken shall be conclusively presumed to 
have assented to the action taken unless his or her dissent shall be entered 
in the minutes of the meeting or unless he or she shall file his or her 
written dissent to such action with the person acting as the secretary of the 
meeting before the adjournment thereof or shall forward such dissent by 
registered or certified mail to the secretary of the corporation immediately 
after the adjournment of the meeting.  Such right to dissent shall not apply 
to a director who voted in favor of such action.

         Section 3.11. INFORMAL ACTION. Unless otherwise restricted by 
statute, the certificate of incorporation of the corporation or these 
by-laws, any action required or permitted to be taken at any meeting of the 
board of directors or of any committee thereof may be taken without a 
meeting, if a written consent thereto is signed by all the directors or by 
all the members of such committee, as the case may be, and such written 
consent is filed with the minutes of proceedings of the board of directors or 
of such committee.

         Section 3.12. COMPENSATION. The directors may be paid their 
expenses, if any, of attendance at each meeting of the board of directors and 
at each meeting of a committee of the board of directors of which they are 
members. The board of directors, irrespective of any personal interest of any 
of its members, shall have authority to fix compensation of all directors for 
services to the corporation as directors, officers or otherwise.

         Section 3.13. REMOVAL. Subject to the rights of the holders of any
class or series of Preferred Stock of the Corporation, any director, or the
entire board of directors, may be removed from office at any time, but only for
cause and only by the affirmative vote of the holders of at least a majority of
the outstanding shares of all classes of stock of the Corporation generally
entitled to vote in the election of directors, considered for purposes of this
Section as one class.

         Section 3.14. ELECTION, APPOINTMENT, SUCCESSION, AND MANDATORY 
RETIREMENT OF DIRECTORS

Definitions: Terms used in this paragraph 3.14 are defined as follows,

         COMPANY:  Castle BancGroup, Inc., a Delaware corporation, or the
                   corporate successor to Castle BancGroup, Inc.

                                       57
<PAGE>

         SUBSIDIARY:  A corporate subsidiary of the Company.

         BOARD: The Board of Directors of the Company or of a subsidiary.

         DIRECTOR: A person elected or appointed to a Board of Directors of the
                   Company or of a Subsidiary.

         DISABILITY: A physical or mental condition which renders a Director or
                     Senior Officer incapable of fully performing his or her
                     duties.

DETERMINATION OF DISABILITY SHALL BE IN THE SOLE DISCRETION OF THE BOARD and 
shall be made by a majority of the members of the Board meeting in a regular 
or in a special meeting called for that purpose.

Terms:

Director terms shall be staggered in the manner prescribed in the Company 
Articles of Incorporation.

Directors shall be elected for three year terms.  No person shall be 
nominated for the office of Director who will reach mandatory retirement age 
before completion of the tenn for which the person is nominated.

Retirement:

Persons are elected by shareholders to the position of Director in the 
expectation that they will contribute leadership, energy, insight, business 
acumen, professional skill, high ethical and personal standards, and 
knowledge of the marketplace to the advancement of the Company and the 
interests of its shareholders.

When a Director's ability to meet those expectations is diminished it is in 
the interests of the Company and the Director that the Director retire from 
the Board.

Retirement Events:

Recognizing that it is inherently difficult for an individual director, or a 
board of directors, to recognize and act upon the fact that a director is no 
longer fully able to meet shareholder expectations, the Board mandates 
retirement of directors upon the occurrence of one or more of the following 
events:

-   A director reaches the age of 72 years.
-   A director fails to attend annually at least seventy-five percent (75%) of
    the meetings of the Board and its committees on which the director serves.
-   A director changes his or her employer or principal occupation unless
    mandatory retirement in such case is expressly waived by a majority of the
    Board.
-   A director suffers a physical or mental disability and becomes unable to
    fully function as a director of the Company.

Effective Date, Extension:

Retirement shall be at the end of the calendar year in which a mandatory 
retirement event occurs unless the Board determines that retirement should be 
at an earlier date.

The Board may extend for a maximum of two years the term of a director whose 
retirement is mandated upon reaching the age of 72 years.

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<PAGE>

A director whose age mandates retirement at the date of the adoption of this 
policy may continue to serve as a director for an additional calendar year.


                                    ARTICLE 4

                                   COMMITTEES

         Section 4.1. COMMITTEES. The board of directors may, by resolution 
passed by a majority of the whole board, designate one or more committees, 
each committee to consist of one or more of the directors of the corporation, 
which, to the extent provided in the resolution, shall have and may exercise 
the powers of the board of directors with respect to the management of the 
business affairs of the corporation and may authorize the seal of the 
corporation to be affixed to all papers which may require it; but no such 
committee shall have the power or authority of the board in reference to 
amending the certificate of incorporation, adopting an agreement of merger or 
consolidation, recommending to the stockholders the sale, lease or exchange 
of all or substantially all of the corporation's property and assets, 
recommending to the stockholders a dissolution of the corporate or a 
revocation of a dissolution, or amending the by-laws of the corporation; and, 
unless the resolution of these by-laws expressly so provide, no such 
committee shall have the power or authority to declare a dividend or to 
authorize the issuance of stock.  Such committee or committees shall have 
such name or names as may be determined from time to time by resolution 
adopted by the board of directors and the board may designate one or more 
directors as alternate members of any committee, who may replace any absent 
or disqualified member at any meeting of the committee.  Additionally, in the 
absence or disqualification of any member of such committee or committees, 
the member or members thereof present any meeting and not disqualified from 
voting, whether or not a quorum, may unanimously appoint another member of 
the board of directors to act at the meeting in the place of any such absent 
or disqualified member.

         Section 4.2. COMMITTEE RECORDS. Each committee shall keep regular 
minutes of its meetings and report the same to the board of directors when 
required.

                                     ARTICLE 5

                                      OFFICERS

         Section 5.1. DESIGNATION; NUMBER; ELECTION. The board of directors, 
at its initial meeting and thereafter at its first regular meeting after each 
annual meeting of stockholders, shall choose the officers of the corporation. 
Such officers shall be a president, a chairman of the board, and a vice 
chairman, (each of whom shall be a director) and a secretary, and a 
treasurer, and such vice presidents, assistant secretaries and assistant 
treasurers as the board of directors may choose.  The chairman of the board, 
the president and the vice chairman shall be elected; the other officers may 
be appointed by the board of directors.  The board of directors may appoint 
such other officers and agents as it shall deem necessary who shall hold 
their offices for such terms and shall exercise such powers and perform such 
duties as shall be determined from time to time by the board.  Any two or 
more offices may be held by the same person. Except as provided in Article 6, 
election or appointment as an officer shall not of itself create contract 
rights.

         Section 5.2. SALARIES. The salaries of all officers and agents of 
the corporation chosen by the board of directors shall be fixed by the board 
of directors, and no officer shall be prevented from receiving such salary by 
reason of the fact that he is also a director of the corporation.

         Section 5.3. TERM OF OFFICE; REMOVAL; VACANCIES. Each officer of the
corporation chosen by the board of directors shall hold office until the next
annual election or appointment of officers by the board of directors and until
his or her successor is appointed and qualifies, or until his or her earlier
death, resignation or removal in the

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<PAGE>

manner hereinafter provided.  Any officer or agent chosen by the board of 
directors may be removed at any time by the board of directors whenever in 
its judgment the best interests of the corporation would be served thereby, 
but such removal shall be without prejudice to the contract rights, if any, 
of the person so removed.  Any vacancy occurring in any office of the 
corporation at any time or any new offices may be filled by the board of 
directors for the unexpired portion of the term.

         Section 5.4. PRESIDENT. The president shall be the principal 
executive officer of the corporation and, subject to the direction and 
control of the board of directors, shall be in charge of the business of the 
corporation.  In general, the president shall discharge all duties incident 
to the principal executive office of the corporation and such other duties as 
may be prescribed by the board of directors from time to time.  Without 
limiting the generality of the foregoing, the president shall see that the 
resolutions and directions of the board of directors are carried into effect 
except in those instances in which that responsibility is specifically 
assigned to some other person by the board of directors; and, except in those 
instances in which the authority to execute is expressly delegated to another 
officer or agent of the corporation or a different mode of execution is 
expressly prescribed by the board of directors, may execute for the 
corporation certificates for its shares of stock (the issue of which shall 
have been authorized by the board of directors), and any contracts, deeds, 
mortgages, bonds, or other instruments which the board of directors has 
authorized, and may (without previous authorization by the board of 
directors) execute such contracts and other instruments as the conduct of the 
corporation's business in its ordinary course requires, and may accomplish 
such execution in each case either under or without the seal of the 
corporation and either individually or with the secretary, any assistant 
secretary, or any other officer thereunto authorized by the board of 
directors, according to the requirements of the form of the instrument.  The 
president may vote all securities which the corporation is entitled to vote 
except as and to the extent such authority shall be vested in a different 
officer or agent of the corporation by the board of directors.

         Section 5.5. VICE PRESIDENTS. The vice president (and, in the event 
there is more than one vice president, each of the vice presidents) shall 
render such assistance to the president in the discharge of his or her duties 
as the president may direct and shall perform such other duties as from time 
to time may be assigned by the president or by the board of directors.  In 
the absence of the president or in the event of his or her inability or 
refusal to act, the vice president (or in the event there may be more than 
one vice president, the vice presidents in the order designated by the board 
of directors, or by the president if the board of directors has not made such 
a designation, or in the absence of any designation, then in the order of 
seniority of tenure as vice president) shall perform the duties of the 
president, and when so acting, shall have all the powers of and be subject to 
all the restrictions upon the president.  Except in those instances in which 
the authority to execute is expressly delegated to another officer or agent 
of the corporation or a different mode of execution is expressly prescribed 
by the board of directors or these by-laws, the vice president (or each of 
them if there are more than one) may execute for the corporation certificates 
for its shares of stock (the issue of which shall have been authorized by the 
board of directors), and any contracts, deeds, mortgages, bonds or other 
instruments which the board of directors has authorized, and may .-(without 
previous authorization by the board of directors) execute such contracts and 
other instruments as the conduct of the corporation's business in its 
ordinary course requires, and may accomplish such execution in each case 
either under or without the seal of the corporation and either individually 
or with the secretary, any assistant secretary, or any other officer 
thereunto authorized by the board of directors, according to the requirements 
of the form of the instrument.

         Section 5.6. CHAIRMAN OF THE BOARD. The chairman of the board shall
preside at all meetings of the board of directors and at all meetings of the
stockholders, including the annual meeting.

         Section 5.7. VICE CHAIRMAN OF THE BOARD. The vice chairman of the board
shall preside at all meetings of the board of directors in the absence of the
chairman of the board.

         Section 5.8. TREASURER. The treasurer shall be the principal 
accounting and financial officer of the corporation and as such shall perform 
all the duties incident to the office of treasurer and such other duties as 
from time to time may be assigned by the board of directors or the president. 
Without limiting the generality of the foregoing, the treasurer shall have 
charge of and be responsible for the maintenance of adequate books of

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<PAGE>

account for the corporation and shall have charge and custody of all funds 
and securities of the corporation and be responsible therefor and for the 
receipt and disbursement thereof.  If required by the board of directors, the 
treasurer shall give a bond for the faithful discharge of his or her duties 
in such sum and with such surety or sureties as the board of directors may 
determine.

         Section 5.9. SECRETARY. The secretary shall perform all duties 
incident to the office of secretary and such other duties as from time to 
time may be assigned by the board of directors or the president. Without 
limiting the generality of the foregoing, the secretary shall (a) record the 
minutes of the meetings of the stockholders and the board of directors in one 
or more books provided for that purpose and shall include in such books the 
actions by written consent of the stockholders and the board of directors; 
(b) see that all notices are duly given in accordance with the provisions of 
these by-laws or as required by statute; (c) be the custodian of the 
corporate records and the seal of the corporation; (d) keep a register of the 
post office address of each stockholder which shall be furnished to the 
secretary by such stockholder; (e) sign with the president, or a vice 
president, or any other officer thereunto authorized by the board of 
directors, certificates for shares of stock of the Corporation (the issue of 
which shall have been authorized by the board of directors), and any 
contracts, deeds, mortgages, bonds, or other instruments which the board of 
directors has authorized, and may (without previous authorization by the 
board of directors) sign with such other officers as aforesaid such contracts 
and other instruments as the conduct of the corporation's business in its 
ordinary course requires, in each case according to the requirements of the 
form of the instrument, except when a different mode of execution is 
expressly prescribed by the board of directors; and (f) have general charge 
of the stock transfer books of the corporation.

         Section 5.10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.  The 
assistant treasurers and assistant secretaries shall perform such duties as 
shall be assigned to them by the treasurer, in the case of assistant 
treasurers, or the secretary, in the case of assistant secretaries, or by the 
board of directors or president in either case.  Each assistant secretary may 
sign with the president, or a vice president, or any other officer thereunto 
authorized by the board of directors, certificates for shares of stock of the 
corporation (the issue of which shall have been authorized by the board of 
directors), and any contracts, deeds, mortgages, bonds, or other instruments 
which the board of directors has authorized, and may (without previous 
authorization by the board of directors) sign with such other officers as 
aforesaid such contracts and other instruments as the conduct of the 
corporation's business in its ordinary course requires, in each case 
according to the requirements of the form of the instrument, except when a 
different mode of execution is expressly prescribed by the board of 
directors.  The assistant treasurers shall, if required by the board of 
directors, give bonds for the faithful discharge of their duties in such sums 
and with such sureties as the board of directors shall determine.

         Section 5.11. DEFINITIONS:  Senior Officer(s) referred to in this 
Paragraph 5.11 and Paragraph 5.12 which follows are the Chief Executive 
Officer, the Chief Operating Officer, and Senior Vice Presidents of Castle 
BancGroup, Inc., and the Chief Executive Officer and the second most senior 
management position of each Castle BancGroup, Inc. subsidiary.

Retirement

Senior Officers shall retire from their position not later than the end of 
the calendar year in which they attain the age of 68 years.  Senior Officers 
may be offered a position with the Company at a lesser title and reduced 
total compensation upon retirement from a Senior Officer's position.  
NOTWITHSTANDING THE FOREGOING, THE BOARD IN ITS DISCRETION MAY OFFER AN 
EMPLOYEE ACCEPTING A LESSER TITLE UPON RETIREMENT ADDITIONAL BENEFITS SUCH AS 
STOCK OPTIONS AD PARTICIPATION IN PROFIT SHARING AND BONUS PROGRAMS.

         Section 5.12 VACANCY. A vacancy may occur in the position of a Senior
Officer through resignation, retirement, discharge, death, or through Board
determination of disability and declaration that a vacancy exists in a Senior
Officer position.

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<PAGE>

In the event a vacancy occurs in a Senior Officer's position such officer's 
duties shall be assumed on an acting basis by the next senior officer until 
the Board has made such assumption of duties permanent or has filled the 
vacancy in some other manner.  The order of succession shall be as follows,

                               CASTLE BANCGROUP, INC.
                                          
1.   Chairman and Chief Executive Officer.
2.   President and Chief Operating Officer.
3.   Senior Vice President, marketing and retail services delivery.
4.   Senior Vice President, operations, information systems, human resources.
5.   Subsidiary President/Chief Executive Officer most senior in position.

                                     SUBSIDIARY

1.   President and Chief Executive Officer
2.   Executive Vice-president.
3.   Next senior officer.


                                     ARTICLE 6

                                  INDEMNIFICATION

         Section 6. 1. CLAIM BROUGHT BY THIRD PARTIES. The corporation shall 
indemnify any person who was or is a party or is threatened to be made a 
party to any threatened,. pending or completed action, suit or proceeding, 
whether civil, criminal administrative or investigative (other than an action 
by or in the right of the corporation) by reason of the fact that he is or 
was or has agreed to become a director or officer of the corporation, or is 
or was serving or has agreed to serve at the request of the corporation.  As 
a director or officer of another corporation, partnership, joint venture, 
trust or other enterprise, or by reason of any action alleged to have been 
taken or omitted by such person in such capacity, against costs, charges and 
other expenses (including attorneys' fees) ("Expenses"), -judgments, fines 
and amounts paid in settlement actually and reasonably incurred by him in 
connection with such action, suit or proceeding if he .acted in good faith 
and in a manner he reasonably believed to be in or not opposed to the best, 
interests of the corporation, and with respect to any criminal action or 
proceeding, had no reasonable cause to believe his conduct was unlawful.  The 
termination of any action, suit, or proceeding by judgment, order, 
settlement, conviction, or upon a plea of nolo contenders or its equivalent, 
shall not, of itself, create a presumption that the person did not act in 
good faith and in a manner which he reasonably believed to be in or not 
opposed to the best interests -of the corporation, and with respect to any 
criminal action or proceeding, had reasonable cause to believe that his 
conduct was unlawful.

         Section 6.2. CLAIM BY OR IN THE RIGHT OF THE CORPORATION. The 
corporation shall indemnify any person who was or is-a party or is threatened 
to be made a party to any threatened, pending or completed action or suit by 
or in the right of the corporation to procure a judgment in its favor by 
reason of the fact that he is or was or has agreed to become a director of 
the corporation, or is or was serving or has agreed to serve at the -request 
of the corporation as a director or officer of another corporation, 
-partnership, joint venture, trust or other enterprise, or by reason of any 
action alleged to have been taken or omitted by such person in such capacity, 
against Expenses actually and reasonably incurred by him in connection with 
the investigation, defense or settlement of such action or suit if he acted 
in good faith and in a manner he reasonably believed to be in or not opposed 
to the best interests of the corporation and except that no indemnification 
shall be made in respect of any claim, issue or matter as to which such 
person shall have been adjudged to be liable to the corporation unless and 
only to the extent that the Court of Chancery of the State of Delaware or the 
court in which such action or suit was brought

                                       62

<PAGE>

shall determine upon application that, despite the adjudication of liability 
but in view of all the circumstances of the case, such person is fairly and 
reasonably entitled to indemnity for such Expenses which the Court of 
Chancery of the State of Delaware or such other court shall deem proper.

         Section 6.3. ADDITIONAL INDEMNIFICATION. In addition to the 
indemnification provided for in Section 6.1 and Section 6.2, the corporation 
shall indemnify any person who was or is a party or is threatened to be made 
a party to any threatened, pending or completed action or suit by or in the 
right of another corporation, partnership, joint venture, trust or other 
enterprise by reason of the fact that he is or was serving or has agreed to 
serve at the request of the corporation as a director of such other 
corporation, partnership, joint venture, trust or other enterprise against 
Expenses, judgments, fines and amounts-paid in settlement actually and 
reasonably incurred by him in connection with such action or suit and any 
appeal thereof for breach of fiduciary duty as such director, except for 
liability (i) for breach of the duty of loyalty to such other corporation, 
,.partnership, joint venture, trust or other enterprise; (ii) for acts or 
omissions not in good faith or which involve intentional misconduct or 
knowing violation of law; (iii) for unlawful payment of a dividend or 
unlawful purchase or redemption of stock; or (iv) for any transaction from 
which the director derived an improper personal benefit.

         Section 6.4. SUCCESSFUL DEFENSE. To the extent that any person 
referred to in Section 6.1, Section 6.2 or Section 6.3 has been successful on 
the merits or otherwise, including, without limitation, the dismissal of an 
action without prejudice, in defense of any action, suit or proceeding 
referred to therein or in defense of any claim, issue or matter therein, he 
shall be indemnified against Expenses actually and reasonably incurred by him 
in connection therewith.

         Section 6.5. DETERMINATION OF CONDUCT. Any indemnification under 
Section 6.1, Section 6.2, or Section 6.3 (unless ordered by a court) shall be 
made by the corporation only as authorized in the specific case upon a 
determination -that indemnification of any person referred to in Section 6.1, 
Section 6.2 or Section 6.3 is proper in the circumstances because he has met 
the applicable standard of conduct set forth in Section 6.1, Section 6.2 or 
Section 6.3. Such determination shall be made (a) by the Board of Directors 
by a majority vote of a quorum consisting of directors who were not parties 
to such action, suit or proceeding, or (b) if such quorum is not obtainable, 
or, even if obtainable and a quorum of disinterested directors so directs, by 
independent legal counsel in a written opinion, or (c) by the stockholders.

         Section 6.6. ADVANCE PAYMENT. Expenses incurred by any person 
referred to in Section 6.1 Section 6.2 or Section 6.3 in defending a civil or 
criminal action, suit or proceeding ;hall be paid by the corporation in 
advance of the final disposition of such action, suit or proceeding upon 
receipt by the corporation of an undertaking by or on behalf of such person 
to repay such amount if it shall ultimately be determined that he is not 
entitled to be indemnified by the corporation as provided in this Article 6.

         Section 6.7. BY-LAW NOT EXCLUSIVE; CHANGE in Law.  The indemnification
and advancement of Expenses provided by, or granted pursuant to, this Article 6
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of Expenses may be entitled under any law (common
or statutory), by-law, agreement, vote of stockholders or disinterested
directors, or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of the heirs, executors and -administrators of such a person.  Notwithstanding
the provisions of this Article 6, the corporation shall indemnify and make
advancement of Expenses to any person referred to in Section 6.1, Section 6.2 or
Section 6.3 to the fullest extent permitted under the laws of the State of
Delaware and any other applicable laws, as they now exist or as they may be
amended in the future.

         Section 6.8. CONTRACT RIGHTS. All rights to indemnification and 
-advancement of Expenses provided by this Article 6 shall be deemed to be a 
contract between the corporation and each person referred to in Section 6.1, 
Section 6.2 or Section 6.3. Any repeal or modification of this Article 6 or 
any repeal or modification of relevant provisions of the General Corporation 
Law of the State of Delaware or any other applicable law shall not in any way 
diminish any rights to indemnification or advancement of Expenses with 
respect to any state of facts then or previously existing or any action, suit 
or proceeding previously or thereafter brought or threatened based in whole 
or in part on such state of facts.

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<PAGE>

         Section 6. 9. INSURANCE. The corporation shall have power to 
purchase and maintain insurance on behalf of any person referred to in 
Section 6.1, Section 6.2 or Section 6.3 against any liability asserted 
against him and incurred by him in any such capacity, or arising out of his 
status as such, whether or not the corporation would have the power to 
indemnify him against such liability under the provisions of the Certificate 
of Incorporation of the corporation, of this Article 6 or of Section 145 of 
the General Corporation Law of the State of Delaware.

         Section 6.10. INDEMNIFICATION OF EMPLOYEES OR AGENTS.  The Board of 
Directors may, by resolution, extend the provisions of this Article 6 
pertaining to indemnification and advancement of Expenses to any person who 
was or is a party or is threatened to be made a party to any threatened, 
pending or completed action, suit or proceeding by reason of the fact that he 
is or was or has agreed to become an employee or agent of the corporation, or 
is or was serving or has agreed to serve at the request of the corporation as 
an employee or agent of another corporation, partnership, joint venture, 
trust or other enterprise.

         Section 6.11. DEFINITION OF CORPORATION. For purposes of this 
Article 6, references to "the corporation" shall include, in addition to the 
resulting corporation, any constituent corporation (including any constituent 
of a constituent) absorbed in a consolidation or merger which, if its 
separate existence had continued, would have had power and authority to 
indemnify its directors, officers, employees or agents so that any person who 
is or was or has agreed to become a director, officer, employee or agent of 
such constituent corporation, or is or was serving or has agreed to serve at 
the request of such constituent corporation as a director, officer, employee 
or agent of another corporation, partnership, joint venture, trust or other 
enterprise, shall stand in the same position -under the provisions of this 
Article 6 with respect to the resulting or surviving corporation as he would 
have with respect to such constituent corporation if its separate existence 
had continued.

         Section 6.12. EMPLOYEE BENEFIT PLANS. For purposes of this Article 
6, references to "other enterprises" shall include employee benefit plans; 
references to "fines" shall include any excise taxes assessed on a person 
with respect to an employee benefit plan; and references to "serving at the 
request of the corporation" shall include any service as a director, officer, 
employee or agent of the corporation which imposes duties on, or involves 
services by, such director, officer, employee or agent with respect to any 
employee benefit plan, its participants.: or beneficiaries; and a person who 
acted in good faith and in a manner he reasonably believed -to be in the 
interest of the participants and beneficiaries of an employee benefit plan 
shall be deemed to have acted in a manner "not opposed to the best interests 
of the corporation" as referred to in this Article 6.
                                          
                                          
                                     ARTICLE 7

                      CERTIFICATES OF STOCK AND THEIR TRANSFER

         Section 7.1. FORM AND EXECUTION OF CERTIFICATES. Every holder of 
stock in the corporation shall be entitled to have a certificate signed by, 
or in the name of the corporation by the president or a vice president and by 
the secretary or an assistant secretary of the corporation, certifying the 
number of shares owned.  Such certificates shall be in such form as may be 
determined by the board of directors.  During .the period while more than one 
class of stock of the corporation is authorized there will be set forth on 
the face or back of the certificates which the corporation shall issue to 
represent each class or series of stock a statement that the corporation will 
furnish, without charge to each stockholder who so requests, the 
designations, preferences and relative, participating, optional or other 
special rights of each class of stock or series thereof and the 
qualifications, limitations or restrictions of such preferences and/or 
rights.  In case any officer, transfer agent or registrar of the corporation 
who has signed, or whose facsimile signature has been placed upon, any such 
certificate shall have ceased to be such officer, transfer agent or registrar 
of the corporation before such certificate is issued by the corporation, such 
certificate may nevertheless be issued and delivered by the corporation with 
the same effect as if the officer, transfer agent or registrar who signed, or 
whose facsimile signature was placed upon, such certificate had not ceased to 
be such officer, transfer agent or registrar of the corporation.

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         Section 7.2. REPLACEMENT CERTIFICATES. The board of directors may 
direct a new certificate to be issued in place of any certificate evidencing 
shares of stock of the corporation theretofore issued by the corporation 
alleged to have been lost, stolen or destroyed, upon the making of an 
affidavit of the fact by the person claiming the certificate to be lost, 
stolen or destroyed.  When authorizing such issue of a new certificate, the 
board of directors may, in its discretion and as a condition precedent to the 
issuance thereof, require the owner of such lost, stolen or destroyed 
certificate, or his legal representative, to advertise the same in such 
manner as it shall require and may require such owner to give the corporation 
a bond in such sum as it may direct as indemnity against any claim that may 
be made against the corporation with respect to the certificate alleged to 
have been lost, stolen or destroyed.  The board of directors may delegate its 
authority to direct the issuance of replacement stock certificates to the 
transfer agent or agents of the corporation upon such conditions precedent as 
may be prescribed by the board.

         Section 7.3. TRANSFERS OF STOCK. Upon surrender to the or the 
transfer agent to the corporation of a for shares of stock of the corporation 
duly accompanied by proper evidence of succession, or other-authority to 
transfer, it shall be the corporation to issue a new certificate to the 
person entitled thereto, cancel the old certificate and record the 
transaction upon its books, provided the corporation or a transfer agent of 
the corporation shall not have received a notification of adverse interest 
and that the conditions of Section 8-401 of Title 6 of the Delaware Code have 
been met.

         Section 7.4. REGISTERED STOCKHOLDERS. The corporation shall be 
entitled to treat the holder of record (according to the books of the 
corporation) of any share or shares of its stock as the holder in fact 
thereof and shall not be bound to recognize any equitable or other claim to 
or interest in such share or shares on the part of any other party whether or 
not the corporation shall have express or other notice thereof, except as 
expressly provided by the laws of the State of Delaware.

                                     ARTICLE 8

                       CONTRACTS, LOANS, CHECKS AND DEPOSITS

         Section 8.1. CONTRACTS. The board of directors may authorize any 
officer or officers, agent or agents, to enter into any contract or execute 
and deliver any instrument in the name of and on behalf of the corporation, 
and such authority may be general or confined to specific instances; 
provided, however, that this S 8.1 shall not be a limitation on the powers of 
office granted under Article 5 of these bylaws.

         Section 8.2. LOANS. No loans shall be contracted on behalf of the 
corporation and no evidences of indebtedness shall be issued in its name 
unless authorized by a resolution of the board of directors.  Such authority 
may be general or confined to specific instances.

         Section 8.3. CHECKS, DRAFTS AND OTHER INSTRUMENTS. All checks, 
drafts or other orders for the payment of money and all notes or other 
evidences of indebtedness issued in the name of the corporation shall be 
signed by such officer or officers or such agent or agents of the corporation 
and in such manner as from time to time may be determined by the resolution 
of the board of directors or by an officer or officers of the corporation 
designated by the board of directors to make such determination.

         Section 8.4. DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the board of directors,
or an officer or officers designated by the board of directors, may select.

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                                     ARTICLE 9

                              MISCELLANEOUS PROVISIONS

         Section 9.1. DIVIDENDS. Subject to any provisions of any applicable
statute or of the certificate of incorporation, dividends may be declared upon
the capital stock of the corporation by the board of directors at any regular or
special meeting thereof; and such dividends may be paid in cash, property or
shares of stock of the corporation.

         Section 9.2. RESERVES. Before payment of any dividends, there may be 
set aside out of any funds of the corporation available for dividends such 
sum or sums as the board of directors from time to time, in its discretion, 
determines to be proper as a reserve or reserves to meet contingencies, or 
for equalizing dividends, or for repairing or maintaining any property of the 
corporation, or for such other purpose as the board of directors shall 
determine to be conducive to the interests of the corporation, and the 
directors may modify or abolish any such reserve in the manner in which it 
was created.

         Section 9.3. VOTING STOCK OF OTHER CORPORATIONS.  In the absence of 
specific action by the board of directors, the president shall have authority 
to represent the corporation and to vote, on behalf of the corporation, the 
securities of other corporations, both domestic and foreign, held by the 
corporation.

         Section 9.4. FISCAL Year. The fiscal year of the corporation shall 
begin on the first day of January in each year and end on the last day of the 
next following December.

         Section 9.5. SEAL. The corporate seal shall have inscribed thereon 
the name of the corporation and the words "Corporate Seal, Delaware".  The 
seal may be used by causing it or a facsimile thereof to-be impressed or 
affixed or reproduced or otherwise applied.

         Section 9.6. SEVERABILITY. If any provision of these by-laws, or its 
application thereof to any person or circumstances, is held invalid, the 
remainder of these by-laws and the application of such provision to other 
persons or circumstances shall not be affected thereby.

         Section 9.7. AMENDMENT. These by-laws may be amended or repealed, or 
new by-laws may be adopted, by the board of directors of the corporation.  
These by-laws may also be amended or repealed, or new by-laws may be adopted, 
by action taken by the stockholders of the corporation.

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