----------------------------------------

                           BUSINESS OF THE CORPORATION
                    ----------------------------------------


         CSB Financial  Group,  Inc. (the "Company") was organized as a Delaware
corporation  on December 12, 1994 to acquire all of the capital  stock issued by
Centralia  Savings Bank (the "Bank").  The Company is engaged in the business of
directing, planning and coordinating the business activities of the Bank. In the
future,  the  Company  may acquire or  organize  other  operating  subsidiaries,
although there are no current plans or agreements to do so.

         The  Bank is an  Illinois-chartered  stock  savings  bank.  The  Bank's
deposits are insured by the Federal Deposit  Insurance  Corporation (the "FDIC")
through  the  Savings  Association  Insurance  Fund (the  "SAIF").  The Bank was
originally  chartered  in  1879  as  a  federally  chartered  savings  and  loan
association, merged with another savings association in the 1970's and converted
to a  state-chartered  savings  bank on July 1, 1993 under its  current  name of
Centralia  Savings  Bank.  The Bank  conducts its  business  through its offices
located at 200 South Poplar Street, Centralia,  Illinois 62801, telephone number
(618) 532-1918, and 801 12th Street,  Carlyle,  Illinois 62231, telephone number
(618) 594-2478.

         The Bank provides its customers with a broad range of community banking
services.  The Bank is primarily engaged in the business of attracting  deposits
from the general public and using such deposits to invest in one- to four-family
residential mortgage loans, and, to a lesser extent,  multi-family  residential,
consumer, commercial business and commercial real estate loans. In addition, the
Bank  invests in U.S.  Government  and Agency  securities,  state and  municipal
obligations and mortgage-backed securities.






<PAGE>


                           CSB FINANCIAL GROUP, INC.
                                200 South Poplar
                            Centralia, Illinois 62801
                                 (618) 532-1918
                          ----------------------------

                               PRESIDENT'S MESSAGE
                          ----------------------------

                               


Dear Stockholders:

         This past year was an exciting year for CSB Financial  Group,  Inc. and
the staff of Centralia Savings Bank. It presented various operational challenges
and marketing  opportunities  for the bank.  In September  1996, we acquired the
Carlyle branch office of Kankakee  Federal  Savings Bank and in October 1996, we
implemented  an automated  teller machine (ATM) system with debit or credit card
capacity  and  national  access  capabilities.   These  additional   operational
activities tested and tempered our available resources.

         CSB  Financial  Group,  Inc.  announced  and  implemented  two separate
repurchase  programs  whereby the Company would repurchase up to 257,975 shares,
or 24.9%, of its outstanding common stock. These repurchase programs represented
an attractive use of capital  relative to other investment  alternatives.  As of
October 30, 1997, the Company has completed the repurchase of 236,675 shares, or
22.9%, of the initial common stock issuance.

         The  operational  performance  of the  Company and its  subsidiary  was
anticipated in this transitional year. We expected the costs associated with the
Carlyle office  operations,  the recurring costs of professional  and regulatory
services  related to being a publicly  traded  company and the initial  costs of
implementing the ATM system would be an onus to this year's earnings.

         We have  developed  a  series  of  consumer  loan  programs  which  are
positioned for the Carlyle market and are expected to produce  earnings  results
during the next fiscal year. While the costs of professional, regulatory and ATM
service  are  inevitable,  we  continually  strive to minimize  their  impact on
earnings.  Also,  during the fourth quarter of 1997, we took steps to reduce the
expense impact of our stock-based employee benefit programs.

         We are enthusiastic about the future operations of CSB Financial Group,
Inc. and Centralia  Savings  Bank.  As a new fiscal year begins,  we are seeking
ways to enhance  shareholder  value. We will be  scrutinizing  the advantages of
offering insurance and stock brokerage services.  We will be evaluating our data
processing  needs and  reviewing  the  alternative  solutions.  And,  we will be
looking at the timing of a dividend program.

         On  behalf  of the  board of  directors,  management  and  staff of CSB
Financial Group, Inc., I thank you for your continued support.


                                            Sincerely,


                                           /s/ K. Gary Reynolds
                                           -------------------------------------
                                           K. Gary Reynolds
                                           President and Chief Executive Officer




<PAGE>



                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                   FINANCIAL CONDITION & RESULTS OF OPERATIONS

         Management's discussion and analysis of financial condition and results
of  operations is intended to assist the reader in  understanding  the financial
condition,  changes in  financial  condition  and results of  operation  for CSB
Financial Group, Inc. (the "Company"). The information contained in this section
should be read in conjunction with the Consolidated Financial Statements and the
other sections contained herein.

General

         On December 12, 1994, CSB Financial  Group,  Inc. was organized for the
purpose of acquiring all of the outstanding stock of Centralia Savings Bank (the
"Bank") upon  conversion of the Bank from a mutual to a stock savings bank.  The
conversion was completed on October 5, 1995.  The Company sold 1,035,000  shares
of common  stock in the  initial  stock  offering  at $8 per share.  The Company
purchased  100% of the  outstanding  common  stock of the Bank  using 50% of the
$7,584,000 in net proceeds generated from the initial offering.

         The Company  conducts no  significant  business  other than through the
Bank.  The  Bank has a wholly  owned  subsidiary,  Centralia  SLA,  Inc.,  which
provides insurance services.  All references to the Company include the Bank and
its subsidiary,  unless otherwise indicated.  References to the Company prior to
October  5, 1995 are to the Bank and  Centralia  SLA,  Inc.,  on a  consolidated
basis.

Comparison  of Operating  Results for the Fiscal Years Ended  September 30, 1997
and 1996

         General.  The operating  results of the Company depend primarily on its
net interest income,  which is the difference between the interest income earned
on  interest-earning   assets  (primarily  loans,   investment   securities  and
mortgage-backed  securities) and interest expense  incurred on  interest-bearing
liabilities  (primarily deposits).  The Company's net income also is affected by
the establishment of provision for loan losses and the level of its non-interest
income,  including loan fees,  deposit service charges,  insurance  commissions,
gains and  losses  from the sale of  assets  as well as its  other  non-interest
expenses and provisions for income taxes.

         On September 13, 1996, the Company  purchased the Carlyle branch office
from Kankakee  Federal  Savings Bank,  Kankakee,  Illinois.  The purchase of the
Carlyle  branch  was  accounted  for using the  purchase  method of  accounting.
Therefore, the operating results for the branch are included in the consolidated
financial statements for the period subsequent to the acquisition date.

         The Company's  net income for the fiscal year ended  September 30, 1997
was  $245,000 as compared to $235,000  for the fiscal year ended  September  30,
1996. This represents a $10,000, or 4.3%, increase in net income.

         Net Interest  Income.  The Company's net interest income for the fiscal
years  ended  September  30,  1997  and 1996  were  $1,611,000  and  $1,592,000,
respectively.  This  represents  a $19,000,  or 1.2%,  increase in net  interest
income.  This is primarily  due to the increase in the volume of earning  assets
exceeding the increase in interest-bearing liabilities.

         Interest income increased  $360,000,  or 12.4%, from $2,893,000 for the
fiscal year ended  September 30, 1996 compared to $3,253,000 for the fiscal year
ended  September 30, 1997. The increase  resulted  primarily from a $4.0 million
increase in the average balance of the Company's  interest-earning  assets.  The
increase in the average  balances of interest  earning  assets was due to a $4.9
million increase in the loan portfolio.

         The average  balances of mortgage loans increased $3.6 million combined
with the 28 basis point  increase in the average yield on such loans resulted in
a $322,000  increase in the interest income between fiscal years.  Additionally,
the $1.5 million increase in the average balance of consumer loans combined with
the 68 basis point  increase in the average  yield of these loans  resulted in a
$158,000  increase in interest  income  between  the fiscal  years.  The average
balance of commercial  loans decreased by $119,000 from the prior year while the
average yield on commercial  loans increased 18 basis points resulting an $8,000
decrease in interest income.
<PAGE>


         The average yield of the investment portfolio decreased 21 basis points
while the average balance increased by $179,000  resulting in a $19,000 decrease
in  interest   income.   The  $679,000   decrease  in  the  average  balance  of
mortgage-backed  securities  offset the 14 basis  point  increase in the average
yield of these  securities  resulting in a $62,000  decrease in interest  income
between fiscal years.

         Interest expense  increased  $341,000,  or 26.2%, to $1,642,000 for the
fiscal year ended  September 30, 1997 from  $1,301,000 for the fiscal year ended
September  30,  1996.  This  increase  primarily  resulted  from a $5.1  million
increase in the average balance of interest-bearing  liabilities combined with a
33 basis  point  increase  in the  average  cost of these same  interest-bearing
liabilities.  The  primary  cause of the  increase  in  interest  expense  is an
increase  in the  average  balance of  certificate  of  deposits  of  $1,880,000
combined with a 75 basis point increase in the cost of these funds.

         Provision for Loan Losses. The Company's  provision for loan losses for
the fiscal year ended  September  30, 1997 was $90,000,  compared to $64,000 for
the fiscal year ended September 30, 1996.  Management  evaluates the adequacy of
the Company's  allowance for loan losses on a quarterly  basis and may, based on
such review,  adjust the amount of the provision for loan losses.  Nonperforming
loans  are  considered  as part  of this  review.  Nonperforming  loans  totaled
$385,000 as of September  30, 1997 as compared to $252,000 as of  September  30,
1996.

         Non-Interest  Income. The Company's  non-interest income for the fiscal
year ended  September  30,  1997 was  $154,000,  as  compared to $61,000 for the
fiscal year ended  September  30, 1996.  This  represents a $93,000,  or 152.5%,
increase in non-interest  income. The increase resulted primarily from a $54,000
increase  in gain on sale of  securities  combined  with a $25,000  increase  in
service charges on deposits and a $14,000 increase in other non-interest  income
fees.

         Non-Interest Expense. The Company's non-interest expense for the fiscal
year ended September 30, 1997 was $1,319,000,  as compared to $1,148,000 for the
fiscal year ended  September  30, 1996.  The $171,000  increase in  non-interest
expense is due to a $182,000 increase in compensation and employee  benefits,  a
$32,000  increase  in  occupancy  and  equipment,  a  $25,000  increase  in data
processing,  a $15,000 increase in professional fees, and a $152,000 increase in
the other  noninterest  expenses.  These  increases were  partially  offset by a
decrease of $235,000 in the SAIF deposit insurance.

         Compensation  and  Employee  Benefits  expense  increased  $182,000  to
$628,000  for the fiscal  year ended  September  30,  1997.  This  increase  was
primarily due to the acquisition of the Carlyle branch in September 1996.

         SAIF deposit insurance  decreased by $235,000 for the fiscal year ended
September 30, 1997.  During the fiscal year ended  September 30, 1996,  the Bank
paid a one time special FDIC assessment of $188,000 and reimbursed the seller of
the Carlyle  branch $54,000 for the assessment  related to those  deposits.  The
decrease in the SAIF deposit  insurance  was due to a lower premium rate in 1997
which resulted from the  recapitalization of the Savings  Association  Insurance
Fund.

         Other  non-interest  expenses  increased  $152,000 to $357,000  for the
fiscal year ended September 30, 1997 as compared to $205,000 for the fiscal year
ended  September  30,  1996.  The  primary  reason  for  the  increase  was  the
acquisition of the Carlyle branch in September  1996 including  amortization  of
intangible  assets  totaling  $62,000 and general  operating  expenses  for that
branch.

         Provision  for Income Taxes.  The Company's  provision for income taxes
for the fiscal  year ended  September  30,  1997 was  $111,000,  as  compared to
$206,000  for the fiscal  year ended  September  30,  1996.  This  represents  a
$95,000, or 46.1%, decrease in the provision for income taxes.
<PAGE>


Comparison of Financial Condition as of September 30, 1997 and 1996

         General.  At September 30, 1997, the Company's  total assets were $48.5
million,  a decrease of $1.5  million,  or 3.0%, as compared to $50.0 million at
September  30,  1996.  The  decrease  resulted  from a decrease in cash and cash
equivalents  of $2.1  million,  or  43.9%,  which  was  partially  offset by the
$491,000 increase in investment securities,  and the $203,000 increase in loans,
net of the allowance for loan losses.  The decrease in cash and cash equivalents
was  primarily due to the  repurchase  of the Company's  common stock during the
year ended September 30, 1997.

         Loans.  Loans,  net of the allowance for loan losses,  at September 30,
1997 were $27.1  million,  an increase of $203,000,  or 0.7%,  compared to $26.9
million for the fiscal year ended  September 30, 1996.  Mortgage loans increased
$731,000,  or 3.7%, and consumer loans increased $134,000,  or 2.9%, as compared
to the  fiscal  year  ended  September  30,  1996.  Commercial  loans  decreased
$449,000,  or 30.7%,  to  $1,013,000  for the year ended  September  30, 1997 as
compared to $1,462,000 for the year ended  September 30, 1996. Home equity lines
of credit and share loans decreased $182,000 and $50,000, respectively. This was
a decrease  of 18.2% and 15.8%,  respectively,  as compared to fiscal year ended
September 30, 1997.  Personnel changes and competitive  pressures at the Carlyle
branch  during the first two quarters of fiscal year 1997 were the primary cause
for the nominal growth in net loans.

         Average loan balances for 1997 amounted to $27.2  million,  an increase
of $4.9 million,  or 22.1%, over the previous fiscal year. The Company continues
to emphasize consumer and commercial  lending.  The increase in average balances
between fiscal years is attributed to the Carlyle  branch office  acquisition in
September 1996. This  acquisition  accounted for $2.6 million in mortgage loans,
$1.2 million in consumer loans and $62,000 in commercial loans.

         The  residential  mortgage loans increased $1.1 million during 1997, or
6.2%,  to $19.0  million as compared to $17.9  million for the fiscal year ended
September 30, 1996.  During 1997, loan  originations  for  residential  mortgage
loans amounted to $2.1 million as compared to $3.9 million in  originations  for
the prior fiscal year.

         Residential  mortgage loans represents  69.7% of gross loans.  Consumer
loans,  consisting  primarily of automobile loans, made up 21.4% of gross loans,
commercial  loans made up 3.7% of gross loans, and  non-residential  real estate
loans comprised 5.2% of the portfolio at September 30, 1997.

         Allowance  for Loan Losses.  An allowance for loan losses is maintained
at a level considered  adequate by management to absorb potential loan losses as
determined by  evaluations  of the loan  portfolio on a continuing  basis.  This
evaluation by management  includes  consideration  of past loan loss experience,
changes in the  composition of the loan  portfolio,  the volume and condition of
the loan portfolio as well as the financial  condition of specific borrowers and
current  economic  conditions.   Loans  with  principal  and  interest  payments
contractually  due but not yet paid are  reviewed at least  semimonthly  and are
placed on a nonaccrual status when scheduled  payments remain unpaid for 90 days
or  more,  unless  the  loan is  both  well  secured  and is in the  process  of
collection.

         Nonperforming loans as of September 30, 1997 amounted to 385,000 or .8%
of total  assets as compared to $252,000 or .50% of total assets as of September
30, 1996.
<PAGE>


         The  following  table sets forth an  analysis  of the  Company's  gross
allowance for possible loan losses for the periods indicated.
<TABLE>
                                                                                     For the
                                                                                   Fiscal Year
                                                                                      Ended
                                                                                   September 30,
                                                                                  --------------
                                                                                   1997    1996
                                                                                  ------  ------
                                                                                  (In Thousands)
<S>                                                                               <C>     <C>   
Allowance at beginning of period ..........................................       $  117  $  113
Provision for loan losses .................................................           90      64
Recoveries:
    Consumer loans ........................................................            1      10
                                                                                  --------------
          Total recoveries ................................................            1      10
                                                                                  --------------

Charge-offs:
    One- to four-family loans .............................................           2       --
    Consumer loans ........................................................          37       48
    Commercial ............................................................           4       22
                                                                                  --------------
          Total charge-offs ...............................................          43       70
                                                                                  --------------
          Net charge-offs .................................................         (42)     (60)
                                                                                  --------------
          Balance at end of period ........................................      $  165   $  117
                                                                                 ===============

Ratio of allowance for loan losses to gross loans outstanding at
    the end of the period .................................................       0.60%    0.43%
Ratio of net charge offs to average loans outstanding net during the period       0.15%    0.27%
Ratio of allowance for loan losses to total nonperforming loans
    at the end of the period ..............................................      42.86%   46.43%
</TABLE>
         Securities.   Securities  represented  35.0%  of  total  assets  as  of
September  30, 1997  compared to 32.4% of total assets as of September 30, 1996.
Securities  increased $791,000,  4.9%, from $16.2 million to $17.0 million as of
September 30, 1997. At September 30, 1997, the Company held approximately  $17.0
million in  securities  of which $16.8  million were held as available for sale,
and $210,000  were  non-marketable  equity  securities.  Of the $17.0 million in
securities,   $14.7  million,  or  86.4%,  were  U.  S.  Government  and  agency
securities,   $770,000,  or  4.5%,  were  obligations  of  state  and  political
subdivisions,  $210,000, or 1.2%, were non-marketable equity securities and $1.3
million, or 7.9%, were mortgage-backed securities.

         Deposits.  At September  30,  1997,  total  deposits  amounted to $36.6
million, or 75.4%, of total assets.  Total deposits decreased $268,000,  or 0.7%
from  September  30,  1996.  A $804,000  decline in time  deposits  greater than
$100,000 coupled with a $384,000 decline in savings deposits  partially offset a
$319,000  and  $601,000  increase in demand  deposits  and other time  deposits,
respectively.

Return on Equity and Assets

         Net income for the fiscal year ended September 30, 1997 was $245,000 as
compared to $235,000 for the fiscal year ended September 30, 1996.

         Return on average  assets (ROA) for the year ended  September  30, 1997
was .51% as compared to .55% for the year ended September 30, 1996.

         Return on average  equity (ROE) for the year ended  September  30, 1997
was 2.05% as compared to 1.87% for the year ended  September 30, 1996. The stock
repurchase  programs  implemented by the Company during the year ended September
30, 1997 had a positive impact on ROE. The Company  purchased  174,175 shares of
its common stock from the open market.

         The average equity to average assets ratio as of September 30, 1997 was
24.9% as compared to 29.6% as of September  30, 1996.  The primary cause for the
decrease was the repurchase of the Company's common stock.

Average Balance Sheet

         The following  table presents the average balance sheet for the Company
for the years  ended  September  30,  1997 and 1996,  the  interest  on interest
earning assets and interest bearing liabilities and the related average yield or
cost.  The yields and costs are  derived  by  dividing  income or expense by the
average balance of the related asset or liability for the periods shown. Average
balances were determined from averaging month-end balances.
<PAGE>

<TABLE>
                                                           For the Fiscal Year Ended September 30,
                                                -------------------------------------------------------------
                                                             1997                          1996          
                                                -------------------------------------------------------------
                                                                       (In  Thousands)
                                                  Average  Interest &   Yield/  Average  Interest &   Yield/
                                                  Balance   Dividends    Cost   Balance   Dividends    Cost 
                                                ------------------------------  -----------------------------
<S>                                             <C>        <C>          <C>     <C>      <C>          <C>
Interest-earning assets:
  Mortgage loans (5) ..........................  $ 20,122   $  1,544    7.67%   $ 16,542  $  1,222     7.39%
  Commercial loans (5) ........................     1,139         99    8.69%      1,258       107     8.51%
  Consumer loans (5) ..........................     5,949        521    8.76%      4,491       363     8.08%
                                                 -------------------            ------------------
        Total loans, net ......................  $ 27,210   $  2,164    7.95%   $ 22,291 $   1,692     7.59% 

  Mortgage-backed securities (3) ..............     1,412        135    9.56%   $  2,091 $     197     9.42%
  Investment securities (2)(3)(6) .............    14,192        823    5.80%     14,013       842     6.01%
  Interest-bearing deposits ...................     2,285        118    5.16%      2,728       150     5.50%
  FHLB stock (3) ..............................       187         13    6.95%        176        12     6.82%
                                                 -------------------            ------------------
        Total interest-earning assets .........  $ 45,286   $  3,253    7.18%   $ 41,299  $  2,893     7.01%

Non-interest earning assets:
  Office properties and equipment, net ........  $    607                       $    282
  Real estate, net ............................         5                             -- 
  Other non-interest earning assets ...........     2,145                            867
                                                 --------                       --------
        Total assets ..........................  $ 48,043                       $ 42,448 
                                                 ========                       ========

Interest-bearing liabilities:
  Passbook accounts ...........................  $  3,590   $     92    2.56%   $   2,952  $     91     3.08%
  NOW accounts ................................     5,098         95    1.86%       4,393        76     1.73%
  Money market accounts .......................     3,818        121    3.17%       1,918        64     3.34%
  Certificates of deposit .....................    22,213      1,334    6.01%      20,333     1,070     5.26%
                                                 -------------------            -------------------
        Total deposits ........................  $ 34,719   $  1,642    4.73%   $  29,596  $  1,301     4.40%
        Total interest-bearing ................  $ 34,719   $  1,642    4.73%   $  29,596  $  1,301     4.40%
liabilities

Non-interest bearing liabilities:
  Non-interest bearing deposits ...............  $  1,001                       $     19  
  Other liabilities ...........................       355                            273
                                                 --------                       --------
        Total liabilities .....................    36,075                       $ 29,888  
Stockholders' equity ..........................    11,968                         12,560
                                                 --------                       --------
        Total liabilities and retained   
          earnings ............................  $ 48,043                       $ 42,448  
                                                 ========                       ========

Net interest income ...........................             $  1,611                      $  1,592
                                                            ========                      ========
                                                                                                       
Interest rate spread (4) ......................                         2.45%                           2.61%
Net interest margin (1) .......................                         3.56%                           3.85%
Ratio of average interest-earning assets
  to average interest-bearing liabilities .....        130.44%                        139.54%

<FN>
(1)  Net interest income as a percentage of average interest-earning assets.
(2)  Includes available for sale and held to maturity investment securities.
(3)  Interest  is  classified  as  interest   income  on   investments   in  the
     Consolidated Statement of Income.
(4)  Difference  between weighted average yield on  interest-earning  assets and
     weighted average cost of interest-bearing liabilities.
(5)  Average volume includes nonaccrual loans.
(6)  Includes securities purchased under agreements to resell.
</FN>
</TABLE>
<PAGE>


Rate and Volume Analysis

         The following  table sets forth the effects of changing  interest rates
and volumes of interest earning assets and interest  bearing  liabilities on net
interest income for the Company. The combined rate-volume variances are included
in the total volume variance.  In addition to this schedule,  a two year average
balance sheet and an analysis of net interest  income  setting forth (i) average
assets,  liabilities and  stockholder's  equity;  (ii) interest income earned on
interest  earning  assets and  interest  expense  incurred  on  interest-bearing
liabilities;  (iii) average yields earned on interest-earning assets and average
rates incurred on  interest-bearing  liabilities;  (iv) the net interest  margin
(i.e. the average yield earned on interest  earning assets less the average rate
incurred   on   interest-bearing   liabilities);   and  (v)  the  net  yield  on
interest-earning   assets  (i.e.   net  interest   income   divided  by  average
interest-earning assets).
<TABLE>
                                   1997 Compared to 1996        1996 Compared to 1995
                                 Increase (Decrease) Due To  Increase (Decrease) Due To
                                   Rate    Volume   Net        Rate   Volume     Net
                                 ------------------------     ------------------------
                                        (In Thousands)            (In Thousands)
<S>                              <C>       <C>     <C>        <C>     <C>       <C>
Interest-earning assets:
  Mortgage loans ..............  $   47   $  275   $  322     $   40  $   139   $  179
  Commercial loans ............       2      (10)      (8)       (25)      61       36
  Consumer loans ..............      30      128      158        (11)     131      120
                                 -----------------------------------------------------
        Total loans ...........      79      393      472          4      331      335

  Mortgage-backed securities ..       3      (65)     (62)       (10)     (41)     (51)
  Investment  securities ......     (29)      10      (19)       (68)     160       92
  Interest-bearing deposits ...      (9)     (23)     (32)        (5)      74       69
  FHLB stock ..................      --        1        1         --       (1)      (1)
                                 -----------------------------------------------------
        Total net change income
          on interest-earning
          assets ..............      44      316      360        (79)     523      444
                                 -----------------------------------------------------

Interest-bearing liabilities:
  Passbook ....................     (15)      16        1         20      (12)       8
  NOW accounts ................       6       13       19         (2)      12       10
  Money market accounts .......      (3)      60       57          6      (26)     (20)
  Certificates of deposit .....     152      112      264         19       81      100
                                 -----------------------------------------------------
        Total net change in
          expense on interest-
          bearing liabilities .     140      201      341         43       55       98
                                 -----------------------------------------------------
        Net change in net
          interest income .....  $  (96)  $  115  $    19    $  (122)  $   468  $  346
                                 =====================================================
</TABLE>
Asset and Liability Management

         The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest-rate  sensitive",  and
by  monitoring  an  institution's  interest-rate  sensitivity  gap.  An asset or
liability can be considered to be interest-rate sensitive within a specific time
period if it will mature or reprice within that time period.  The  interest-rate
sensitivity   gap  is  defined  as  the   difference   between   the  amount  of
interest-earning assets anticipated,  based upon certain assumptions,  to mature
or reprice  within a specific  time period,  and the amount of  interest-bearing
liabilities  anticipated,  based upon certain assumptions,  to mature or reprice
within that same time period.  A gap is  considered  positive when the amount of
interest-rate  sensitive  assets exceeds the amount of  interest-rate  sensitive
liabilities.  A gap is  considered  negative  when the  amount of  interest-rate
sensitive liabilities exceeds the amount of interest-rate sensitive assets.
<PAGE>


         During a period of rising  interest rates, a negative gap would tend to
adversely  affect net interest  income while a positive gap would tend to result
in an  increase  in net  interest  income.  During a period of falling  interest
rates, a negative gap would tend to result in an increase in net interest income
while a positive gap would tend to adversely affect net interest income.

         At  September  30, 1997,  the  Company's  interest-bearing  liabilities
either  maturing or  repricing  within one year  exceeded  its  interest-earning
assets  either   maturing  or  repricing   within  one  year  by  $2.8  million,
representing a cumulative  one-year  interest-rate  sensitivity  gap of negative
5.9%.  During periods of rising interest rates, it is expected that the yield on
the  Company's  interest-earning  assets would rise more slowly than the cost on
its  interest-bearing  liabilities,  which  would be expected to have a negative
effect on net  interest  income.  A decrease  in  interest  rates would have the
opposite  effect  on  net  interest  income,  as  the  interest  rates  paid  on
interest-bearing  liabilities  would fall more  rapidly  than would the interest
rates earned on interest-earning assets.

         The primary  function of asset and liability  management is to maintain
an appropriate  balance between liquidity on the one hand, and  interest-earning
assets and  liabilities on the other.  The  appropriate  balance will enable the
Company to produce stable net income during changing interest-rate cycles.

         In recent years, the Company's assets have been comprised  primarily of
one-to-four-family   residential  mortgage  balloon  payment  notes  along  with
long-term investment and mortgage-backed securities,  while its liabilities have
been comprised primarily of short-term  certificates of deposit. The majority of
the  Company's  balloon  payment notes have  maturities of three years,  while a
small number have  maturities of either one or five years.  The balloon  payment
notes are not  interest-rate  sensitive  in a rapidly  increasing  interest-rate
environment  because  the  interest  rate  remains  fixed  for up to five  years
regardless of an increase in market  interest rates.  Furthermore,  although the
interest rate on the balloon payment notes may be changed if the note is renewed
at the end of the term, the balloon payment notes have interest rate caps of one
or two  percentage  points over the initial rate of interest.  Consequently,  if
interest rates increase by an amount  exceeding the interest rate cap during the
term of the note, the Company may be forced to renew the notes at interest rates
below the prevailing market rate.

         Since the first calendar quarter of 1995, the  adjustable-rate-mortgage
(ARM) has replaced the standard  balloon  payment loan as the principal  type of
mortgage  loan  offered  to  new  residential  first-mortgage  customers  of the
Company.  The ARM's have higher  interest rate ceilings than the balloon payment
loans, along with interest rate floors, and will accordingly provide the Company
with increased interest rate protection. Beginning in February 1996, the Company
initiated a program of converting  the balloon  mortgage loans to comparable ARM
mortgage loans. As the balloon  mortgage loans mature,  they are converted to an
ARM. It is anticipated the balloon  mortgage loan portfolio will be converted to
ARM mortgage loans by the end of fiscal year 1998.

         Because the majority of the Company's  deposits are in higher  yielding
short-term  certificates  of deposit  (which  can be  expected  to reprice  upon
maturity), an increase in market interest rates will have a more dramatic effect
on the  Company's  cost of funds than if such deposits  were in  transaction  or
passbook  savings account.  The interest rates on the Company's  certificates of
deposit  tend to  increase  more  quickly  and in  greater  increments  than the
interest rates on its transaction or passbook savings accounts.

         The Company's  investment  securities portfolio had an average maturity
of 3.3 years, excluding  mortgage-backed  securities,  as of September 30, 1997.
The Company is in the process of creating  an  investment  securities  portfolio
with more  evenly  staggered  maturities.  The Company  also  intends to attract
longer-term certificates of deposits by pricing such deposits competitively on a
case-by-case basis, thereby making the Company's  liabilities less interest-rate
sensitive.

Liquidity and Capital Resources

         The Company's primary sources of funds are customer deposits,  proceeds
from  principal  and  interest  payments on loans,  payments on  investment  and
mortgage-backed   securities  and  sales  of  Company  stock.   While  scheduled
maturities  of  loans  and   investment  and   mortgage-backed   securities  are
predictable  sources  of funds,  deposit  flows,  mortgage  prepayments  and the
Company's  ability to renew  balloon  payment  notes are greatly  influenced  by
general interest rates, economic conditions and competition.

         The primary  investing  activity of the Company is the  origination  of
one-to-four-family  residential  mortgage loans. During each of the fiscal years
ended  September 30, 1997 and 1996,  the Company  originated  one-to-four-family
residential  mortgage  loans in the  amount of $2.1  million  and $3.9  million,
respectively.  These activities were funded primarily by principal repayments on
loans,  payments on  mortgage-backed  securities  and  maturities  of investment
securities.
<PAGE>


         The net cash used for  investing  activities  for the fiscal year ended
September 30, 1997 totaled $553,000. Investment activities included the purchase
of  securities  which totaled $10.1 million and $8.6 million for the fiscal year
ended September 30, 1997 and 1996,  respectively.  Sources of cash for investing
activities was provided by operating  activities  and cash and cash  equivalents
held at the beginning of the fiscal year.

         The Company must maintain an adequate  level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
satisfy  financial  commitments and take advantage of investment  opportunities.
During the fiscal year ended  September 30, 1997 and 1996,  the Company used its
sources of funds primarily to fund loan commitments,  pay maturing  certificates
of deposits and satisfy deposit withdrawals.  At September 30, 1997, the Company
had  commitments  to  extend  credit  in  the  amount  of  $1.3  million.  These
commitments  were comprised of variable-rate  and fixed-rate  commitments in the
amounts of $330,000 and $933,000, respectively. The range of rates on fixed-rate
commitments was 8.25% to 11.25%.

         At September 30, 1997,  certificates of deposits totaled $24.1 million,
or 65.9% of total  deposits,  as  compared to $24.3  million,  or 66.0% of total
deposits for fiscal year ended  September 30, 1996.  Time deposits over $100,000
accounted  for $1.1 million and $1.9 million as of September  30, 1997 and 1996,
respectively,  of the certificate of deposit totals.  Historically,  the Company
has been  able to  retain a  significant  amount  of its  maturing  deposits  by
increasing the interest  rates earned by the  certificates  of deposit.  Because
deposit insurance premiums paid by commercial banks on BIF-insured deposits have
been drastically  reduced, the Company may find it more difficult to retain such
deposits.  Management  believes it will have adequate resources to fund maturing
deposits  and  withdrawals  from  additional  deposits,  proceeds  of  scheduled
repayments  of  loans  as well as  from  payments  received  on  investment  and
mortgage-backed securities.

         Capital.  The  Company is  required  to  maintain a specific  amount of
capital  pursuant  to  the  regulations  of  the  Commissioner  of  Savings  and
Residential Finance and the Federal Deposit Insurance  Corporation (FDIC). As of
September 30, 1997, the Company was in compliance  with all  regulatory  capital
requirements  with a Tier 1  capital  to  risk-weighted  assets  ratio of 50.4%,
compared to the minimum ratio required of 4.0%,  total capital to  risk-weighted
assets ratio of 51.2%  compared to the minimum ratio required of 8.0% and a Tier
1 capital  to  average  assets  ratio of 22.9%  compared  to the  minimum  ratio
required of 4.0%.

         The Company  continues to maintain a strong capital position to support
its capital  requirements.  Stockholders' equity decreased $1.1 million to $11.7
million as of September 30, 1997.  This decrease was due to the repurchase  $1.6
million of the Company's common stock.

Impact of New Accounting Pronouncements

         Earnings per Share Statement of Financial  Accounting Standard No. 128,
"Earnings  per Share" (FAS 128),  was issued in February  1997 by the  Financial
Accounting  Standards Board.  The standard  replaces the presentation of primary
earnings per share (EPS) with a presentation of basic EPS. It also requires dual
presentation  of basic and diluted EPS on the face of the income  statement  for
entities with complex  capital  structures.  Basic EPS is computed as net income
available to common  stockholders  divided by the weighted average common shares
outstanding.  The  standard is effective  for  financial  statements  issued for
periods  ending  after  December  15,  1997.  The  Company  does not believe the
adoption  of the  standard  will  have a  material  impact  on the  consolidated
financial statements.

         If SFAS 128 had been in effect  during the year  ending  September  30,
1997, the following per share amounts would have been reported:

                                                           Year Ended
                                                       September 30, 1997
                                                     -----------------------
Basic earnings per share                                     $0.28
Diluted earnings per share                                   $0.27

         Disclosure  of  Information  about  Capital   Structure   Statement  of
Financial  Accounting Standard No. 129, "Disclosure of Information about Capital
Structure"  (FAS 129),  was issued in February 1997 by the Financial  Accounting
Standards Board. The standard requires an entity to explain the pertinent rights
and privileges of the various securities outstanding.  The standard is effective
for financial statement periods ending after December 15, 1997. The Company does
not believe  the  adoption of the  standard  will have a material  impact on the
consolidated financial statements.
<PAGE>


         Reporting   Comprehensive  Income  Statement  of  Financial  Accounting
Standard No. 130, "Reporting Comprehensive Income" (FAS 130), was issued in July
1997 by the  Financial  Accounting  Standards  Board.  The standard  establishes
reporting of  comprehensive  income for general  purpose  financial  statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period and all other events and  circumstances  from nonowner  sources.
The  standard is effective  for  financial  statement  periods  beginning  after
December  15,  1997.  The Company  does not believe the adoption of the standard
will have a material impact on the consolidated financial statements.

         Disclosures  about  Segments of an Enterprise  and Related  Information
Statement of Financial Accounting Standard No. 131,  "Disclosures about Segments
of an Enterprise and Related  Information" (FAS 131), was issued in July 1997 by
the Financial  Accounting Standards Board. The standard requires the Corporation
to disclose the factors used to identify reportable segments including the basis
of  organization,  differences in products and services,  geographic  areas, and
regulatory  environments.  FAS 131 additionally requires financial results to be
reported in the financial  statements for each reportable segment.  The standard
is effective for financial  statement periods beginning after December 15, 1997.
The Company does not believe they will have any reportable segments.

Recent Regulatory Developments

         Deposit Insurance Premiums.  Deposits of the Bank are currently insured
by the FDIC under the SAIF. The FDIC also maintains  another insurance fund, the
BIF,  which  primarily  insures  commercial  bank and some  state  savings  bank
deposits.  Applicable  law requires that the SAIF and BIF funds each achieve and
maintain a ratio of insurance reserves to total insured deposits equal to 1.25%.
In 1995,  the BIF reached this 1.25%  reserve  level,  and the FDIC  announced a
reduction in BIF premiums for most banks.  Based on this reduction,  the highest
rated  institutions  (approximately 92 percent of the nearly 11,000  BIF-insured
banks) will pay the statutory annual minimum of $2,000 for FDIC insurance. Rates
for all other  institutions  were  reduced  to $.04 per $100 as well,  leaving a
premium  range of $.03 to $.27 per $100 instead of the previous $.04 to $.31 per
$100. Currently,  SAIF-member  institutions pay deposit insurance premiums based
on a schedule of $0.23 to $0.31 per $100 of deposits.

         Effective  September  30,  1996,  legislation  was  enacted to fund the
Savings Association Insurance Fund (SAIF) by assessing SAIF insured institutions
a one-time special assessment of 65.7 basis points on March 31, 1995 deposits.

         The  assessment  for the Bank was  $188,000 as of  September  30, 1996.
Additionally,  as part of the purchase  agreement with Kankakee  Federal Savings
and Loan (Kankakee), the Company agreed to reimburse Kankakee for the portion of
Kankakee's  assessment  which related to the Carlyle,  Illinois branch which was
approximately $54,000.

         Income Tax  Regulations  Affecting  Bad Debt  Reserve.  Under  existing
provisions  of the Internal  Revenue  Code and similar  sections of the Illinois
income tax law,  qualifying  thrifts may claim bad debt deductions  based on the
greater of (1) a specified  percentage  of taxable  income,  as defined,  or (2)
actual loss  experience.  If, in the  future,  any of the  accumulated  bad debt
deductions are used for any purpose other than to absorb bad debt losses,  gross
taxable income may result and income taxes may be payable.

         The Small  Business Job  Protection  Act became law on August 20, 1996.
One of the  provisions in this law repealed the reserve method of accounting for
bad debts for thrift  institutions  so that the bad debt deduction  described in
the  preceding  paragraph  will no longer be effective  for tax years  beginning
after  December 31, 1995.  The change in the law requires  that the tax bad debt
reserves  accumulated after September 30, 1988 be recaptured into taxable income
over a six-year  period.  The start of the six-year period can be delayed for up
to two  years if the  Company  meets  certain  residential  lending  thresholds.
Deferred  taxes have been  provided  on the  portion of the tax reserve for loan
loss that must be recaptured.

Effect of Inflation and Changing Prices

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


Year 2000 Compliance

         The Year 2000 compliance issue exists because many computer systems and
applications  currently use two-digit fields to designate a year. As the century
date  change  occurs,  date-sensitive  systems  may either  fail or not  operate
properly unless the underlying programs are modified or replaced.

         The  Bank  has   initiated  a  program  to  assure  that  all  computer
applications  will be Year 2000 compliant.  This program includes the monitoring
and testing of the Bank's  outside data  processing  provider and other  vendors
Year 2000 compliance progress.

         The Bank is  continuing  to assess  the extent of  programming  changes
required to address  this issue.  Although  final cost  estimates  have not been
determined,  it is not expected that these expenses will have a material  impact
on the Company's or the Bank's  financial  condition,  liquidity,  or results of
operations.








<PAGE>











                          INDEPENDENT AUDITOR'S REPORT


To the Stockholders and Board of Directors
CSB Financial Group, Inc.
Centralia, Illinois


We have audited the  accompanying  consolidated  balance sheets of CSB Financial
Group,  Inc. and  subsidiary as of September 30, 1997 and 1996,  and the related
consolidated statements of income,  stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of CSB
Financial Group,  Inc. and subsidiary as of September 30, 1997 and 1996, and the
results  of their  operations  and their  cash flows for the years then ended in
conformity with generally accepted accounting principles.



/s/ McGLADREY & PULLEN, LLP


Champaign, Illinois
October 24, 1997




<PAGE>


CSB FINANCIAL GROUP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
September 30, 1997 and 1996
(in thousands, except share data)
<TABLE>

ASSETS
                                                                       1997      1996
----------------------------------------------------------------------------------------
<S>                                                                  <C>        <C>   
Cash and due from banks ...........................................  $  1,687   $    598
Interest-bearing deposits .........................................       988      4,168
                                                                     -------------------
              Cash and cash equivalents ...........................     2,675      4,766
Securities:
   Held to maturity ...............................................        --      1,987
   Available for sale .............................................    16,777     14,044
   Nonmarketable equity securities ................................       210        165
Securities purchased under agreements to resell ...................        --        300
Loans, net of allowance for loan losses of $165 in 1997 and
   $117 in 1996 ...................................................    27,134     26,931
Premises and equipment ............................................       602        594
Accrued interest receivable .......................................       290        331
Intangible assets .................................................       660        722
Other assets ......................................................       186        176
                                                                     -------------------
              Total assets ........................................  $ 48,534   $ 50,016
                                                                     ===================

LIABILITIES AND STOCKHOLDERS'  EQUITY
LIABILITIES:
   Deposits:
      Demand ......................................................  $  9,073   $  8,754
      Savings .....................................................     3,395      3,779
      Time deposits > $100,000 ....................................     1,085      1,889
      Other time deposits .........................................    23,033     22,432
                                                                     -------------------
              Total deposits ......................................    36,586     36,854
   Other liabilities ..............................................        52        297
   Deferred income taxes ..........................................       244         81
                                                                     -------------------
              Total liabilities ...................................    36,882     37,232
                                                                     -------------------

COMMITMENTS, CONTINGENCIES AND CREDIT RISK

STOCKHOLDERS' EQUITY
   Preferred stock, $0.01 par value; 100,000 shares authorized;
      none issued and outstanding .................................        --         --
   Common stock, $0.01 par value; authorized 2,000,000 shares;
      1,035,000 shares issued .....................................        10         10
   Paid-in capital ................................................     7,813      7,586
   Retained earnings ..............................................     6,039      5,794
   Unrealized gain (loss) on securities available for sale, net  of
      income tax effect ...........................................       110        (24)
   Unearned employee stock ownership plan shares ..................      (202)      (582)
   Management recognition plan ....................................      (589)
                                                                     -------------------
                                                                       13,181     12,784
   Less cost of treasury stock; 1997 132,775 shares ...............    (1,529)        --
                                                                     -------------------
              Total stockholders' equity ..........................    11,652     12,784
                                                                     -------------------

              Total liabilities and stockholders' equity ..........  $ 48,534   $ 50,016
                                                                     ===================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>


CSB FINANCIAL GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
Years Ended September 30, 1997 and 1996
(in thousands, except share data)
<TABLE>

                                                                      1997      1996
--------------------------------------------------------------------------------------
<S>                                                                 <C>       <C>   
Interest income:
   Loans and fees on loans .......................................  $  2,164  $  1,692
   Securities:
      Taxable ....................................................       936     1,026
      Nontaxable .................................................        35        25
   Other .........................................................       118       150
                                                                    ------------------
                                                                       3,253     2,893
                                                                    ------------------
Interest expense:
   Deposits ......................................................     1,642     1,301
                                                                    ------------------
              Net interest income ................................     1,611     1,592

Provision for loan losses ........................................        90        64
                                                                    ------------------
              Net interest income after  provision for loan losses     1,521     1,528
                                                                    ------------------

Noninterest income:
   Service charges on deposits ...................................        72        47
   Gain on sale of securities ....................................        54        --
   Other .........................................................        28        14
                                                                    ------------------
                                                                         154        61
                                                                    ------------------
Noninterest expense:
   Compensation and employee benefits ............................       628       446
   Occupancy and equipment .......................................        91        59
   Data processing ...............................................        95        70
   SAIF deposit insurance ........................................        20       255
   Professional fees .............................................       128       113
   Other .........................................................       357       205
                                                                    ------------------
                                                                       1,319     1,148
                                                                    ------------------

              Income before income taxes .........................       356       441
Income taxes .....................................................       111       206
                                                                    ------------------

              Net income .........................................  $    245   $   235
                                                                    ==================

              Earnings per share .................................  $   0.27   $  0.25
                                                                    ==================

              Weighted average shares outstanding ................   900,784    958,648
                                                                    ===================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>


CSB FINANCIAL GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, 1997 and 1996
(In thousands, except share data)

<TABLE>

                                                         Preferred     Common     Paid-In
                                                           Stock        Stock     Capital
                                                         --------------------------------
<S>                                                      <C>          <C>        <C>  
Balance at September 30, 1995 ...................        $     --     $     --   $     --     
   Net proceeds from 1,035,000 shares of common
      stock issued in conversion ................              --           10      7,574
   Employee stock ownership plan shares allocated              --           --         12
   Change in unrealized gain (loss) on securities
      available for sale ........................              --           --         --
   Net income ...................................              --           --         --
                                                         --------------------------------

Balance at September 30, 1996 ...................              --           10      7,586

   Employee stock ownership plan shares allocated              --           --         20
   Purchase of treasury stock
   Grant of 62,100 shares for management
      recognition plan ..........................              --           --        207
   Management recognition plan shares allocated
   Change in unrealized gain (loss) on securities
      available for sale ........................              --           --         --
   Net income ...................................              --           --         --
                                                         --------------------------------

Balance at September 30, 1997 ...................        $     --      $    10   $  7,813
                                                         ================================

</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>


CSB FINANCIAL GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended September 30, 1997 and 1996
(In thousands, except share data)
<TABLE>

                                                  --------------------------------------------------------------------------
                                                            Unrealized     Unearned
                                                            Gain (Loss)     Employee
                                                           on Securities     Stock       Management     
                                                  Retained    Available     Ownership     Recognition    Treasury    
                                                  Earnings    for Sale     Plan Shares       Plan         Stock      Total
                                                  --------------------------------------------------------------------------
<S>                                               <C>         <C>           <C>            <C>           <C>        <C>

Balance at September 30, 1995 ................    $  5,559    $     16      $     --       $     --      $     --   $  5,575
  Net proceeds from 1,035,000 shares of 
    common stock issued in conversion ........          --          --          (662)            --            --      6,922
Employee stock ownership plan shares allocated          --          --            80             --            --         92
Change in unrealized gain (loss) on securities
  available for sale .........................          --         (40)           --             --            --        (40)
Net income ...................................         235          --            --             --            --        235
                                                  --------------------------------------------------------------------------

Balance at September 30, 1996 ................       5,794         (24)          (582)            --            --     12,784

Employee stock ownership plan shares allocated          --          --             49             --            --         69
Purchase of treasury stock ...................          --          --            331             --        (1,943)    (1,612)
Grant of 62,100 sahres for management
  recognition plan ...........................          --          --             --           (621)          414         --
Management recognition plan shares allocated .          --          --             --             32            --         32
Change in unrealized gain (loss) on securities
  available for sale .........................          --         134             --             --            --        134
Net income ...................................         245          --             --             --            --        245
                                                   --------------------------------------------------------------------------

Balance at September 30, 1997 ................     $ 6,039    $    110       $   (202)      $   (589)     $ (1,529)  $ 11,652
                                                   ==========================================================================
</TABLE>

See Notes to Consolidated Financial Statements.




<PAGE>




CSB FINANCIAL GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 1997 and 1996
(in thousands)
<TABLE>

                                                                         1997         1996
-------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C> 
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income ......................................................   $    245     $   235
   Adjustments to reconcile net income to net cash provided by
      operating activities:
      Provision for loan losses ....................................         90          64
      Provision for depreciation ...................................         40          20
      Amortization of intangible assets ............................         62          --
      Employee stock ownership plan compensation expense ...........         69          92
      Management recognition plan compensation expense .............         32          --
      Deferred income taxes ........................................         80         (56)
      Gain on sale of securities ...................................        (54)         --
      Amortization and accretion of securities .....................        (36)         (3)
      Change in assets and liabilities:
        (Increase) decrease in accrued interest receivable .........         41         (23)
        Decrease in other assets ...................................         18         528
        Decrease in other liabilities ..............................       (245)         (4)
                                                                       --------------------
              Net cash flows from operating activities .............        342         853
                                                                       --------------------

CASH FLOWS FROM INVESTING ACTIVITIES
   Securities available for sale:
      Purchases ....................................................    (10,124)     (7,978)
      Proceeds from sales ..........................................      2,726          --
      Proceeds from maturities and paydowns ........................      6,600       4,527
   Securities held to maturity:
      Purchases ....................................................         --        (596)
      Proceeds from maturities .....................................         --         986
      Proceeds from sales ..........................................        359          --
   Nonmarketable equity securities:
      Purchases of nonmarketable equity securities .................        (45)         --
   (Increase) decrease in securities purchased under agreements
      to resell ....................................................        300        (300)
   Loan originations, net of principal payments on loans ...........       (321)     (3,873)
   Purchases of premises and equipment .............................        (48)        (67)
   Purchase of branch, net of cash acquired ........................         --       3,852
                                                                       --------------------
              Net cash flows from investing activities .............       (553)     (3,449)
                                                                       --------------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Increase (decrease) stock conversion deposits ...................   $     --    $ (9,193)
    Proceeds from sale of common stock, net of offering cost .......         --       6,922
   Net decrease in demand deposits, NOW accounts
      passbook savings accounts ....................................        (65)     (1,043)
   Net decrease in time deposits ...................................       (203)       (230)
   Purchase of treasury stock ......................................     (1,612)         --
                                                                       --------------------
              Net cash flows from financing activities .............     (1,880)     (3,544)
                                                                       --------------------
              Net decrease in cash and cash equivalents ............     (2,091)     (6,140)
Cash and cash equivalents, beginning of year .......................      4,766      10,906
                                                                      --------------------
Cash and cash equivalents, end of year .............................   $  2,675    $  4,766
                                                                       ====================

Cash paid during the year for:
   Interest ........................................................   $  1,643    $  1,295
                                                                       ====================
   Income taxes ....................................................   $     47    $    264
                                                                       ====================
</TABLE>
<PAGE>
CSB FINANCIAL GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended September 30, 1997 and 1996
(in thousands)
<TABLE>

                                                                         1997         1996
-------------------------------------------------------------------------------------------
<S>                                                                    <C>          <C> 
Supplemental Disclosures of Investing and Financing Activities:
   Change in unrealized gain (loss) on securities available for sale   $    217    $    (65)
                                                                       ====================
   Change in deferred income taxes attributable to the unrealized
      gain (loss) on securities available for sale .................   $     83    $    (25)
                                                                       ====================

Transfer of securities from held to maturity to available for sale .   $  1,657    $  8,602
                                                                       ====================

Transfer to other real estate owned ................................   $     28    $     --
                                                                       ====================
Assets acquired:
   Loans ...........................................................   $     --    $  3,845
   Premises and equipment ..........................................         --         295
   Accrued interest receivable .....................................         --          18
   Intangible assets ...............................................         --         722
    Other assets ...................................................         --           6
Liabilities assumed:
   Demand deposits .................................................         --      (2,764)
   Savings deposits ................................................         --        (937)
   Time deposits ...................................................         --      (4,923)
   Other liabilities ...............................................         --        (114)
                                                                       --------------------
              Purchase of branch, net of cash acquired .............   $     --    $ (3,852)
                                                                       ====================
</TABLE>
See Notes to Consolidated Financial Statements.

<PAGE>



CSB FINANCIAL GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
--------------------------------------------------------------------------------

Note 1.  Summary of Significant Accounting Policies

Nature of  operations  CSB  Financial  Group,  Inc. (the Company) is the holding
company of its  wholly-owned  subsidiary,  Centralia  Savings  Bank (the  Bank).
Centralia  Savings Bank is a state chartered stock savings bank,  converted from
mutual form on October 5, 1995, located in Marion County,  Illinois.  The Bank's
deposits are insured by the Federal Deposit Insurance Corporation (FDIC) through
the  Savings  Association  Insurance  Fund  (SAIF).  The Bank is  subject to the
regulations  of  certain  federal  and state  agencies  and  undergoes  periodic
examinations by those agencies.

Principles of presentation The accompanying  consolidated  financial  statements
include the accounts of the Company and its wholly-owned  subsidiary,  the Bank,
and the Bank's  wholly-owned  subsidiary,  Centralia SLA.  Centralia SLA, Inc.'s
principal  business activity is to provide insurance  services.  For purposes of
the consolidated  financial  statements,  all material intercompany amounts have
been eliminated.

In preparing  the  consolidated  financial  statements,  Company  management  is
required  to make  estimates  and  assumptions  which  significantly  affect the
amounts reported in the consolidated financial statements. Significant estimates
which are  particularly  susceptible to change in a short period of time include
the  determination of the allowance for loan losses and valuation of real estate
and other properties acquired in connection with foreclosures or in satisfaction
of amounts due from  borrowers on loans.  Actual results could differ from those
estimates.

The  accounting  and  reporting  policies  of the Company  conform to  generally
accepted accounting  principles and general practice within the savings and loan
industry.  Following is a description of the more significant policies which the
Company follows in preparing and presenting its financial statements.

Cash and cash  equivalents  For  purposes of reporting  cash flows,  the Company
considers all cash on hand,  deposit accounts and money-market  funds to be cash
equivalents.

Securities held to maturity Securities  classified as held to maturity are those
debt  securities  the  Company  has the  positive  intent and ability to hold to
maturity regardless of changes in market conditions,  liquidity needs or changes
in general  economic  conditions.  These securities are carried at cost adjusted
for  amortization of premium and accretion of discount,  which are recognized in
interest income using the interest method over the period to maturity.

Securities  available for sale  Securities  classified as available for sale are
those debt securities that the Company intends to hold for an indefinite  period
of time,  but not  necessarily  to  maturity.  Any  decision  to sell a security
classified  as available for sale would be based on various  factors,  including
significant  movements  in interest  rates,  changes in the  maturity mix of the
Company's  assets  and  liabilities,   liquidity   needs,   regulatory   capital
considerations,  and other similar  factors.  Securities  available for sale are
carried at fair value.  The  difference  between fair value and amortized  cost,
adjusted  for  amortization  of premium and  accretion of  discounts,  which are
recognized in interest income using the interest  method over their  contractual
lives,  results in an unrealized  gain or loss.  Unrealized  gains or losses are
reported as increases or decreases in  stockholders  equity,  net of the related
deferred tax effect.  Realized  gains or losses,  determined on the basis of the
cost of specific securities sold, are included in earnings.

Securities  purchased  under  agreements to resell  Securities  purchased  under
agreements  to  resell  are  carried  at cost and  consist  of  mortgage  backed
securities.
<PAGE>


Nonmarketable  equity securities  Nonmarketable equity securities consist of the
Banks'  required  investment in the capital stock of the Federal Home Loan Bank.
This   investment  is  carried  at  cost  as  the  fair  value  is  not  readily
determinable.

Loans  Loans are  stated  at the  principal  amount  outstanding  less  unearned
interest income and an allowance for loan losses. Interest income on principally
all loans is credited to income based on the principal balance outstanding.

Loan  origination  fees and  certain  direct  loan  origination  costs are being
deferred and  recognized  over the life of the related loans as an adjustment to
interest  income using the interest  method.  Net deferred  fees are included as
components of the carrying value of the loan.

The Company's  policy is to  discontinue  the accrual of interest  income on any
loan when, in the opinion of  management,  there is  reasonable  doubt as to the
timely  collectibility of interest or principal.  Interest income on these loans
is  recognized  to the  extent  payments  are  received,  and the  principal  is
considered fully collectible.

Loans are considered  impaired when, based on current information and events, it
is probable the Company will not be able to collect all amounts due. The portion
of the allowance for loans losses applicable to impaired loans would be computed
based on the present  value of the  estimated  future cash flows of interest and
principal  discounted at the loan's effective interest rate or on the fair value
of the collateral for collateral  dependent  loans. The entire change in present
value of  expected  cash  flows of  impaired  loans  or of  collateral  value is
reported as bad debt  expense in the same manner in which  impairment  initially
was  recognized  or as a  reduction  in the  amount  of bad  debt  expense  that
otherwise would be reported. Management had not classified any loans as impaired
as of September 30, 1997 or 1996.

Allowance  for losses The  allowance  for loan losses is  established  through a
provision  for loan  losses  charged to  operating  expenses.  Loans are charged
against  the  allowance  for  loan  losses  when  management  believes  that the
collectibility  of the  principal is unlikely.  The  allowance is an amount that
management believes will be adequate to absorb losses on existing loans that may
become  uncollectible,  based on evaluations of the  collectibility of loans and
prior loan loss experience. The evaluations take into consideration such factors
as changes in the nature  and volume of the loan  portfolio,  overall  portfolio
quality,  review of specific problem loans and current economic  conditions that
may  affect  the  borrowers'  ability  to pay.  While  management  uses the best
information  available  to  make  its  evaluation,  future  adjustments  to  the
allowance  may be  necessary  if  there  are  significant  changes  in  economic
conditions.  In  addition,  regulatory  agencies,  as an integral  part of their
examination  process,  periodically review the Bank's allowance for loan losses,
and may  require  the Bank to make  additions  to the  allowance  based on their
judgment about information available to them at the time of their examination.

Premises  and  equipment   Premises  and  equipment  are  stated  at  cost  less
accumulated  depreciation.  Depreciation  is provided over the estimated  useful
lives of the related assets principally on the straight-line basis.

Intangible assets Core deposit  intangible and goodwill were recorded as part of
the acquisition of the Carlyle branch in 1996. Core deposit  intangible is being
amortized by the straight line method over a ten year period.  Goodwill is being
amortized by the straight line method over a fifteen year period.

Income taxes Deferred income tax assets and  liabilities  are computed  annually
for  differences  between the  financial  statement  and tax bases of assets and
liabilities  that will  result in  taxable or  deductible  amounts in the future
based on  enacted  tax laws and rates  applicable  to the  periods  in which the
differences  are  expected to affect  taxable  income.  Deferred  tax assets are
reduced by a valuation allowance when, in the opinion of management,  it is more
likely than not that some  portion or all of the deferred tax assets will not be
realized.  Deferred tax assets and  liabilities  are adjusted for the effects of
changes in tax laws and rates on the date of  enactment.  Income tax  expense is
the tax payable or refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
<PAGE>


Earnings per common  share  Earnings  per share are  determined  by dividing net
income for the period by the weighted  average  number of shares of common stock
and common  stock  equivalents  outstanding.  Common  stock  equivalents  assume
exercise of stock options and use of proceeds to purchase  treasury stock at the
average  market  price for the  period.  Unallocated  shares of the ESOP are not
considered outstanding.

Reclassifications Certain reclassifications have been made to the balances as of
September  30, 1996,  with no effect on net income,  to be  consistent  with the
classifications adopted for September 30, 1997.

Effect of New Accounting Standards

   Earnings  per Share  Statement  of  Financial  Accounting  Standard  No. 128,
   "Earnings per Share" (FAS 128),  was issued in February 1997 by the Financial
   Accounting  Standards  Board.  The  Statement  replaces the  presentation  of
   primary  earnings per share (EPS) with a  presentation  of basic EPS. It also
   requires dual presentation of basic and diluted EPS on the face of the income
   statement for entities with complex capital structures. Basic EPS is computed
   as net  income  available  to common  stockholders  divided  by the  weighted
   average common shares  outstanding.  The Statement is effective for financial
   statements  issued for periods  ending after  December 15, 1997.  The Company
   does not believe the adoption of the Standard will have a material  impact on
   the consolidated financial statements.

   If SFAS 128 had been in effect during the year ending September 30, 1997, the
   following per share amounts would have been reported:

                                                           Year Ended
                                                       September 30, 1997
                                                     -----------------------
Basic earnings per share                                     $0.28
Diluted earnings per share                                   $0.27

   Disclosure  of  Information  about Capital  Structure  Statement of Financial
   Accounting  Standard  No.  129,  "Disclosure  of  Information  about  Capital
   Structure" (FAS 129), was issued in February 1997 by the Financial Accounting
   Standards  Board.  The Standard  requires an entity to explain the  pertinent
   rights and privileges of the various securities outstanding.  The Standard is
   effective for financial statement periods ending after December 15, 1997. The
   Company does not believe the  adoption of the  Standard  will have a material
   impact on the consolidated financial statements.

   Reporting Comprehensive Income Statement of Financial Accounting Standard No.
   130, "Reporting  Comprehensive  Income" (FAS 130), was issued in July 1997 by
   the Financial Accounting Standards Board. The standard establishes  reporting
   of   comprehensive   income  for  general   purpose   financial   statements.
   Comprehensive  income is  defined  as the  change  in  equity  of a  business
   enterprise  during a period  and all  other  events  and  circumstances  from
   nonowner sources.  The Standard is effective for financial  statement periods
   beginning  after December 15, 1997. The Company does not believe the adoption
   of the Standard  will have a material  impact on the  consolidated  financial
   statements.

   Disclosures about Segments of an Enterprise and Related Information Statement
   of Financial  Accounting Standard No. 131,  "Disclosures about Segments of an
   Enterprise and Related Information" (FAS 131), was issued in July 1997 by the
   Financial  Accounting  Standards Board. The standard requires the Corporation
   to disclose the factors used to identify  reportable  segments  including the
   basis of  organization,  differences  in products  and  services,  geographic
   areas, and regulatory  environments.  FAS 131 additionally requires financial
   results  to be  reported  in the  financial  statements  for each  reportable
   segment.  The Standard is effective for financial statement periods beginning
   after  December  15,  1997.  The Company does not believe the adoption of the
   Standard  will  have  a  material  impact  on  the   consolidated   financial
   statements.
<PAGE>


Note 2.  Conversion to Stock Ownership

On October 5, 1995, CSB Financial  Group,  Inc. (the "Company")  acquired all of
the  outstanding  shares of Centralia  Savings Bank (the "Bank") upon the Bank's
conversion  from a state  chartered  mutual  savings  bank to a state  chartered
capital  stock  savings  bank.  The Company  purchased  100% of the  outstanding
capital  stock of the Bank  using  50% of the net  proceeds  from the  Company's
initial stock  offering which was completed on October 5, 1995. The Company sold
1,035,000  shares of $0.01 par value  common  stock at a price of $8 per  share,
including  82,800 shares  purchased by the Bank's  Employee Stock Ownership Plan
("ESOP"). The ESOP shares were acquired by the Bank with proceeds from a Company
loan  totaling  $662.  The gross  proceeds of the offering  were  $8,280.  After
reducing  gross  proceeds  for  conversion  costs of $696 net  proceeds  totaled
$7,584.  The  Company's  stock  trades on the NASDAQ  Small Cap market under the
symbol "CSBF".

The  acquisition  of the Bank by the Company is being  accounted for in a manner
similar  to  a  "pooling  of  interests"  under  generally  accepted  accounting
principles. The application of the pooling of interest method records the assets
and  liabilities  of the  merged  entities  on a  historical  cost basis with no
goodwill or other intangible assets being recorded.


Note 3.  Securities

Amortized cost and fair values of securities are as follows:
<TABLE>

                                                            Gross      Gross
Available for Sale                              Amortized Unrealized Unrealized  Fair
September 30, 1997                                Cost      Gains      Losses    Value
                                                ---------------------------------------
<S>                                             <C>       <C>        <C>         <C>  
Obligations of states and political
   subdivisions ..............................   $   748    $     22  $    --   $   770
U.S. Government and agency ...................    14,619          65       15    14,669
Mortgage backed securities ...................     1,232         106       --     1,338
                                                 --------------------------------------
                                                 $16,599    $    193  $    15   $16,777
                                                 ======================================

Obligations of states and political
   subdivisions ..............................   $   606    $      3  $     6   $   603
U.S. Government and agency ...................    13,477          22       58    13,441
                                                 --------------------------------------
                                                 $14,083    $     25  $    64   $14,044
                                                 ======================================

Obligations of states and political
   subdivisions ..............................   $   149    $     --  $     6   $   143
Mortgage backed securities ...................     1,838         111        1     1,948
                                                 --------------------------------------
                                                 $ 1,987    $    111  $     7   $ 2,091
                                                 ======================================
</TABLE>
The amortized cost and fair value of securities  available for sale at September
30, 1997, by contractual maturity,  are shown below.  Maturities may differ from
contractual  maturities  in  mortgage-backed  securities  because the  mortgages
underlying  the  securities  may be  called  or repaid  without  any  penalties.
Therefore,  these securities are not included in the maturity  categories in the
following maturity summary:

                                                                   As Of
                                                             September 30, 1997
                                                            --------------------
                                                            Available for Sale
                                                            --------------------
                                                             Amortized   Fair
                                                                Cost    Value
                                                            --------------------

Less than one year ......................................     $ 2,716  $ 2,710
Due after one year through five years ...................       9,944    9,989
Due after five years through ten years ..................       2,707    2,740
Due after ten years
Mortgage-backed securities ..............................       1,232    1,338
                                                              ----------------
                                                              $16,599  $16,777
                                                              ================
<PAGE>


During 1995,  the  Financial  Accounting  Standards  Board  decided to allow all
enterprises to make a one-time  reassessment of the classification of securities
under  FAS  115,   "Accounting  for  Certain  Investments  in  Debt  and  Equity
Securities". For the year ended September 30, 1996, the Company transferred debt
securities   with  an  amortized  cost  of  $8,602  from  the   held-to-maturity
classification  to the  available-for-sale  classification  and  recorded,  as a
component of equity,  an  unrealized  gain of $48, net of $30 of deferred  taxes
during 1996.

During the first  quarter of the year ending  September  30,  1997,  the Company
transferred  $1,657  of  securities   classified  as   held-to-maturity  to  the
available-for-sale classification and recorded $27 as a component of equity, net
of $17 of deferred taxes.  In accordance  with the  requirements of Statement of
Financial  Accounting  Standards No. 115, these securities are now accounted for
at fair value.

As a member of the  Federal  Home  Loan Bank  system,  the Bank is  required  to
maintain an  investment  in capital  stock of the  Federal  Home Loan Bank in an
amount equal to 1% of its outstanding home loans. No ready market exists for the
Bank stock,  and it has no quoted market value.  For disclosure  purposes,  such
stock is assumed to have a market value which is equal to cost.

There were no securities  pledged as collateral for public deposits or for other
purposes as required or permitted by law for the years ended  September 30, 1997
and 1996.

Gross  realized  gains from the sale of  securities  available for sale were $54
during 1997.


Note 4.  Loans

Loans are summarized as follows:

                                                       September 30,
                                                    ------------------
                                                     1997       1996
                                                    ------------------

Mortgage loans:
   One to four family ...........................   $19,044    $17,931
   Commercial real estate .......................       969      1,296
   Other loans secured by real estate ...........       444        499
                                                    ------------------
              Total mortgage loans ..............    20,457     19,726
                                                    ------------------

Commercial and consumer loans:
   Commercial loans .............................     1,013      1,462
   Consumer loans ...............................     4,771      4,637
   Home equity lines of credit ..................       816        998
   Share loans ..................................       266        316
                                                    ------------------
              Total commercial and consumer loans     6,866      7,413
                                                    ------------------

Less:
   Allowance for loan losses ....................      (165)      (117)
   Deferred loan fees ...........................       (15)       (23)
   Unearned income on consumer loans ............        (9)       (68)
                                                    ------------------
                                                       (189)      (208)
                                                    ------------------
              Loans, net ........................   $27,134    $26,931
                                                    ==================
<PAGE>


The Bank generally originates single-family residential loans within its primary
lending area, Marion County. The Bank's underwriting policies require such loans
to be made at 80%  loan-to-value  based upon  appraised  values  unless  private
mortgage  insurance  is  obtained.  These  loans are  secured by the  underlying
properties.

In the  normal  course  of  business,  the bank  makes  loans  to its  executive
officers,  directors and employees,  and to companies and individuals affiliated
with  officers,  directors  and  employees of the bank and the  Company.  In the
opinion of management,  these loans were made on  substantially  the same terms,
including  interest rates and  collateral,  as those  prevailing at the time for
comparable  transactions  with  unrelated  parties.  The activity in these loans
during 1997 is as follows:

Balance as of October 1, 1996 ................................            $ 934
   New loans .................................................              282
   Repayments ................................................             (218)
                                                                          -----
Balance as of September 30, 1997 .............................            $ 998
                                                                          =====


Note 5.  Allowance for Loan Losses

The following is an analysis of the allowance for loan losses:

                                                      Year Ended
                                                    September 30,
                                                --------------------
                                                  1997        1996
                                                --------------------

Balance, beginning ..........................   $    117     $   113
   Provision charged to income ..............         90          64
   Charge-offs ..............................        (43)        (70)
   Recoveries ...............................          1          10
                                                --------------------
Balance, ending .............................   $    165     $   117
                                                ====================

Note 6.  Premises and Equipment

Premises and equipment consist of:

                                                         September 30,
                                                     -------------------
                                                        1997      1996
                                                     -------------------

Land ...........................................     $     136   $   136
Office building ................................           476       454
Furniture and equipment ........................           389       363
                                                     -------------------
                                                         1,001       953
Less accumulated depreciation ..................          (399)     (359)
                                                     -------------------
                                                     $     602   $   594
                                                     ===================

Note 7.  Deposits

At September 30, 1997, the scheduled maturities of time deposits are as follows:

Year Ended September 30:                       Amount
------------------------------------------------------

      1998 ................................    $10,856
      1999 ................................     10,176
      2000 ................................      1,832
      2001 ................................        616
      2002 and thereafter  ................        638
                                               -------
                                               $24,118
                                               =======

<PAGE>


Note 8.  Income Taxes

Income taxes for the years ended  September  30, 1997 and 1996,  consists of the
following components:

                                               Current    Deferred     Total
                                              -------------------------------

1997
   Federal ................................   $      31   $     80    $   111
   State ..................................          --         --         --
                                              -------------------------------
                                              $      31   $     80    $   111
                                              ===============================

1996
   Federal ................................   $     214   $    (38)   $   176
   State ..................................          48        (18)        30
                                              -------------------------------
                                              $     262   $    (56)   $   206
                                              ===============================

The Company and its  subsidiary  file  consolidated  federal income tax returns.
Under  provisions  of the  Internal  Revenue  Code and  similar  sections of the
Illinois  income  tax  law for the  years  beginning  before  January  1,  1996,
qualifying thrifts could claim bad debt deductions based on the greater of (1) a
specified  percentage  of  taxable  income,  as  defined,  or  (2)  actual  loss
experience.

The Small  Business Job Protection Act became law on August 20, 1996. One of the
provisions in this law repealed the reserve  method of accounting  for bad debts
for  thrift  institutions  so  that  the bad  debt  deduction  described  in the
preceding  paragraph will no longer be effective for tax years  beginning  after
December 31, 1995. The change in the law requires that the tax bad debt reserves
accumulated  after  September 30, 1988 be recaptured  into taxable income over a
six-year  period.  The start of the six-year period can be delayed for up to two
years if the Company  meets certain  residential  lending  thresholds.  Deferred
taxes have been  provided  on the  portion of the tax reserve for loan loss that
must be recaptured.

Retained earnings at September 30, 1997 and 1996, includes approximately $867 of
the tax reserve which  accumulated  prior to 1988, for which no deferred federal
income tax liability has been recognized.  This amount  represents an allocation
of income to bad debt deductions for tax purposes only.  Reduction of amounts so
allocated  for purposes  other than tax bad debt losses or  adjustments  arising
from  carryback of net  operating  losses  would create  income for tax purposes
only, which would be subject to the then current  corporate income tax rate. The
unrecorded  deferred income tax liability on the above amounts was approximately
$336 as of September 30, 1997 and 1996.

Income tax expense differed from the statutory federal rate of 34% for the years
ended September 30, 1997 and 1996, as follows:

                                                                1997      1996
                                                               ----------------

Statutory rate applied to earnings before income tax ......    $  121   $   150
Increase in income taxes resulting from:
   State income taxes, net of federal income tax benefit ..        --        20
   Tax exempt interest income .............................       (13)       (8)
   Other ..................................................         3        44
                                                               ----------------
                                                               $  111   $   206
                                                               ================
<PAGE>


The tax effects of  temporary  differences  that give rise to the  deferred  tax
assets and deferred tax liabilities are as follows:


                                                        1997     1996
                                                       ---------------

Unrealized loss on securities available for sale ....  $   --   $   15
Allowance for loan losses - book ....................      64       45
SAIF assessment .....................................      --       94
Illinois net operating loss carryforward ............      43       --
                                                       ---------------
              Total deferred tax assets .............     107      154
                                                       ---------------

Unrealized gain on securities available for sale ....     (68)
Allowance for loan losses - tax .....................     (76)     (79)
Cash basis adjustment ...............................     (96)    (124)
FHLB stock basis ....................................      (7)      (8)
Premises and equipment basis ........................     (24)     (14)
Other ...............................................     (80)     (10)
                                                       ---------------
              Total deferred tax liabilities ........    (351)    (235)
                                                       ---------------
              Net deferred tax liabilities ..........  $ (244) $   (81)
                                                       ===============

Note 9.  Fair Value of Financial Instruments

Financial  Accounting Standard Board Statement of Financial  Accounting Standard
No. 107 (FAS 107),  "Disclosures  about  Fair Value of  Financial  Instruments",
requires  disclosure  of fair value  information  about  financial  instruments,
whether or not recognized in the balance  sheet,  for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation techniques.
Those techniques are significantly  affected by the assumptions used,  including
the  discount  rate and  estimates  of future cash flows.  In that  regard,  the
derived  fair  value  estimates   cannot  be   substantiated  by  comparison  to
independent  markets  and,  in many cases,  could not be  realized in  immediate
settlement of the instrument. FAS 107 excludes certain financial instruments and
all nonfinancial instruments from its disclosure requirements.  Accordingly, the
aggregate fair value amounts  presented do not represent the underlying value of
the Company and its subsidiary.

The following table reflects a comparison of carrying values and the fair values
of the financial instruments as of September 30, 1997 and 1996:

                                               September 30,
                                     ----------------------------------
                                           1997             1996
                                     ----------------------------------
                                     Carrying  Fair    Carrying  Fair
                                      Value    Value    Value    Value
                                     ----------------------------------
Assets:
   Cash and cash equivalents ......  $ 2,675  $ 2,675  $ 4,766  $ 4,766
   Securities held to maturity ....       --       --    1,987    2,091
   Securities available for sale ..   16,777   16,777   14,044   14,044
   Securities purchased under
      agreements to resell ........       --       --      300      300
   Nonmarketable equity securities       210      210      165      165
   Accrued interest receivable ....      290      290      331      331
   Loans ..........................   27,134   27,210   26,931   26,793
Liabilities:
   Deposits .......................   36,586   36,649   36,854   36,894
   Accrued interest payable .......       13       13       14       14

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

Cash and cash  equivalents The carrying values reported in the balance sheet for
cash and cash  equivalents,  including  cash and due  from  banks  and  interest
earning deposits approximate their fair values.
<PAGE>


Securities  Fair values for securities are based on quoted market prices,  where
available.  If quoted market prices are not available,  fair values are based on
quoted market prices of comparable  instruments.  The carrying  value of accrued
interest  receivable  approximates  its  fair  value.  The  carrying  value  for
securities  purchased  under  agreements  to  resell  and  nonmarketable  equity
securities approximates their fair values.

Loans For  variable-rate  loans that reprice  frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
for fixed-rate  loans are estimated  using  discounted  cash flow analyses using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit  quality.  The carrying value of accrued  interest  receivable
approximates its fair value.

Deposits The fair value disclosed for demand deposits are, by definition,  equal
to the amount payable on demand at the balance sheet date.  The carrying  values
for  variable-rate,  demand  deposits and savings deposit  accounts  approximate
their  fair  values at the  balance  sheet  date.  Fair  values  for  fixed-rate
certificates of deposit are estimated  using a discounted cash flow  calculation
that  applies  interest  rates  currently  being  offered on  certificates  to a
schedule  of  aggregated  expected  monthly  maturities  on time  deposits.  The
carrying value of accrued interest payable approximates its fair value.

Off-balance-sheet  instruments  Fair  values  for the  Bank's  off-balance-sheet
instruments,  which consist of commitments to extend credit and standby  letters
of credit, are based on fees currently charged to enter into similar agreements,
taking  into   account  the   remaining   terms  of  the   agreements   and  the
counterparties'  credit standing.  The fair value for such financial instruments
is nominal.

Note 10.  Capital Ratios

The Bank 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
Bank's  financial   statements.   Under  capital  adequacy  guidelines  and  the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities,  and certain off-balance-sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  I  capital  (as  defined  in the  regulations)  to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined).  Management  believes,  as of September 30, 1997,  that the
Bank meets all capital adequacy requirements to which it is subject.




<PAGE>


As of September 30, 1997, the most recent  notification from the Federal Deposit
Insurance  Corporation  categorized  the  Bank as  well  capitalized  under  the
regulatory  framework  for  prompt  corrective  action.  To  be  categorized  as
adequately capitalized,  the Bank must maintain minimum total risk-based, Tier I
risk-based,  and Tier I leverage ratios as set forth in the table.  There are no
conditions  or events since that  notification  that  management  believes  have
changed the Bank's category.
<TABLE>

                                                                          To Be Well
                                                                       Capitalized Under
                                                      For Capital      Prompt Corrective
                                          Actual    Adequacy Purposes  Action Provisions
                                   -----------------------------------------------------
                                    Amount     Ratio   Amount  Ratio    Amount   Ratio
                                   -----------------------------------------------------
<S>                                <C>         <C>     <C>     <C>      <C>      <C>
As of September 30, 1997:
Total Capital (to Risk Weighted
   Assets)
      Consolidated .............   $11,047     51.17%  $1,727   8.0%      N/A
      Bank .....................   $ 8,777     40.96%  $1,714   8.0%   $2,143   10.0%
Tier I Capital (to Risk Weighted
   Assets)
      Consolidated .............   $10,882   50.40%    $  864    4.0%  $  N/A
      Bank .....................   $ 8,612   40.19%    $  857    4.0%  $1,286    6.0%
Tier I Capital (to Average
   Adjusted Assets)
      Consolidated .............   $10,882   22.94%    $1,897    4.0%  $  N/A
      Bank .....................   $ 8,612   19.04%    $1,809    4.0%  $2,261    5.0%

As of September 30, 1996:
Total Capital (to Risk Weighted
   Assets)
      Consolidated .............   $12,203   56.92%    $1,715    8.0%  $  N/A
      Bank .....................   $ 8,020   38.70%    $1,658    8.0%  $2,072   10.0%
Tier I Capital (to Risk Weighted
   Assets)
      Consolidated .............   $12,086   56.39%    $  857    4.0%  $  N/A
      Bank .....................   $ 7,903   38.15%    $  829    4.0%  $1,243    6.0%
Tier I Capital (to Average
   Adjusted Assets)
      Consolidated .............   $12,086   27.72%    $1,744    4.0%  $  N/A
      Bank .....................   $ 7,903   19.67%    $1,607    4.0%  $2,009    5.0%
</TABLE>

Note 11.  Officer, Director and Employee Benefit Plans

Employee Stock Ownership Plan (ESOP)

In conjunction with the conversion, an ESOP was created and 82,800 shares of the
Company's stock were purchased for future allocation to employees.  The purchase
was funded with a loan from the Company.

Shares are allocated to all eligible  employees as the debt is repaid based on a
prorata  share of total  eligible  compensation.  Employees  21 or older with at
least  1,000  hours  of  service  in a  twelve  month  period  are  eligible  to
participate.  Benefits  will vest over a five year period and in full after five
years of qualified service.
<PAGE>


As shares  are  committed  to be  released  from  unallocated  shares,  the Bank
recognizes compensation expense equal to the current market price of the shares,
and the shares  become  outstanding  for  purposes of  calculating  earnings per
share. The Bank recognized  compensation expense for the ESOP of $69 and $92 for
the years ended September 30, 1997 and 1996, respectively.

Dividends  received,  if any, by the ESOP on unallocated shares will be used for
debt service.

In July 1997,  the Company  repurchased  41,400  shares of common stock from the
ESOP.  The ESOP  used  the  proceeds  received  from the  repurchase  to  reduce
outstanding debt to the Company. The balance in unearned ESOP shares was reduced
by the cost of the shares sold to the Company.

The  following  table  reflects the shares held by the plan as of September  30,
1997 and 1996:

                                                                1997      1996
                                                               ----------------

Shares allocated to participants ............................   11,968    4,487
Unallocated shares ..........................................   29,432   78,313
                                                               ----------------
              Total .........................................   41,400   82,800
                                                               ================

Shares committed to be released ............................    16,292    5,611
Non committed shares (Fair value as of September 30, 1997 
   and 1996 $309 and $733) .................................    25,108   77,189
                                                               ----------------
              Total ........................................    41,400   82,800
                                                               ================

The ESOP borrowed  from the Company to purchase the shares of common stock.  The
loan obligation is considered  unearned employee stock ownership plan shares and
is reflected as a reduction of stockholders' equity.

The Board of Directors of the Company may direct payment of cash  dividends,  if
any,  be paid  in cash to the  participants  or to be  credited  to  participant
accounts and invested.

Profit  Sharing  Plan  The  Bank  has  a  noncontributory  defined  contribution
profit-sharing  plan for all  employees who have attained age 21 and one year of
service. Nondeductible voluntary contributions are permitted, but none have been
made to date. The Board of Directors  determines the annual  contribution to the
plan which is allocated to those employees who worked more than 500 hours during
the  plan  year or who are  employed  at the end of the plan  year  based on the
prorata  share of eligible  compensation  for the plan year.  There have been no
contributions for the years ended September 30, 1997 and 1996.

Management  Recognition  Plan (MRP) The MRP was approved as of October 10, 1996.
The MRP purchased, with funds provided by the Company, 62,100 shares in the open
market during January 1997. Directors,  officers, and employees become vested in
the shares of common stock awarded to them under the MRP at a rate of 20 percent
per year,  commencing  one year  after the grant  date,  and 20  percent on each
anniversary date thereof for the following four years. As of September 30, 1997,
18,630  shares  have  been  awarded  to  officers,   directors,  and  employees.
Compensation  expense is  recognized  on a straight  line basis over the vesting
period for shares awarded under the plan.

Stock Rights In June 1997,  the Board of Directors  adopted a Rights  Agreement.
Under  the  Agreement,  the  Board  declared  a  dividend  of one right for each
outstanding  share of Common Stock to  stockholders  of record on June 23, 1997.
There was no fair  value  attached  to these  rights as of the grant  date.  The
rights are not exercisable  until the Distribution  date which is defined as the
earlier of the tenth business day after a public  announcement  that a person or
group of  affiliated or associated  persons  acquired,  or obtained the right to
acquire, beneficial ownership of 15% or more of the outstanding shares of Common
Stock of the  Company  or the  tenth  business  day after  the  commencement  or
announcement of an intention to make a tender offer or exchange offer that would
result in any person or group or affiliated or  associated  persons  becoming an
acquiring person.  Each right enables the registered holder to purchase from the
Company one share of Common Stock at a price of $36.

Stock Option Plans

The  Company  has two stock  option  plans  which may grant  options to purchase
common stock at the market  price on the date of the grant.  The options will be
granted by a committee comprised of directors.
<PAGE>


Options for up to 103,500 shares may be granted to employees and directors under
the Stock Option Plan approved May 22, 1996 and options for up to 103,500 shares
may be granted to key employees and directors under the 1997 Nonqualified  Stock
Option Plan.

The  options  under the Stock  Option Plan  become  exercisable  at a rate of 20
percent per year  commencing  one year after the grant date.  At  September  30,
1997, 51,750 options had been granted.

The  terms of the  options  under the  Nonqualified  Stock  Option  Plan and the
exercise schedule are at the discretion of the Committee. At September 30, 1997,
no options had been granted.

A summary of the status of the Company's fixed stock option plan as of September
30,  1997 and  1996 and  changes  during  the  years  ending  on those  dates is
presented below:


                                               1997                 1996
                                         ------------------  -------------------
                                                  Weighted              Weighted
                                                  Average               Average
                                                  Exercise              Exercise
                                         Shares     Price    Shares      Price
                                         --------------------------------------

Options outstanding, beginning
   of the year .......................   25,875   $   9.08   $    --    $    --
Options granted ......................   25,875       9.36    25,875       9.08
Options exercised ....................       --         --        --         --
                                         --------------------------------------
Options outstanding, end of year .....   51,750   $   9.22   $25,875    $  9.08
                                         ======================================

Options exercisable ..................    5,175                   --
Weighted-average fair value of options
   granted during the year ...........   $ 3.33             $   3.02

The  fair  value  of each  grant  is  estimated  at the  grant  date  using  the
Black-Sholes   option-pricing   model   with  the   following   weighted-average
assumptions for grants in 1997 and 1996:  dividend rate of 0%; price  volatility
of 9.34% and a risk free interest rate of 6.10%.

Employee Stock Plans

At September  30,  1997,  the Company has three stock based  compensation  plans
which were  described  above.  As  permitted by  generally  accepted  accounting
principles, grants under these plans are accounted for following APB Opinion No.
25  and  related  interpretations.  Accordingly,  no  compensation  expense  was
recognized  for  grants  under the  Stock  Option  Plan and $32 of  compensation
expense was recognized under the MRP.

Had  compensation  cost for the  stock-based  compensation  plan been determined
based on the grant date fair  values of awards  (the  method  described  in FASB
Statement No. 123), reported net income and earnings per common share would have
been reduced to the proforma amounts shown below.

                                                  1997        1996 
                                                -------------------
Net income:
   As reported .......................          $   245     $   235
   Proforma ..........................              193         227

Earning per share:
   As reported .......................          $  0.27     $  0.25
   Proforma ..........................             0.21        0.24
<PAGE>


The following table summarizes information about fixed stock options outstanding
at September 30, 1997:
                                                   
                       Options                  Options
                     Outstanding              Exercisable
            -----------------------------    ------------
                               Weighted
                                Average
                               Remaining
Exercise      Number          Contractual       Number
 Price      Outstanding          Life        Exercisable
---------------------------------------------------------

$ 9.08         25,875             8.7          5,175
  9.36         25,875             9.1             --
               ------------------------------------------
               51,750             8.9          5,175
               ==========================================

Note 12.  Commitments, Contingencies and Credit Risk

In the normal  course of  business,  the Company is  involved  in various  legal
proceedings.  In the opinion of  management,  any liability  resulting from such
proceedings would not have a material adverse effect on the Company's  financial
statements.

The Bank is a 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.  Those instruments  involve,  to varying degrees,  elements of credit
risk in excess of the amount  recognized in the balance sheet.  The  contractual
amounts of those  instruments  reflect the extent of involvement the Bank has in
particular classes of financial instruments.

The Bank's exposure to credit loss in the event of  nonperformance  by the other
party to the financial  instrument for  commitments to extend credit and standby
letters of credit  written is  represented  by the  contractual  amount of those
instruments.  The Bank uses the same credit  policies in making  commitments and
conditional obligations as it does for on-balance-sheet  instruments.  Financial
instruments  whose contract amounts  represent credit risk at September 30, 1997
follows:
<TABLE>
                                                                                                 
                                              Variable         Fixed                            Range of Rates
                                               Rate             Rate            Total           on Fixed Rate
                                            Commitments      Commitments      Commitments         Commitments
                                            ---------------------------------------------------------------------
<S>                                         <C>              <C>              <C>               <C>   
Commitment to extend credit                  $    330         $    933         $   1,263         8.25% - 11.25%
</TABLE>

The Bank generally originates single-family residential loans within its primary
lending area, Marion County. The Bank's underwriting policies require such fixed
rate loans to be made at 80% loan-to-value and variable rate loans to be made at
85% loan-to-value  based upon appraised values unless private mortgage insurance
is obtained.
These loans are secured by the underlying properties.

The Company does not engage in the use of interest rate swaps, futures, forwards
or   option   contracts,   or   other   financial   instruments   with   similar
characteristics.
<PAGE>


Note 13.  Branch Acquisition

On September 13, 1996, the Company  acquired the Carlyle,  Illinois  branch (the
"branch") of Kankakee  Federal  Savings and Loan.  The branch had  approximately
$8.6 million in deposits at the date of acquisition. In addition to assuming the
deposit  liabilities  attributable to the branch,  the Company  acquired certain
assets associated with the branch, including the building. The operations of the
branch are included in the Company's Consolidated  Statements of Income from the
acquisition  date  and  reflect  the  application  of  the  purchase  method  of
accounting.

Under this method of accounting, the aggregate cost to the Company of the branch
was allocated to the assets acquired and the liabilities assumed, based on their
estimated  fair value as of September  13, 1996.  Goodwill in the amount of $344
and core  deposit  intangible  in the amount of $378 was recorded by the Bank in
connection  with the branch.  The goodwill and core deposit  intangible  will be
amortized  on  a   straight-line   basis  over  fifteen  years  and  ten  years,
respectively.


Note 14.  Savings Association Insurance Fund

Effective  September  30,  1996,  legislation  was  enacted to fund the  Savings
Association  Insurance  Fund (SAIF) by  assessing  SAIF insured  institutions  a
one-time special assessment of 65.7 basis points on March 31, 1995 deposits.

The assessment for the Bank was $188 as of September 30, 1996. Additionally,  as
part  of  the  purchase   agreement  with  Kankakee  Federal  Savings  and  Loan
(Kankakee),  the  Company  agreed  to  reimburse  Kankakee  for the  portion  of
Kankakee's  assessment  which  related to the  Carlyle,  Illinois  branch  which
amounted to $54.

The $242 assessment payable is included in other liabilities as of September 30,
1996 in the  accompanying  balance  sheet.  The  assessment for the Bank was not
deductible  for tax purposes until paid,  therefore,  deferred tax assets of $94
were provided for the tax impact of the assessment as of September 30, 1996.




<PAGE>




                        --------------------------------

                              CORPORATE INFORMATION
                        --------------------------------
<TABLE>
<S>                                                         <C>  
Holding Company                                             Form 10-KSB Annual Report
CSB Financial Group, Inc.                                   Copies of CSB Financial Group, Inc.'s Form
200 South Poplar Street                                     10-KSB annual report as filed with the
Centralia, Illinois 62801                                   Securities and Exchange Commission and other
                                                            published reports may be obtained without
Subsidiaries                                                charge by writing our corporate headquarters:
Centralia Savings Bank
200 South Poplar Street                                                  CSB Financial Group, Inc.
Centralia, Illinois 62801                                                200 South Poplar Street
                                                                         Centralia, Illinois 62801
Centralia SLA, Inc.                                                      Attention: K. Gary Reynolds
200 South Poplar Street
Centralia, Illinois 62801                                   Registrar and Transfer Agent
                                                            The Registrar and Transfer Company
Stock Information                                           ("Registrar") maintains all stockholder records.
The Common Stock of the Holding Company is                  Registrat handles stock transfer and registration,
quoted on the Nasdaq "SmallCap" market under                address changes, corrections/changes in
the symbol "CSBF" since its subsidiaryu,                    taxpayer identification numbers, and Form 1099
Centralia Savings Bank, converted to stock form             tax reporting questions.  If you require assistance
in October 1995.                                            or have any questions, please contact Registrat
                                                            by mail or phone:
On October 5, 1995, the Company issued 
1,035,000 shares of its Common Stock at a                        Registrar and Transfer Company
purchase price of $8.00 per share in connection                  10 Commerce Drive
with the conversion of the Savings Bank from a                   Cranford, New Jersey  07016
state chartered mutual savings bank to a state
chartered capital stock savings bank.  The closing          Annual Meeting
price per share for the Holding Company's                   The annual meeting of stockholders of CSB
Common Stock as reported on the Nasdaq                      Financial Group, Inc. will be held on January 9,
"SmallCap" market on November 28, 1997                      1998 at 10:00 a.m. at 801 12th Street, Carlyle,
$12.50.  The Holding Company has not paid                   Illinois.
cash dividends on its Common Stock.
                                                            Independent Auditors
Stock Pricing History                                       McGladrey & Pullen, LLP
The following table sets forth the high and low             1806 Fox Drive
sales prices as reported on the Nasdaq                      Champaign, Illinois  61820
"SmallCap" market during the past year.

                                                            Special Counsel
Fiscal 1997                 High             Low            Schiff Hardin & Waite
--------------------------------------------------------    7200 Sears Tower
First Quarter              10 1/2           9 5/8           Chicago, Illinois 60606
Second Quarter             11 3/8            10            
Third Quarter              12 1/2            11
Fourth Quarter             12 1/2          11 3/4
</TABLE>
<PAGE>





                    ----------------------------------------

                                    DIRECTORS
                            CSB Financial Group, Inc.
                                       and
                             Centralia Savings Bank
                    ----------------------------------------

                                Wesley N. Breeze
                   Owner and Operator, Byrd Watson Drug Store

                                  A. John Byrne
                                     Retired

                                Michael Donnewald
                      President, Donnewald Distributing Co.

                                 Larry M. Irvin
                  Chairman of the Board, Centralia Savings Bank
                  Owner and Operator, Irvin Funeral Homes, Ltd.

                                W. Harold Monken
                        Auto Dealer, Centralia, Illinois

                                K. Gary Reynolds
          President and Chief Executive Officer, Centralia Savings Bank

                    ----------------------------------------

                                    OFFICERS
                            CSB Financial Group, Inc.
                    ----------------------------------------

                                K. Gary Reynolds
                      President and Chief Executive Officer

                    ----------------------------------------

                                    OFFICERS
                             Centralia Savings Bank
                    ----------------------------------------

                                K. Gary Reynolds
                      President and Chief Executive Officer

                                Stephen J. Greene
                                 Vice President

                                Joanne S. Ticknor
                             Secretary and Treasurer