U.S. Securities and Exchange Commission
                             Washington, D.C. 20549

                                   FORM 10-KSB

                 ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended September 30, 1999

                         Commission file number 0-26650

                            CSB FINANCIAL GROUP, INC.
                 (Name of small business issuer in its charter)

            Delaware                                     37-1336338
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

                   200 South Poplar, Centralia, Illinois 62801
               ---------------------------------------------------
               (Address or principal executive offices) (Zip Code)

        Registrant's telephone number, including area code (618) 532-1918

       Securities registered under Section 12(b) of the Exchange Act: None

         Securities registered under Section 12(g) of the Exchange Act:

Common Stock, par value $0.01 per share and related Common Stock Purchase Rights
--------------------------------------------------------------------------------
                                (Title of class)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [X]  No [ ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB.

State issuer's revenues for its most recent fiscal year. $3,385,000

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant  at  December  17,  1999  was   $8,239,770.   For  purposes  of  this
determination only, directors and executive officers of the Registrant have been
presumed to be affiliates.  The market value is based upon $14.50 per share, the
last sales price as quoted on the OTC market for December 17, 1999.

The Registrant  had 732,299  shares of Common Stock  outstanding at December 17,
1999,  not  including  21,870  shares held by the  Registrant's  Employee  Stock
Ownership Plan which have not been allocated to participants.

Transitional Small Business Disclosure Format: Yes [ ]  No [X]


<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

The registrant's  Annual Report to Stockholders for the year ended September 30,
1999 is incorporated by reference to Part II of this Form 10-KSB.

The registrant's  proxy statement for its 2000 annual meeting of stockholders to
be held on January 14, 2000 is  incorporated  by  reference  to Part III of this
Form 10-KSB.

The Exhibit Index is located at pages 28 through 30.






<PAGE>


                                      INDEX


PART I                                                                      Page

         Item 1. Description of Business

         Item 2. Description of Property

         Item 3. Legal Proceedings

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

PART II

         Item 5. Market for Common Equity and Related Stockholder Matters

         Item 6. Management's Discussion and Analysis or Plan of Operation

         Item 7. Financial Statements

         Item 8. Changes In and Disagreements With Accountants on
                 Accounting and Financial Disclosure

PART III

         Item 9. Directors,  Executive Officers,  Promoters and Control
                 Persons; Compliance with Section 16(a) of the
                 Exchange Act

         Item 10. Executive Compensation

         Item 11. Security Ownership of Certain Beneficial Owners
                  and Management

         Item 12. Certain Relationships and Related Transactions

         Item 13. Exhibits and Reports on Form 8-K

SIGNATURES
<PAGE>


                                     PART I

Item 1.  Description of Business.

         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  stock savings bank.  The Company  purchased  100% of the  outstanding
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  $662,000.  The gross proceeds of the offering were  $8,280,000.  After
reducing gross proceeds for  conversion  costs of $696,000 net proceeds  totaled
$7,584,000. The Company's stock trades on the NASDAQ Small Caps market under the
symbol "CSBF".

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

         The  Company's  assets at September  30, 1999 consist  primarily of the
investment  in the  Bank of  $10.0  million.  Currently,  the  Company  does not
transact any material business other than through its subsidiary, the Bank.

Business of the Bank

         The Bank is an  Illinois-chartered  stock savings bank regulated by the
Illinois  Commissioner of Savings and Residential Finance (the  "Commissioner").
The Bank was originally  chartered in 1879 as a federally  chartered savings and
loan  association.  The  deposits of the Bank are  insured up to the  applicable
limits by the Federal Deposit Insurance  Corporation  ("FDIC") under the Savings
Association Insurance Fund ("SAIF").  The Bank's primary market area consists of
Marion County, Illinois, which includes the cities of Carlyle and Centralia. The
Bank maintains two offices,  one in Centralia and one in Carlyle, and provides a
full range of retail banking  services at each office,  with emphasis on one- to
four-family  residential  mortgage  loans,  consumer and  commercial  loans.  At
September 30, 1999,  the Bank had total assets,  liabilities  and  stockholders'
equity of $48.8 million, $38.8 million, and $10.0 million, respectively.

         The Bank's  principal  business  consists of the  acceptance  of retail
deposits from the residents and small businesses surrounding its offices and the
investment of those  deposits,  together with funds  generated from  operations,
primarily  in one- to  four-family  residential  mortgage  loans.  The Bank also
invests in multifamily  mortgage,  commercial  real estate,  construction,  land
development  and other  loans.  At  September  30,  1999,  the Bank's gross loan
portfolio  totaled $29.1  million or 59.69% of total assets.  In addition to its
lending  activities,   the  Bank  also  invests  in  U.S.  Treasury  securities,
government agency  securities,  local municipal  securities and  mortgage-backed
securities. At September 30, 1999, the Bank's securities portfolio totaled $17.3
million or 35.52% of total assets with $17.1 million classified as available for
sale and $ 216,000 classified as nonmarketable equity securities.

         The Bank's  revenues  are  derived  principally  from  interest  on its
mortgage,  consumer and commercial loans, and, to a lesser extent,  interest and
dividends on its  securities.  The Bank's primary sources of funds are deposits,
Federal Home Loan Bank advances,  principal and interest payments, and principal
prepayments on loans. Through its wholly-owned subsidiary,  Centralia SLA, Inc.,
the Bank engages in the sale of insurance services.



<PAGE>


         The  executive  offices of the Company and Savings  Bank are located at
200 South Poplar Street,  Centralia,  Illinois 62801 and the telephone number is
(618) 532-1918.

         Composition  of the  Loan  Portfolio.  The  Bank's  historical  lending
strategy has focused primarily on the origination of residential  mortgage loans
secured by one- to  four-family  mortgages and consumer  loans to customers with
whom the Bank already had a deposit or lending  relationship.  Beginning in May,
1994, the Bank began offering  consumer loans,  primarily  installment loans for
the purchase of automobiles,  to the general public.  The Bank also  originates,
from time to time,  multi-family and commercial real estate loans and commercial
non-real  estate loans,  although such loans  presently  constitute a relatively
small  percentage of the Bank's total loan  portfolio.  The following table sets
forth in greater detail the  composition of the Bank's loan portfolio by type of
loan as of the dates indicated:
<TABLE>
                                                         At September 30,
                                                -----------------------------------
                                                      1999              1998
                                                ----------------   ----------------
                                                          (In Thousands)
                                                 Amount  Percent   Amount   Percent
                                                -----------------------------------
<S>                                             <C>      <C>       <C>      <C>
Mortgage Loans:
     One- to four-family ....................   $21,225   72.83%   $19,037   72.42%
     Multi-family ...........................       639    2.19%       258    0.98%
     Commercial real estate .................       519    1.78%     1,120    4.26%
     Other loans secured by real estate .....     1,327    4.55%       283    1.07%
                                                -----------------------------------
          Total mortgage loans ..............    23,710   81.35%    20,698   78.73%
Commercial and Consumer Loans:
     Commercial .............................     1,164    3.99%       625    2.38%
     Consumer ...............................     3,449   11.84%     4,095   15.58%
     Home equity lines of credit ............       649    2.23%       678    2.58%
     Share loans ............................       170    0.59%       193    0.73%
                                                -----------------------------------
          Total commercial and consumer loans     5,432   18.65%     5,591   21.27%

          Total loans .......................    29,142  100.00%    26,289  100.00%
                                                         =======            =======

Less:
     Deferred fees ..........................       - -                  6
     Unearned income on consumer loans ......       - -                  1
     Allowance for loan losses ..............       222                171
                                                -------            -------
          Total loans, net ..................   $28,920            $ 26,111
                                                =======            ========
</TABLE>

The Bank  had no  loans  held for  sale at  September  30,  1999 or 1998.  As of
September 30, 1999, 34.3% of the Bank's loans had adjustable interest rates.

The types of loans that the Bank may  originate are subject to federal and state
laws and  regulations.  Interest  rates  charged by the Bank are affected by the
demand for such loans and the supply of money available for lending purposes and
the rates offered by competitors. These factors are, in turn, affected by, among
other things, economic conditions,  monetary policies of the federal government,
including the Federal Reserve Board and legislative tax policies.




<PAGE>


Loan Maturity

The  following  table shows the maturity of the Bank's  loans at  September  30,
1999. The table does not include the effect of future loan  repayment  activity.
While  the  Bank  cannot  project  future  loan  prepayment  activity,  the Bank
anticipates that in periods of stable interest rates,  prepayment activity would
be lower than prepayment  activity  experienced in periods of declining interest
rates.  In  general,  the Bank  originates  adjustable  and  fixed-rate  one- to
four-family loans with maturities from 15 to 30 years,  one-to-four family loans
with balloon  features which mature from 1 to 5 years,  multi-family  loans with
maturities from 1 to 5 years,  adjustable-rate commercial real estate loans with
maturities of 20 to 25 years, commercial loans with maturities of 90 days to one
year, and consumer loans with maturities of 1 to 5 years.
<TABLE>
                                                            At September 30, 1999
                                                     -------------------------------------
                                                     Mortgage Commercial Consumer   Total
                                                      Loans      Loans     Loans    Loans
                                                     -------------------------------------
                                                                 (In Thousands)
<S>                                                  <C>       <C>       <C>       <C>
Amounts due:
   One year or less ..............................   $ 1,348   $   413   $   430   $ 2,191
                                                     =====================================
   After one year:
   More than one year to five years ..............   $ 3,252   $   662   $ 3,798   $ 7,712
   More than five years to ten years .............     3,816        89        40     3,945
   More than ten years ...........................    15,294       - -       - -    15,294
                                                     -------------------------------------
         Total due after September 30, 2000 ......   $22,362   $   751   $ 3,838   $26,951
                                                     =====================================

Interest rate terms on amounts due after one year:
      Fixed ......................................   $12,671   $   600   $ 3,838   $17,109
      Adjustable .................................     9,691       151       - -     9,842
</TABLE>

One- to Four-Family Loans. The primary lending activity of the Bank has been the
extension of first mortgage  residential  loans to enable  borrowers to purchase
existing  one- to  four-family  homes or to  construct  new one- to  four-family
homes. At September 30, 1999 and 1998, the Bank's gross loan portfolio consisted
of  approximately  $21.2  million,  or  72.83%,  and $19.0  million,  or 72.42%,
respectively  of loans secured by one- to four-family  residential  real estate.
The predominant type of first-mortgage residential loan currently offered by the
Savings Bank to loan  customers is an  adjustable  rate mortgage that adjusts on
either a one-year or three-year basis with a 30 year amortization.

Balloon  loans were the  predominant  type of  residential  first  mortgage loan
offered by the Savings Bank prior to September,  1994.  Such loans are amortized
over a maximum  period of 30 years for  purposes  of  computing  the  borrower's
monthly  mortgage  payments.  Under the terms of its standard  balloon loan, the
Savings Bank is generally obligated, at the option of the borrower, to refinance
the loan at the time the balloon payment becomes due,  provided that the loan is
current at such time. The initial  interest rate on each balloon loan offered by
the Savings  Bank is fixed at the rate  prevailing  at the time that the loan is
originated.  Most of the balloon loans in the Savings Bank's  portfolio  further
provide  that the  interest  rate  will  not  increase  by more  than one to two
percentage  points  at the end of each  balloon  period  and  that  the  maximum
interest  rate will not exceed the  initial  rate by more than three  percentage
points  either over the life of the  mortgage or for as long as the home that is
being financed remains owner-occupied.

The Bank has  attempted to shift the balance  between its ARMs and balloon loans
by ceasing to offer balloon loans to new customers and  encouraging  the holders
of existing  balloon  loans to replace  such loans,  upon  maturity,  with ARMs.
Management believes that the higher interest rate ceilings and the interest rate
floor  included in its ARMS will result in less  interest  rate risk to the Bank
than the interest rate risk posed by its balloon loans.


<PAGE>


The Bank has  extended,  and expects to  continue to extend,  from time to time,
fixed-rate loans to customers who prefer a fixed rate of interest. The Bank will
not originate a fixed-rate loan unless such loan complies with the  underwriting
standards of the Federal Home Loan Mortgage Corporation  ("FHLMC") and the FNMA.
This will give the Bank the option of either  holding such  fixed-rate  loans in
its portfolio or selling such loans in the secondary mortgage market.

The Bank's reliance on ARMs and balloon loans,  rather than fixed-rate  mortgage
loans,  makes  the  Bank's   first-mortgage   residential  loan  portfolio  more
interest-rate  sensitive.  However,  since  the  interest  earned  on ARMs or on
balloon loans which are refinanced on a one-,  three- or five-year  cycle varies
with prevailing  interest rates, such loans do not offer the Bank as predictable
a cash flow as do longer-term,  fixed-rate  loans.  ARMs and balloon loans which
are subject to refinancing on a one-,  three- or five-year  cycle may also carry
increased credit risk as the result of the imposition of higher monthly payments
upon borrowers during periods of rising interest rates. During such periods, the
risk of default  on such loans may  increase,  due to the upward  adjustment  of
interest  costs to the borrower.  Management has attempted to minimize such risk
by qualifying  borrowers at the maximum rate of interest payable under the terms
of the ARM or the refinanced balloon loan.

The loan-to-value ratio of most single-family  first-mortgage  loans made by the
Bank is 80%. If the  loan-to-value  ratio exceeds 85%, the Bank requires private
mortgage  insurance to cover the excess over 85%. If private mortgage  insurance
is obtained, the mortgage is limited to 95% of the lesser of the appraised value
or  purchase  price.  The  maximum   loan-to-value  ratio  on  a  loan  for  the
construction  of a new  single-family  residential  home is 80%, and the maximum
loan-to-value ratio on loans on two- to four-family dwellings is 75%.

The Bank requires title  insurance,  or an attorney's  opinion as to title,  and
fire and casualty  insurance coverage of the property securing any mortgage loan
originated or purchased by the Bank. All of the Bank's real estate loans contain
due-on-sale  clauses  which  provide  that if the  mortgagor  sells,  conveys or
alienates the property  underlying  the mortgage note, the Bank has the right at
its option to declare the note immediately due and payable without notice.

Multi-family  Residential  Lending.  At September 30, 1999 and 1998,  the Bank's
gross loan portfolio  consisted of approximately  $639,000 or 2.19% and $258,000
or .98% of loans secured by multi-family residential real estate,  respectively.
Multi-family  real estate loans are  generally  limited to 70% of the  appraised
value of the property or the selling price,  whichever is less. Loans secured by
multi-family  real estate are generally  larger and, like commercial real estate
loans,  involve a greater  degree of risk than one- to  four-family  residential
loans.

Commercial  Real Estate Loans.  The Bank has  historically  made commercial real
estate  loans on a limited  basis.  At September  30, 1999 and 1998,  the Bank's
commercial  real  estate loan  portfolio  amounted to  $519,000,  or 1.78%,  and
$1,120,000,  or 4.26%,  respectively  of the Bank's  gross loan  portfolio.  The
Bank's  practice has been to underwrite  such loans based on its analysis of the
amount of cash flow  generated  by the business in which the real estate is used
and the  resulting  ability of the  borrower  to meet its  payment  obligations.
Although such loans are secured by a first mortgage on the underlying  property,
the Savings Bank also generally seeks to obtain a personal guarantee of the loan
by the owner of the business in which the property is used.

Other Loans  Secured by Real  Estate.  In addition to one- to- four family first
mortgage loans,  the Savings Bank also makes loans secured by real estate in the
form of junior  mortgages,  interim  construction  loans,  land  development and
vacant land loans.  At September  30, 1999 and 1998,  the Bank's loan  portfolio
consisted of $1.3 million, or 4.55% and $283,000, or 1.07%,  respectively of the
Bank's gross loan  portfolio.  Other real estate loans are made on terms similar
to multi-family and commercial real estate loans.

Commercial  Loans.  As of  September  30, 1999 and 1998,  the Bank's  gross loan
portfolio  consisted of  approximately  $1.2 million or 3.99% and  $625,000,  or
2.38%,   respectively  of  commercial  loans  secured  by  accounts  receivable,
inventory, farm land or outstanding stock issued by a corporation.  The Bank has
also made, from time to time,  unsecured  personal loans to the sole proprietors
of small  businesses  on the same terms and  conditions  on which it makes other
unsecured personal loans.


<PAGE>


Consumer  Loans.  The Bank  originates  a variety of consumer  loans,  generally
consisting of  installment  loans for the purchase of motor  vehicles and boats,
loans to purchase household goods, loans secured by savings accounts at the Bank
and  unsecured  personal  loans.  At  September  30,  1999 and 1998,  the Bank's
portfolio of consumer loans totaled  approximately  $4.3 million,  or 14.7%, and
$5.0 million,  or 18.89%,  respectively of the Bank's gross loan portfolio.  The
Bank may make a loan to finance the  purchase of a new and  previously  untitled
motor  vehicle or boat in an amount  equal to the lesser of 5% over the  factory
invoice price or 90% of the sticker  price of the motor  vehicle or boat.  Loans
for the  purchase  of used  motor  vehicles  are  limited  to the  amount of the
wholesale  price  listed for the  vehicle in the  National  Automobile  Dealers'
Association used car guide. Any loan for the purchase of a motor vehicle or boat
is secured by the  purchased  vehicle or boat and is written to amortize  over a
maximum period of between two and five years,  depending on the age of the motor
vehicle or boat  offered as  collateral.  Loans to finance  the  purchase of new
household  goods  may be made in an amount  equal to 100% of the sales  price of
such goods. Such loans are secured by the goods purchase. Loans for the purchase
of household  goods may be amortized for a maximum  period of five years.  Loans
secured by a customer's  savings account with the Savings Bank are limited to an
amount  equal to 90% of the amount of the  deposit.  A loan that is secured by a
deposit  with a specific  maturity  date is  written  with a term  matching  the
maturity date of the deposit.  Unsecured  personal  loans are limited to $15,000
per borrower and to a term of three to five years. As a practical  matter,  such
loans do not exceed $10,000 and are amortized over a period of three years.

Loan Processing. Upon receipt of a completed loan application from a prospective
borrower,  the Savings  Bank  obtains a credit  report  from a credit  reporting
agency and, depending on the type of loan, verifies employment, income and other
financial  information  received  from the  prospective  borrower  and  requests
additional  financial  information,  if  necessary.  If a loan in the  amount of
$50,000 or more is secured by real  estate,  the Bank  requires  an  independent
appraisal of the real estate.  Real estate securing a loan of $50,000 or less is
appraised only by the Bank's internal appraisal committee. Once such information
and appraisals are complete,  the  application is submitted for  underwriting by
designated   staff.   The   application,   together   with   the   underwriter's
recommendations, is then forwarded for review and action to the President of the
Bank, the Loan Committee of the Board of Directors, or the Board of Directors as
a whole, depending on the size and nature of the loan.

The Board of Directors of the Bank has established the following  guidelines for
loan approval  authority for all loans  originated by the Bank:  (i) any lending
officer of the Bank may approve loans up to $75,000,  (ii) the Bank's  President
may  approve  loans up to  $125,000,  (iii) the Loan  Committee  of the Board of
Directors may approve loans up to $300,000,  and (iv) the Board of Directors may
approve any loan in excess of $300,000 up to the Bank's applicable legal lending
limit.

Loan Purchases and Sales. The Bank has  occasionally  purchased loans originated
by other  financial  institutions,  secured by one- to  four-family  residential
properties or commercial real estate located outside of its primary market area.
At September 30, 1999 and 1998, the total balance  outstanding on first mortgage
loans  purchased  by the  Bank  was  $187,000  and  $287,000,  respectively.  At
September 30, 1999 and 1998, the Bank did not have any loans held for sale.

Delinquencies

The Bank's  collection  procedures  with  respect to  delinquent  loans  include
written notice of delinquency  contact by letter or telephone by Bank personnel.
Most loan  delinquencies  are cured within 90 days and no legal action is taken.
With respect to mortgage loans, if the delinquency  exceeds 180 days, and in the
case of consumer loans, if the delinquency  exceeds 90 days, the Bank institutes
measures to enforce its  remedies  resulting  from the  default,  including  the
commencement of foreclosure action of the repossession of collateral.





<PAGE>


At  September  30,  1999,  delinquencies  in the Bank's loan  portfolio  were as
follows:
<TABLE>
                                                 At September 30, 1999
                             -------------------------------------------------------------
                                                                             Total
                               30-89 Days (1)     90 Days or More (1)   Delinquent Loans
                             -------------------  -------------------  -------------------
                                       Principal            Principal            Principal
                              Number    Balance    Number    Balance    Number    Balance
                             of Loans   of Loans  of Loans   of Loans  of Loans   of Loans
                             -------------------------------------------------------------
                                                 (Dollars in Thousands)
<S>                          <C>       <C>        <C>       <C>        <C>       <C>
Real estate loans .........      4         $91         5       $145        9        $236
Commercial loans ..........      1           5       - -        - -        1           5
Consumer loans ............     20         135        10         60       30         195
                             -----------------------------------------------------------
                                25         231        15        205       40         436
                             ===========================================================

Delinquent loans
   to gross loans ........               0.79%                0.70%                1.49%
                                         =====                =====                =====
</TABLE>

At  September  30,  1998,  delinquencies  in the Bank's loan  portfolio  were as
follows:
<TABLE>
                                                 At September 30, 1998
                             -------------------------------------------------------------
                                                                             Total
                               30-89 Days (1)     90 Days or More (1)   Delinquent Loans
                             -------------------  -------------------  -------------------
                                       Principal            Principal            Principal
                              Number    Balance    Number    Balance    Number    Balance
                             of Loans   of Loans  of Loans   of Loans  of Loans   of Loans
                             -------------------------------------------------------------
                                                 (Dollars in Thousands)
<S>                          <C>       <C>        <C>       <C>        <C>       <C>



Real estate loans ........       6       $80         12      $350         18       $430
Commercial loans .........     - -       - -        - -       - -        - -        - -
Consumer loans ...........      11        48         14        60         25        108
                             ----------------------------------------------------------

                                17       128         26       410         43        538
                             ==========================================================

Delinquent loans
   to gross loans ........             0.49%                1.56%                 2.05%
                                       =====                =====                 =====
<FN>

(1)      The Bank  discontinues  the  accrual  of  interest  on  loans  when the
         borrower is delinquent as to a contractually  due principal or interest
         payment and the Bank's management deems collection to be unlikely.  The
         number of loans and principal balance includes nonaccrual loans.
</FN>
</TABLE>
<PAGE>


Nonperforming Assets

The Bank  places  loans that are 90 days or more past due on  nonaccrual  status
unless  such  loans  are  adequately   collateralized  and  in  the  process  of
collection.  Accrual of interest on a  nonaccrual  loan is resumed only when all
contractually past due payments are brought current and management believes that
the  outstanding  loan  principal and  contractually  due interest are no longer
doubtful of collection.

Foreclosed properties are recorded at the fair value at the date of foreclosure.
Any subsequent reduction in the fair value of a foreclosed property,  along with
expenses to maintain or dispose of a  foreclosed  property,  is charged  against
current  earnings.  As of  September  30,  1999 and 1998,  the Bank had no "real
estate owned."



<PAGE>


The  following  table  sets  forth   information  with  respect  to  the  Bank's
nonperforming assets for the periods indicated.

                                                                        At
                                                                   September 30,
                                                                  --------------
                                                                   1999     1998
                                                                  --------------
                                                                  (In Thousands)
Loans accounted for on a nonaccrual basis
     One- to four-family loans .................................    $145    $350
     Consumer loans ............................................      60      60
                                                                   -------------
          Total nonaccrual loans ...............................     205     410
                                                                   -------------

Accruing loans which are contractually past due 90 days or more:
     One- to four-family loans .................................     - -     - -
     Consumer loans ............................................     - -     - -
                                                                   -------------
           Total 90 days past due and accruing interest ........     - -     - -
                                                                   -------------

          Total nonaccrual and 90 days past due loans ..........     205     410

Real estate owned ..............................................     - -     - -
                                                                   -------------

          Total nonperforming assets ...........................    $205    $410
                                                                   =============

          Total nonperforming assets to total assets ...........   0.42%   0.88%
                                                                   =============

Classified   Assets.   FDIC  policies  require  that  each  insured   depository
institution  review and classify its assets on a regular basis. In addition,  in
connection with examinations of insured institutions,  regulatory examiners have
the authority to identify problem assets and, if appropriate, require them to be
classified. The Bank reviews and classifies its assets at least quarterly. There
are three  classifications for problem assets:  substandard,  doubtful and loss.
Substandard   assets  must  have  one  or  more  defined   weaknesses   and  are
characterized  by the distinct  possibility  that the insured  institution  will
sustain some loss if the  deficiencies  are not corrected.  Doubtful assets have
the weaknesses of substandard  assets,  with the additional  characteristic that
the weaknesses  make collection or liquidation in full on the basis of currently
existing  facts,  conditions  and  values,  questionable,  and  there  is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little  value that  continued  treatment of the asset as an asset on the
books of the institution is not warranted.

An insured  institution is required to establish prudent general  allowances for
the loan losses with respect to assets  classified as  substandard  or doubtful.
The institution is required either to charge off assets classified as loss or to
establish a specific  allowance for 100% of the portion of the asset  classified
as loss.
<PAGE>


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, 1999 or 1998.

Allowance for Loan Losses. The allowance for loan losses is established  through
a  provision  for loan  losses  based on  management's  evaluation  of the risks
inherent in its loan portfolio and the general  economy.  The allowance for loan
losses  is  maintained  at an  amount  management  considers  adequate  to cover
estimated  losses in loans  receivable  which are deemed  probable and estimable
based on  information  available to  management at such time.  While  management
believes  the Bank's  allowance  for loan losses is  sufficient  to cover losses
inherent in its loan portfolio at this time, no assurances can be given that the
Bank's level of  allowance  for loan losses will be  sufficient  to cover future
loan losses incurred by the Bank or that future adjustments to the allowance for
loan  losses  will not be  necessary  if economic  and other  conditions  differ
substantially  from the  economic and other  conditions  used by  management  to
determine the current  level of the allowance for loan losses.  The allowance is
based  upon a number  of  factors,  including  asset  classifications,  economic
trends, industry experience and trends, industry and geographic  concentrations,
estimated  collateral  values,  management's  assessments  of  the  credit  risk
inherent  in the  portfolio,  historical  loan loss  experience,  and the Bank's
underwriting  policies.  As of September 30, 1999 and 1998, the Bank's allowance
for loan losses was 0.76% and 0.65%, respectively, of gross loans. The Bank will
continue  to monitor  and modify its  allowance  for loan  losses as  conditions
dictate.  Various regulatory agencies,  as an integral part of their examination
process,  periodically review the Bank's valuation allowance. These agencies may
require the Bank to establish  additional valuation  allowances,  based on their
judgments of the information available at the time of the examination.

It is the policy of the Bank to charge off customer  loans when it is determined
that they are no longer  collectible.  The  policy  for  loans  secured  by real
estate,  which comprise the bulk of the Bank's  portfolio,  is to establish loss
reserves in accordance  with the Bank's loan  classification  process,  based on
generally accepted accounting practices.  It is the policy of the Bank to obtain
an  appraisal on all real estate  acquired  through  foreclosure  at the time of
foreclosure.
<PAGE>


The following table sets forth activity in the Bank's  allowance for loan losses
for the periods set forth in the table.

                                                          For the Fiscal Year
                                                          Ended September 30,
                                                          -------------------
                                                           1999         1998
                                                          -------------------
                                                             (In Thousands)

Balance at beginning of period ...................        $  171      $   165
Provision for loan losses ........................            72           63
Recoveries:
     Consumer loans ..............................            18            4
                                                          -------------------
          Total recoveries .......................            18            4
                                                          -------------------

Charge-offs:
     Consumer loans ..............................            39           61
                                                          -------------------
          Total charge-offs ......................            39           61
                                                          -------------------
          Net charge-offs ........................           (21)         (57)
                                                          -------------------
Balance at end of period .........................        $  222      $   171
                                                          ===================

Ratio of allowance for loan losses to gross
   loans outstanding at the end of the period ...          0.76%        0.65%
Ratio of net charge offs to average loans
   outstanding during the period ................          0.07%        0.21%
Ratio of allowance for loan losses to total
   nonperforming loans at the end of the period .        108.29%       41.71%

<PAGE>


The following  table sets forth the Bank's  allocation of the allowance for loan
losses by  category  and the  percent of the  allocated  allowance  to the total
allowance for each specific loan category. The portion of the allowance for loan
losses  allocated to each loan category  does not represent the total  available
for  future  losses  which may occur  within the loan  category  since the total
allowance for loan losses is a valuation reserve to the entire loan portfolio.
<TABLE>
                                               At September 30,
                           -------------------------------------------------------------
                                     1999                             1998
                           -----------------------------   -----------------------------
                                   As % of      % of               As % of      % of
                                     Gross    Loans in               Gross    Loans in
                                   Loans in  Category to           Loans in  Category to
                           Amount  Category  Gross Loans   Amount  Category  Gross Loans
                           -------------------------------------------------------------
                                             (Dollars in Thousands)
<S>                        <C>     <C>       <C>           <C>     <C>       <C>
Mortgage Loans:
   One- to four-family .   $   52     0.24%     72.83%     $   62    0.32%     72.42%
   Multi-family ........      - -      - -       2.19%        - -     - -       0.98%
   Commercial real
      estate ...........      - -      - -       1.78%        - -     - -       4.26%
   Other loans secured
      by real estate ...      - -      - -       4.55%        - -     - -       1.07%
                           ----------------------------------------------------------
         Total mortgage
           loans .......       52     0.24%     81.35%         62    0.32%     78.73%
                           ----------------------------------------------------------
Commercial and
   Consumer Loans:
      Commercial .......     26       2.23%      3.99%         17    2.72%      2.38%
      Consumer .........     51       1.48%     11.84%         56    1.37%     15.58%
      Home equity lines
         of credit .....    - -        - -       2.23%        - -     - -       2.58%
      Other consumer
         loans .........    - -        - -       0.59%        - -     - -       0.73%
                          -----------------------------------------------------------
             Total
               commercial
               and
               consumer
               loans ...     77       1.42%     18.65%        73     1.31%     21.27%
                          -----------------------------------------------------------

Total Allocated ........    129       0.44%    100.00%       135     0.51%    100.00%
                                               =======                        =======
Unallocated ............     93       0.32%                   36     0.14%
                          -----------------               ----------------
Total allowance for
   loan losses .........  $ 222       0.76%               $  171     0.65%
                          =================               ================
</TABLE>
<PAGE>


Investment Activities

The  investment  policies  of the Company and the Bank,  as  established  by the
respective  Board of  Directors,  attempts  to provide and  maintain  liquidity,
generate a favorable return on investments without incurring undue interest rate
and credit risk, and complement the Company's  lending  activities.  The Company
classifies all securities as available for sale. The investment policies provide
authority to invest in U.S. Treasury and U.S. Government guaranteed  securities,
securities  backed  by  federal  agencies  such  as  Federal  National  Mortgage
Association  ("FNMA"),  Federal Home Loan Mortgage Corporation ("FHLMC") and the
Federal Farm Credit Bureau  ("FFCB"),  mortgage-backed  securities  with maximum
maturities  of  20  years  which  are  backed  by  federal  agency   securities,
obligations  of state and  political  subdivisions  with at least an "A" rating,
certificates of deposit,  and securities  issued by mutual funds which invest in
securities  consistent with the Company's or Bank's allocable  investments.  The
investment  policies  provide that the  President is  authorized  to execute all
transactions  within  specified  limits  which  are  reviewed  by the  Board  of
Directors on a monthly  basis.  From time to time,  the Board of  Directors  may
authorize the President to exceed the policy  limitations.  The Bank's  Interest
Rate Risk Committee  monitors  compliance with the Bank's  investment policy and
generally meets on a quarterly basis.

At September 30, 1999,  the Company had $17.3  million in investment  securities
consisting of $.9 million invested in mortgage-backed  securities,  $1.0 million
in U.S.  Treasury,  $13.1 million invested in U.S.  Government and agency,  $1.6
million invested in obligations of state and political  securities,  $.5 million
invested  in  corporate  securities  and $.2  million  invested  in FHLB  stock.
Investments in mortgage-backed securities involve a risk that actual prepayments
will exceed prepayments estimated over the life of the security which may result
in a loss of any premium  paid for such  instruments  thereby  reducing  the net
yield on such  securities.  In addition,  if interest  rates increase the market
value of such  securities  may be  adversely  affected,  which,  in turn,  would
adversely affect  stockholders' equity to the extent such securities are held as
available for sale.

Mortgage-backed  securities  represent  a  participation  interest  in a pool of
single-family or multi-family mortgages,  the principal and interest payments on
which are passed from the mortgage originators through intermediaries (generally
federal   government-sponsored   enterprises)   that  pool  and   repackage  the
participation  interest in the form of securities to investors such as the Bank.
Such federal  government-sponsored  enterprises,  which guarantee the payment of
principal  and  interest  to  investors,  include  the  FHLMC,  FNMA  and  GNMA.
Mortgage-backed  securities  generally increase the quality of the Bank's assets
by virtue of the  guarantees  that back  them.  They are also more  liquid  than
individual  mortgage loans and may be used to collateralize  borrowings or other
obligations of the Bank. The Bank has no investments in collateralized  mortgage
obligations or real estate investment conduits.

The following tables set forth certain information  regarding the amortized cost
and  market  values of the  Company's  securities  at the dates  indicated.  The
Company holds all securities as available for sale.
<TABLE>
                                                           At September 30,
                                                 -----------------------------------
                                                       1999               1998
                                                 ----------------- -----------------
Available for Sale                               Amortized  Fair   Amortized   Fair
                                                   Cost     Value     Cost    Value
                                                 -----------------------------------
                                                            (In Thousands)
<S>                                              <C>       <C>      <C>      <C>
U.S. Government and agency securities ..........  $13,182  $13,099  $ 9,752  $ 9,875
U.S. Treasury ..................................    1,000    1,002    4,000    4,016
Obligations of states and political subdivisions    1,642    1,626    1,643    1,684
Mortgage backed securities .....................      880      909    1,288    1,356
Corporate securities ...........................      500      482      - -      - -
                                                  ----------------------------------

     Total Available for Sale ..................  $17,204  $17,118  $16,683  $16,931
                                                  ==================================
</TABLE>
<PAGE>



At September  30, 1999 and 1998,  the Company had  investments  in FHLB stock of
$216,000 and $215,000, respectively.

The  following  table sets forth  information  concerning  the  carrying  value,
weighted average yields, and maturities of the Company's  investment  securities
at September  30, 1999.  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 have been
excluded from the maturity schedule below.

The Federal Home Loan Bank stock is considered a  nonmarketable  equity security
for reporting  purposes.  As such,  the stock has no maturity date and therefore
has been excluded from the maturity schedule below.
<TABLE>
                                          Less Than One Year One to Five Years Five to Ten Years  Over Ten Years        Total
                                          ------------------ ----------------- ----------------- ----------------- -----------------
Available for Sale (1)                             Weighted          Weighted          Weighted           Weighted         Weighted
                                            Fair    Average   Fair    Average   Fair    Average   Fair    Average   Fair    Average
                                            Value  Yield (3)  Value  Yield (3)  Value  Yield (3)  Value  Yield (3)  Value  Yield (3)
                                           -----------------------------------------------------------------------------------------
                                                                   (Dollars in Thousands)
<S>                                        <C>     <C>       <C>     <C>       <C>     <C>       <C>     <C>        <C>    <C>
U.S. Government and agency
  securities ............................  $1,196   5.20%    $8,720    5.90%   $3,183   6.34%    $   - -      - -   $13,099    5.91%
U.S. Treasury ...........................   1,002   5.50%       - -     - -       - -    - -         - -      - -     1,002    5.50%
Obligations of states and
   political subdivisions (2) ...........     - -    - -        141    4.62%    1,291   4.77%        194     4.50%    1,626    4.51%
Corporate ...............................     - -    - -        482    5.75%      - -    - -         - -      - -       482    5.75%
                                           -----------------------------------------------------------------------------------------

Total Available for Sale ................  $2,198  10.70%    $9,343    5.88%   $4,474   5.89%    $   194     4.50%  $16,209    5.94%
                                           =========================================================================================
<FN>

(1) Excludes mortgage-backed securities and FHLB stock.

(2) These investments yield lower interest rates as they are exempt from federal
    taxes.

(3) Weighted average yields are calculated based on amortized cost.
</FN>
</TABLE>
<PAGE>



Deposit Activities and Other Sources of Funds

General. The Company's primary sources of funds for use in lending and investing
and for other general purposes are deposits at the Bank,  Federal Home Loan Bank
advances  and  proceeds  from   principal   and  interest   payments  on  loans,
mortgage-backed   securities,   and  investment  securities.   Contractual  loan
repayments are a relatively  stable source of funds,  while deposit  inflows and
outflows and loan prepayments are  significantly  influenced by general interest
rates and money market conditions.  Borrowings may be used on a short-term basis
to compensate for reductions in the availability of funds from other sources.

Deposit  Accounts.  The Bank attracts deposits within its primary market area by
offering a variety of deposit accounts,  including  noninterest bearing checking
accounts,   negotiable  order  of  withdrawal  ("NOW")  accounts,   money-market
accounts,  passbook savings  accounts and  certificates of deposit.  The flow of
deposits is influenced significantly by general economic conditions,  changes in
money  market  and  prevailing  interest  rates,  and  competition.   Management
generally  reviews  on a weekly  basis the  interest  rates set for its  deposit
accounts.   The  Bank  also  relies  on  customer   service  and   long-standing
relationships with customers to attract and retain deposits.

The following table sets forth the distribution of the Bank's deposit
accounts at the dates  indicated and the weighted  average nominal rates on each
category of deposits presented.
<TABLE>
                                                   At September 30,
                                --------------------------------------------------------
                                           1999                        1998
                                ---------------------------  ---------------------------

                                                   Average                      Average
                                Average   Total    Interest  Average   Total    Interest
                                Balance  Deposits    Rate    Balance  Deposits    Rate
                                --------------------------------------------------------
                                                 (Dollars in Thousands)
<S>                             <C>      <C>       <C>       <C>      <C>       <C>
Demand accounts:
   Noninterest bearing .....   $ 1,827     4.86%      --     $ 1,451     4.03%    --
   Interest-bearing (NOW) ..     4,575    12.16%     1.55%     3,712    10.30%   1.75%
   Money market ............     2,960     7.87%     2.50%     3,550     9.85%   2.84%
Passbook savings ...........     3,604     9.58%     2.08%     3,435     9.53%   2.33%
Time deposits ..............    24,658    65.53%     5.09%    23,892    66.29%   5.71%
                               -------------------------------------------------------
      Total deposit accounts   $37,624   100.00%     3.92%   $36,040   100.00%   4.47%
                               =======================================================
</TABLE>

The following  table  indicates the amount of the Bank's jumbo  certificates  of
deposit and other time  deposits of  $100,000  or more by time  remaining  until
maturity as of September 30, 1999. Jumbo certificates of deposit require minimum
deposits  of  $100,000  and  rates  paid on such  accounts  are  negotiable.  At
September 30, 1999, total jumbo certificates were $2,627,000.

                                                          Time
           Maturity Period                              Deposits
------------------------------------------------     --------------
                                                     (In Thousands)

Less than three months .........................         $   591
Three through six months .......................             200
Six through twelve months ......................             524
Over twelve months .............................           1,312
                                                         -------
     Total .....................................         $ 2,627
                                                         =======

<PAGE>


Borrowings.  The Bank may rely on advances from the FHLB of Chicago in the event
of a reduction in available  funds from other  sources.  The Bank is a member of
the FHLB of Chicago,  which functions as a central reserve bank providing credit
for savings and loan associations and other member financial institutions.  As a
member,  the Bank is required to own capital stock in the FHLB of Chicago and is
authorized  to apply for  advances on the  security of such stock and certain of
its  mortgage-based  loans and other  assets,  provided  that certain  standards
relating to creditworthiness  have been met. The Bank has borrowed from the FHLB
of Chicago, from time to time, on an overnight basis. At September 30, 1999, the
Bank had outstanding  borrowings from the FHLB of $1.4 million. At September 30,
1998, the Bank had no outstanding borrowings from the FHLB.

Subsidiary Activities

The Bank has one wholly-owned  service  corporation,  Centralia SLA, an Illinois
corporation.  Centralia SLA is engaged in the business of selling mortgage life,
mortgage disability, credit life and credit disability insurance to mortgage and
consumer  loan  customers  of the Bank.  As of September  30,  1999,  the Bank's
investment  in Centralia  SLA amounted to  approximately  $18,000 or .04% of the
Bank's  total   assets.   Insurance   commissions   accounted   for  $12,000  or
approximately  2.4% of the Bank's  pre-tax  income  during the year.  Management
continues to place less emphasis on the sale of insurance and  anticipates  that
the amount of such income will continue to decline over the next few years.

Competition

The Bank's  deposit and lending  base is presently  concentrated  in the city of
Centralia and the surrounding area,  including Central City to the north,  Wamac
to the  South,  Salem to the east and  Hoffman to the west.  This area  includes
portions of the Illinois counties of Washington,  Jefferson, Marion and Clinton,
which are primarily  agricultural.  Population growth in those four counties has
remained  relatively flat in recent years.  Management  believes that, in recent
years,  total  deposits have grown only  modestly and there has been  relatively
little new  construction  or real estate  development in the  four-county  area.
Management  further  believes  that,  as a result,  any  growth in the  mortgage
lending business within the area has also been modest.

The Bank has five principal competitors for deposits and lending business within
the city of Centralia.  All five  competitors  are branches or  subsidiaries  of
commercial banks. Of these five competitors, one is affiliated with a multi-bank
holding company based in St. Louis, one is affiliated with a regional bank based
in St. Louis,  one is affiliated  with a multi-bank  holding based in Charlotte,
N.C.,  and the remaining two are branches of independent  community  banks which
have their main offices in the neighboring  towns of Hoffman and Irvington.  The
multi-bank  holding  companies  and  regional  bank have  substantially  greater
financial  resources  and currently  offer a larger array of financial  services
than the Bank.  Each of the  independent  banks also has a slightly larger asset
base than the Bank.

Given the relative  lack of growth in its market area and the number and greater
resources of the banks with which it  competes,  the Bank has  experienced,  and
expects to continue to experience, strong competition in attracting deposits and
in its mortgage  and consumer  loan  business.  In order to retain  existing and
attract new deposits, the Bank has historically paid deposit rates at the higher
end  of the  range  offered  by its  competitors.  All of the  Bank's  principal
competitors in Centralia are,  moreover,  branches or subsidiaries of commercial
banks with deposits insured under the BIF. Unlike the Bank, such competitors are
able to take advantage of the reduction in the insurance  premiums to be paid on
BIF-insured deposits.

Management also believes that, in order to compete effectively for both deposits
and lending  business,  the Bank must enhance the retail services it offers,  so
that its range of services is more comparable to the range offered by its larger
competitors.  In  providing  such  services,  management  hopes  to be  able  to
capitalize on the Bank's  ability,  as a community bank, to identify and respond
more quickly to local customer needs.  The Bank has expanded the retail services
it offers to customers to include, for example, travelers' checks, money orders,
debit cards and ATM services.


<PAGE>


Personnel

As of September 30, 1999, the Company had a total of 17 full-time  employees and
3  part-time  employees,  all of whom  were  employed  at the  Bank  level.  The
Company's  employees are not  represented  by a union or  collective  bargaining
group.  The  Company  considers  its  relationship  with  its  employees  to  be
satisfactory.

Regulation

General

Financial  institutions  and their holding  companies are extensively  regulated
under  federal and state law by various  regulatory  authorities  including  the
Board of Governors of the Federal Reserve System (the "Federal  Reserve Board"),
the FDIC and the Commissioner.  The financial performance of the Company and the
Savings  Bank may be affected by such  regulation,  although the extent to which
they may be affected cannot be predicted with a high degree of certainty.

Federal  and  state  laws and  regulations  generally  applicable  to  financial
institutions and their holding companies regulate, among other things, the scope
of business, investments,  reserves against deposits, capital levels relative to
operations,  the nature and amount of collateral for loans, the establishment of
branches, mergers, consolidations,  and dividends. The system of supervision and
regulation  applicable  to the  Company  and  the  Savings  Bank  establishes  a
comprehensive  framework for their operations and is intended  primarily for the
protection  of the FDIC's  deposit  insurance  funds and the  depositors  of the
Savings Bank, rather than the stockholders of the Company.

The following  references  to material  statutes and  regulations  affecting the
Company  and the Bank are brief  summaries  thereof and are  qualified  in their
entirety by reference to such statutes and regulations. Any change in applicable
law or regulations may have a material effect on the business of the Company and
the Bank.

The Savings Bank

General. The Bank is an Illinois-chartered savings bank, the deposit accounts of
which are insured by the SAIF of the FDIC. As a SAIF-insured, Illinois-chartered
savings bank, the Bank is subject to the examination, supervision, reporting and
enforcement  requirements of the Commissioner,  as the chartering  authority for
Illinois  savings banks,  and the FDIC, as administrator of the SAIF, and to the
statutes and regulations administered by the Commissioner and the FDIC governing
such matters as capital  standards,  mergers,  establishment  of branch offices,
subsidiary investments and activities and general investment authority. The Bank
is required to file reports with the  Commissioner  and the FDIC  concerning its
activities  and financial  condition  and will be required to obtain  regulatory
approvals prior to entering into certain  transactions,  including mergers with,
or acquisitions of, other financial institutions.

The  Commissioner  and  the  FDIC  have  extensive  enforcement  authority  over
Illinois-chartered  savings banks, such as the Bank. This enforcement  authority
includes,  among other things, the ability to issue  cease-and-desist or removal
orders, to assess civil money penalties and to initiate  injunctive  actions. In
general,  these enforcement  actions may be initiated for violations of laws and
regulations and unsafe and unsound practices.

The  Commissioner  has established a schedule for the assessment of "supervisory
fees"  upon  all  Illinois   savings  banks  to  fund  the   operations  of  the
Commissioner.  These  supervisory fees are computed on the basis of each savings
bank's total assets (including consolidated subsidiaries) and are payable at the
end of each calendar  quarter.  A schedule of fees has also been established for
certain  filings  made by  Illinois  savings  banks with the  Commissioner.  The
Commissioner also assesses fees for examinations conducted by the Commissioner's
staff,  based  upon the  number  of  hours  spent  by the  Commissioner's  staff
performing the examination.





<PAGE>


The system of regulation and  supervision  applicable to the Bank  establishes a
comprehensive  framework for its  operations  and is intended  primarily for the
protection of the FDIC's deposit insurance funds and the depositors of the Bank.
Changes in the regulatory  framework could have a material adverse effect on the
Bank and its operations  which, in turn, could have a material adverse effect on
the Company.

Deposit Insurance Premiums

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 $0.00 to $0.27 per $100 of deposits.

Capital  Requirements.  Under the  Illinois  Savings  Bank Act  ("ISBA") and the
regulations  of the  Commissioner,  an  Illinois  savings  bank must  maintain a
minimum  level of total capital equal to the higher of 4% of total assets or the
amount required to maintain  insurance of deposits by the FDIC. The Commissioner
has the authority to require an Illinois savings bank to maintain a higher level
of capital if the  Commissioner  deems such higher level  necessary based on the
savings bank's financial condition, history, management or earnings prospects.

FDIC-insured  institutions  are  required  to follow  certain  capital  adequacy
guidelines   which  prescribe   minimum  levels  of  capital  and  require  that
institutions meet certain  risk-based and leverage capital  requirements.  Under
the FDIC capital  regulations,  an FDIC-insured  institution is required to meet
the following capital standards: (i) "Tier 1 capital" in an amount not less than
4% of average total assets;  (ii) "Tier 1 capital" in an amount not less than 4%
of risk-weighted assets; and (iii) "total capital" in an amount not less than 8%
of risk-weighted assets.

FDIC-insured  institutions in the strongest  financial and managerial  condition
(with a composite rating of "1" under the Uniform Financial  Institutions Rating
System established by the Federal Financial  Institutions  Examination  Council)
are required to maintain  "Tier 1 capital"  equal to at least 4% of total assets
(the "leverage limit" requirement). For all other FDIC-insured institutions, the
minimum  leverage  limit  requirement  is 3% of  total  assets  plus at least an
additional 100 to 200 basis points. Tier 1 capital is defined to include the sum
of  common  stockholders'  equity,   noncumulative   perpetual  preferred  stock
(including  any  related  surplus),   and  minority  interests  in  consolidated
subsidiaries,  less all  intangible  assets  (other  than  qualifying  servicing
rights,   qualifying   purchased   credit-card   relationships   and  qualifying
supervisory  goodwill),  certain  identified  losses  (as  defined in the FDIC's
regulations) and investments in certain subsidiaries.




<PAGE>


FDIC-insured  institutions  also are  required  to adhere to certain  risk-based
capital  guidelines  which are  designed  to provide a measure  of capital  more
sensitive to the risk profiles of individual banks. Under the risk-based capital
guidelines, capital is divided into two tiers: core (Tier 1) capital, as defined
above, and supplementary (Tier 2) capital.  Tier 2 capital is limited to 100% of
core  capital and  includes  cumulative  perpetual  preferred  stock,  perpetual
preferred  stock for  which the  dividend  rate is reset  periodically  based on
current  credit  standing,  regardless of whether  dividends  are  cumulative or
noncumulative, mandatory convertible securities, subordinated debt, intermediate
preferred  stock and the  allowance  for  possible  loan and lease  losses.  The
allowance  for possible  loan and lease losses  includable  in Tier 2 capital is
limited to a maximum of 1.25% of risk-weighted  assets. Total capital is the sum
of Tier 1 and Tier 2 capital.  The risk-based  capital framework assigns balance
sheet  assets  to  one  of  four  broad  risk  categories   which  are  assigned
risk-weights  ranging  from 0% to 100% based  primarily  on the degree of credit
risk  associated with the obligor.  Off-balance  sheet items are converted to an
on-balance  sheet  "credit   equivalent"  amount  utilizing  certain  conversion
factors.  The sum of the  four  risk-weighted  categories  equals  risk-weighted
assets. The following table presents the Bank's capital position relative to its
capital requirements on September 30, 1999 and 1998 ($ in thousands).
<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, 1999:
Total Capital (to Risk Weighted
   Assets)
      Consolidated ......................   $10,014   43.9%    $ 1,825    8.0%      N/A
      Bank ..............................   $ 9,769   42.8%    $ 1,825    8.0%   $2,281    10.0%
Tier I Capital (to Risk Weighted
   Assets)
      Consolidated ......................   $ 9,792   42.9%    $   913    4.0%   $  N/A
      Bank ..............................   $ 9,547   41.9%    $   913    4.0%   $1,369     6.0%
Tier I Capital (to Average
   Adjusted Assets)
      Consolidated ......................   $ 9,792   20.3%    $ 1,930    4.0%   $  N/A
      Bank ..............................   $ 9,547   19.8%    $ 1,930    4.0%   $2,412     5.0%

As of September 30, 1998:
Total Capital (to Risk Weighted
   Assets)
      Consolidated ......................   $ 9,546   46.2%    $ 1,655    8.0%   $  N/A
      Bank ..............................   $ 9,239   44.7%    $ 1,655    8.0%   $2,069    10.0%
Tier I Capital (to Risk Weighted
   Assets)
      Consolidated ......................   $ 9,375   45.3%    $   827    4.0%   $  N/A
      Bank ..............................   $ 9,067   43.8%    $   827    4.0%   $1,241     6.0%
Tier I Capital (to Average
   Adjusted Assets)
      Consolidated ......................   $ 9,375   19.8%    $ 1,899    4.0%   $  N/A
      Bank ..............................   $ 9,067   19.4%    $ 1,869    4.0%   $2,337     5.0%
</TABLE>
<PAGE>


Dividends.  Under  the  ISBA,  dividends  may be paid by the Bank out of its net
profits (i.e., earnings from current operations,  investments,  and other assets
plus actual recoveries on loans, net of current expenses including  dividends or
interest on  deposits,  additions  to reserves as required by the  Commissioner,
actual losses,  accrued  dividends on preferred stock, if any, and all state and
federal  taxes).  The written  approval of the  Commissioner  must be  obtained,
however, before the Bank may declare dividends in any calendar year in an amount
in excess of 50% of its net profits for that calendar year. In addition,  before
declaring a dividend on its capital  stock,  the Bank must transfer no less than
one-half of its net profits of the  preceding  half year to its paid-in  surplus
until it shall have paid-in surplus equal to 20% of its capital stock.  Finally,
the Bank will be unable to pay  dividends  in an amount  which would  reduce its
capital  below the  greater of (i) the  amount  required  by the FDIC,  (ii) the
amount  required  by the  Commissioner  or (iii)  the  amount  required  for the
liquidation  account  to be  established  by the  Bank in  connection  with  the
Conversion.  The  Commissioner  and the FDIC also have the authority to prohibit
the payment of any dividends by the Savings Bank if the Commissioner or the FDIC
determines that the distribution would constitute an unsafe or unsound practice.

Community  Reinvestment Act  Requirements.  The FDIC, the Federal Reserve Board,
the Office of Thrift  Supervision  ("OTS") and the Office of the  Comptroller of
the Currency  ("OCC") have jointly  issued a final rule (the "Final Rule") under
the  Community  Reinvestment  Act (the  "CRA").  The Final Rule  eliminates  the
existing  CRA  regulation's   twelve   assessment   factors  and  substitutes  a
performance based evaluation  system. The Final Rule became fully effective July
1, 1997.

Under the Final Rule, an  institution's  performance in meeting the credit needs
of its entire community,  including low- and moderate-income  areas, as required
by the CRA, are generally  evaluated under three tests:  the "lending test," the
"investment  test," and the "service  test." However,  an independent  financial
institution  with assets of less than $250 million,  or a financial  institution
with assets of less than $250 million that is a subsidiary of a holding  company
with  assets of less than $1  billion,  will be  evaluated  under a  streamlined
assessment  method based primarily on its lending record.  The streamlined  test
considers an institution's loan-to-deposit ratio adjusted for seasonal variation
and  special  lending  activities,  its  percentage  of loans and other  lending
related activities in the assessment area, its record of lending to borrowers of
different  income  levels  and  businesses  and farms of  different  sizes,  the
geographic  distribution  of its  loans,  and its  record of taking  action,  if
warranted,  in response to written complaints.  In lieu of being evaluated under
the three assessment tests or the streamlined test, a financial  institution can
adopt a "strategic plan" and elect to be evaluated on the basis of achieving the
goals and benchmarks  outlined in the strategic plan.  Management of the Company
does not believe that the new CRA regulations  will adversely affect the Savings
Bank.

The Company

General.  On October 5, 1995,  the Company  became the sole  stockholder  of the
Bank. As such, the Company is a bank holding company. As a bank holding company,
the Company is subject to regulation by the Federal Reserve Board under the Bank
Holding Company Act (BHCA). In accordance with Federal Reserve Board policy, the
Company is expected to act as a source of financial  strength to the Bank and to
commit  resources to support the Bank in  circumstances  where the Company might
not do so absent such policy. Under the BHCA, the Company is subject to periodic
examination  by the  Federal  Reserve  Board and is  required  to file  periodic
reports of its operations and such additional information as the Federal Reserve
Board may require. Because the Bank is chartered under Illinois law, the Company
is also subject to registration  with, and regulation by, the Commissioner under
the ISBA.




<PAGE>


The BHCA requires prior Federal  Reserve Board approval for, among other things,
the  acquisition  by a bank holding  company of direct or indirect  ownership or
control of more than five percent of the voting shares or substantially  all the
assets of any bank, or for a merger or  consolidation  of a bank holding company
with another bank holding company. With certain exceptions, the BHCA prohibits a
bank holding company from acquiring  direct or indirect  ownership or control of
voting  shares of any company  which is not a bank or bank  holding  company and
from  engaging  directly or  indirectly  in any  activity  other than banking or
managing  or  controlling  banks  or  performing  services  for  its  authorized
subsidiaries.  A bank  holding  company  may,  however,  engage in or acquire an
interest in a company that engages in activities which the Federal Reserve Board
has  determined by  regulation  or order to be so closely  related to banking or
managing or controlling banks as to be a proper incident thereto.

A bank  holding  company  is a legal  entity  separate  and  distinct  from  its
subsidiary  bank or banks.  Normally,  the major  source of a holding  company's
revenue is dividends a holding company  receives from its subsidiary  banks. The
right  of a  bank  holding  company  to  participate  as a  stockholder  in  any
distribution  of  assets of its  subsidiary  banks  upon  their  liquidation  or
reorganization  or otherwise is subject to the prior claims of creditors of such
subsidiary  banks.  The subsidiary  banks are subject to claims by creditors for
long-term and short-term debt obligations, including substantial obligations for
federal funds purchased and securities sold under repurchase agreements, as well
as deposit liabilities.  Under the Financial  Institutions Reform,  Recovery and
Enforcement  Act of  1989,  in the  event  of a loss  suffered  by the  FDIC  in
connection with a banking subsidiary of a bank holding company (whether due to a
default or the provision of FDIC assistance),  other banking subsidiaries of the
holding company could be assessed for such loss.

Federal  laws limit the  transfer of funds by a  subsidiary  bank to its holding
company in the form of loans or extensions of credit,  investments, or purchases
of assets. Transfers of this kind are limited to ten percent of a bank's capital
and  surplus  with  respect  to each  affiliate  and to  twenty  percent  to all
affiliates  in the  aggregate,  and  are  also  subject  to  certain  collateral
requirements.  These  transactions,  as well as  other  transactions  between  a
subsidiary bank and its holding company, must also be on terms substantially the
same  as,  or at  least  as  favorable  as,  those  prevailing  at the  time for
comparable  transactions  with  non-affiliated  companies  or, in the absence of
comparable  transactions,  on  terms or under  circumstances,  including  credit
standards,  that  would  be  offered  to,  or  would  apply  to,  non-affiliated
companies.

Capital  Requirements.  The Federal Reserve Board has adopted  capital  adequacy
guidelines for bank holding  companies (on a consolidated  basis)  substantially
similar to those of the FDIC for the  Savings  Bank.  The  Company's  Tier 1 and
total capital  significantly exceed the Federal Reserve Board's capital adequacy
requirements.

In June,  1999,  the  Board of  Directors  authorized  management  to  retain an
independent third party to evaluate strategic alternatives for the Company. This
action  resulted  from an  unsolicited  offer that was  declined by the Board of
Directors.

Other Regulations.

FDICIA.  FDICIA was enacted on December 19, 1991.  In addition to providing  for
the  recapitalization  of the Bank  Insurance  Fund ("BIF") of the FDIC,  FDICIA
represents a comprehensive and fundamental change to banking supervision. FDICIA
imposes relatively detailed standards and mandates the development of additional
regulations  governing  nearly every aspect of the  operations,  management  and
supervision of banks and bank holding companies like the Company and the Bank.





<PAGE>


As  required  by  FDICIA,  and  subsequently  amended  by the  Riegle  Community
Development  and  Regulatory  Improvement  Act  of  1994,  the  federal  banking
regulators   adopted   (effective   August  9,  1995)   interagency   guidelines
establishing  standards for safety and soundness for depository  institutions on
matters such as internal  controls,  loan  documentation,  credit  underwriting,
interest-rate  risk exposure,  asset growth, and compensation and other benefits
(the  "Guidelines").  In addition,  the federal banking regulators have proposed
asset quality and earnings standards to be added to the Guidelines. The agencies
expect to request a compliance  plan from an  institution  whose failure to meet
one or more of the standards is of such severity that it could threaten the safe
and sound operation of the institution.  FDIC  regulations  enacted under FDICIA
also require all depository  institutions to be examined annually by the banking
regulators  and  depository  institutions  having $500  million or more in total
assets to have an annual independent audit, an audit committee  comprised solely
of outside directors, and to hire outside auditors to evaluate the institution's
internal  control   structure  and  procedures  and  compliance  with  laws  and
regulations  relating  to safety  and  soundness.  The  FDIC,  in  adopting  the
regulations, reiterated its belief that every depository institution, regardless
of size,  should  have an  annual  independent  audit and an  independent  audit
committee.

FDICIA  requires the banking  regulators to take prompt  corrective  action with
respect to depository  institutions  that fall below certain  capital levels and
prohibits any depository  institution from making any capital  distribution that
would cause it to be considered undercapitalized.  Regulations establishing five
capital    categories    of   well    capitalized,    adequately    capitalized,
undercapitalized, significantly undercapitalized and critically undercapitalized
became  effective  December  19,  1992.  Institutions  that  are not  adequately
capitalized  may  be  subjected  to a  broad  range  of  restrictions  on  their
activities and will be required to submit a capital  restoration  plan which, to
be accepted by the regulators,  must be guaranteed in part by any company having
control of the institution.  Only well  capitalized  institutions and adequately
capitalized  institutions  receiving a waiver from the FDIC will be permitted to
accept  brokered  deposits,  and only  those  institutions  eligible  to  accept
brokered deposits may provide pass-through deposit insurance for participants in
employee  benefit  plans.  In  other  respects,  FDICIA  provides  for  enhanced
supervisory  authority,  including  greater  authority for the  appointment of a
conservator or receiver for undercapitalized institutions.

A range of other regulations adopted as a result of FDICIA include  requirements
applicable to closure of branches;  additional  disclosures  to depositors  with
respect to terms and interest rates applicable to deposit accounts; requirements
for the banking  agencies to adopt uniform  regulations for extensions of credit
secured by real  estate;  modification  of  accounting  standards  to conform to
generally accepted accounting  principles including the reporting of off-balance
sheet items and supplemental disclosure of estimated fair market value of assets
and  liabilities  in  financial  statements  filed with the banking  regulators;
increased  penalties  in making or failing to file  assessment  reports with the
FDIC;  greater  restrictions on extensions of credit to directors,  officers and
principal  stockholders;  and increased  reporting  requirements on agricultural
loans and loans to small businesses.

As required by FDICIA,  the FDIC has established a risk-based  assessment system
for the deposit  insurance  provided to depositors  at  depository  institutions
whereby assessments to each institution are calculated upon the probability that
the insurance fund will incur a loss with respect to the institution, the likely
amount of such loss,  and the revenue  needs of the  insurance  fund.  Under the
system, deposit insurance premiums are based upon an institution's assignment to
one of  three  capital  categories  and a  further  assignment  to one of  three
supervisory  subcategories  within each capital  category.  The result is a nine
category   assessment   system  with  initial   assessment  rates  ranging  from
twenty-three cents to thirty-one cents per one hundred dollars of deposits in an
institution.  The  classification of an institution into a category will depend,
among other things,  on the results of off-site  surveillance  systems,  capital
ratio,  and CAMELS  rating (a  supervisory  rating of  capital,  asset  quality,
management, earnings, liquidity and sensitivity to market risk).




<PAGE>


The CDR Act.  On  September  23,  1994,  the Riegle  Community  Development  and
Regulatory  Improvement  Act of 1994 (the "CDR  Act") was  enacted.  The CDR Act
includes more than 50 regulatory  relief  provisions  designed to streamline the
regulatory  process for banks and thrifts and to eliminate  certain  duplicative
regulations  and  paperwork  requirements  established  after,  and largely as a
result of, the savings and loan debacle. Well run community banks with less than
$250 million in assets will be examined  every 18 months  rather than  annually.
The  application  process for forming a bank  holding  company has been  greatly
reduced.  Also,  the  requirement  that call report data be  published  in local
newspapers has been eliminated.

Also, the CDR Act establishes  dual programs and provides  funding in the amount
of $382 million to provide for development  services,  lending and investment in
distressed urban and rural areas by community development financial institutions
and banks.  In  addition,  the CDR Act  includes  provisions  relating  to flood
insurance reform, money laundering, regulation of high-cost mortgages, and small
business and commercial real estate loan securitization.

The Branching Act. On September 29, 1994, the Riegle-Neal Interstate Banking and
Branching  Efficiency Act of 1994 (the "Branching  Act") was enacted.  Under the
Branching  Act,  beginning  September  29,  1995,  adequately   capitalized  and
adequately  managed bank holding  companies  are allowed to acquire banks across
state lines,  without  regard to whether the  transaction is prohibited by state
law,  however,  they are  required  to maintain  the  acquired  institutions  as
separately chartered institutions.  Any state law relating to the minimum age of
target banks (not to exceed five years) will be  preserved.  Under the Branching
Act, the Federal  Reserve Board will not be permitted to approve any acquisition
if, after the acquisition,  the bank holding company would control more than 10%
of the deposits of insured depository  institutions nationwide or 30% or more of
the deposits in the state where the target bank is located.  The Federal Reserve
Board could approve an acquisition,  notwithstanding the 30% limit, if the state
waives the limit either by statute, regulation or order of the appropriate state
official.

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

The  responsible  federal agency will not be permitted to approve any merger if,
after the  merger,  the  resulting  entity  would  control  more than 10% of the
deposits of insured  depository  institutions  nationwide  or 30% or more of the
deposits in any state  affected  by the merger.  The  responsible  agency  could
approve a merger,  notwithstanding  the 30% limit,  if the home state waives the
limit either by statute, regulation or order of the appropriate state official.

Pending  Legislation.  On November 4, 1999, the United States Congress  approved
legislation  that would allow bank holding  companies to engage in a wider range
of nonbanking  activities,  including  greater authority to engage in securities
and insurance activities.  Under the  Gramm-Leach-Bliley Act (the "Act"), a bank
holding company that elects to become a financial  holding company may engage in
any  activity  that the Board of Governors  of the Federal  Reserve  System (the
"Federal  Reserve"),  in  consultation  with  the  Secretary  of  the  Treasury,
determines by regulation or order is (i) financial in nature, (ii) incidental to
any such  financial  activity,  or  (iii)  complementary  to any such  financial
activity  and does not pose a  substantial  risk to the safety or  soundness  of
depository  institutions or the financial  system  generally.  The Act specifies
certain activities that are deemed to be financial in nature, including lending,
exchanging,  transferring,  investing  for  others,  or  safeguarding  money  or
securities; underwriting and selling insurance; providing financial, investment,
or economic advisory services;  underwriting,  dealing in or making a market in,
securities;  and any activity currently  permitted for bank holding companies by
the Federal  Reserve  under section  4(c)(8) of the Bank Holding  Company Act. A
bank holding company may elect to be treated as a financial holding company only
if  all  depository   institution   subsidiaries  of  the  holding  company  are
well-capitalized, well-managed and have at least a satisfactory rating under the
Community Reinvestment Act.


<PAGE>


National  banks are also  authorized  by the Act to engage,  through  "financial
subsidiaries,"  in any  activity  that is  permissible  for a financial  holding
company  (as  described  above)  and any  activity  that  the  Secretary  of the
Treasury,  in consultation with the Federal Reserve,  determines is financial in
nature or  incidental  to any such  financial  activity,  except  (i)  insurance
underwriting,  (ii) real estate development or real estate investment activities
(unless   otherwise   permitted  by  law),  (iii)  insurance  company  portfolio
investments  and (iv)  merchant  banking.  The  authority of a national  bank to
invest  in a  financial  subsidiary  is  subject  to  a  number  of  conditions,
including,  among other things,  requirements that the bank must be well-managed
and  well-capitalized  (after  deducting  from  capital  the bank's  outstanding
investments  in financial  subsidiaries).  The Act provides that state banks may
invest in financial  subsidiaries  (assuming they have the requisite  investment
authority under  applicable state law) subject to the same conditions that apply
to national bank investments in financial subsidiaries.

The Act must be signed by the  President  before  it will take  effect.  At this
time,  the  Company  is unable to  predict  the  impact  the Act may have on the
Company and its subsidiary.

Impact of New Accounting Standards

Accounting  for  Derivative  Instruments  and Hedging  Activities  Statement  of
Financial  Accounting Standard No. 133,  "Accounting for Derivative  Instruments
and Hedging Activities" (FAS 133) establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that an entity recognize
all  derivatives  as either assets or  liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of a derivative  depends on the intended use of the derivative
and the resulting  designation.  This statement applies to all entities. FAS 133
is effective for all fiscal  quarters of fiscal years  beginning  after June 15,
1999.  Earlier  application  is  encouraged.  The statement is not to be applied
retroactively to financial  statements of prior periods. In June 1999, Statement
of Financial Accounting Standard No. 137 was issued to extend the effective date
by one year to all fiscal  quarters  of fiscal  years  beginning  after June 15,
2000.  The Company  does not believe the  adoption of FAS 133, as amended by FAS
137, will have a material impact on the consolidated financial statements.

Accounting for  Mortgage-Backed  Securities Retained after the Securitization of
Mortgage  Loans  Held for Sale by a Mortgage  Banking  Enterprise  Statement  of
Financial   Accounting   Standard  No.  134,   "Accounting  for  Mortgage-Backed
Securities  Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking  Enterprise" (FAS 134) changes the way mortgage banking firms
account  for  certain   securities   and  other   interests  they  retain  after
securitizing  mortgage loans that were held for sale. The Statement is effective
for financial  statements for the first fiscal quarter  beginning after December
15,  1998.  The  Company  does not  securitize  mortgages  and is not a Mortgage
Banking  Enterprise  and  therefore,  FAS 134  will not  have an  impact  on the
consolidated financial statements.

Reclassifications Certain reclassifications have been made to the balances as of
September  30, 1999,  with no effect on net income,  to be  consistent  with the
classifications adopted for September 30, 1998.

Year 2000 Compliance

The year 2000 has posed a unique set of challenges to those  industries  reliant
on information technology. As a result of methods employed by early programmers,
many software applications and operational programs may be unable to distinguish
the year 2000 from the year 1900.  If not  effectively  addressed,  this problem
could result in the production of inaccurate  data, or, in the worst cases,  the
inability  of  the  systems  to  continue  to  function  altogether.   Financial
institutions  are  particularly  vulnerable due to the industry's  dependence on
electronic data processing  systems. In 1997, the Company started the process of
identifying  the hardware and software issues required to be addressed to assure
year 2000  compliance.  The Company began by assessing the issues related to the
year 2000 and the potential  for those issues to adversely  affect the Company's
operations and those of its subsidiaries.


<PAGE>


Since that time, the Company has  established a Year 2000  Compliance  Team (the
Team) composed of representatives from key areas throughout the organization. It
is the mission of this Team to identify areas subject to  complications  related
to the year 2000 and to initiate  remedial  measures  designed to eliminate  any
adverse  effects  on the  Company's  operations.  The  Team has  identified  all
mission-critical  software  and hardware  that may be adversely  affected by the
year 2000 and has required  vendors to  represent  that the systems and products
provided are or will be year 2000 compliant.

All mission  critical  software  was  upgraded  and tested to achieve  year 2000
compliance. In addition, the Team developed contingency plans to address systems
which do not become year 2000 compliant.

Management has determined  that if a business  interruption  as a result of Year
2000 issue occurred,  such an interruption could be material. The primary effort
required to prevent a potential business interruption is to assure the Company's
third  party  processor  is  year  2000  compliant.  As a cost  saving  measure,
management  contracted with a different third party processor and converted data
during the quarter  ended June 30, 1999.  This third party  processor has stated
that Year 2000 remediation and testing efforts have been successfully completed.

The Company is committed to a plan for achieving  compliance,  focusing not only
on its own data processing systems, but also on its loan customers. The Team has
taken steps to educate and assist its customers with identifying their year 2000
compliance  problems.  In addition,  the Team has proposed  policy and procedure
changes  to  help  identify  potential  risks  to the  Company  and to  gain  an
understanding  of how customers are managing the risks  associated with the year
2000.

Management  believes that the organization has an effective year 2000 compliance
program in place and that additional  expenditures required to bring its systems
into  compliance  will not have a  materially  adverse  effect on the  Company's
operations,  cash flow, or financial  condition.  To date,  year 2000 compliance
expenditures  have  amounted to $40,000.  Management  expects  total  additional
out-of-pocket  expenditures  to be less than  $25,000.  This  includes  costs to
upgrade  equipment  specifically  for the  purpose of year 2000  compliance  and
certain administrative expenditures. However, the year 2000 problem is pervasive
and complex and can potentially  affect any computer  process.  Accordingly,  no
assurance  can be given  that  year  2000  compliance  can be  achieved  without
additional unanticipated expenditures and uncertainties that might affect future
financial results.

The Federal  banking  regulators have  established  standards for achieving year
2000 compliance for federally insured depository institutions. If an institution
fails to meet any of the established standards,  its primary regulator may issue
an order directing the institution to cure the deficiency.  Until the deficiency
cited  in the  regulator's  order is  cured,  the  regulator  may  restrict  the
institution's growth rate and take any action the regulator deems appropriate.

Executive Officers of the Registrant

The following table sets forth certain information as of September 30, 1999 with
respect to the executive officers of the Company and the Savings Bank.

     Name                  Age                   Position
--------------------------------------------------------------------------------

K. Gary Reynolds           48        President and Chief Executive Officer of
                                     the Company and the Savings Bank

Stephen J. Greene          41        Vice President of the Savings Bank

Larry D. Griffin           52        Branch Manager, Centralia Savings Bank



<PAGE>


K. Gary  Reynolds  has been the  president  and chief  executive  officer of the
Savings Bank since May, 1994 and the president  and chief  executive  officer of
the Company since its formation. Prior to that time, he was an examiner with the
OCC.

Stephen J. Greene has been a vice  president of the Savings Bank since  January,
1995. Mr. Greene was an examiner with the OCC from  November,  1993 to December,
1994.  Prior  to  that  time,  he was a vice  president  of  Mercantile  Bank of
Centralia,  N.A. where his responsibilities included managing a $25 million loan
portfolio consisting of residential real estate loans and consumer loans.

Larry D.  Griffin has been the manager  and loan  officer of the Carlyle  branch
since his  employment in February  1997.  Prior to that time, he was employed by
Banker's Systems,  Inc. as an account executive for over 15 years,  where he was
responsible  for providing  regulatory  assistance  and legal  documentation  to
financial institutions throughout central and southern Illinois.



<PAGE>


Item 2. Description of Property

The following  table sets forth  information  concerning the main office and the
branch  office of the Bank at September  30, 1999.  At September  30, 1999,  the
Company's premises had an aggregate net book value of approximately $337.

                                                           Lease
                                                         Expiration     Net Book
    Location               Year Opened     Owned/Leased     Date          Value
--------------------------------------------------------------------------------
                                                                  (In Thousands)
Main office
200 South Poplar Street        1975           Owned          N/A        $     97
Centralia, Illinois

Branch office
801 12th Street                1996 (1)       Owned          N/A             240
Carlyle, Illinois                                                       --------

                                                                        $    337
                                                                        ========

(1) The  Carlyle  branch was  purchased  during  September  1996.  The  branch's
    original opening date was 1989.

Item 3. Legal Proceedings

The Company is, from time to time, a party to legal  proceedings  arising in the
ordinary  course of its business,  including  legal  proceedings  to enforce its
rights  against  borrowers.  The  Company is not  currently a party to any legal
proceedings which could reasonably be expected to have a material adverse effect
on the consolidated financial condition or operations of the Company.

In May 1999, a shareholder of CSB Financial Inc. filed a class action lawsuit in
a Delaware  court  against the Company,  its top executive and its directors for
breach of fiduciary duty for failure to put an acquisition  offer to shareholder
vote. The class action is seeking  buyout of current  shares at $14.75  (offered
purchase price).

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

No matter was submitted to a vote of security holders,  through the solicitation
of proxies or otherwise, during the quarter ended September 30, 1999.

                                     PART II

Item 5. Market for Common Equity and Related Shareholder Matters

Information  relating to the market for  Registrant's  common  stock and related
stockholder  matters  appears under  "Corporate  Information" in the 1999 Annual
Report to stockholders and is incorporated herein by reference.

Item 6. Management's Discussion and Analysis or Plan of Operation

The  above  captioned   information  appears  under  the  caption  "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
1999 Annual Report to Stockholders and is incorporated herein by reference.



<PAGE>


Item 7. Financial Statements

The  consolidated   financial  statements  of  CSB  Financial  Group,  Inc.  and
subsidiary  as of  September  30,  1999 and 1998,  together  with the  report of
McGladrey & Pullen, LLP appears in the 1999 Annual Report to Stockholders and is
incorporated herein by reference.

Item  8.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
          Financial Disclosure

None.

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act

The information  relating to directors and executive  officers of the Registrant
is incorporated  herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on January 14, 2000.

Item 10. Executive Compensation

The information  relating to executive  compensation  is incorporated  herein by
reference  to the  Registrant's  Proxy  Statement  for  the  Annual  Meeting  of
Stockholders to be held on January 14, 2000.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The information  relating to security ownership of certain beneficial owners and
management  is  incorporated  herein  by  reference  to the  Registrant's  Proxy
Statement for the Annual Meeting of Stockholders to be held on January 14, 2000.

Item 12. Certain Relationships and Related Transactions

The information  relating to certain  relationships and related  transactions is
incorporated  herein by reference to the  Registrant's  Proxy  Statement for the
Annual Meeting of Stockholders to be held on January 14, 2000.

Item 13. Exhibits and Reports on Form 8-K

(a) Exhibits

    See Exhibit Index below and exhibits attached.

(b) Form 8-K

    No Reports on Form 8-K were filed during the last quarter of the fiscal year
    covered by this Form 10-KSB.
<TABLE>
Exhibit No.                                          Exhibit                                           Page No.
---------------------------------------------------------------------------------------------------------------
<S>              <C>                                                                                   <C>

     3.1         Certificate of Incorporation of CSB Financial Group, Inc. (incorporated herein
                 by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form
                 SB-2 as originally filed on March 1, 1995, Registration No. 33-89842)

     3.2         Bylaws of CSB Financial Group, Inc. (incorporated herein by reference to
                 Exhibit 3.2 to the Registrant's Registration Statement on Form SB-2 as
                 originally filed on March 1, 1995, Registration No. 33-89842)


     4.1         Specimen Stock Certificate of CSB Financial Group, Inc. (incorporated herein
                 by reference to Exhibit 1 to the Registrant's Registration Statement on Form
                 8-A filed on August 21, 1995, Registration No. 0-26650)

     4.2         Articles IV, V, VI, XIV and XVI of CSB Financial Group, Inc.'s Certificate
                 of Incorporation (see Exhibit 3.1 above)

     4.3         Articles II and IV of CSB Financial Group, Inc.'s Bylaws (see Exhibit 3.2
                 above)
<PAGE>



     4.4         Rights  Agreement  dates June 13, 1997  between  CSB  Financial
                 Group,  Inc.  and  Registrar  and Transfer  Company,  as Rights
                 Agent. Included as Exhibit A to such Rights Agreement is a form
                 of Rights  Certificate  (incorporated  herein by  reference  to
                 Exhibit 1 to the  Registrant's  Registration  statement in form
                 8-A filed on June 13, 1997)

     10.1        Centralia Savings Bank Employee Stock Ownership Plan (incorporated herein
                 by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form
                 SB-2 as originally filed on March 1, 1995, Registration No. 33-89842)

     10.2        Credit Agreement between CSB Financial Group, Inc. and Centralia Savings
                 Bank Employee Stock Ownership Plan (incorporated herein by reference to
                 Exhibit 10.2 to the Registrant's Registration Statement on Form SB-2 as
                 originally filed on March 1, 1995, Registration No. 33-89842)

     10.3        CSB Financial Group, Inc. 1995 Stock Option and Incentive Plan (incorporated
                 herein by reference to Exhibit 10.3 to the Registrant's Registration Statement
                 on
                 Form SB-2 as originally filed on March 1, 1995, Registration No. 33-89842)

     10.4        CSB Financial Group, Inc. 1997 Nonqualified Stock Option Plan (incorporated
                 herein by reference to Exhibit 10.4 to Form 10-KSB for the period ending
                 September 30, 1997 as originally filed on December 29, 1997)

     10.5        CSB Financial Group, Inc. Management Development and Recognition Plan
                 and Trust Agreement, as amended (incorporated herein by reference to
                 Exhibit 10.4 to Form 10-KSB for the period ending September 30, 1997 as
                 originally filed on December 29, 1997)

     10.6        Employment Agreement between Centralia Savings Bank and K. Gary
                 Reynolds (incorporated herein by reference to Exhibit 10.7 to the Registrant's
                 Registration Statement on Form SB-2 as originally filed on March 1, 1995,
                 Registration No. 33-89842)

     13.1        CSB Financial Group, Inc. 1999 Annual Report to Stockholders

     21.1        Subsidiaries of the Registrant (incorporated herein by reference to Exhibit
                 21.1 to the Registrant's Registration Statement on Form SB-2 as originally
                 filed on March 1, 1995, Registration No. 33-89842)

     23.1        Consent of McGladrey & Pullen, LLP

     27.1        Financial Data Schedule
</TABLE>
<PAGE>


                                   SIGNATURES

In accordance  with Section 13 or 15(d) of the Securities  Exchange Act of 1934,
as amended,  the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



                            CSB FINANCIAL GROUP, INC.
                                  (Registrant)


Date: December 23, 1999

                                        By: /s/ K. Gary Reynolds
                                            ------------------------------------
                                            K. Gary Reynolds, President,
                                            Chief Executive Officer and Director


         In  accordance  with the  Securities  Exchange Act of 1934, as amended,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.





/s/ K. Gary Reynolds                             /s/ A. John Byrne
-----------------------------------------        -------------------------------
K. Gary Reynolds, President, Chief               A. John Byrne, Director
Executive Officer and Director (Principal
Executive Officer, Principal Financial
Officer and Principal Accounting Officer)





/s/ Wesley N. Breeze                             /s/ Michael Donnewald
-----------------------------------------        -------------------------------
Wesley N. Breeze, Director                       Michael Donnewald, Director





/s/ Larry M. Irvin                               /s/ W. Harold Monken
-----------------------------------------        -------------------------------
Larry M. Irvin, Director                         W. Harold Monken, Director