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 December 31, 1998.

Commission file number 333-53797

                       MOUND CITY FINANCIAL SERVICES INC.
                 (Name of small business issuer in its charter)

         Wisconsin                                     39-1867686
(State or other jurisdiction of                     (I.R.S. Employer
incorporation or organization)                     Identification No.)

25 East Pine Street, Platteville, Wisconsin               53818
(Address of principal executive offices)                (Zip Code)

Issuer's telephone number, including area code:       (608) 348-2685

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

Check whether  Issuer (1) has filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act of 1934  during the  preceding  12
months (or for such shorter period that the Registrant was required to file such
reports) (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 disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained,  to the best of Registrant's
knowledge,  in  definitive  Proxy  or  Information  Statements  incorporated  by
reference in Part III of this Form 10-KSB or any  amendment to this Form 10-KSB.
[X] Not Applicable

Issuer's revenues for its most recent fiscal year were $10,162,423.

The  aggregate  market  value  of the  Common  Stock of the  Registrant  held by
nonaffiliates  of the  Registrant  (26,247  shares) on February  26,  1999,  was
$7,226,690.  As of such date, no organized trading market existed for the Common
Stock of the Registrant. The aggregate market value was computed by reference to
the book value of the Common  Stock of the  Registrant  as of February 26, 1999.
For the purposes of this response, directors, officers and holders of 5% or more
of the Registrant's Common Stock are considered the affiliates of the Registrant
at that date.

The number of shares  outstanding  of Issuer's class of common stock at December
31, 1998 was 31,464 shares of common stock.

Documents Incorporated by Reference:  None

Transitional Small Business Disclosure Format (Check one): Yes [  ]   No [X]   


<PAGE>

                                TABLE OF CONTENTS
                                -----------------
                                                                            PAGE
PART I
   ITEM 1.  DESCRIPTION OF BUSINESS ..........................................1
   ITEM 2.  DESCRIPTION OF PROPERTIES .......................................12
   ITEM 3.  LEGAL PROCEEDINGS ...............................................12
   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE
              OF SECURITY HOLDERS ...........................................12

PART II
   ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS ...........................................12
   ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS
              OR PLAN OF OPERATIONS .........................................13
   ITEM 7.  FINANCIAL STATEMENTS ............................................40
   ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH
              ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE ..........................................67

PART III
   ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
              CONTROL PERSONS; COMPLIANCE WITH SECTION
              16(a) OF THE EXCHANGE ACT .....................................67
   ITEM 10. EXECUTIVE COMPENSATION ..........................................70
   ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
              OWNERS AND MANAGEMENT .........................................72
   ITEM 12  CERTAIN RELATIONSHIPS AND RELATED
              TRANSACTIONS ..................................................73

PART IV
   ITEM 13  EXHIBITS AND REPORTS ON FORM 8-K ................................74



<PAGE>

                                     PART I
                                     ======

Cautionary Statement for Purposes of the 
"Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995
----------------------------------------

     When used in this  10-KSB  and in future  filings by the  Company  with the
Securities  and Exchange  Commission,  in the Company's  press releases or other
public  or  shareholder  communications,  and in oral  statements  made with the
approval of an authorized  executive officer, the words or phrases "are expected
to,"  "estimate," "is  anticipated,"  "project,"  "will  continue," "will likely
result,"  or similar  expressions  are  intended  to  identify  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995.  Such  statements  are  subject  to  certain  risks and  uncertainties,
including  changes in economic  conditions  in the  Company's  market area,  the
Company's   future   lending  and   collection   experiences,   the  effects  of
acquisitions,  changes  in  policies  by  regulatory  agencies,  fluctuation  in


















                                        1

<PAGE>


interest  rates,  demand  for  loans in the  Company's  market  area,  needs for
technological change, and competition, that could cause actual results to differ
materially  from  historical   earnings  and  those  presently   anticipated  or
projected.  The Company wishes to caution readers not to place undue reliance on
any such forward-looking  statements,  which speak only as of the date made. The
Company  wishes to advise readers that factors  addressed  within the discussion
below  could  affect the  Company's  financial  performance  and could cause the
Company's  actual  results  for  future  periods to differ  materially  from any
opinions or statements  expressed  with respect to future periods in any current
statements.

     Where  any such  forward-looking  statement  includes  a  statement  of the
assumptions or bases  underlying  such  forward-looking  statement,  the Company
cautions that,  while it believes such assumptions or bases to be reasonable and
makes them in good faith,  assumed facts or bases almost always vary from actual
results,  and the differences  between assumed facts or bases and actual results
can be material,  depending on the circumstances.  Where, in any forward-looking
statement, the Company, or its Management, expresses an expectation or belief as
to the future results, such expectation or belief is expressed in good faith and
believed to have a  reasonable  basis,  but there can be no  assurance  that the
statement of expectation or belief will result, or be achieved or accomplished.

     The Company does not undertake -- and specifically  declines any obligation
-- to  publicly  release  the result of any  revisions  which may be made to any
forward-looking  statements to reflect events or circumstances after the date of
such  statements or to reflect the occurrence of  anticipated  or  unanticipated
events.

Item 1.  Description of Business
--------------------------------

General
-------

     Mound City Financial Services,  Inc. ("Company") was incorporated under the
laws of the  State  of  Wisconsin  in  September,  1996,  and  owns  100% of the
outstanding  capital  stock of  Mound  City  Bank  ("Bank"),  a  state-chartered
commercial bank located in Platteville,  Wisconsin. The Company was organized as
a  mechanism  to  enhance  the Bank's  ability  to serve its  future  customers'
requirements for financial services. The bank holding company structure provides
flexibility  for  expansion  of  the  Company's  banking  business  through  the
acquisition  of other  financial  institutions  and the  provision of additional
banking -related services which the traditional  commercial bank may not provide
under  present  laws.  For  example,  banking  regulations  require  the Bank to
maintain a minimum ratio of capital to assets. If the Bank's growth is such that
this minimum ratio is not maintained,  the Company may borrow funds,  subject to


                                        2

<PAGE>


the capital  adequacy  guidelines of the Federal  Reserve Board,  and contribute
them to the capital of the Bank and otherwise  raise capital in a manner that is
unavailable to the Bank under existing banking regulations.

     The Bank's  principal  banking  office is  located at 25 East Pine  Street,
Platteville,  Wisconsin,  in a facility built in 1977.  Its telephone  number is
(608)  348-2685.  This 11,000 square foot facility was  constructed  in 1977. In
1996,  an addition and complete  remodeling  has resulted in a new 22,000 square
foot  facility.  The Bank  also  operates  a 3,400  square  foot  Motor  Branch,
constructed in 1995 and located at 90 South Second Street,  directly across from
the main office.  The Bank's branch  facilities are located at 112 Mound Avenue,
in Belmont, Wisconsin, and 200 South Main Street, in Cuba City, Wisconsin.

     The Bank is a state  chartered bank that has been operating as a commercial
bank since 1915,  with offices  located in Belmont,  Cuba City and  Platteville,
Wisconsin.  The Bank offers  comprehensive  banking services to the residential,
commercial,  industrial, and agricultural areas that it serves. Services include
agricultural, commercial, real estate and personal loans; checking, savings, and
time deposits; and other customer services, such as safe deposit facilities. The
Bank also offers alternative  investments,  individual  retirement  accounts and
trust  services.  Drive-up  banking is  available  at the  Belmont and Cuba City
branches,   as  well  as  the  newly  completed  Motor  Branch  in  Platteville.
Full-service  lending is available at every location.  24-hour telephone banking
has been available since 1995.

     The primary  business of the Bank is to attract  deposits  from the general
public and to use such deposits,  together with  borrowings and other funds,  to
make residential loans and purchase  investment and other  securities.  The Bank
also makes  consumer  loans,  commercial  loans,  and provides  other  financial
services to its customers.  The Bank also provides second  mortgages on existing
structures and  construction  loans,  as well as a variety of consumer loans for
personal,  education, and automobile purchases.  Customer deposits with the Bank
are insured to the maximum  extent  provided by law through the Federal  Deposit
Insurance Corporation (the "FDIC").

     The Bank's income is primarily  derived from interest and fees collected on
loans and  interest  on  investment  securities  and gains  received on sales of
loans.  The  principal  expenses  of the Bank  are  interest  paid on  deposits,
interest paid on other  borrowings by the Bank,  employee  compensation,  office
expenses, and other overhead expenses.



                                        3
<PAGE>



Market Area and Competition
---------------------------

     The  Company  and the Bank  face  vigorous  competition  from a  number  of
sources,  including other bank holding companies and commercial banks,  consumer
finance  companies,  thrift  institutions,   other  financial  institutions  and
financial  intermediaries.  The Bank's  main  office is located in  Platteville,
Wisconsin,  and it has  branches in Belmont  and Cuba City.  There are two other
commercial  banks, one savings bank and one credit union located in Platteville,
and  there is one  other  commercial  bank  located  in Cuba  City.  The  Bank's
competition  comes from those  institutions and others located near Platteville,
Belmont  and Cuba City.  In  addition  to  commercial  banks,  savings  and loan
associations, savings banks and credit unions actively compete to provide a wide
variety  of  banking  services.  Insurance  companies,   mortgage  bankers,  and
brokerage firms provide additional competition for certain banking services. The
Bank also competes for  interest-bearing  funds with issuers of commercial paper
and other securities, including the United States Government.

Loan Portfolio
--------------

     The  Bank  engages  in  a  full  range  of  lending  activities,  including
agribusiness,  commercial,  consumer and real estate  loans.  As of December 31,
1998, the Bank had a legal lending limit of $2,049,000.

     While risk of loss in the Bank's loan  portfolio is  primarily  tied to the
credit quality of the various  borrowers,  risk of loss may also increase due to
factors beyond the Bank's  control,  such as local,  regional,  and/or  national
economic downturns. General conditions in the real estate market may also impact
the  relative  risk in the Bank's real estate  portfolio.  Of the Bank's  target
areas of lending activities,  commercial loans are generally  considered to have
greater risk of loss than real estate loans or consumer loans.

     Management of the Bank originates loans and  participates  with other banks
with respect to loans which exceed the Bank's lending limits.  Management of the
Bank does not believe that loan participations necessarily pose any greater risk
of loss than loans with the Bank originates.

Agricultural Production Loans
-----------------------------

     Agricultural  production  lending  is  directed  towards  farmers  for  the
purchase  and holding of cattle,  machinery  and  equipment as well as operating
funds  for crop and  livestock  production.  The  primary  repayment  risks  for


                                        4

<PAGE>



agricultural  loans is the failure of the farm business due to economic  factors
including  management,  farm markets and weather.  The banks  typically looks to
farm cash flows as the  principle  source of  repayment  but  secures  most farm
credits with mortgages on real or personal property.

Commercial Loans
----------------

     Commercial  lending is directed  primarily towards businesses whose demands
for funds fall within the Bank's legal  lending  limits and which are  potential
customers  of the Bank.  Commercial  loans  include  loans  made to  individual,
partnership or corporate borrowers, which are obtained for a variety of business
purposes.  The primary  repayment  risk for  commercial  loans is the failure of
businesses  due to economic or financial  factors.  Although the Bank  typically
looks to a commercial  borrower's cash flow as the principal source of repayment
for such  loans,  many  commercial  loans are secured by  inventory,  equipment,
accounts receivable, and other assets.

Consumer Loans
--------------

     The  Bank's  consumer  loans  consist  primarily  of  installment  loans to
individuals for personal,  family and household purposes,  including  automobile
loans to individuals and pre-approved  lines of credit.  This loan category also
includes  lines of credit and term  loans  secured  by second  mortgages  on the
residences of borrowers for a variety of purposes  including home  improvements,
education and other personal  expenditures.  In evaluating these loans, the Bank
reviews the borrower's level and stability of income and past credit history and
the impact of these  factors on the ability of the borrower to repay the loan in
a timely  manner.  In addition,  the Bank  maintains a proper margin between the
loan amount and collateral value.

Real Estate Loans
-----------------

     The  Bank's  real  estate  loans  consist of  residential  first and second
mortgage loans,  agricultural loans, commercial real estate loans, and to a more
limited  degree,  construction  loans.  These loans are made consistent with the
Bank's  appraisal  policy and real estate  lending  policy which detail  maximum
loan-to-value  ratios and maturities.  These loan-to-value ratios are sufficient
to compensate for fluctuations in the real estate market to minimize the risk of
loss to the Bank.

                                        5

<PAGE>



Deposits
--------

     The Bank offers a full range of interest bearing and  non-interest  bearing
accounts,  including  commercial  and retail  checking  accounts,  money  market
accounts,  individual  retirement  accounts,  regular interest bearing statement
accounts,  and certificates of deposit with fixed and variable rates and a range
of maturity date options. The sources of deposits are residents, businesses, and
employees  of business  within the Bank's  market area.  The Bank obtains  these
deposits  through  personal  solicitation  by the Bank's officers and directors,
direct mail solicitation,  and advertisements  published in the local media. The
Bank pays competitive interest rates on time and savings deposits.  In addition,
the Bank has in place a service  charge  fee  schedule  competitive  with  other
financial  institutions  in the Bank's  market  area,  covering  such matters as
maintenance  fees on checking  accounts,  per item  processing  fees on checking
accounts, returned check charges and the like.

Loan and Deposit Volume Distribution
------------------------------------

     The following schedule  indicates loan and deposit volume  distribution for
the local area zip codes, as of December 31, 1998:

                            Deposits       Percent of                Percent of
City, Town, Village          (000s)          Total         Loans       Total
--------------------------------------------------------------------------------

Belmont 53510                12,697          11.13%        5,124        5.18%

Benton 53803                    843            .74%        1,595        1.61%

Cuba City 53807              14,019          12.29%        9,520        9.62%

Darlington 53530              1,495           1.31%          438         .44%

Dickeyville 53808               942            .83%          601         .61%

East Dubuque 61025              208            .18%          422         .43%

Hazel Green 53811             2,549           2.24%          650         .66%

Kieler 53812                    465            .41%          246         .25%

Lancaster 53813               2,242           1.97%        3,455        3.49%



                                        6
<PAGE>


                            Deposits       Percent of                Percent of
City, Town, Village          (000s)          Total         Loans       Total
--------------------------------------------------------------------------------

Livingston 53554                535            .47%        1,305        1.32%

Mineral Point 53565           1,156           1.01%          904         .91%

Montfort 53565                  187            .16%        1,111        1.12%

Platteville 53818            57,788          50.67%       48,770       49.30%

Potosi 53820                  1,629           1.43%        1,290        1.30%

Rewey 53580                     603            .53%          804         .81%

Shullsburg 53586                760            .67%          302         .31%

Stitzer 53825                   230            .20%          -0-          -0-

All Other                    15,703          13.76%       22,392       22.64%
                            -------         -------      -------      -------
          Totals            114,051          100.00%      98,929      100.00%


Fee Income From Lending Activities
----------------------------------

     The Bank  generally  charges  loan  origination  fees  (including  fees for
private  insurance) for first mortgage loans secured by residential  property or
land.  The Bank also  charges  fees for  builder's  construction  loans and home
equity second  mortgage  loans.  Original fees on  commercial  and  multi-family
residential property loans are negotiated, along with other loan terms, for each
loan. Loan  application  fees and  out-of-pocket  costs of the Bank in reviewing
loan applications, such as appraisal and survey costs, are paid by the borrower.
The Bank believes that its loan  origination fees generally are competitive with
those of other lenders in its market area.

     In addition to  origination  fees, the Bank charges fees for late payments,
changes in property ownership,  and for miscellaneous services.  Income realized
from these activities can vary  significantly  with the volume and type of loans
in the portfolio and in response to competitive factors.


                                        7

<PAGE>



Investments
-----------

     The Bank invests primarily in obligations of the United States, obligations
guaranteed  as to principal  and interest by the United  States,  other  taxable
securities and certain obligations of states and municipalities.

Asset/Liability Management
--------------------------

     The goal of the Bank's  asset/liability  management strategy is to maximize
earnings  while  limiting   interest  rate  risk.   Certain  Bank  officers  are
responsible for developing and monitoring  policies and procedures and to ensure
acceptable  composition of the asset/liability  mix. The Bank's  asset/liability
mix is monitored  regularly  through monthly deposit,  loan,  earnings and yield
reports.

Employees
---------

     The Bank presently employs 5 persons on a part-time basis and 49 persons on
a full-time  basis,  including 20 officers.  The Bank intends to hire additional
persons  as  needed,   including   additional   tellers  and  financial  service
representatives.

Supervision and Regulation
--------------------------

General
-------

     Financial   institutions  and  their  holding   companies  are  extensively
regulated  under  federal and state law.  Consequently,  the growth and earnings
performance  of the Company and the Bank can be affected not only by  management
decisions and general economic conditions, but also by the statutes administered
by,  and the  regulations  and  policies  of,  various  governmental  regulatory
authorities  including,  but not  limited  to, the Federal  Reserve  Board,  the
Federal Deposit  Insurance  Corporation  ("FDIC"),  the Wisconsin  Department of
Financial Institutions Division of Banking ("DFI"), the Internal Revenue Service
("IRS"),  federal and state taxing authorities,  and the Securities and Exchange
Commission ("SEC"). The effect of such statutes, regulations and policies can be
significant, and cannot be predicted with a high degree of certainty.

     Federal and state laws and  regulations  generally  applicable to financial
institutions 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


                                        8

<PAGE>


branches,  mergers,  consolidations and dividends. The system of supervision and
regulation  applicable to the Company and the Bank  establishes a  comprehensive
framework  for their  respective  operations  and is intended  primarily for the
protection of the FDIC's deposit insurance funds and the depositors, rather than
the shareholders, of the Bank.

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

Banking Regulation
------------------

     The Company is subject to the  supervision of the Board of Governors of the
Federal  Reserve System under the Act. In accordance  with Federal Reserve Board
policy,  the  Company  acts as a source of  financial  strength  to the Bank and
commits  resources to support the Bank in circumstances  where the Company might
not do so absent such policy. As a bank holding company, the Company is required
to file  with  the  Board  of  Governors  annual  reports  and  such  additional
information as the Board of Governors may require pursuant to the Act. The Board
of Governors may make  examinations of the Company and its  subsidiary.  Because
the Bank is chartered  under  Wisconsin  law, the Company is also subject to the
examination, supervision, reporting and enforcement requirements of the DFI.

     The Act requires every bank holding company to obtain the prior approval of
the Board of  Governors  before it may acquire  direct or indirect  ownership of
more than five percent (5%) of the voting securities or substantially all of the
assets of any bank. The Act limits the  activities by bank holding  companies to
managing,  controlling,  and servicing their subsidiary banks and to engaging in
certain  non-banking  activities  which  have  been  determined  by the Board of
Governors to be closely related to banking.  Similarly,  the Act, with specified
exceptions  relating to  permissible  non-banking  activities,  forbids  holding
companies from acquiring  voting control  (generally,  25% or more of the voting
power) of any company which is not a bank. Some of the activities that the Board
of Governors has  determined by regulation to be closely  related to banking are
making or servicing  loans,  leasing real and personal  property where the lease
serves  as the  functional  equivalent  of as an  extension  of  credit,  making
investments in corporations or projects designed  primarily to promote community


                                        9

<PAGE>


welfare, acting as an investment or financial advisor, providing data processing
services,  and acting as an insurance agent or broker,  as those  activities are
defined and limited by the regulation.

     Subsidiary  banks  of  a  bank  holding  company  are  subject  to  certain
restrictions  imposed by the Act on any extensions of credit to the bank holding
company  or any of its  subsidiaries,  on  investments  in the  stock  or  other
securities thereof,  and on the taking of such stock or securities as collateral
for loans to any borrower.  Further,  under the Act and regulations of the Board
of Governors,  a bank holding company and its  subsidiaries  are prohibited from
engaging in certain  tie-in  arrangements  in  connection  with any extension of
credit  or  provision  of any  property  or  services.  The  Board of  Governors
possesses  cease  and  desist  powers  over  bank  holding  companies  and their
non-banking  subsidiaries  if their  actions  represent  as an unsafe or unsound
practice or a violation of law.

     The Bank is a Wisconsin-chartered bank. Its deposit accounts are insured by
the  Bank   Insurance   Fund  (the  "BIF")  of  the  FDIC.  As  a   BIF-insured,
Wisconsin-chartered  bank, the Bank is subject to the examination,  supervision,
reporting and enforcement  requirements of the DFI, as the chartering  authority
for Wisconsin banks, and the FDIC, as administrator of the BIF. Areas subject to
regulation by the authorities  include reserves,  investments,  loans,  mergers,
issuance of securities,  payment of dividends,  establishment  of branches,  and
other aspects of banking operations.

Capital Requirements for the Company and the Bank
-------------------------------------------------

     The Federal Reserve Board and the FDIC use capital  adequacy  guidelines in
their examination and regulation of bank holding companies and banks. If capital
falls below minimum  guideline  levels,  a bank holding company may, among other
things, be denied approval to acquire or establish  additional banks or non-bank
businesses.

     The Federal Reserve Board and the FDIC's capital  guidelines  establish the
following minimum regulatory capital requirements for bank holding companies:  a
risk- based requirement expressed as a percentage of total risk-weighted assets,
and a leverage  requirement  expressed  as a  percentage  of total  assets.  The
risk-based  requirement  consists of a minimum ratio of total capital to a total
risk-weighted  assets of 8%, of which at least  one-half  must be Tier 1 capital
(which consists  principally of shareholders'  equity). The leverage requirement
consists of a minimum ratio of Tier 1 capital to total assets of 3% for the most
highly rated companies, with minimum requirements of 4% to 5% for all others.


                                       10

<PAGE>



     As  of  December  31,  1998,  the  Company's  ratio  of  total  capital  to
risk-weighted  assets  was 10.2%,  its ratio of Tier 1 capital to  risk-weighted
assets was 9.0%, and its ratio of Tier 1 capital to average assets was 6.9%.

     The risk-based and leverage standards presently used by the Federal Reserve
Board and the FDIC are minimum  requirements,  and higher capital levels will be
required  if  warranted  by the  particular  circumstances  or risk  profiles of
individual banking organizations. Further, any banking organization experiencing
or anticipating significant growth would be expected to maintain capital ratios,
including  tangible capital  positions (i.e., Tier 1 capital less all intangible
assets), well above the minimum levels.

FDIC Deposit Insurance Premiums
-------------------------------

     The Bank pays deposit insurance  premiums to the FDIC based on a risk-based
assessment  system  established by the FDIC for all institutions  insured by the
FDIC. The Bank has been classified as a well  capitalized  bank and,  therefore,
the Bank has paid FDIC premiums at the lowest rate.  The premiums  assessable in
1998 for FDIC insurance were approximately $15,073.51.

Loan Limits to Borrowers
------------------------

     Generally,  under the Wisconsin Banking Law, a Wisconsin-chartered bank may
make to any one borrower  total loans and  extensions of credit fully secured by
collateral  having a market value at least equal to the loan in as an amount not
to exceed 20% of the capital of the bank. Bank holding companies are not subject
to specific limitations on loans to one borrower.  However, bank holding company
lending activities require the prior approval of the Federal Reserve Board under
Regulation  Y. The  Company has not made loans to any persons and has no present
intention of making any loans.

Interstate Banking and Branching
--------------------------------

     Since  September  1995,  bank holding  companies have been permitted  under
federal  banking law to acquire  banks located in any state in the United States
without regard to geographic restrictions or reciprocity requirements imposed by
state law,  but  subject to certain  conditions,  including  limitations  on the
aggregate  amount of deposits that may be held by the acquiring  holding company
and all of its insured  depositor  institution  affiliates.  Banks are permitted
under  federal  banking law to  establish  interstate  branch  networks  through
acquisitions of other banks,  subject to certain  conditions,  including certain
limitations  on the  aggregate  amount  of  deposits  that  may be  held  by the


                                       11

<PAGE>


surviving bank and all of its insured  depository  institution  affiliates.  The
establishment  of de novo  interstate  branches or the acquisition of individual
branches  of a bank in  another  state  (rather  than the  acquisition  of as an
out-of-state bank in its entirety) is allowed only if specifically authorized by
state law. Over time,  the  interstate  banking and branching  laws may increase
competition in the market served by the Company and the Bank.

Item 2.  Properties
-------------------

         As of December 31, 1998, the Company owned  properties in  Platteville,
Belmont,  and Cuba City,  Wisconsin with over thirty-two thousand square feet in
total.

Item 3.  Legal Proceedings
--------------------------

         There are no  pending  or  threatened  legal  proceedings  known to the
Company or Bank  that,  in the  opinion of the  directors  and  officers  of the
Company  and the Bank,  may be  materially  adverse to the  Company's  or Bank's
financial condition, business, or operations; nor are there material proceedings
known  to the  Company  or  the  Bank  to be  contemplated  by any  governmental
authority.  There are no material pending or threatened legal  proceedings known
to the Company or Bank in which any director, executive officer, or affiliate of
the Bank (or any  associate  of any of them)  has a  material  interest  that is
adverse to the Company or the Bank.

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

         There  have been no matters  submitted  to a vote of  security  holders
during the quarter ended December 31, 1998.

                                    PART II
                                    =======

Item 5.  Market for Common Equity and Related Stockholder Matters
-----------------------------------------------------------------

Market Information
------------------

     During  the  period  covered  by this  report and to date there has been no
established public trading market for the Company's stock. To the best knowledge
of the Bank, there have been 32 different transfers of Company stock,  involving
a total of 2,337 shares of Company  stock,  between the date of the formation of
the Company and December 31, 1998.

                                       12

<PAGE>



     The following is a listing of sales of Company stock known to the Company.

       Date                   Shares               Price per Share
    ----------------------------------------------------------------
     9/29/1997                 10*                    $2,400.00*
     9/30/1997                 20*                    $2,528.00*
     12/22/1997                10                       $260.77
     3/5/1998                  10                       $220.00
     6/16/1998                 10                       $301.00

     * Shares sold prior to 9 for 1 share dividend in December, 1997.

     All of the sales were conducted between non-family  members.  The remaining
transfers of Company stock did not involve a sale of the stock.

Holders of Common Stock
-----------------------

     As of December 31, 1998,  the Company had 31,464 shares of its common stock
outstanding and approximately 282 holders of record of its common stock.

Dividends
---------

     As of December 31, 1998, the Company has paid dividends to its shareholders
as follows:

               Year Paid               Dividend Per Share
               ---------               ------------------
                 1997                         None
                 1998                        $7.50


Item 6.  Management's Discussion and Analysis
---------------------------------------------

General
-------

     The following  discussion and analysis provides  information  regarding the
financial condition and historical results of operations of Mound City Financial
Services,  Inc.  (the  "Company"),  Platteville,  Wisconsin  for the years ended


                                       13

<PAGE>



December  31, 1998 and 1997.  This  discussion  and  analysis  should be read in
conjunction  with the related  financial  statements  and notes  thereto and the
other financial information included herein.

     Readers are cautioned that discussions in this Management's  Discussion and
Analysis that are not statements of historical  facts  (including  statements in
the  future  tense  or  which  include   terms  such  as  "believe",   "expect",
"anticipate"  or "may") are forward-  looking  statements that involve risks and
uncertainties,  and the Company's actual future results could materially  differ
from those discussed. Factors that could cause or contribute to such differences
include,  but are not limited to, the Company's  future lending and  collections
experiences,  the effects of acquisitions,  competition from other institutions,
changes in the banking  industry  and its  regulation,  needs for  technological
change,  and other  factors,  including  those  described  in this  Management's
Discussion  and  Analysis  and  elsewhere  in this  report.  Please refer to the
Company's  disclosures under the heading  "Cautionary  Statement for Purposes of
the 'Safe Harbor' Provisions of the Private Securities  Litigation Reform Act of
1995" beginning on page 3.

Results of Operations Overview
------------------------------
Comparison of operating results for 
the years ended December 31, 1998 
and December 31, 1997.

     Net Income.  For the year ended December 31, 1998, the Company reported net
income of  $822,000  or $30.11 per share  compared  to net income of $912,000 or
$30.49 per share for the year ended December 31, 1997.  This decrease of $90,000
or 9.8% is related to increased interest expense related to borrowings needed to
purchase dissenter shares and an increase in noninterest expense.

     Net Interest Income.  Net interest income is the difference  between income
earned  on  interest-earning   assets  and  the  interest  expense  incurred  on
interest-bearing   liabilities.   The  interest  income  on  certain  loans  and
investment  securities  is not  subject to Federal  income tax.  For  analytical
purposes,  at December 31, 1998 and 1997, the interest income and rates on these
types of assets are adjusted to a "fully taxable  equivalent" ("FTE") basis, net
of the effect of any interest expense  disallowed.  The fully taxable equivalent
adjustment was calculated using the Company's  statutory Federal income tax rate
of 34%. See Table 1 for an analysis of net interest income  including an average
balance sheet,  interest income and expense,  and the resulting yields.  Table 2
shows the  changes in interest  income (tax  equivalent)  and  interest  expense
attributable to volume and rate variance.


                                       14

<PAGE>



     Net interest  revenue  (FTE)  increased by $126,000 to  $4,271,000 in 1998.
Total interest income increased  $526,000 in 1998 and was offset by increases in
total interest expense of $400,000.  Average earning assets increased $9,098,000
while  average  yield  decreased  from  8.62% in 1997 to 8.39% in 1998.  Average
interest-bearing liabilities increased 8.3% to $105,484,000. Average balance for
other  borrowings  was  $2,984,000  at  December  31,  1998  compared to $-0- at
December 31, 1997 due to the subsidiary Bank obtaining advances from the Federal
Home Loan Bank. The cost of interest-bearing  liabilities had a minimal decrease
from 5.16% in 1997 to 5.15% in 1998.

     Interest  rate spread is the  difference  between the tax  equivalent  rate
earned on average  earning assets and the rate paid on average  interest-bearing
liabilities.  The rate spread decreased to 3.25% in 1998 from 3.46% in 1997. The
average yield on earning assets  decreased to 8.39% in 1998 as compared to 8.62%
in 1997,  the yield on  interest-bearing  liabilities  remained flat at 5.16% in
1998 and in 1997.

     Allowance for Loan Losses. The Company's  management evaluates the adequacy
of the allowance for loan losses based on an analysis of specific problem loans,
as well as on an aggregate  basis.  Provisions  charged to expense were $271,000
and $130,000 for 1998 and 1997 respectively. The allowance for loan loss balance
as a percent of gross  loans was 1.29% and 1.31% at  December  31, 1998 and 1997
respectively.  Table 3 is a detail analysis of the activity in the allowance for
loan loss account.

     The allowance for loan losses is adequate to cover  probable  credit losses
relating to  specifically  identified  loans,  as well as probable credit losses
inherent  in  the  balance  of the  loan  portfolio.  In  accordance  with  FASB
Statements  5 and 114,  the  allowance  is  provided  for losses  that have been
incurred as of the balance sheet date, The allowance is based on past events and
current economic conditions,  and does not include the effect of expected losses
on  specific  loans or  groups of loans  that are  related  to future  events or
expected changes in economic  conditions.  Reports of examinations  furnished by
bank  regulatory  authorities  are also considered by management in this regard.
Management  reviews  the  calculation  of the  allowance  for loan  losses  on a
quarterly basis and believes that the allowance for loan losses is adequate.

     The Company's  management has  established the allowance for loan losses to
reduce the gross level of loans  outstanding  by an  estimate  of  uncollectible
loans.  As  loans  are  deemed  uncollectible,  they  are  charged  against  the
allowance.  A provision for loan losses is expensed  against current income on a
monthly basis. This provision acts to replenish the allowance for loan losses to
accommodate  charge-offs and growth in the loan portfolio,  thereby  maintaining
the allowance at an adequate level.

                                       15

<PAGE>



     Noninterest income.  Noninterest income increased  $105,000,  or 15.3% from
1997.  Service fees increased by $5,000,  other income  increased by $83,000 and
securities gains increased by $16,000.

     Noninterest Expense.  Noninterest  expenses increased $182,000,  or 5.6% to
$3,420,000.  Salaries and employee benefits increased  $198,000,  or 11.1%. This
increase is related to  adjustment  of salaries  to market  rates and  incentive
bonuses given in an effort to attract and retain high quality  staff.  All other
expenses decreased an aggregate of $16,000, or 1.0%.

     Income Taxes. Income tax expense increased $12,000 from $209,000 in 1997 to
$221,000 in 1998.

     Selected Financial Ratios.  Table 4 shows selected financial ratios for the
Company for 1998 and 1997.

Balance Sheet Analysis
----------------------

     Total Assets.  Total assets of  $130,446,000 at December 31, 1998 increased
$8,332,000 or 6.8% from $122,115,000 at December 31, 1997.

     Investment  Securities.  Total  securities  as of  December  31,  1998 were
$18,568,000  a decrease  of  $1,389,000,  or 7.0% over prior year end balance of
$19,957,000. Table 5 details the major classification of investments held by the
Company.

     All securities are classified  available for sale.  This aids the company's
ability to manage  interest  rate and  liquidity  risk.  The  classification  of
available  for sale  securities  will result in a fluctuation  in  comprehensive
income.  However,  banking  regulators  exclude the  unrealized  gain or loss on
available for sale securities from regulatory risk based capital calculations.

     The security  portfolio serves a primary role in overall context of balance
sheet management.  The decision to purchase or sell securities is based upon the
current assessment of economic and financial conditions,  including the interest
rate  environment.  The portfolio's  scheduled  maturities and the prepayment of
mortgage-backed  securities  represent a significant  source of  liquidity.  See
Table 6 regarding the maturity of securities.


                                       16

<PAGE>



Loans
-----

     As of December 31,  1997,  gross loans  outstanding  were  $98,997,000,  an
increase of  $10,570,000,  or 12.03% from  December 31, 1997.  Residential  real
estate loans increased  $2,913,000 or 9.4%, real estate  construction  decreased
$444,000 to $812,000 at December  31, 1998.  Agricultural  and  commercial  real
estate  increased  $494,000  and  $6,509,000,  or 7.2% and  30.6%  respectively.
Commercial,  and agricultural loans increased $521,000 or 2.3%.  Municipal loans
increased to $1,393,000 at December 31, 1998.  See Table 7 which  contains loans
by category for 1997 and 1998.

     The scheduled  repayments and  maturities of loans  represent a substantial
source of  liquidity.  Table 8 shows  selected loan maturity data as of December
31, 1998 and 1997.

Deposits
--------

     Total deposits of $113,738,000 at December 31, 1998 increased $4,587,000 or
4.2% from  $109,151,000  at  December  31,  1997.  Noninterest-bearing  deposits
increased  $2,254,000  or 22.5% to  $12,283,000  at  December  31,  1998,  while
interest-bearing  deposits  increased  $2,333,000 to $101,455,000,  or 2.4% from
December 31, 1997.

     Table 9 shows a two year summary of average deposits and the  corresponding
rate paid.

     At  December  31,  1998 the  Company  had  $8,418,000  in time  deposits of
$100,000 or more.  Table 10 shows the maturity  distribution of time deposits of
$100,000 or over.

Other Borrowings
----------------

     Other  borrowings  increased  from  $4,377,000  at  December  31,  1997  to
$6,880,000 at December 13, 1998.  Short-term  borrowings decreased to $2,088,000
at December  31, 1998 from  $4,376,000  at December  31,  1997.  During 1998 the
Company  issued 4,554 shares of common  stock.  A large  portion of the proceeds
were used to pay down the bank notes  payable.  At December 31, 1998 the balance
of bank notes payable was $1,848,000,  a decrease of $1,552,000 over prior year.
The  balance of the  short-term  debt is demand  notes due to the U.S.  Treasury
which  decreased to $240,000 at December 31, 1998 from  $976,000 at December 31,
1997.  Table 11 presents various  analytical  information  regarding  short-term
borrowings as of December 31, 1998 and 1997.


                                       17

<PAGE>



     Long-term borrowings increased to $4,000,000 at December 31, 1998 from $-0-
at December 31, 1997.  This increase was caused by the Bank  obtaining  advances
from the Federal Home Loan Bank to fund asset growth.

Asset Quality
-------------

     The  Company's  credit  risk is centered  in the loan  portfolio,  which on
December 31, 1998 totaled $98 million,  or 82.2%, of total earning  assets.  The
objective in managing loan  portfolio risk is to quantify and manage credit risk
on a  portfolio  basis as well as  reduce  the risk of a loss  resulting  from a
customers failure to perform according to the terms of a transaction. To achieve
this objective, the Company strives to maintain a loan portfolio that is diverse
in terms of loan type, industry concentration, and borrower concentration.

     The accrual of interest income on nonaccrual loans is discontinued when, in
the opinion of management, there is reasonable doubt as to the borrowers ability
to meet payment of interest or principal when they become due. When the interest
accrual  is  discontinued,   all  unpaid  accrued  interest  is  reversed.  Cash
collections on nonaccrual  loans are credited to the loan  receivable  balances,
and no interest income is recognized on those loans until the principal  balance
is current.  Accrual of  interest  is  generally  resumed  when the  customer is
current on all principal  and interest  payments and has been paying on a timely
basis for a period of time.

     Nonaccrual  loans  having  recorded  investment  at  December  31,  1998 of
$823,000 and $79,000 at December  31, 1997 have been  recognized  in  conformity
with FASB  Statement  No. 114 as amended by FASB  Statement No. 118. The average
recorded  investment  in impaired  loans  during 1998 and 1997 was  $585,000 and
$95,000 respectively. The total allowance for loan losses related to these loans
was  $58,000 and $8,000 on December  31,  1998 and 1997  respectively.  Interest
income on impaired  loans of $1,000 and $2,000 was  recognized for cash payments
received in 1998 and 1997.

     Allowance  for  Loan and  Lease  Losses.  The  allowance  for  loan  losses
represents  management's  estimate  of what amount is  necessary  to provide for
possible losses incurred in the loan  portfolio.  In making this  determination,
management   analyzes  the  ultimate   collectibility  of  the  loan  portfolio,
incorporating  feedback provided by lending officers and examinations  performed
by  regulatory  agencies.  Management  makes  an  ongoing  evaluation  as to the
adequacy of the allowance for loan losses. To establish the appropriate level of
the  allowance,  all loans and  commitments  to extend  credit are  reviewed and


                                       18

<PAGE>



classified as to potential loss exposure.  An additional allowance is maintained
based upon the size, quality and concentration  characteristics of the remaining
loan  portfolio,  using both  historical  quantitative  trends and  management's
evaluation of qualitative factors.

     The  determination by management of the appropriate  level of the allowance
amounted to  $1,282,000 at December 31, 1998.  However,  since the allowance for
loan  losses is based on  estimates,  ultimate  losses may vary from the current
estimated.  These  estimates are reviewed  regularly and, as adjustments  become
necessary,  they are reported in earnings of that period. A detailed analysis of
the  allowance  for loan losses and the  allocation  of the  allowance  for loan
losses by category is shown in Table 12.

     As of December  31,  1998,  the  allowance  for loan losses as a percent of
total loans was 1.29%.  This  compares  to the ratio as of December  31, 1997 of
1.31%. Net charge-offs as a percent of average loans increased to 0.16% for 1998
as compared to 0.09% in 1997.

     Nonperforming  Loans.  Nonperforming  loans consist of nonaccrual loans and
loans 90 days or more past  due.  Nonperforming  loans  totaled  $823,000  as of
year-end 1998, an increase of $745,000 over the $78,000 recorded at December 31,
1997.  This increase was caused by two large loans being  classified as impaired
as of year end. Total  nonperforming  assets  represent 0.63% of total assets at
December 31, 1998 compared to 0.06% at December 31, 1997.

     Loans  generally are  classified as  nonaccrual  when there are  reasonable
doubts as to the  collectibility  of  principal  and  interest  or when  payment
becomes 90 days past due, except loans which are well secured and in the process
of payment.  Any loans  classified  for  regulatory  purposes that have not been
included in  nonperforming  loans are not expected to  materially  impact future
operating results, liquidity or capital. Interest collection on nonaccrual loans
for which the ultimate  collectibility  of principal is uncertain are applied as
principal reductions.  Otherwise,  such collections are applied to interest when
received.

     Table 13 presents nonperforming loans for each of the past two years.

     Liquidity.  The liquidity position of the Company is managed to ensure that
sufficient  funds are available to meet  customers'  needs for loans and deposit
withdrawals.  Liquidity  to meet demand is provided  by  maintaining  marketable
investment  securities,  federal funds sold, as well as, maintaining a full line
of competitively priced deposit and short-term borrowing products.  The ratio of


                                       19

<PAGE>



loans to  deposits  is a key  indicator  of a  bank's  liquidity  position.  The
Company's loan to deposit ratio was 87% on December 31, 1998. The Company's loan
to deposit ratio was 81% at December 31, 1997.

     The  Company's  strategy with respect to  asset/liability  management is to
maximize  net  interest  income while  limiting  exposure to potential  downward
movement.  This  strategy  is  implemented  by  the  company's   Asset/Liability
Committee,  which takes actions based upon its analysis of the company's present
positioning, its future positioning and economic forecast.

     Capital.  The Company and the Bank are well capitalized using total capital
to risk-weighted assets. They are also both well capitalized with regard to Tier
1 capital ratios.

Year 2000 Update
----------------

     New Federal Minimum Safety and Soundness Standards
     --------------------------------------------------

     The federal  banking  regulators  recently issued  guidelines  establishing
minimum safety and soundness  standards for achieving Year 2000 compliance.  The
guidelines,  which took effect  October  15, 1998 and apply to all  FCIC-insured
depository  institutions,  establish standards for developing and managing Years
2000 project plans,  testing remediation efforts and planning for contingencies.
The guidelines are based upon guidance  previously  issued by the agencies under
the  auspices of the Federal  Financial  Institutions  Examination  Council (the
"FFIEC"),  but are not intended to replace or supplant the FFIEC  guidance which
will continue to apply to all federally insured depository institutions.

     The  guidelines  were  issues  under  Section  39 of  the  Federal  Deposit
Insurance  Act, as amended (the  "FDIA"),  which  requires  the federal  banking
regulators to establish  standards for the safe and sound operation of federally
insured depository institutions. Under Section 39 of the FDIA, if an institution
fails  to  meet  any  of  the  standards  established  in  the  guidelines,  the
institution's  primary federal regulator may require the institution to submit a
plan for achieving  compliance.  If an institution fails to submit an acceptable
compliance  plan,  or fails in any  materials  respect to implement a compliance
plan that has been accepted by its primary federal  regulator,  the regulator is
required to issue an order  directing the  institution  to cure the  deficiency.
Such  order is  enforceable  in court in the same  manner as a cease and  desist
order.  Until  the  deficiency  cited in the  regulator's  order is  cured,  the
regulator may restrict the institution's rate of growth, require the institution
to increase its capital,  restrict the rates the institution pays on deposits or


                                       20

<PAGE>



require the  institution  to take any action the  regulatory  deems  appropriate
under the circumstances.  In addition to the enforcement  procedures established
in Section 39 of the FDIA,  noncompliance with the standards  established by the
guidelines  may also be  grounds  for other  enforcement  action by the  federal
banking  regulators,  including  cease and desist orders and civil money penalty
assessments.

     Year 2000 Plan
     --------------

     The  Company  utilizes  and is  dependent  upon  data  processing  systems,
software,  and certain  non-information  technology to conduct its business. The
data processing  systems and software  include those developed and maintained by
the company's  data  processor and purchased  software  which is run on in-house
computer  networks.  In response to the issue of computer  programs and embedded
computer  chips being unable to  distinguish  between the year 1900 and the year
2000, the Company has a written plan for the correction of, or contingency  plan
for,  the Year 2000  problem  ("Plan").  This Plan is  generally  proceeding  on
schedule. Pursuant to the Plan, senior management of the Bank has been reporting
to the Board at least monthly on the Bank's year 2000 progress.

     Pursuant to the Plan,  the  Company  has  divided  its  efforts  into eight
different phases:

     1.  Awareness of the Problem.  Includes  informing  the Board of Directors,
senior  management,  officers  and  staff,  and  customers  about  the  problem;
attending seminars; and hiring a full-time computer network administrator.

     The Company  believes  that,  as of December 31,  1998,  this phase is 100%
complete.

     2. Assessment. Includes assessing the need for renovation or replacement of
information and non-information  technology systems; rating date sensitive items
by risk and  criticality;  and contacting  Company  vendors to obtain  completed
compliance dates.

     The Company  believes  that,  as of December 31,  1998,  this phase is 100%
complete.

     3. Credit Policy and Underwriting.  Includes contacting affected customers;
gathering  information  from those customers about the consequences of Year 2000
on their  ability  to repay;  and  developing  a risk  rating  system  for these
customers in order to determine  whether the  Company's  loan loss  reserves are


                                       21

<PAGE>



adequate  and  to  adjust  the  Company's  reserves  accordingly.  Due  to  this
assessment,  an additional  $26,376.22 has been added to the current Reserve for
Loss on Loans as of December 31, 1998.  The reserve for loan loss  attributed to
Year 2000 risk is reviewed and adjusted monthly.

     The Company has added to its new loan  documents  entered  into after April
22, 1998, covenants that the borrower will be Year 2000 compliant.

     The  Company  believes  that as of  December  31,  1998 this  phase is 100%
complete, but in continual review.

     4.  Renovation.  Involves  renovating or replacing  the company's  in-house
software  and  hardware  and  embedded  technology  as well as working  with its
outside data  processor  and vendors to ensure that all of its mission  critical
operating  systems are Year 2000  compliant by December 31, 1998.  In 1997,  the
Company  initiated  a review and  assessment  of all  hardware  and  software to
confirm that it will  function  properly in the year 2000.  The  Company's  data
processing  provider and those  vendors who have been  contacted  indicate  that
their hardware  and/or  software will be Year 2000 compliant by the end of 1998.
Additionally,  alarms, heating and cooling systems and other computer-controlled
mechanical  devices on which the  company  relies have been  evaluated.  We have
received  certifications  on all equipment that will not need to be tested.  The
Company has replaced and modified  equipment found not to be in compliance.  The
Company has replaced six computers  and upgraded the operating  system to become
Year 2000 complaint. The costs associated with these upgrades were approximately
$26,000.

     The Company  believes  that,  as of December  31,  1998,  this phase is 60%
complete.

     5. Contingency Plan. Involves  prioritizing all core business processes and
developing a contingency plan in the event that certain mission critical systems
are not Year 2000 compliant on or before certain targeted date. The plan has not
needed to be revised to date as system vendors  certified year 2000  compliance,
but the Company  anticipates that it may need to be revised as additional system
vendors certify year 2000 compliance.

     The Company  believes  that,  as of December 31,  1998,  this phase is 100%
complete, but in continual review.

     6. Strategies to Discuss Customer  Awareness.  Includes  informing  Company
officers  and  employees  of the year 2000  problem;  mailing  brochures  to all
Company  customers and making them  available to customers at the Company lobby;


                                       22

<PAGE>



and  conducting  a seminar on the year 2000 problem for Company  customers.  The
Company conducted the seminar for customers on September 15, 1998.

     The Company  believes  that,  as of December 31,  1998,  this phase is 100%
complete.   However,   the  Company  anticipates  making  additional   customers
notifications throughout 1999.

     7. Validation.  Involves  testing the Company's  outside data processor and
other  systems  critical to the Company's  operation.  All hardware and software
testing is  substantially  completed  as of December  31,  1998.  The  Company's
outside data processor concluded 19XX testing in August, 1998, and will conclude
20XX testing in March,  1999. The Company tested the data processing  renovation
on October 4, 1998. Our data processing vendor received ITAA 2000  certification
(Information Technology Association of America) in August, 1998.

     Some test plans for certain  services,  such as credit cards, are dependent
upon notice from the outside vendor that its systems are ready for testing.  The
Company  intends to test such services  when the vendor  notifies the Company of
the proper test script.  To date, the Company has tested most of these services.
Most all other providers have begun their own testing.

     The Company has rated its computer  systems  based on the degree of risk of
non-compliance  and has 39  systems  that are high and  medium  risk.  Of the 39
systems,  70% are Year 2000  compliant  as of  December  31,  1998.  The Company
anticipates that all will be compliant by March 31, 1999.

     The  Company  believes  that as of  December  31,  1998,  this phase is 60%
complete.

     8.  Implementation.  Involves the  implementation  of the Company's mission
critical systems. The company's outside data processor implemented the Company's
mission   critical  system  on  October  3,  1998.  As  of  December  31,  1998,
implementation has been completed on all mission critical systems.

     The Company  believes  that as of  December  31,  1998,  this phase is 100%
complete.


                                       23

<PAGE>



     Updated Year 2000 Budget
     ------------------------

     The Company has updated its budget  established  for year 2000  compliance.
The total  amount of the budget as of December 31, 1998 is  $101,330.53,  and is
comprised of the following:

                                  To Date         Projected           Total
                                  -------         ---------           -----

Hardware Replacement            $73,453.15              -0-        $73,453.15

Hardware Upgrade                       -0-         6,700.00          6,700.00

Software Replacement              7,136.07              -0-          7,136.07

Software Upgrade                       -0-           581.71            581.71

Education of Problem              3,000.00         4,000.00          7,000.00

ATM Upgrades                           -0-         6,459.60          6,459.60  
                               ------------     ------------     -------------

         TOTALS                 $83,589.22       $17,741.31       $101,330.53

     All hardware costs to date will be  capitalized on a five year  depreciated
schedule. Software costs to date will be capitalized on a three year depreciated
schedule.  The remaining balance of $4,000 constitutes  operational expenses for
1998 and 1999.

     The total cost associated with required  modifications  to become Year 2000
compliant is not expected to be material to the Company's financial position.

     Risks
     -----

     The  failure to correct a material  Year 2000  problem  could  result in an
interruption  in,  or a  failure  of,  certain  normal  business  activities  or
operations.  Such failure could  materially  and adversely  affect the Company's
results of  operations,  liquidity  or financial  condition.  Due to the general
uncertainty  inherent  in the Year  2000  problem,  resulting  in part  from the
uncertainty of the Year 2000 readiness of third-party vendors and customers, the
Company is unable to  determine at this time  whether the  consequences  of Year
2000  failures  will  have  a  material  impact  on  the  Company's  results  of
operations,  liquidity or financial condition. The Year 2000 Plan is expected to
significantly  reduce the  Company's  level of  uncertainty  about the Year 2000
problem and about the Year 2000 compliance and readiness of its material outside


                                       24

<PAGE>



vendors.  The  Company  believes  that,  with  the  completion  of the  Plan  as
scheduled,  the possibility of significant  interruptions  of normal  operations
should be reduced.

     Readers are cautioned that forward-looking statements contained in the Year
2000 Update should be read in conjunction with the Company's  disclosures  under
the heading  "Cautionary  Statement for Purposes of the 'Safe Harbor' Provisions
of the Private Securities Litigation Reform Act of 1995" beginning on page 3.























                                       25

<PAGE>
<TABLE>
<CAPTION>


                                                       TABLE 1
                                         MOUND CITY FINANCIAL SERVICES, INC.
                            TWO YEAR SUMMARY OF INTEREST RATES AND INTEREST DIFFERENTIAL
                                                   (000's omitted)

                                                              1998                                1997
                                                =================================   =================================
                                                  Average      Related    Yield       Average      Related    Yield
                                                  Balance      Interest    Rate       Balance      Interest    Rate
                                                =================================   =================================
<S>                                              <C>           <C>       <C>         <C>            <C>       <C>
Assets
Interest - Earning assets:
    Taxable securities (2)                       $ 11,092        686     6.18%         11,345         740     6.52%
    Tax-exempt securities (1) (2)                   7,902        639     8.09%          8,422         685     8.13%
    Loans (1)                                      93,539      8,193     8.76%         83,705       7,563     9.04%
    Federal funds sold                              2,371        127     5.36%          2,334         131     5.61%
                                                 -------------------                 --------------------
         Total interest earning assets           $114,904      9,645     8.39%        105,806       9,119     8.62%
    Noninterest earning assets                      9,957                                   0
                                                 --------                            --------
         Total assets                             124,861                             105,806
                                                 ========                            ========

Liabilities and Stockholders' Equity
Interest bearing liabilities:
    Interest bearing demand and savings          $ 38,215      1,393      3.65%        31,133       1,028     3.30%
    Time deposits                                  61,216      3,587      5.86%        63,294       3,767     5.95%
                                                 -------------------                 --------------------
         Total interest bearing deposits           99,431      4,980      5.01%        94,427       4,795     5.08%
    Short-term borrowings                           3,069        284      9.25%         2,994         233     7.78%
    Other borrowings                                2,984        164      5.50%             0           0        0
                                                 -------------------                 --------------------
         Total interest bearing liabilities      $105,484      5,428      5.15%        97,421       5,028     5.16%
Noninterest bearing liabilities:
    Demand deposits                                 9,776                               9,161
    Other liabilities                               2,063                               2,135
                                                 ---------                           --------
         Total liabilities                        117,323                             108,717
    Stockholders equity                             7,538                               7,639
                                                 --------                            --------


         Total liabilities and stockholders'                                                                         
         equity                                   124,861                             116,356                      
                                                 =========                           ========
    Net interest income                                        4,217                                4,091
    Interest spread                                                       3.25%                               3.46%
                                                                          =====                               =====
    Interest margin                                                       3.67%                               3.87%
                                                                          =====                               =====


(1)  The interest on tax-exempt investment securities and tax-exempt loans is calculated on a tax equivalent basis assuming a 
     federal tax rate of 34%
(2)  The average balance has been adjusted to exclude the effects of Statement of Financial Accounting Standards No. 115.
(3) Loan interest income includes net loan fees.
(4) Loans placed on nonaccrual status have been included in average balances to determine average rates.
</TABLE>


                                                        26

<PAGE>

                                     TABLE 2
                       MOUND CITY FINANCIAL SERVICES, INC.
                  TWO YEAR SUMMARY OF RATE AND VOLUME VARIANCES
                                 (000's Omitted)

                                            $ Amount      Volume      Rate (3)
                                            of Change     Variance    Variance
                                            ------------------------------------
Increase (decrease) for 1998:
  Taxable securities (2)                    $   (54)        (16)         (38)
  Tax-exempt securities (1)(2)                  (46)        (42)          (4)
  Loans                                         630         889         (259)
  Federal funds sold                             (4)          2           (6)
                                            ------------------------------------
    Total interest income                       526         833         (307)
                                            ------------------------------------

  Interest bearing demand and savings           365         234          131
  Time deposits                                (180)       (124)         (56)
  Short-term borrowings                          51           6           45
  Other borrowings                              164         164            0
                                            ------------------------------------
    Total interest expense                      400         280          120
                                            ------------------------------------

Net interest margin/net interest income     $   126         553         (427)
                                            ====================================
Increase (decrease) for 1997:
  Taxable securities (2)                    $  (137)       (143)           6
  Tax-exempt securities (1)(2)                   14          43          (29)
  Loans                                         727         819          (92)
  Federal funds sold                             35          31            4
                                            ------------------------------------
    Total interest income                       639         750         (111)
                                            ------------------------------------

  Interest bearing demand and savings           353         101          252
  Time deposits                                 149         126           23
  Short-term borrowings                         207         173           34
  Other borrowings                                0           0            0
                                            ------------------------------------
    Total interest expense                      709         400          309
                                            ------------------------------------

Net interest margin/net interest income     $   (70)        350         (420)
                                            ====================================


(1)  The interest on tax-exempt  investment  securities and tax-exempt  loans is
     calculated on a tax equivalent basis assuming a federal tax rate of 34%. 

(2)  The average  balance has been  adjusted to exclude the effects of Statement
     of  Financial  Accounting  Standards  No. 115. 

(3)  The application of the  rate/volume  variance has been allocated in full to
     the rate variance


                                       27

<PAGE>


                                     TABLE 3
                       MOUND CITY FINANCIAL SERVICES, INC.
                    ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
                                 (000's Omitted)

                                          ----------------------------
                                              1998            1997
                                          ----------------------------
Beginning loan loss reserve               $   1,159           1,104

Charge-offs:
     Commercial                                  79              11
     Agricultural production                      0               0
Real Estate:
     Construction                                 0               0
     Commercial                                   0               0
     Agriculture                                  0               0
     Other Mortgages                              0               1
Installment - consumer                          100              85

Recoveries:
     Commercial                                   3               2
     Agricultural production                      0               0
Real Estate:
     Construction                                 0               0
     Commercial                                   0               0
     Agriculture                                  0               0
     Other Mortgages                              0               0
Installment - consumer                           28              20
                                          ---------       ---------

Net Charge-offs/(Recoveries)                    148              75

Additions charged to operations (1)             271             130
Additions related to
     branch acquisitions                          0               0
                                          ---------       ---------

Balance at end of period                  $   1,282           1,159
                                          =========       =========

Ratio of net charge-offs/
  recoveries during the period
  to ave. loans outstanding
  during the period                          0.158%          0.088%



Note: (1) For  each  year  ending  December  31,  the  determination  of the
          additions to loan loss reserve charged to operating expenses was based
          on an  evaluation of the loan  portfolio,  current  domestic  economic
          conditions, past loan losses and other factors.


                                       28

<PAGE>


                                     TABLE 4
                       MOUND CITY FINANCIAL SERVICES, INC.
                 TWO YEAR SUMMARY OF RETURN ON EQUITY AND ASSETS


                                                   1998             1997
                                               -----------------------------

Return on average assets                           0.66%            0.78%

Return on average equity                          11.45%           11.94%

Dividend payout ratios on common stock            28.70%           22.14%

Average equity to average assets                   5.75%            6.56%






















                                       29

<PAGE>


                                     TABLE 5
                       MOUND CITY FINANCIAL SERVICES, INC.
                       BOOK VALUE OF INVESTMENT PORTFOLIO
                                 (000's Omitted)



Available for Sale:                                 1998          1997
                                                 -----------------------
  U.S. Treasury and other U.S.
      Gov't. Agencies and Corporations           $  9,767      $ 10,644
  Obligations of states and
      political subdivisions                        7,340         8,539
  Other                                             1,461           774
Held to Maturity:
  U.S. Treasury and other U.S.
      Gov't. Agencies and Corporations                  0             0
  Obligations of states and
      political subdivisions                            0             0
  Other                                                 0             0
                                                ------------------------
          Total                                  $ 18,568      $ 19,957
                                                ========================


NOTE:     The aggregate book value of securities from any single issuer does not
          exceed ten percent of  stockholder's  equity;  except for,  securities
          issued  by the  U.S.  Government  and  U.S.  Government  agencies  and
          corporations.






                                       30

<PAGE>


                                     TABLE 6
                       MOUND CITY FINANCIAL SERVICES, INC.
                 MATURITY SCHEDULE OF INVESTMENTS BY BOOK VALUE
                                December 31, 1998
                                 (000's Omitted)

<TABLE>
<CAPTION>

                                                                        After 1     After 5                           
                                                                         Year        Years                            
                                                            1 Year      through     through      After
                                                            or Less     5 Years    10 Years    10 Years     Total
                                                           --------------------------------------------------------
<S>                                                        <C>         <C>         <C>         <C>         <C>
Available for Sale Securities
  U.S. Treasury and U.S. Gov't agencies and
  corporations(a)                                          $ 1,789       5,320       2,658          0        9,767
     Weighted average yield                                   5.97%       6.09%       6.07%      0.00%        6.06%
  States of the U.S. and Political Subdivisions (b)          1,374       2,745       1,676      1,545        7,340
     Weighted average yield                                   7.09%       7.88%       7.70%      9.03%        7.94%
  Other Securities (a)                                       1,461           0           0          0        1,461
     Weighted average yield                                   4.10%       0.00%       0.00%      0.00%        4.10%
                                                           --------    --------    --------    -------     --------
  TOTAL AVAILABLE FOR SALE                                 $ 4,624       8,065       4,334      1,545       18,568
                                                           ========    ========    ========    =======     ========
  Weighted Avg. Yield of Total                                5.71%       6.70%       6.70%      9.03%        6.65%
                                                           =========   =========   ========    =======     ========



(a)  Portions of investments both taxable and nontaxable have been presented on a state taxable equivalent basis assuming a 7.9% 
     tax rate.

(b)  The interest and average yield for nontaxable securities are presented on a federal taxable equivalent basis assuming a 34% 
     tax rate.

</TABLE>


                                                        31

<PAGE>




                                     TABLE 7
                       MOUND CITY FINANCIAL SERVICES, INC.
                               LOAN SUMMARIZATION
                                 (000's Omitted)
                                                   December 31,
                                          ----------------------------
                                             1998              1997
                                          ----------------------------
Commercial                                $  13,063            12,956
Agricultural production                       9,857             9,443
Real Estate:
     Construction                               812             1,256
     Commercial                              27,779            21,270
     Agriculture                              7,368             6,874
     Residential                             33,269            30,355
Municipal                                     5,456             1,171
Consumer                                      1,393             5,102
                                          ----------        ----------
          TOTAL                           $  98,997            88,427
                                          ==========        ==========







                                       32

<PAGE>


<TABLE>
<CAPTION>
                                                        TABLE 8
                                           MOUND CITY FINANCIAL SERVICES, INC
                              LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATE
                                                    (000's Omitted)


                                         Loan Maturities                       Amount Over One Year With
                             -----------------------------------------  --------------------------------------
                                        After 1      After                 Predeter-   Floating or
                             1 Year     Through      Five                   mined     Adj. Interest
                             or Less    5 Years      Years     Total        Rates         Rates        Total
                             -----------------------------------------  --------------------------------------
<S>                          <C>         <C>         <C>      <C>          <C>          <C>          <C>

December 31, 1998
  Comm'l and agricultural    $ 17,727    $ 5,193         0    $ 22,920     $ 2,543      $ 2,650      $ 5,193
  Real estate - constr.           595        217         0         812         217            0          217
                             --------    -------     -----    --------     -------      -------      -------

          TOTAL              $ 18,322    $ 5,410         0    $ 23,732     $ 2,760      $ 2,650      $ 5,410
                             ========    =======     =====    ========     =======      =======      =======

December 31, 1997
  Comm'l and agricultural    $ 17,733    $ 4,666         0    $ 22,399     $ 2,886      $ 1,780      $ 4,666
  Real estate - constr.         1,176         80         0       1,256          80            0           80
                             --------    -------     -----    --------     -------      -------      -------

          TOTAL              $ 18,909    $ 4,746         0    $ 23,655     $ 2,966      $ 1,780      $ 4,746
                             ========    =======     =====    ========     =======      =======      =======
</TABLE>




                                                        33

<PAGE>


                                     TABLE 9
                       MOUND CITY FINANCIAL SERVICES, INC.
                      TWO YEAR SUMMARY OF AVERAGE DEPOSITS
                                 (000's Omitted)


                                    ---------------------  ---------------------
                                                 Rate                     Rate
                                       1998      Paid          1997       Paid
                                    ---------------------  ---------------------
Deposit in domestic bank offices:

  Non-interest bearing demand        $  9,776               $  9,162

  Interest-bearing demand              21,895     3.65%       17,260      3.29%

  Money Market demand                  10,092     4.47%        7,380      3.96%

  Savings deposits                      6,228     2.47%        6,492      2.60%
 
  Time deposits                        61,216     5.86%       63,294      5.95%
                                     --------    ------     --------     ------

Total Deposits                       $109,207     4.57%     $103,588      4.63%
                                     ========    ======     ========     ======








                                       34

<PAGE>



                                    TABLE 10
                       MOUND CITY FINANCIAL SERVICES, INC.
                  MATURITY OF TIME DEPOSITS OF $100,000 OR MORE



Time Remaining to Maturity:
    Due within three months                               $   725
    Three to six months                                     1,078
    Six to twelve months                                    2,137
    After twelve months                                     4,478
                                                          -------
        Total                                             $ 8,418
                                                          =======









                                       35

<PAGE>




                                    TABLE 11
                       MOUND CITY FINANCIAL SERVICES, INC.
                              SHORT-TERM BORROWINGS
                                 (000's Omitted)

                                                         Demand
                                                         Notes      Federal
                                               Bank      Due US     Funds
                                               Notes     Treasury   Purchased
                                            -----------------------------------
                                                      (000's omitted)

Data for December 31, 1998
Outstanding at December 31                     1,848       240           0
Highest outstanding at any month-end
  during the year                              3,400       849       1,195
Average outstanding during the year            2,624       388          57
Weighted average yield for year                 8.23%     5.36%       5.82%
Weighted average interest rate on
  outstanding balances at December 31           6.75%     4.46%       0.00


Data for December 31, 1997
Outstanding at December 31                     3,400       976           0
Highest outstanding at any month-end
  during the year                              3,240       976       2,115
Average outstanding during the year            2,282       342         370
Weighted average yield for year                 8.50%     4.90%       5.90%
Weighted average interest rate on
  outstanding balances at December 31           8.50%     5.25%       0.00%






                                       36

<PAGE>

<TABLE>
<CAPTION>
                                            TABLE 12
                               MOUND CITY FINANCIAL SERVICES, INC.
                            ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
                                         (000's Omitted)


                                             ----------------------------------------------------
                                                         1998                      1997
                                             ----------------------------------------------------
<S>                                            <C>           <C>           <C>           <C>

Commercial, financial and agricultural              769        60.06%           190        16.39%
Real estate-construction                             11         0.82%             0         0.00%
Real estate - mortgage                              431        33.61%           177        15.27%
Installment loans to individuals                     71         5.51%             4         0.35%
Unallocated                                           0         0.00%           788        67.99%
                                               --------      --------      --------      --------
  Total                                           1,282       100.00%         1,159       100.00%
                                               ========      ========      ========      ========

</TABLE>









                                                        37

<PAGE>


                                    TABLE 13
                       MOUND CITY FINANCIAL SERVICES, INC
                              NON-PERFORMING LOANS
                                 (000's omitted)

                                       1998                  1997
                                      ------                ------
Nonaccrual Loans                        822                    78
Past Due 90 days + (1)                    0                     0
Restructured Loans (2)                    0                     0

Notes:
(1)  Loans are generally placed in nonaccrual status when contractually past due
     90 days or more.  There  were no loans  past due 90 days+ not  recorded  as
     nonaccrual loans for each of the presented years.

(2) There were no restructured loans for each of the presented years.

(3)  Interest  which would have been  recorded  had the loans been on an accrual
     basis, would have amounted to 65,000 in 1998, and $2,000 in 1997.  Interest
     income on these loans,  which is recorded only when  received,  amounted to
     $1,000 in 1998 and $2,000 in 1997.

(4)  Each of the loans  which are  contractually  past due 90 days or more as to
     principal or interest  payments are reviewed by management  and reported to
     the Loan  Committee of the Board of Directors of the Bank.  These loans are
     then placed on a nonaccrual basis.

(5)  As of December 31, 1998, management,  to the best of its knowledge,  is not
     aware of any  significant  loans,  group of loans or  segments  of the loan
     portfolio  not  included  above,  where there are serious  doubts as to the
     ability of the borrowers to comply with the present loan payment terms.




                                       38

<PAGE>



                                    TABLE 14
                       MOUND CITY FINANCIAL SERVICES, INC.
          DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY

                                                      Average Balance Sheet
                                                          (000's omitted)
                                                    1998               1997
                                                ===========        ==========
Cash and due from banks                         $   3,823          $   3,560
Federal funds sold                                  2,371              2,334

Investment securities:
     Taxable securities                            11,116             11,346
     Tax-exempt securities                          8,124              8,552
 
Loans                                              93,539             84,847
     Less allowance for loan losses                (1,159)            (1,142)
                                                ----------         ----------

Net loans                                          92,380             83,705

Office building and equipment                       4,310              4,382
Other assets                                        2,621              2,477
                                                ----------         ----------

     Total assets                               $ 124,745          $ 116,356
                                                ==========         ==========

Interest bearing deposits:
     Interest bearing demand and savings        $  38,215          $  31,132
     Time deposits                                 61,216             63,294
                                                ----------         ----------
     Total interest bearing deposits               99,431             94,426

Demand deposits                                     9,776              9,162
                                                ----------         ----------

     Total deposits                               109,207            103,588
Short-term borrowings                               3,069              2,412
Other liabilities                                   2,306              2,718
Other borrowings                                    2,984                  0
                                                ----------         ----------

     Total liabilities                            117,566            108,718

Equity capital                                      7,179              7,638

                                                ----------         ----------
     Total liabilities and capital              $ 124,745          $ 116,356
                                                ==========         ==========


                                       39

<PAGE>



Item 7.  Financial Statements
-----------------------------

Index to Financial Statements                                             Page

     Consolidated balance sheets...........................................41

     Consolidated statements of income.....................................42

     Consolidated statements of changes in stockholders' equity............43

     Consolidated statements of cash flows.................................44

     Notes to consolidated financial statements............................46

     Independent Auditor's Report..........................................66








                                       40

<PAGE>



CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997

ASSETS                                                   1998           1997 
--------------------------------------------------------------------------------

  Cash and due from banks (Note B)                  $  4,682,460   $  3,495,103
  Federal funds sold                                   2,585,000      4,562,000
  Available for sale securities stated
     at fair value (Note C)                           18,567,564     19,956,739
  Loans, less allowance for loan losses of
     $1,281,590 and $1,159,300 in 1998
     and 1997 respectively (Notes D, E and N)         97,715,531     87,268,114
  Office buildings and equipment, net (Note F)         4,250,851      4,343,474
  Accrued interest receivable and other
     assets (Note I)                                   2,645,051      2,489,203
                                                    ----------------------------

          Total assets                              $130,446,457   $122,114,633
                                                    ----------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------
Liabilities:
  Deposits: (Note G)
  Demand                                            $ 12,283,194   $ 10,029,112
  Savings and NOW                                     40,069,440     34,400,049
  Other Time                                          61,385,864     64,721,866
                                                    ----------------------------
          Total deposits                            $113,738,498   $109,151,027
  Note payable and other borrowings (Note H)           6,088,249      4,376,625
  Accrued interest payable and other liabilities
     (Notes I and L)                                   1,865,321      1,771,702
                                                    ----------------------------
          Total liabilities                         $121,692,068   $115,299,354
                                                    ----------------------------

Commitments and contingencies (Note M)

Stockholders' equity: (Notes P and Q)
  Common stock, no par value, $1.00 stated value;
     300,000 shares authorized, 31,494 and 26,940
     shares issued in 1998 and 1997 respectively          31,494         26,940
  Surplus                                              7,618,010      6,270,446
  Retained earnings (Note O)                             948,829        362,546
                                                    ----------------------------
                                                       8,598,333      6,659,932
                                                    ----------------------------
  Treasury stock, 30 and 20 shares in 1998 and
  1997 respectively, at cost                              (8,066)        (5,056)
  Accumulated other comprehensive income                 164,122        160,403
                                                    ----------------------------
     Total stockholders' equity                        8,754,389      6,815,279

     Total liabilities and stockholders' equity     $130,446,457   $122,114,633
                                                    ============================


                                       41

<PAGE>



CONSOLIDATED STATEMENTS OF INCOME

Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>

                                                                  1998              1997              1996
                                                              ------------------------------------------------
<S>                                                           <C>               <C>              <C>
Interest income:
     Interest and fees on loans (Note D)                       $8,139,964       $7,509,603       $ 6,794,327
     Interest on investment securities:
         Taxable                                                  686,498          740,450           877,008
         Tax-exempt                                               421,953          452,480           442,715
     Interest on federal funds sold                               126,866          130,688            95,507
                                                              -----------------------------------------------
              Total interest income                             9,375,281        8,833,221         8,209,557
                                                              -----------------------------------------------

Interest expense:
     Interest on deposits (Note G)                             4,980,085         4,794,625        4,292,758
     Interest on notes payable and other
       borrowings (Note H)                                       448,535           233,587           25,985
                                                              -----------------------------------------------
         Total interest expense                                5,428,620         5,028,212        4,318,743
                                                              -----------------------------------------------
         Net interest income before
            provision for loan losses                          3,946,661         3,805,009        3,890,814
Provision for loan losses (Notes D and E)                        270,649           130,000          183,851
                                                              -----------------------------------------------
         Net interest income after
            provision for loan losses                          3,676,012         3,675,009        3,706,963
                                                              -----------------------------------------------

Noninterest income:
     Service fees                                                369,619           364,164          295,259
     Other income                                                395,857           313,018          199,975
     Securities gains (losses) (Note C)                           21,666             5,241             (649)
                                                              -----------------------------------------------
         Total noninterest income                                787,142           682,423          494,585
                                                              -----------------------------------------------

Noninterest expenses:
     Salaries                                                  1,355,743         1,250,802        1,161,158
     Employee benefits (Notes J, K and L)                        614,277           521,380          473,282
     Occupancy expense                                           491,768           477,572          418,074
     Computer services                                           174,983           163,706          145,551
     FDIC assessment                                              15,074            12,144           31,699
     Other expenses                                              767,947           811,368          779,008
                                                              -----------------------------------------------
         Total noninterest expenses                            3,419,792         3,236,972        3,008,772
                                                              -----------------------------------------------
         Income before income taxes                            1,043,362         1,120,460        1,192,776
     Less applicable income taxes (Note I)                       221,099           208,501          254,580
                                                              -----------------------------------------------

         Net income                                           $  822,263        $  911,959       $  938,196
                                                              ===============================================

         Earnings per share                                   $    30.11        $    30.49       $    26.06
                                                              ===============================================

         Weighted average shares outstanding                  $   27,313        $   29,914       $   36,000
                                                              ===============================================
</TABLE>


                                                        42

<PAGE>



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                                                            Accumulated
                                                                                                other
                                          Common                      Retained    Treasury  comprehensive
                                           stock         Surplus      earnings     stock    income (loss)        Total
                                          -------------------------------------------------------------------------------

<S>                                       <C>          <C>          <C>          <C>          <C>            <C>
Balances, December 31, 1995               $ 36,000     $6,964,000   $2,121,677   $     0      $229,576       $ 9,351,253
  Comprehensive income:
    Net income - 1996                            0              0      938,196         0             0           938,196
    Change in unrealized gain (loss) on 
      available for sale securities, net
      of reclassification adjustment and
      tax effect                                 0              0            0         0       (78,340)          (78,340)
                                                                                                             ------------
          Total comprehensive income                                                                          10,211,109
                                                                                                             ------------
  Dividends - $7.50 per share                    0              0     (270,000)        0             0          (270,000)
  Transfer from retained earnings                0        500,000     (500,000)        0             0                 0
                                          -------------------------------------------------------------------------------

Balances, December 31, 1996                 36,000      7,464,000    2,289,873         0       151,236         9,941,109
                                                                                                             ------------
  Comprehensive income:
    Net income - 1997                            0              0      911,959         0             0           911,959
    Change in unrealized gain (loss) on
      available for sale securities, net 
      of reclassification adjustment and
      tax effect                                 0              0            0         0         9,167             9,167
                                                                                                             ------------
          Total comprehensive income                                                                             921,126
                                                                                                             ------------
  Dividends - $7.50  per share                   0              0     (201,900)        0             0          (201,900)
  Purchase 20 shares of Treasury stock           0              0            0    (5,056)            0            (5,056)
  Purchase of 906 dissenter
    shares of bank stock                    (9,060)    (1,193,554)  (2,637,386)        0             0        (3,840,000)
                                          -------------------------------------------------------------------------------

Balances, December 31, 1997                 26,940      6,270,446      362,546    (5,056)      160,403         6,815,279
                                                                                                             ------------
  Comprehensive income:
  Net income - 1998                              0              0      822,263         0             0           822,263
  Change in unrealized gain (loss) on
    available for sale securities, net of
    reclassification adjustment and
    tax effect                                   0              0            0         0         3,719             3,719
                                                                                                             ------------
          Total comprehensive income                                                                             825,982
                                                                                                             ------------
  Dividends - $7.50 per share                    0              0     (235,980)        0             0          (235,980)
  Purchase 10 shares of Treasury stock           0              0            0    (3,010)            0            (3,010)
  Proceeds from sale of 4,554 shares of
    common stock net of stock
    offering costs (Note P)                  4,554      1,347,564            0         0             0         1,352,118
                                          -------------------------------------------------------------------------------

Balances, December 31, 1998               $ 31,494     $7,618,010   $  948,829   $(8,066)     $164,122       $ 8,754,389
                                          ===============================================================================
</TABLE>


                                                               43

<PAGE>




CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 1998, 1997 and 1996 
<TABLE>
<CAPTION>
                                                         1998             1997            1996 
                                                    ----------------------------------------------

<S>                                                 <C>              <C>            <C>
Cash flows from operating activities:
  Net income                                        $    822,263     $   911,959    $    938,196
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Depreciation                                       262,510         273,417         224,813
      Loss on disposal of office building
         and equipment                                    11,354               0               0
      Provision for loan losses                          270,649         130,000         183,851
      Amortization and accretion of bond
        premiums and discounts - net                     (38,614)        (10,295)        (44,456)
      Provision (benefit) for deferred taxes             (64,649)        (25,472)        (41,416)
      Securities (gain) losses                           (21,666)         (5,241)            649
      (Increase) decrease in assets:
        Interest receivable                               26,346         (43,801)        (27,554)
        Other assets                                     (89,561)       (135,054)       (111,292)
      Increase (decrease) in liabilities:
        Interest payable                                (199,476)         38,024         152,002
        Other liabilities                                263,148          66,948          78,224
                                                    ----------------------------------------------
    Total adjustments                                    420,041         288,526         414,821
                                                    ----------------------------------------------
    Net cash provided by operating activities          1,242,304       1,200,485       1,353,017
                                                    ----------------------------------------------
Cash flows from investing activities:
    Net (increase) decrease in federal funds sold      1,977,000       1,094,000        (228,000)
    Proceeds from maturities of securities            13,618,026      10,494,251       5,620,360
    Purchase of securities                           (20,912,920)    (19,613,625)    (11,440,576)
    Proceeds from sale of securities                   8,750,031       9,262,649       7,768,706
    Net increase in loans                            (10,718,066)     (6,846,731)    (12,001,033)
    Purchase of office buildings and equipment          (181,241)       (230,809)     (1,210,441)
                                                    ----------------------------------------------
      Net cash used in investing activities         $ (7,467,170)    $(5,840,265)   $(11,490,984)
                                                    ----------------------------------------------
</TABLE>



                                                          44

<PAGE>



CONSOLIDATED STATEMENTS OF CASH FLOWS (concluded)

Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                         1998             1997            1996 
                                                    ---------------------------------------------

<S>                                                 <C>              <C>             <C>
Cash flows from financing activities:
  Net increase in deposits                          $ 4,587,471      $ 6,208,743     $ 9,204,656
  Net increase (decrease) in demand
    notes issued to U.S. Treasury                      (736,258)         507,291        (366,476)
  Payment of dissenter shares                                 0       (3,840,000)              0
  Proceeds from Federal Home Loan
    Bank borrowings                                   4,000,000                0               0
 Proceeds on note payable                                    0        3,840,000                0
  Payment on note payable                             1,552,118)        (440,000)              0
  Net proceeds from stock offering                    1,352,118                0               0
  Purchase treasury shares                               (3,010)          (5,056)              0
  Dividends paid                                       (235,980)        (201,900)       (270,000)
                                                    ---------------------------------------------
     Net cash provided by financing activities        7,412,223        6,069,078       8,568,180

     Increase (decrease) in cash
       and cash equivalents                           1,187,357        1,429,298      (1,569,787)

Cash and cash equivalents:
  Beginning of year                                   3,495,103        2,065,805       3,635,592
                                                    ---------------------------------------------

  End of year                                       $ 4,682,460      $ 3,495,103     $ 2,065,805
                                                    =============================================

Supplemental disclosures of cash flow information:
  Cash paid during the year for:
     Interest                                       $ 5,190,448      $ 4,941,219     $ 4,178,178
                                                    ================================================

         Income taxes                               $   188,994      $   269,908     $   299,824
                                                    ================================================

Supplemental schedule for noncash 
  investing and financing activities:
    Net change in unrealized gain (loss)
      on available for sale securities, net          $    3,719      $     9,167       $ (78,340)
                                                     ===============================================
</TABLE>






                                                          45

<PAGE>



Note A.  Summary of Significant Accounting Policies
---------------------------------------------------

1.  Consolidation:

The consolidated  financial  statements of Mound City Financial  Services,  Inc.
include the accounts of its wholly-owned subsidiary, Mound City Bank. Mound City
Bank  includes  the  accounts  of  its  wholly-owned   subsidiary,   Mound  City
Investments,  Inc. The consolidated  financial  statements have been prepared in
conformity with generally accepted accounting  principles and conform to general
practices within the banking industry. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.

2.  Nature of banking activities:

The consolidated income of Mound City Financial  Services,  Inc. (the "Company")
is principally  from income of its subsidiary,  Mound City Bank. Mound City Bank
(the "subsidiary Bank") grants  agribusiness,  commercial and residential loans,
consumer  loans,  accepts  deposits from customers and provides trust  services,
concentrated  in  the  counties   surrounding  the  subsidiary   Bank's  various
locations.  The subsidiary  Bank is subject to competition  from other financial
institutions  and  non-financial   institutions  providing  financial  products.
Additionally, the Company and the subsidiary Bank are subject to the regulations
of  certain  regulatory  agencies  and  undergo  periodic  examination  by those
regulatory agencies.

3.  Basis of financial statement presentation:

The  preparation  of financial  statements in conformity  with general  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenues and expenses during the period.  Actual results
could differ from those estimate.

4.  Cash and cash equivalents:

For the purpose of  presentation in the  consolidated  statements of cash flows,
cash  and  cash  equivalents  are  defined  as  those  amounts  included  in the
balance-sheet caption "cash and due from banks."

The subsidiary Bank maintains amounts due from banks which, at times, may exceed
federally insured limits.  The subsidiary Bank has not experienced any losses in
such accounts.


                                       46

<PAGE>



5.  Available for sale securities:

Securities  classified as available for sale are those debt  securities that the
Company and its subsidiary Bank intend to hold for an indefinite period of time,
but not necessarily to maturity.  Any decision to sell a security  classified as
available  for sale would be based on  various  factors,  including  significant
movements  in interest  rates,  changes in the  maturity  mix of the  subsidiary
Bank's   assets   and   liabilities,   liquidity   needs,   regulatory   capital
consideration, and other similar factors. Securities classified as available for
sale are  carried at fair  value.  Unrealized  gains or losses are  reported  as
increases  or  decreases  in  other  comprehensive  income,  net of the  related
deferred tax effect.  Realized  gains or losses,  determined on the basis of the
cost of specific securities sold, are included in earnings.

6.  Loans:

Loans that  management  has the intent and  ability to hold for the  foreseeable
future  or until  maturity  or  payoff  are  reported  at the  amount  of unpaid
principal,  reduced  by the  allowance  for loan  losses.  Interest  on loans is
calculated  by  using  the  simple  interest  method  on daily  balances  of the
principal amount  outstanding.  The accrual of interest income on impaired loans
is discontinued when, in the opinion of management, there is reasonable doubt as
to the  borrower's  ability to meet payment of interest or  principal  when they
become  due.  When the  interest  accrual is  discontinued,  all unpaid  accrued
interest is reversed.  Cash  collections  on impaired  loans are credited to the
loan  receivable  balance,  and no interest  income is recognized on those loans
until the principal balance is current. Accrual of interest is generally resumed
when the customer is current on all principal and interest payments and has been
paying on a timely basis for a period of time.

7.  Allowance for loan losses:

The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management  believes that the  collectibility of the principal is unlikely.  The
allowance for loan losses is adequate to cover probable  credit losses  relating
to specifically  identified loans, as well as probable credit losses inherent in
the balance of the loan portfolio. In accordance with FASB Statements 5 and 114,
the  allowance is provided for losses that have been  incurred as of the balance
sheet  date.  The  allowance  is  based  on past  events  and  current  economic
conditions,  and does not include  the  effects of  expected  losses on specific
loans or groups of loans that are related to future  events or expected  changes
in economic conditions.  While management uses the best information available to
make its  evaluation,  future  adjustments  to the allowance may be necessary if
there  are  significant  changes  in  economic  conditions.  Impaired  loans are
measured based on the present value of expected future cash flows  discounted at
the loan's effective interest rate or, as a practical  expedient,  at the loan's


                                       47

<PAGE>


observable  market  price or the fair  value  of the  collateral  if the loan is
collateral  dependent.  A loan is impaired when it is probable the creditor will
be unable to collect all  contractual  principal  and  interest  payments due in
accordance with the terms of the loan agreement.

In addition,  various regulatory agencies  periodically review the allowance for
loan  losses.  These  agencies  may require the banks to make  additions  to the
allowance for loan losses based on their  judgments of  collectibility  based on
information available to them at the time of their examination.

8.  Office buildings and equipment:

Depreciable assets are stated at cost less accumulated depreciation.  Provisions
for depreciation  are computed on a straight-line or accelerated  basis over the
estimated  useful lives of the assets,  which are 40 years for office  buildings
and 3 to 25 years for equipment.

9.  Other real estate:

Other real estate acquired  through  partial or total  satisfaction of a loan is
carried at the lower of cost or fair market value.  At the date of  acquisition,
losses are charged to the allowance  for loan losses.  Revenue and expenses from
operations  and  changes in the  valuation  allowance  are  included  in loss on
foreclosed real estate.

10. Off-balance-sheet financial instruments:

In the  ordinary  course of  business,  the  subsidiary  Bank has  entered  into
off-balance-sheet  financial  instruments  consisting of  commitments  to extend
credit, commitments under credit card arrangements, commercial letters of credit
and standby  letters of credit.  Such financial  instruments are recorded in the
financial  statements  when they are  funded or  related  fees are  incurred  or
received.

11. Profit-sharing plans:

The   subsidiary   Bank  has   established   a  trusteed   contributory   401(k)
profit-sharing plan for qualified employees.  The subsidiary Bank's policy is to
fund contributions as accrued.

12. Money purchase pension plan:

The  subsidiary  Bank has  established a trusteed  contributory  money  purchase
pension  plan.  The Plan provides for an annual  contribution  of 3% of eligible
compensation.


                                       48

<PAGE>



13. Income taxes:

The  Company  files a  consolidated  federal  income tax  return and  individual
subsidiary state income tax returns. Accordingly,  amounts equal to tax benefits
of those  companies  having taxable  federal losses or credits are reimbursed by
the other companies that incur federal tax liabilities.

Amounts  provided  for  income  tax  expense  are based on income  reported  for
financial statement purposes and do not necessarily  represent amounts currently
payable under tax laws.  Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible  amounts in the future
based on  enacted  tax laws and rates  applicable  to the  periods  in which the
differences  are expected to affect  taxable  income.  As changes in tax laws or
rates are enacted,  deferred tax assets and liabilities are adjusted through the
provision for income taxes.  The differences  relate  principally to the reserve
for loan losses,  non-accrual loan income,  deferred  compensation,  alternative
minimum  tax  and  fixed  assets.  Valuation  allowances  are  established  when
necessary to reduce deferred tax assets to the amount expected to be realized.

14. Trust assets and fees:

Property held for customers in fiduciary or agency capacities is not included in
the  accompanying  balance  sheet,  since  such  items  are  not  assets  of the
subsidiary Bank. In accordance with established  industry practice,  income from
trust fees is reported on the cash basis.  Reporting of trust fees on an accrual
basis would have no material effect on reported income.

15. Earnings per share:

Earnings  per share are based on the Bank's  weighted  average  number of shares
outstanding during the year.

16. Fair value of financial instruments:

Financial Accounting Standards Board Statement No. 107,  "Disclosures About Fair
Value of Financial  Instruments,"  requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for
which it is  practicable  to estimate  that value.  In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation  techniques.  Those techniques are significantly  affected by
the assumptions  used,  including the discount rate and estimates of future cash
flows. In that regard,  the derived fair value estimates cannot be substantiated
by comparison to independent  markets and, in many cases,  could not be realized


                                       49

<PAGE>



in immediate  settlement of the instrument.  Statement No. 107 excludes  certain
financial  instruments  from  its  disclosure  requirements.   Accordingly,  the
aggregate fair value amounts  presented do not represent the underlying value of
the Company.

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

     Carrying amounts approximate fair values for the following instruments:

          Cash and cash equivalents  
          Federal funds sold 
          Short-term borrowings   
          Variable rate borrowings   
          Accrued interest receivable 
          Accrued interest payable
          Variable rate loans that reprice frequently where no
               significant change in credit risk has occurred
          Demand deposits  
          Variable rate money market accounts  
          Variable rate certificate of deposit 
          Available for sale securities

     Discounted cash flows:

          Using  interest  rates  currently  being offered on  instruments  with
          similar terms and with similar credit quality:

               All loans except variable rate loans described above 
               Fixed rate certificates of deposit   
               Notes payable and other borrowings

          Quoted fees currently being charged for similar instruments:

          Taking into  account the  remaining  terms of the  agreements  and the
          counterparties' credit standing:

               Off-balance-sheet instruments:
               Guarantees
               Letters of credit
               Lending commitments


                                       50

<PAGE>



Since the majority of the Company's  off-balance-sheet  instruments  consists of
nonfee-producing,  variable rate commitments, the Company had determined it does
not have a distinguishable fair value.

Note B.  Cash and Due from Banks
--------------------------------

The  Company's  Bank  subsidiary  is required to maintain  vault cash or reserve
balances with Federal  Reserve Banks based upon a percentage of deposits.  These
requirements  approximated  $769,000  and $710,000 at December 31, 1998 and 1997
respectively.

Note C.  Available for Sale Securities
--------------------------------------

Amortized  costs and fair values of available for sale securities as of December
31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
                                                                  December 31, 1998  
                                       -------------------------------------------------------------------
                                                              Gross            Gross
                                         Amortized          unrealized       unrealized           Fair
                                           cost               gains            losses             value    
                                       -------------------------------------------------------------------
<S>                                    <C>                 <C>              <C>               <C>
U.S. Treasury securities               $   500,658         $   2,942        $   --            $   503,600
U.S. Government agency and
  corporation obligations                6,923,800            26,936             968            6,949,768
Obligations of states and
  political subdivisions                 7,119,759           220,089            --              7,339,848
                                       -------------------------------------------------------------------
                                        14,544,217           249,967             968           14,793,216
Mortgage backed securities               2,313,608             3,687           4,018            2,313,277
Bankers Bank Stock                          24,765              --              --                 24,765
Federal Home Loan Bank                     379,200              --              --                379,200
Stock
Farmer Mac Stock                             4,000              --              --                  4,000
Mutual Funds                             1,053,106              --              --              1,053,106
                                       -------------------------------------------------------------------
                                       $18,318,896          $253,654         $ 4,986          $18,567,564
</TABLE>


                                                          51

<PAGE>

<TABLE>
<CAPTION>
                                                                  December 31, 1997
                                       -------------------------------------------------------------------
                                                              Gross            Gross
                                         Amortized          unrealized       unrealized           Fair
                                           cost               gains            losses             value    
                                       -------------------------------------------------------------------
<S>                                    <C>                 <C>              <C>               <C>
U.S. Treasury securities               $  1,501,571        $   8,329        $   --            $ 1,509,900
U.S. Government agency
  and corporation obligations             6,755,559            6,798           2,543            6,759,814
Obligations of states and
  political subdivisions                  8,315,518          224,504             902            8,539,120
                                       -------------------------------------------------------------------
                                         16,572,648          239,631           3,445           16,808,834
Mortgage backed securities                2,367,417            8,031           1,229            2,374,219
Bankers Bank Stock                           24,765             --              --                 24,765
Federal Home Loan Bank
Stock                                       345,200             --              --                345,200
Farmer Mac Stock                              4,000             --              --                  4,000
Mutual Funds                                399,721             --              --                399,721
                                       -------------------------------------------------------------------
                                       $ 19,713,751        $ 247,662        $  4,674          $19,956,739
</TABLE>

The  amortized  costs and fair  value of  available  for sale  securities  as of
December 31, 1998 by contractual  maturity are shown below.  Expected maturities
will differ from contractual  maturities in mortgage-backed  securities,  equity
securities,  and mutual funds since the  anticipated  maturities are not readily
determinable.  Therefore,  these  securities  are not  included in the  maturity
categories in the following maturity summary:

                                                     December 31, 1998
                                            -----------------------------------
                                                Amortized             Fair
                                                  cost                value
                                            -----------------------------------
Due in one year or less                     $   2,838,742         $  2,849,797
Due after one year through five years           5,971,647            6,064,253
Due after five years                            5,733,828            5,879,166
                                            -----------------------------------
                                             $ 14,544,217         $ 14,793,216

Realized  gains  and  losses  on sale of  available  for sale  securities  as of
December 31, 1998, 1997 and 1996 are as follows:

                                                  December 31,
                                  --------------------------------------------
                                     1998            1997              1996
                                  --------------------------------------------
Gross gains                       $ 21,666         $ 6,555          $ 36,831
Gross losses                         --             (1,314)          (37,480)
                                  --------------------------------------------
                                  $ 21,666         $ 5,241          $   (649)
                                  ============================================
Related income taxes (benefits)   $  8,558         $ 1,782          $   (221)


Available  for  sale  securities  with  an  amortized  cost  of  $1,669,040  and
$1,498,152  as of  December  31,  1998 and 1997  respectively  were  pledged  as
collateral on public deposits and for other purposes as required or permitted by
law.


                                       52

<PAGE>



Note D.  Loans
--------------

Major classifications of loans are as follows:

                                               December 31, 1998
                                     ----------------------------------
                                          1998                 1997
                                     ----------------------------------
Commercial                            $ 13,063,024        $ 12,955,565
Agricultural production                 9,856,605            9,442,645
Real estate:
  Construction                            812,136            1,256,125
  Commercial                           27,778,798           21,269,618
  Agriculture                           7,368,219            6,874,402
  Residential                          33,269,322           30,356,310
Installment and consumer                5,455,759            5,101,709
Municipal loans                         1,393,258            1,171,040
                                     ----------------------------------
                                       98,997,121           88,427,414
Allowance for loan losses               1,281,590            1,159,300
                                     ----------------------------------
          Net loans                  $ 97,715,531         $ 87,268,114


Impairment of loans having recorded  investment at December 31, 1998 of $822,772
and $78,726 at December 31, 1997 has been  recognized  in  conformity  with FASB
Statement  No. 114 as amended by FASB  Statement  No. 118. The average  recorded
investment  in  impaired  loans  during 1998 and 1997 was  $585,193  and $95,432
respectively.  The total  allowance  for loan losses  related to these loans was
$57,739 and $7,873 on December 31, 1998 and 1997  respectively.  Interest income
on impaired  loans of $924,  $2,013 and $2,708 was  recognized for cash payments
received in 1998, 1997 and 1996 respectively.

Certain directors, principal shareholders and executive officers of the Company,
and their related  interests,  had loans outstanding in the aggregate amounts of
$3,062,484  and  $2,615,110 at December 31, 1998 and 1997  respectively.  During
1998, $4,696,103 of new loans were made and repayments totaled $4,248,729. These
loans were made on substantially  the same terms,  including  interest rates and
collateral,  as those  prevailing at the same time for  comparable  transactions
with other persons and did not involve more than normal risks of  collectibility
or present other unfavorable features.

Note E.  Allowance For Loan Losses
----------------------------------

The allowance for loan losses reflected in the consolidated financial statements
represents the allowance available to absorb loan losses. An analysis of changes
in the allowance is presented in the following tabulation:


                                       53

<PAGE>


<TABLE>
<CAPTION>
                                                          December 31,              
                                      ---------------------------------------------------
                                           1998               1997                1996  
                                      ---------------------------------------------------
<S>                                    <C>                <C>                <C>

Balance, beginning of year            $ 1,159,300         $ 1,104,338        $   971,722
Charge-offs                              (178,624)            (97,753)           (74,653)
Recoveries                                 30,265              22,715             23,418
Provision charged to operations           270,649             130,000            183,851
                                      ---------------------------------------------------
Balance, end of year                  $ 1,281,590         $ 1,159,300        $ 1,104,338
</TABLE>



Note F.  Office Buildings And Equipment
---------------------------------------

Office buildings and equipment are stated at cost less accumulated  depreciation
and are summarized as follows:

                                                   December 31, 1998
                                           ---------------------------------
                                               1998                 1997
                                           ---------------------------------
Land                                       $   566,446         $   566,446
Buildings and improvements                   3,587,042           3,516,015
Furniture and equipment                      1,580,686           1,494,985
                                           ---------------------------------
                                             5,734,174           5,577,446
Less accumulated depreciation                1,483,323           1,233,972
                                           ---------------------------------
  Total office buildings and equipment     $ 4,250,851         $ 4,343,474

Depreciation expense amounted to $262,510 in 1998, $273,417 in 1997 and $224,813
in 1996.


Note G.  Deposits
-----------------

The aggregate amount of other Time deposits (including CDs), each with a minimum
denomination of $100,000 was approximately $8,417,799 and $8,564,989 in 1998 and
1997 respectively.

At December 31, 1998,  the  scheduled  maturities  of other Time deposits are as
follows:

          1999                $ 41,987,983
          2000                   5,919,245
          2001                   6,715,618
          2002                   3,698,753
          2003                   3,064,265
                              -------------
                              $ 61,385,864


                                       54

<PAGE>



Interest expense on deposits is as follows:

<TABLE>
<CAPTION>
                                                             December 31,              
                                           ----------------------------------------------
                                               1998              1997            1996      
                                           ----------------------------------------------

<S>                                        <C>               <C>             <C> 
Savings and NOW accounts                   $ 1,393,414       $ 1,027,593     $   675,067
Time, $100,000 and over                        238,287           567,878         405,736
Other Time                                   3,348,384         3,199,154       3,211,955
                                           ----------------------------------------------
  Total interest expense on deposits       $ 4,980,085       $ 4,794,625     $ 4,292,758
</TABLE>



Note H.  Note Payable and Other Borrowings
------------------------------------------

During 1998,  the Company  entered  into a master  contract  agreement  with the
Federal Home Loan Bank (FHLB) which  provides for borrowing up to the maximum of
60% of the book  value of the  Bank's  one to four  family  real  estate  loans,
$19,061,649  at December 31, 1998.  FHLB  provides  both fixed and floating rate
advances.  Floating rates are tied to short-term market rates of interest,  such
as Federal  funds and  Treasury  Bill rates.  Fixed rate  advances are priced in
reference  to market  rates of interest at the time of the  advance,  namely the
rates that FHLB pays to borrowers at various maturities.

Various advances were obtained with total outstanding  balances of $4,000,000 at
December 31, 1998 with  applicable  interest  rates ranging from 5.15% to 5.77%.
There were no advances  outstanding as of December 31, 1997. Interest is payable
monthly with principal payment due at maturity.

The  advances  are  secured  by a security  agreement  pledging a portion of the
subsidiary Banks' real estate mortgages with a carrying value of $6,666,667.

Future principal payments required to be made are as follows:

Years ending December 31:

         1999              $ 1,500,000
         2000                     --
         2001                     --
         2002                     --
         2003                2,500,000
                           ------------
                           $ 4,000,000


                                       55

<PAGE>



                                                     December 31, 1998
                                           ---------------------------------
                                               1998                 1997 
                                           ---------------------------------
Demand notes issued to U.S. treasury       $   240,367          $   976,625
Note payable bank                            1,847,882            3,400,000  
                                           ---------------------------------
     Total                                 $ 2,088,249          $ 4,376,625

Note payable bank is due May 1, 1999 with interest rate based on floating  prime
less 1.0% (6.75% at December 31,  1998).  The note is secured by 3,600 shares of
common stock of Mound City Bank.

Interest expense on note payable and other borrowings was as follows:

<TABLE>
<CAPTION>
                                                            December 31,              
                                          -------------------------------------------
                                             1998              1997           1996
                                          -------------------------------------------

<S>                                       <C>               <C>             <C>
Federal funds purchased                   $   3,321         $  21,977       $ 11,509
Demand notes issued to U.S. Treasury         19,246            16,837         14,476
Note payable bank                           261,833           194,773           --
FHLB Advances                               164,135              --             --     
                                          -------------------------------------------
                                          $ 448,535         $ 233,587       $ 25,985
</TABLE>

Federal funds purchased and treasury tax and loan deposits are generally  repaid
within one to 120 days from the transaction date.

Note I.  Income Taxes
---------------------

The provision for income taxes included in the consolidated financial statements
consists of the following:

<TABLE>
<CAPTION>
                                                            December 31,              
                                          -------------------------------------------
                                             1998              1997           1996
                                          -------------------------------------------

<S>                                       <C>               <C>             <C>
Current provision:
  Federal                                 $ 235,558         $ 194,971       $ 256,866
  State                                      50,190            39,002          39,130    
                                          -------------------------------------------
     Total current provision                285,748           233,973         295,996
Deferred income taxes (benefit)             (64,649)          (25,472)        (41,416)   
                                          -------------------------------------------

Total provision for income taxes          $ 221,099         $ 208,501       $ 254,580
</TABLE>


                                                          56

<PAGE>

The net  deferred tax assets in the  accompanying  consolidated  balance  sheets
include the following amounts of deferred tax assets and liabilities:


                                                   December 31, 1998
                                           -------------------------------
                                              1998                 1997
                                           -------------------------------
Deferred tax assets:
  Allowance for loan losses                $ 344,840            $ 296,536
  Nonaccrual loan income                         365                  833
  Deferred compensation                      127,198              111,999
  Alternative minimum tax                     34,701               25,230
Deferred tax liabilities:
  Depreciation                               (80,843)             (72,986)
Unrealized gain on available
for sale securities                          (84,547)             (82,584)
                                           -------------------------------
                                           $ 341,714            $ 279,028

Management  believes  it is more likely than not,  that the gross  deferred  tax
assets  will be fully  realized.  Therefore,  no  valuation  allowance  has been
recorded as of December 31, 1998 and 1997.

A  reconciliation  of statutory  federal  income taxes based upon income  before
taxes to the  provision  for  federal  and state  income  taxes,  as  summarized
previously, is as follows:

<TABLE>
<CAPTION>
                                                                   December 31,
                                    ----------------------------------------------------------------------
                                            1998                       1997                      1996                  
                                    ----------------------------------------------------------------------
                                                  % of                      % of                   % of
                                                  pretax                    pretax                 pretax
                                      Amount      income       Amount       income      Amount     income
                                    ----------------------------------------------------------------------

<S>                                 <C>           <C>         <C>           <C>        <C>          <C>
Reconciliation of statutory 
  to effective taxes:
    Federal income taxes
      at statutory rate             $ 354,743      34.0%      $ 380,956      34.0%     $ 405,543     34.0%
    Adjustments for:
      Tax-exempt interest on
         municipal obligations       (171,452)    (16.4)       (178,097)    (15.9)      (170,136)   (14.3)
    Increases in taxes
      resulting from state
      income taxes                     33,125       3.2          25,741       2.3         25,826      2.2
    Officer life                      (16,741)     (1.6)        (15,745)     (1.4)       (19,560)    (1.6)
    Other - net                        21,424       2.0          (4,354)     (0.4)        12,907      1.0
                                    ----------------------------------------------------------------------
    Effective income
      taxes - operations            $ 221,099      21.2%      $ 208,501      18.6%     $ 254,580     21.3%
</TABLE>



                                                          57

<PAGE>



Note J.  Pension and Profit-Sharing Plans
-----------------------------------------

The  subsidiary  Bank has a trusteed  contributory  401(k)  profit-sharing  plan
covering all eligible employees.  The Bank matches 50% of the amount contributed
by an eligible  participant  up to a maximum of 8% of the  participant's  annual
compensation. Contributions for the years ended December 31, 1998, 1997 and 1996
were $58,316, $87,893 and $74,008 respectively.

Note K.  Money Purchase Pension Plan
-----------------------------------

In 1998, the subsidiary Bank established a trusteed  contributory Money Purchase
Pension  Plan  covering  all  eligible  employees.  The Bank  contributes  3% of
eligible  employee  compensation.  Contributions for the year ended December 31,
1998 were $39,666.

Note L.  Salary Continuation Agreements
---------------------------------------

The subsidiary Bank has salary  continuation  agreements with three officers and
one former officer.  The agreements provide for the payment of specified amounts
upon the  employee's  retirement  or  death  which  is  being  accrued  over the
anticipated  remaining  period of  employment.  Expense  recognized  for  future
benefits  under these  agreements  totaled  $62,411,  $65,628 and $68,524 during
1998, 1997 and 1996 respectively.

Although not part of the agreement,  the subsidiary Bank purchased  paid-up life
insurance  on the  officers  which  could  provide  funding  for the  payment of
benefits.  Included in other assets is $1,056,839 and $1,007,602 of related cash
surrender value as of December 31, 1998 and 1997 respectively.

Note M.  Commitments and Contingencies
--------------------------------------

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

The subsidiary  Bank is party to financial  instruments  with  off-balance-sheet
risk in the  normal  course of  business  to meet the  financing  needs of their
customers.  These financial instruments include commitments to extend credit and
standby letters of credit. They involve, to varying degrees,  elements of credit
risk in excess of amounts recognized on the consolidated balance sheets.

The subsidiary  Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and


                                       58

<PAGE>



standby letters of credit is represented by the  contractual  notional amount of
those  instruments.  The subsidiary Bank uses the same credit policies in making
commitments  and  issuing  letters  of  credit  as it does for  on-balance-sheet
instruments.

A summary of the contract or notional  amount of the subsidiary  Bank's exposure
to off-balance-sheet risk as of December 31, 1998 and 1997 is as follows:

                                                   1998              1997
                                               ------------------------------
Financial instruments whose contract 
amounts represent credit risk:

  Commitments to extend credit                 $ 15,536,550      $ 9,884,088
  Credit card commitments                      $  1,974,395      $ 1,487,855
  Standby letters of credit                    $    232,229      $    80,000


Commitments  to extend credit are  agreements to lend to a customer,  as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent  future cash  requirements.  Standby letters of credit are conditional
commitments  issued by the  subsidiary  Bank to guarantee the  performance  of a
customer to a third party.  Those  guarantees  are  primarily  issued to support
public and private borrowing  arrangements.  The credit risk involved in issuing
letters of credit is  essentially  the same as that  involved in extending  loan
facilities to customers.  The subsidiary Bank evaluates each  customer's  credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary  by the  subsidiary  Bank  upon  extension  of  credit,  is  based  on
management's  credit evaluation of the counterparty.  Collateral held varies but
may  include  accounts  receivable,   inventory,  property  and  equipment,  and
income-producing commercial properties. Credit card commitments are unsecured.

The subsidiary  Bank did not engage in the use of interest rate swaps,  futures,
forwards or options contracts.

Note N.  Concentration Of Credit Risk
-------------------------------------

Practically all of the subsidiary Bank's loans, commitments,  and commercial and
standby  letters of credit have been granted to  customers in the Bank's  market
area. Although the subsidiary Bank has a diversified loan portfolio, the ability
of its debtors to honor their contracts is dependent on the economic  conditions
of the counties  surrounding the subsidiary Bank. The concentration of credit by
type of loan are set forth in Note D.


                                       59

<PAGE>



Note O.  Retained Earnings
--------------------------

The principal source of income and funds of Mound City Financial Services,  Inc.
are dividends from its  subsidiary.  Dividends  declared by the subsidiary  that
exceed the  retained  net income for the most  current  year plus  retained  net
income  for the  preceding  two years  must be  approved  by  Federal  and State
regulatory agencies.  Under this formula,  dividends of approximately $1,123,235
may be paid without prior regulatory  approval.  Maintenance of adequate capital
at the subsidiary  effectively  restricts  potential dividends to an amount less
than $1,123,235.

Note P.  Equity
---------------

During 1998, the Company filed a registration statement with the U.S. Securities
and  Exchange  Commission  to issue  12,000  shares of common  stock at $310 per
share.  Proceeds  from the sale of 4,554 shares of common stock less  associated
costs for  professional  fees and  underwriting  discounts  and  commissions  of
$59,622 are reflected in the consolidated  statement of changes in stockholder's
equity.

Note Q.  Regulatory Capital Requirements
----------------------------------------

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

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
requires the subsidiary  Bank to maintain  minimum amounts and ratios (set forth
in the table below) of total and Tier 1 capital (as defined in the  regulations)
to risk-weighted  assets (as defined) and Tier 1 capital (as defined) to average
assets  (as  defined).  Management  believes,  as  of  December  31,  1998,  the
subsidiary Bank meets all capital adequacy requirements to which it is subject.

As of December  31,  1998,  the most  recent  notification  from the  regulatory
agencies   categorized  the  subsidiary  Bank  as  well-capitalized   under  the
regulatory  framework  for  prompt  corrective  action.  To  be  categorized  as



                                       60

<PAGE>



well-capitalized,  the subsidiary Bank must maintain  minimum total  risk-based,
Tier I risk-based,  and leverage ratios as set forth in the table.  There are no
conditions or events since these  notifications  that  management  believes have
changed the institution's category.

Below is a comparison  of the Company and bank  subsidiary  1998 and 1997 actual
with the minimum requirements for  well-capitalized  and adequately  capitalized
banks, as defined by the federal  regulatory  agencies' Prompt Corrective Action
Rules:

<TABLE>
<CAPTION>
                                                                                                      To be well
                                                                           For capital            capitalized under
                                                                             adequacy             prompt corrective
                                                      Actual                 purposes             action provisions
                                                Amount      Ratio       Amount       Ratio        Amount       Ratio
                                             ------------------------------------------------------------------------

<S>                                          <C>            <C>       <C>             <C>      <C>             <C>
As of December 31, 1998: 
  Total capital (to risk-weighted assets):
      Mound City Financial Services, Inc.    $ 9,787,142    10.2%     $ 7,653,222     8.0%                 NA
      Mound City Bank                        $11,436,002    12.0%     $ 7,615,728     8.0%     $ 9,519,659     10.0%
  Tier I capital (to risk-weighted assets):
      Mound City Financial Services, Inc.    $ 8,590,267     9.0%     $ 3,822,611     4.0%                 NA
      Mound City Bank                        $10,244,913    10.8%     $ 3,807,864     4.0%     $ 5,711,796      6.0%
  Tier I capital (to average assets):
      Mound City Financial Services, Inc.    $ 8,590,267     6.9%     $ 4,987,730     4.0%                 NA
      Mound City Bank                        $10,244,913     8.2%     $ 4,969,214     4.0%     $ 6,211,518      5.0%

As of December 31, 1997: 
  Total capital (to risk-weighted assets):
      Mound City Financial Services, Inc.    $ 7,693,854     9.3%     $ 6,646,316     8.0%                 NA
      Mound City Bank                        $10,924,775    13.2%     $ 6,634,893     8.0%     $ 8,293,617     10.0%
  Tier I capital (to risk-weighted assets):
      Mound City Financial Services, Inc.    $ 6,654,876     8.0%     $ 3,323,158     4.0%                 NA
      Mound City Bank                        $ 9,886,559    11.9%     $ 3,317,447     4.0%     $ 4,976,170      6.0%
  Tier I capital (to average assets): 
      Mound City Financial Services, Inc.    $ 6,654,876     5.7%     $ 4,697,604     4.0%                 NA
      Mound City Bank                        $ 9,886,559     8.4%     $ 4,697,604     4.0%     $ 5,872,004      5.0%
</TABLE>






                                                          61

<PAGE>



Note R.  Fair Value of Financial Instruments
--------------------------------------------

The estimated fair values of the Bank's financial instruments are as follows:

<TABLE>
<CAPTION>
                                      December 31, 1998                   December 31, 1997
                                 -------------------------------------------------------------------
                                  Carrying         Estimated           Carrying       Estimated
                                   amount          fair value           amount        fair value
                                 -------------------------------------------------------------------

<S>                              <C>               <C>                <C>             <C>
Financial assets:
  Cash and cash equivalents      $   4,682,460     $   4,682,460     $   3,495,103    $   3,495,103

  Federal funds sold             $   2,585,000     $   2,585,000     $   4,562,000    $   4,562,000

  Securities                     $  18,567,564     $  18,567,564     $  19,956,739    $  19,956,739

  Net loans                      $  97,715,531     $  98,523,026     $  87,268,114    $  88,050,335

  Accrued interest receivable    $     974,759     $     974,759     $   1,001,105    $   1,001,105

Financial liabilities:

  Deposits                       $ 113,738,498     $ 114,046,154     $ 109,151,027    $ 109,253,037

  U.S. Treasury note account     $     240,367     $     240,367     $     976,625    $     976,625

  Note payable - bank            $   1,847,882     $   1,847,882     $   3,400,000    $   3,400,000

  Long term borrowings           $   4,000,000     $   4,015,157     $        --      $        --

  Accrued interest payable       $   1,043,591     $   1,043,591     $   1,243,067    $   1,243,067
</TABLE>


The estimated fair value of fee income on letters of credit at December 31, 1998
and 1997 is insignificant. Loan commitments on which the committed interest rate
is less than the current market rate are also insignificant at December 31, 1998
and 1997.

The subsidiary Bank assumes  interest rate risk (the risk that general  interest
rate levels will change) as a result of its normal operations. As a result, fair
values of the subsidiary Bank's financial  instruments will change when interest
rate levels change and that change may be either favorable or unfavorable to the
subsidiary  Bank.   Management  attempts  to  match  maturities  of  assets  and
liabilities  to the extent  believed  necessary to minimize  interest rate risk.
However,  borrowers with fixed rate  obligations  are less likely to prepay in a
rising rate environment and more likely to repay in a falling rate  environment.
Conversely, depositors who are receiving fixed rates are more likely to withdraw
funds before maturity in a rising rate environment and less likely to do so in a
falling rate environment. Management monitors rates and maturities of assets and
liabilities  and attempts to minimize  interest rate risk by adjusting  terms of
new loans and deposits and by investing in  securities  with terms that mitigate
the subsidiary Bank's overall interest rate risk.


                                       62

<PAGE>



Note S.  Mound City Financial Services, Inc. and Subsidiary 
(Parent Company only) Financial Information
-----------------------------------------------------------

                                                            December 31,
CONDENSED BALANCE SHEETS                                  1998           1997
--------------------------------------------------------------------------------
Assets:
  Cash                                                $   312,633   $   277,168
  Investment in subsidiary                             10,409,033    10,047,962
  Other assets                                            150,263       141,018
                                                      --------------------------

     Total assets                                      10,871,929    10,466,148

Liabilities:
  Note payable                                          1,847,882     3,400,000
  Other liabilities                                       269,658       250,869
                                                      --------------------------

     Total liabilities                                  2,117,540     3,650,869

Stockholders' equity:
  Common stock, no par value, $1.00 stated value;
    300,000 shares authorized; 31,494 and 26,940
    shares issued in 1998 and 1997 respectively            31,494        26,940
  Surplus                                               7,618,010     6,270,446
  Retained earnings                                       948,829       362,546
                                                      --------------------------
                                                        8,598,333     6,659,932
  Treasury stock - 30 and 20 shares in 1998                (8,066)       (5,056)
    and 1997 respectively
  Accumulated other comprehensive income                  164,122       160,403
                                                      --------------------------
       Total stockholders' equity                     $ 8,754,389   $ 6,815,279

       Total liabilities and stockholders' equity     $10,871,929   $10,466,148





                                       63

<PAGE>



                                                              December 31,
CONDENSED STATEMENT OF INCOME                           1998             1997
--------------------------------------------------------------------------------
Income:
  Dividends from subsidiary                          $ 650,000        $ 950,000
  Interest                                              10,887            2,265
                                                     ---------------------------
          Total income                               $ 660,887        $ 952,265

  Expenses
    Interest                                         $ 261,833        $ 194,774
    Other expenses                                      29,466           13,138
                                                     ---------------------------
          Total expenses                             $ 291,299        $ 207,912
     
  Income before income tax benefit and equity
    in undistributed net income of subsidiary          369,588          744,353

Income tax benefit                                     (95,323)         (69,920)
                                                     ---------------------------
  Income before equity in undistributed
    net income of subsidiary                           464,911          814,273

Equity in undistributed net income of subsidiary       357,352           97,686
                                                     ---------------------------
          Net income                                 $ 822,263        $ 911,959




                                       64

<PAGE>



                                                              December 31,
CONDENSED STATEMENTS OF CASH FLOW                      1998              1997
--------------------------------------------------------------------------------
Cash flows from operating activities:

  Net income                                      $   822,263       $   911,959
                                                  ------------------------------
  Adjustments to reconcile net income to net
    cash provided by operating activities:
       Increase in other assets                        (9,245)         (141,018)
       Increase in other liabilities                   18,789           250,869
       Equity in undistributed earnings              (357,352)          (97,686)
                                                  ------------------------------
          Total adjustments                          (347,808)           12,165
  Net cash provided by operating activities           474,455           924,124

Cash flows from financing activities:

  Purchase treasury stock                              (3,010)           (5,056)
  Payment dissenter shares                               --          (3,840,000)
  Proceeds on note payable                               --           3,840,000
  Payments on payable                              (1,552,118)         (440,000)
  Net proceeds from stock offering                  1,352,118              --
  Dividends paid                                     (235,980)         (201,900)
                                                  ------------------------------
    Net cash used in financing activities            (438,990)         (646,956)
                                                  ------------------------------

  Increase in cash and cash equivalents                35,465           277,168

Cash and cash equivalents at beginning of year        277,168              --
                                                  ------------------------------

Cash and cash equivalents at end of year          $   312,633       $   277,168





                                       65

<PAGE>



Independent Auditor's Report



Board of Directors
Mound City Financial Services, Inc.
   and Subsidiary
Platteville, Wisconsin

We have  audited  the  accompanying  consolidated  balance  sheets of Mound City
Financial  Services,  Inc. and  Subsidiary as of December 31, 1998 and 1997, and
the related consolidated  statements of income, changes in stockholders' equity,
and cash flows for the years  ended  December  31,  1998,  1997 and 1996.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Mound City Financial
Services,  Inc. and Subsidiary as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for the years ended December 31, 1998, 1997
and 1996, in conformity with generally accepted accounting principles.

                                   VIRCHOW, KRAUSE & COMPANY, LLP



Brookfield, Wisconsin
January 20, 1999



                                       66

<PAGE>



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

There has been no occurrence requiring a response to this Item.


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

Company Management
------------------

     The  articles  of  incorporation  provide  that the board of  directors  be
divided  into  three  classes  with  terms of office  of one class of  directors
expiring each year. These are called staggered terms for the directors. On March
10, 1998, at the first annual meeting of the shareholders of the Company,  three
directors were elected for a term of one year,  three directors were elected for
a term of two years, and three directors were elected for a term of three years.
Beginning in March of 1999 and for each subsequent  year, the term of office for
all directors and classes re-elected will be for three years. The term of office
for all executive  officers is one year. The following  table sets forth certain
information concerning the executive officers and directors of the Company:




                            Position with      Year Term      Principal
Name and Age               Holding Company      Expires       Occupation
--------------------------------------------------------------------------------
Wilson J. Boldt, 84          Director           2001      Auto Dealer
Barry J. Brodbeck, 42        Director           1999      Grocer
Keith R. Buchert, 53         Director           2000      Restaurant Owner
Donna J. Hoppenjan, 40       Secretary          1999      Banker
Robert J. Just, Jr., 51      President/CEO,     1999      Banker
                               Director
W. Phil Karrmann, 58         Director           2000      Attorney
Richard J. Kopp, 53          Director           1999      Insurance Agency Owner
Richard L. McWilliams, 61    Vice President,    2000      Retired Chiropractor
                               Director
James D. Soles, 74           Director           2001      Retired Retailer
Douglas W. Speth, 62         Director           2001      Farmer


                                       67

<PAGE>



     Wilson  J.  Boldt  (Director)  has been a  Director  of the  Company  since
September,  1996.  Mr. Boldt has also been a director of the Bank since 1976. He
has been the  owner/operator  of the  Pioneer  Ford and  Mercury  dealership  in
Platteville, Wisconsin since 1961.

     Barry J.  Brodbeck  (Director)  has been a Director  of the  Company  since
September, 1996. Mr. Brodbeck was first elected to the Bank's Board of Directors
in  January  of 1996.  He is Vice  President  of  Human  Resources  of  Brodbeck
Enterprises,  Inc.,  Platteville,   Wisconsin,  the  parent  company  of  Dick's
Supermarkets, and has been associated with that company since 1982. He graduated
in 1979 from Hillsdale College in Hillsdale, Michigan.

     Keith R.  Buchert  (Director)  has been a  Director  of the  Company  since
September,  1996. - Mr. Buchert is the owner/operator of three area restaurants:
Country Kitchen of Platteville;  Country Kitchen of Columbus, Wisconsin; and the
Timbers, of Platteville. He has served on the Bank Board of Directors since June
of 1994.

     Donna J. Hoppenjan  (Secretary)  has served as the Secretary of the Company
since September,  1996. Mrs. Hoppenjan began employment with the Bank in June of
1977 as a teller and has had experience in every phase of the retail  operations
of the Bank. She served as Internal Auditor from 1988 until her promotion to her
current  position,  Vice  President--Retail  Services,  in January of 1995.  She
currently serves as Cashier and Secretary to the Bank's Board of Directors.

     Robert J. Just, Jr.  (President,  Chief  Executive  Officer,  Director) has
served as the  President,  CEO, and a Director of the Company  since  September,
1996.  Mr. Just has been employed with the Mound City Bank since August of 1971.
A graduate of the University of Wisconsin - Platteville  and the Graduate School
of Banking in Madison,  Mr. Just has served as President  and a Director of Bank
since November of 1986.

     W. Phil  Karrmann  (Director)  has been a  Director  of the  Company  since
September,  1996. A partner in the Law Firm of Karrmann,  Buggs and Baxter,  Mr.
Karrmann  received his law degree from the University of Wisconsin Law School in
1964. He has served as a member of the Bank's Board of Directors since 1972.

     Richard  J.  Kopp  (Director)  has been a  Director  of the  Company  since
September,  1996. A graduate of the University of Wisconsin -  Platteville,  Mr.
Kopp has been the owner/operator of the House of Insurance since May of 1972. He
has been a director of the Bank since 1988.

     Richard L.  McWilliams  (Vice  President,  Director) has served as the Vice
President and a Director of the Company since September,  1996.- Dr.  McWilliams
received his Chiropractic Degree from Palmer  Chiropractic  College in 1959. Now
retired,  he had been a partner in Chiropractic  Associates in Platteville since
1960.  Dr.  McWilliams  has been a member of the Board of  Directors of the Bank
since 1981 and has served as Chairman of the Board since May of 1994.



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<PAGE>



     James  D.  Soles  (Director)  has  been a  Director  of the  Company  since
September, 1996. Mr. Soles was the owner/operator of Dewey's Shoe Store, on Main
Street in Platteville,  from 1949 until his retirement in 1987. He has served on
the Board of Directors for the Bank since 1959.

     Douglas  W.  Speth  (Director)  has been a Director  of the  Company  since
September, 1996. Mr. Speth managed a 264-acre beef and crop farming operation in
Elk Grove Township. Mr. Speth has served as Director with the Bank since 1976.

     There are no  arrangements  or  understandings  between the Company and any
person pursuant to which any of the above persons have been or will be elected a
director.  There are no family  relationships  between any of the  directors  of
executive officers of the Company.

Meetings of the Board of Directors
----------------------------------

     The Board of Directors of the Company had 5 meetings during the fiscal year
ended December 31, 1998.  Each director of the Company  attended at least 80% of
the board  meetings and committee  meetings of which such director was a member.
The Board of Directors of the Bank had 12 meetings  during the fiscal year ended
December 31, 1998.  Each Director of the Bank attended at least 83% of the total
number of board  meetings and  committee  meetings of which such  director was a
member.

     The Board of Directors of the Company has an Executive Committee. The Board
of Directors of the Bank has a Loan Committee,  Audit and Exam Committee,  Trust
Committee and a Long Range Planning Committee.

Bank Management
---------------

     The following  persons  constitute the executive  officers and directors of
the Bank:


                           Position with
                           Bank/Number of
Name and Age               Years at Bank                           Served Since
--------------------------------------------------------------------------------
John R. Arendt, 51         Vice President Commercial Lending,       1986
                           12 yrs

Wilson J. Boldt, 84        Director, 22 yrs                         1976



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<PAGE>


                             Position with
                             Bank/Number of
Name and Age                 Years at Bank                         Served Since
--------------------------------------------------------------------------------

Barry J. Brodbeck, 42        Director, 2.5 yrs                        Jan. 1996

Keith Buchert, 53            Director, 4 yrs                          1994

Donna J. Hoppenjan, 40       Cashier, Vice President Retail           1977
                             Services, 21 yrs

David D. Jones, 58           Vice President Marketing and Business    1960
                             Development, 38 yrs.

Robert J. Just, Jr., 51      Director, President/CEO, 27 yrs          1971

W. Phil  Karrmann, 58        Director, 26 yrs                         1972

Richard J. Kopp, 53          Director, 10 yrs                         1988

Richard L. McWilliams, 61    Vice President, Director, Chairman,      1981
                             17 yrs

James D. Soles, 74           Director, 39 yrs                         1959

Douglas W. Speth, 62         Director, 22 yrs                         1976

Joseph L. Witmer, 41         Vice President/Sr. Loan Officer,         1985
                             13 yrs


Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------

     The  Company  is not  subject  to the  requirements  of  Section  16 of the
Securities Exchange Act of 1934, as amended.

Item 10.  Executive Compensation
--------------------------------

     The following table outlines the annual  compensation  and estimated annual
benefits  paid by the Bank to Mr. Just for services  rendered in his capacity as
President and Chief  Executive  Officer of the Bank. None of the other executive
officers had total annual salary and bonus which  exceeded  $100,000  during the
last fiscal year.


                                       70

<PAGE>


                           Summary Compensation Table

Name/Principal Position     Year    Salary ($)(1)     Bonus ($)     Other ($)(2)
--------------------------------------------------------------------------------
Robert J. Just, Jr.,        1998    $122,574.69      $16,100.00     $ 4,191.84
President/CEO
Robert J. Just, Jr.,        1997    $110,552.40      $ 4,920.00     $ 4,114.80
President/CEO
Robert J. Just, Jr.,        1996    $ 95,577.75      $ 4,466.25     $ 6,978.92
President/CEO

(1)  "Salary" includes 401(k) and Money Purchase Plan  contributions made by the
     Bank on behalf of Mr. Just.

(2)  These are the  amounts  paid by the Bank for Mr.  Just's  health  insurance
     premiums  in the  amount  of  $4,191.84  in 1998,  $4,114.80  in 1997,  and
     $3,253.92  in 1996.  This item also  includes  meeting  attendance  fees of
     $3,725.00 in 1996.

     The entire Board of Directors  reviews and determines the  compensation for
the officers of the Bank. The Board's Compensation  Committee is responsible for
making specific  compensation  recommendations  to the Board.  The  Compensation
Committee consists of Messrs.  Brodbeck,  Just, Kopp,  McWilliams and Soles. Mr.
Just is the  only  executive  officer  who is a  member  of the  Board  and thus
participates  in decisions  concerning  compensation.  In 1992, the Bank entered
into an Executive  Employee  Salary  Continuation  Agreement  with Mr. Just. The
Agreement calls for continued compensation of $40,000 per year for 17 years upon
retirement or, in specific cases,  termination of Mr. Just's employment.  Normal
retirement  is defined as age 60. The  contractual  benefit is being funded with
the purchase of life insurance policies owned by the Bank insuring Mr. Just.

Compensation for Directors
--------------------------

     The  Company's  directors do not receive any fees for serving on the Board.
Outside  directors of the Bank receive $300 per meeting  attended for  regularly
scheduled monthly Board of Directors  meetings.  They also receive $150 for each
Committee  meeting  (averaging  two per month or 24 per year) and an annual $500
bonus. Bank board members are also eligible for the Bank's health insurance plan
and the Bank pays 75% of the monthly premium for this coverage. The current cost
to the Bank for health insurance coverage for outside directors is $4,191.84 per
participating director per year.

     The only inside  director of the Bank is President  and CEO Robert J. Just,
Jr. Until June 30, 1996, Mr. Just received the same meeting  attendance  fees as
outside  directors but did not receive the annual  director bonus. As of July 1,
1996, no meeting attendance fees are paid to Mr. Just over and above his regular
salary.

Employee Benefit Plans
----------------------

     On January 19, 1988, the Bank  implemented a contributory  401(k)  employee
savings plan available to all eligible employees, subject to certain minimum age


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<PAGE>



and service  requirements.  For the fiscal year ended  December  31,  1998,  the
Bank's  contribution to the 401(k) plan was $48,189.37,  of which $36,995.48 was
contributed  for employees  (other than  executive  officers) and the balance of
contributions made for all executive officers totaled $11,193.89.

     On March 9, 1998,  the Bank  implemented a money purchase plan available to
all eligible employees, subject to certain minimum age and service requirements.
For the fiscal year ended  December 31,  1998,  the Bank's  contribution  to the
money purchase plan was  $39,666.16,  of which  $27,743.76 was  contributed  for
employees  other than  executive  officers and the balance of the  contributions
made for all executive officers totaled $11,922.40.

     The Bank also provides health  insurance,  dental  insurance and group life
insurance for eligible  employees.  For the fiscal year ended December 31, 1998,
the  cost  of  these   coverages   were   $168,028.56,   $22,466.61,   $9,962.72
respectively.

Item 11.  Security Ownership of Certain 
Beneficial Owners and Management
---------------------------------------

     The following table sets forth certain  information as of December 31, 1998
with respect to ownership of the outstanding  common stock of the Company by (1)
all persons known to the Company to beneficially own more than five percent (5%)
of the Company's  outstanding  stock; (2) each of the Company's  Directors,  (3)
each of the Company's  executive  officers;  and (4) all Directors and executive
officers  of the  Company as a group.  Beneficial  ownership  as reported in the
table below has been  determined in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934 - shares owned of record  individually and jointly, or by a
spouse or children  residing at the same address,  and the shares which any such
person controls the right to vote.








                                       72

<PAGE>

                                           Number of
                                           Shares Benefi-     Percentage of
Name(1)                                    cially Owned(2)    Outstanding Shares
--------------------------------------------------------------------------------
Wilson J. Boldt(3)....................           950              3.02%
Barry J. Brodbeck(4)..................           180               *
Keith R. Buchert......................           160               *
Donna J. Hoppenjan(5).................            40               *
Robert J. Just, Jr.(6)................           655              2.08%
W. Phil Karrmann(7)...................         1,330              4.23%
Richard J. Kopp(8)....................           482              1.53%
Richard L. McWilliams(9)..............           690              2.19%
James D. Soles(10)....................           600              1.91%
Douglas W. Speth......................           130               *
Directors and executive officers
as a group............................         5,217             16.58%


-----------------------------------
*     Less than one percent (1%).

(1)  The  address  of  each  principal  shareholder  is  25  East  Pine  Street,
     Platteville, Wisconsin 53818.

(2)  Unless otherwise  stated below,  each person has sole voting and investment
     power with respect to all such shares.

(3)  Includes 250 shares beneficially owned by Mr. Boldt's spouse, Vera Boldt.

(4)  Mr. Brodbeck is also a beneficiary of the Richard W. Brodbeck Family Trust,
     Gus Harms,  Trustee.  The Trust owns 560  shares.  

(5)  Includes 10 shares beneficially owned by Ms. Hoppenjan and her spouse, Rick
     Hoppenjan.  

(6)  Includes 20 shares  beneficially owned by Mr. Just's spouse,  Joan E. Just.

(7)  Includes 630 shares beneficially owned by Mr. Karrmann's spouse, Barbara H.
     Karrmann.

(8)  Includes  250  shares  held by a trust for which Mr.  Kopp and his  spouse,
     Patricia T. Kopp, act as trustees.

(9)  Includes 130 shares beneficially owned by Mr. McWilliams' spouse,  Patricia
     A. McWilliams.

(10) Includes 200 shares  beneficially  owned by Mr.  Soles'  spouse,  Maxine F.
     Soles.


Item 12.  Certain Relationships and Related Transactions
--------------------------------------------------------

      The  Company  has not  engaged in any  transactions  or  entered  into any
contracts with any of its directors or executive officers.  No such transactions
or contracts are anticipated at this time by the Company.



                                       73

<PAGE>


      The Bank has had, in the ordinary course of business, and will continue to
have in the future,  banking  transactions  such as personal and business  loans
with its directors  and officers.  Such loans are now and will continue to be on
the same terms,  including  collateral and interest rate, as those prevailing at
the same time for comparable transactions with others of similar credit standing
and do not and  will  not in the  future  involve  more  than  normal  risks  of
collectibility or present other favorable features.

      At no time  during  1997 and 1998 did the  maximum  aggregate  direct  and
indirect  extensions  of  credit  to  any  director,  executive  officer  or 10%
shareholder  of the  Company  or  Bank,  and to  his or her  respective  related
interest, exceed fifteen percent (15%) of the Bank's capital. From time to time,
the Bank has entered into nonbanking  business  transactions  with entities with
which some of its directors are affiliated. Those transactions have been at arms
length and at competitive prices.

Item 13.  Exhibits and Reports on Form 8-K
------------------------------------------

     (a) Exhibits.  The  following  exhibits are filed with or  incorporated  by
reference into this report.  The exhibits  which are  denominated by an asterisk
(*) were previously filed as a part of, and are hereby incorporated by reference
from a Registration  Statement on Form SB-2 under the Securities Act of 1933 for
the Company,  Registration  Number 333-53797.  The exhibit numbers correspond to
the exhibit numbers in the referenced document.

     Exhibit No.                Description of Exhibit
--------------------------------------------------------------------------------
     *3.1            Articles of Incorporation of the Company

     *3.2            Bylaws of the Company

     *4.1            Specimen Stock Certificate

     *10.1           Executive Employee Salary Continuation Agreement between
                     Mound City Bank and Robert J. Just, Jr.

     *21.1           List of Subsidiaries of Mound City Financial Services, Inc.

    **27.1           Financial Data Schedule (for SEC use only)


* Previously  filed by the Company as exhibits (with the same exhibit number) to
a Registration Statement on Form SB-2 (File No. 333-53797), and each document is
incorporated herein by reference.

**  Filed herewith.

      (b) Reports on Form 8-K. No reports on Form 8-K were  required to be filed
for the fourth quarter of 1998.


                                       74

<PAGE>




                                   SIGNATURES

     Pursuant to the  requirements  of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its  behalf  by the  undersigned,  thereunto  duly  authorized,  in the  City of
Platteville, State of Wisconsin, on the 25th day of March, 1999.

                                      MOUND CITY FINANCIAL SERVICES, INC.
                                      By:
                                          /s/ Robert J. Just, Jr.
                                            Robert J. Just, Jr.
                                            President, Chief Executive Office, 
                                            Director


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

        Signature                    Title(s)                     Date

/s/ Robert J. Just, Jr.        President/CEO,              March 24, 1999
Robert J. Just, Jr.            (Principal Executive
                               and Accounting Officer)
                               Director


_________________________      Vice President,             ______________, 1999
Richard L. McWilliams          Chairman/Director


/s/ Wilson J. Boldt            Director                    March 24, 1999
Wilson J. Boldt


/s/ Barry J. Brodbeck          Director                    March 24, 1999
Barry J. Brodbeck


/s/ Keigh R. Buchert           Director                    March 24, 1999
Keith R. Buchert



                                       75

<PAGE>



/s/ Donna J. Hoppenjan         Secretary                   March 25, 1999
Donna J. Hoppenjan


/s/ W. Phil Karrmann           Director                    March 24, 1999
W. Phil Karrmann


_________________________      Director                    ______________, 1999
Richard J. Kopp


_________________________      Director                    ______________, 1999
James D. Soles


/s/ Douglas W. Speth           Director                    March 25, 1999
Douglas W. Speth


Supplemental  Information to be furnished with Reports filed pursuant to Section
15(d) of the  Exchange  Act by  Non-Reporting  Issuers.  We have  furnished  the
Commission for its information,  at the time of filing this report,  four copies
of the annual  report to security  holders  covering the  Company's  last fiscal
year.





                                       76

<PAGE>



                                INDEX TO EXHIBITS



     Exhibit No.           Description

     27.1                  Financial Data Schedule (for SEC use only)





















                                       77

<PAGE>




Mound City Financial Services
Financial Data Schedule
Year End 1998
--------------------------------------------------------------------------------

Period Type...............................................................12 mos
Fiscal Year end.........................................................12/31/98
Period End..............................................................12/31/98
Cash...................................................................4,682,000
Interest Bearing Deposits......................................................0
Fed Funds Sold.........................................................2,585,000
Trading Assets.................................................................0
Investments Held For Sale.............................................18,568,000
Investments Carrying...........................................................0
Investments Market.............................................................0
Loans.................................................................98,997,000
Allowance..............................................................1,282,000
Total Assets.........................................................130,446,000
Deposits.............................................................113,738,000
Short Term.............................................................2,088,000
Liabilities Other......................................................1,865,000
Long Term..............................................................4,000,000
Preferred Mandatory............................................................0
Preferred......................................................................0
Common....................................................................31,000
Other SE...............................................................8,567,000
Total Liabilities and Equity.........................................130,446,000
Interest Loan..........................................................8,140,000
Interest Invest........................................................1,108,000
Interest Other...........................................................127,000
Interest Total.........................................................9,375,000
Interest Deposit.......................................................4,980,000
Interest Expense.......................................................5,429,000
Total Interest Income Net..............................................3,947,000
Loan Losses..............................................................271,000
Securities Gains..........................................................22,000
Expense Other..........................................................3,420,000
Income Pre-tax.........................................................1,043,000


                                       78

<PAGE>



Long Term..............................................................4,000,000
Income Pre-Extraordinary.................................................822,000
Extraordinary..................................................................0
Changes........................................................................0
Net Income...............................................................822,000
EPS Primary...................................................................30
EPS Diluted...................................................................30
Yield Actual................................................................8.39
Loans Non................................................................823,000
Loans Past.....................................................................0
Loans Troubled...........................................................823,000
Loans Problem............................................................823,000
Allowance Open.........................................................1,159,000
Charge Offs..............................................................179,000
Recoveries................................................................31,000
Allowance Close........................................................1,282,000
Allowance Domestic.....................................................1,282,000
Allowance Foreign..............................................................0
Allowance Unallocated..........................................................0








                                       79