UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934
                  For the fiscal year ended September 30, 1999

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 For the transition period from          to

                        Commission file number 000-23571

                            PROGRESSIVE BANCORP, INC.
             (Exact name of registrant as specified in its charter)

                    Delaware                                     36-4178818
(State or other jurisdiction of incorporation                 (I.R.S. Employer
                  or organization)                           Identification No.)

601-617 Court Street, Pekin, Illinois                              61554
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code:  (309) 347-5101

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of class)

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was required to file such  reports) and (2) has been subject to such
requirements for the past ninety (90) days. YES X . NO ___.

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

         The  Registrant's  revenues for the most recent  fiscal year were $10.0
million.  The aggregate market value of the voting stock held by  non-affiliates
of the  Registrant,  computed by reference to the last sales price at which such
stock was sold on September 30, 1999 was  $3,696,967.  (The  exclusion from such
amount of the market value of the shares owned by any person shall not be deemed
an  admission  by  the  Registrant  that  such  person  is an  affiliate  of the
Registrant.)

         As of December  10,  1999,  there were issued and  outstanding  149,473
shares of the Registrant's Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Parts II and IV of Form  10-KSB -  Portions  of the  Annual  Report  to
Stockholders for the fiscal year ended September 30, 1999.

         Part III of Form  10-KSB - Portions of the Proxy  Statement  for Annual
Meeting of Stockholders.
<PAGE>
                                     PART I

ITEM 1.  BUSINESS

General

         Progressive  Bancorp,  Inc. (the  "Company" or the  "Registrant")  is a
Delaware  corporation  which is the holding  company for Pekin  Savings Bank, an
Illinois-chartered  stock  savings bank  headquartered  in Pekin,  Illinois (the
"Bank"). The Company was organized by the Bank in the fourth quarter of 1997 for
the purpose of acquiring all of the capital stock of the Bank in connection with
the reorganization of the Bank into the bank holding company structure. The only
significant  asset of the  Company  is the  capital  stock of the Bank,  and the
business of the Company  currently  consists solely of the business of the Bank.
Since the Company was formed in the last calendar quarter of 1997 (subsequent to
the end of the 1997 fiscal year), all financial information presented herein for
fiscal  year 1997 is the  financial  data for the Bank and its  subsidiary  on a
consolidated basis.

         The  Company's  common  stock is traded  over-the-counter  through  the
National  Daily  Quotation  System  "pink  sheets"  published  by  the  National
Quotation Bureau, Inc.

         The Bank was founded in 1882 and has been a member of the Federal  Home
Loan Bank  ("FHLB")  System  since  1955.  Its  deposits  are  insured up to the
regulatory maximum by the Savings Association Insurance Fund ("SAIF"),  which is
administered by the Federal Deposit Insurance Corporation ("FDIC"). At September
30, 1999, the Company had total assets of $94.2 million, total deposits of $75.3
million, and stockholders' equity of $6.4 million. The Company had net income of
$419,000 and $702,000  for the fiscal years ended  September  30, 1999 and 1998,
respectively.

         The  Bank is,  and  intends  to  continue  to be, a  community-oriented
financial  institution  committed to offering a variety of financial services to
meet the needs of its local  community.  The Bank is  engaged  primarily  in the
business of attracting  deposits from the general public and using such funds to
originate mortgage loans for the purchase of single-family homes in Tazewell and
Mason counties,  Illinois. The Bank also invests in mortgage-backed  securities,
all of which are secured by one- to four-family  residential  mortgage loans and
guaranteed  by the Federal Home Loan  Mortgage  Corporation  ("FHLMC"),  Federal
National  Mortgage   Association   ("FNMA")  and  Government  National  Mortgage
Association  ("GNMA").  At September  30, 1999,  one- to  four-family  loans and
mortgage-backed  securities secured by one- to four-family  residential mortgage
loans  represented  63.6% of the Bank's total  assets.  The Bank also makes home
equity loans secured by the  borrower's  principal  residence and other types of
consumer  loans  such as auto  loans  and home  improvement  loans.  To a lesser
extent, the Bank makes interim construction loans. Although the Bank has a small
number of  commercial  real estate  loans in its  portfolio,  such loans are not
actively  originated  by the Bank and  accounted for only 1.7% of the Bank's net
loan portfolio at September 30, 1999. In addition to its lending  activities and
investments in mortgage-backed securities, the Bank invests in securities issued
by the U.S. Government and its agencies.

         On  September  29, 1992,  the Bank  completed  its public  offering for
164,487  shares  of its  common  stock  as part of the  Bank's  conversion  (the
"Conversion") from an Illinois-chartered  mutual savings and loan association to
an Illinois-chartered stock savings and loan association.  The net proceeds from
the  Conversion  amounted  to over  $1.3  million.  The Bank  converted  from an
Illinois-chartered  stock savings and loan association to an  Illinois-chartered
stock savings bank in 1994.

         The Bank's and the  Company's  main office is located at 601-617  Court
Street,  Pekin,  Illinois 61554.  The telephone  number at that address is (309)
347-5101.
<PAGE>
Market Area

         The Bank's  primary  market area is  comprised  of  Tazewell  and Mason
counties,  which the Bank serves through its main office in Pekin and one branch
in Manito, Illinois.  Tazewell and Mason counties are located along the Illinois
River.  Tazewell  County is one of the three  counties  included  in the Greater
Peoria  Metropolitan  Statistical  Area, which has a population of approximately
340,000. The combined population of Tazewell and Mason counties is approximately
139,000.  The major employers of Tazewell and Mason county residents are engaged
in  heavy  and  light  manufacturing,   construction,  agriculture  and  medical
services.   These  employers  include  the  main  manufacturing  facilities  and
headquarters  of  Caterpillar,  Inc.,  located in northern  Tazewell  County and
across  the  Illinois  River  in  Peoria,  respectively,  and the  manufacturing
facilities  of Diamond Star  Motors,  Inc.  located  east of Tazewell  County in
McLean County,  Illinois.  Other major  employers  include Airco,  Midwest Grain
Elevator, Pekin Energy Corporation, and Pekin Insurance.

Business Strategy

         The Bank's  current  business  strategy  is to continue to operate as a
well-capitalized,  profitable and independent  community  financial  institution
dedicated to home ownership and to providing  quality  service to its customers.
The Bank intends to implement this strategy by: (1) providing  quality  customer
service by closely  monitoring the needs of its customers;  (2)  emphasizing the
origination  of  residential  mortgage  loans and consumer loans and by offering
other  personal  services;  (3) reducing  interest  rate risk exposure by better
matching asset and liability  maturities and rates;  (4)  controlling  operating
costs;  (5) improving asset quality;  and (6)  maintaining  capital in excess of
regulatory requirements while controlling growth.

Lending Activities

         General.  The Bank's loan portfolio  consists primarily of conventional
mortgage loans secured by one- to four-family residences. At September 30, 1999,
the Bank's gross loan portfolio totalled $63.4 million,  of which $49.9 million,
or 78.7%  consisted  of  one-to  four-family  residential  mortgage  loans.  The
remainder of the Bank's loan  portfolio at such date consisted of consumer loans
(19.2%) and apartment  real estate loans and  non-residential  real estate loans
(2.1%).  Historically,  the principal  lending activity of the Bank has been the
origination of mortgage  loans for the purpose of financing or refinancing  one-
to  four-family  residential  properties  in the  Bank's  primary  market  area.
Recently,   the  Bank's  lending  activities  have  been  directed  to  one-  to
four-family residential loan originations and consumer loans. Overall,  retained
loan originations had declined since 1988 because the Bank sought to improve its
capital  ratios  by  limiting   growth  and  to  increase  its   investments  in
mortgage-backed   securities  and  other  U.S.  Government  and  federal  agency
securities that have shorter average  maturities and a lower risk weighting than
residential  mortgage loans for regulatory capital purposes.  As a result of the
capital raised in the Conversion,  however, the Bank has increased the amount of
loans that it retains in its loan portfolio.

         The Bank began  selling  real estate "on  contract" in 1984 as a way to
accelerate the disposition of real estate owned ("REO"). Under this program, the
Bank makes  installment sales of REO to purchasers but retains title to the REO.
Under the installment contract, the purchaser makes payments over a period of up
to 30 years.  While most of the real estate  contracts have 30-year  terms,  the
Bank is currently  selling its REO pursuant to contracts  providing  for shorter
terms.  After the sales,  expenses  related  to holding  such REO such as taxes,
utilities and insurance are assumed by the  purchaser.  Until 1989,  real estate
sold on contract was 100% financed by the Bank.  Since 1989,  the Bank generally
has required a 10% downpayment.  In selling real estate "on contract",  the Bank
uses  underwriting  standards  similar to those used in originating  residential
real estate mortgages.  Interest rates on real estate sold on contract generally
are below current market rates for a period of three years,  before adjusting to
a market rate for the  remaining  term of the  contract.  In recent  years,  the
initial rate has ranged from 8-8 1/2% before being

                                       2
<PAGE>
adjusted to 10 1/2%. As of September 30, 1999, the Bank had $1.6 million of real
estate sold on contract.  During the year ended  September 30, 1999, the average
interest  rate paid on those  contracts  was 8.3%.  Over 97% of these related to
single family  residences.  As of September  30, 1999,  there was no real estate
sold on contract delinquent more than 90 days.

         Since the early 1980s, the Bank has worked to make its interest-earning
assets more interest rate sensitive by originating  ARM loans,  second  mortgage
loans and home equity and other consumer loans. However, the ability of the Bank
to originate ARM loans is  substantially  affected by market  interest rates and
consumer  preference  for  fixed-rate  loans in a declining  or  relatively  low
interest rate  environment.  During the second  quarter of fiscal 1996, the Bank
began offering five and seven year term balloon mortgage loans.  During the year
ended  September 30, 1999, the Bank  originated $4.2 million of the term balloon
mortgage  loans. At September 30, 1999  approximately  $10.9 million or 17.3% of
the Bank's net loan  portfolio  consisted of loans with variable  interest rates
and five and seven year balloons.

         The Bank continues to actively  originate  fixed-rate  mortgage  loans,
generally  with  10-,  15- or  30-year  terms  to  maturity  secured  by one- to
four-family  residential  properties.  One- to four-family  fixed-rate  loans of
greater than 15-year  maturities are generally  originated  with the expectation
that  they  will be sold in the  secondary  mortgage  market.  The Bank  retains
servicing on its sold mortgage loans and realizes monthly service fee income.

         The  Bank  also  originates  interim  construction  loans  on  one-  to
four-family  residential  properties,  commercial real estate loans and consumer
loans for a variety of purposes,  including home equity loans,  home improvement
loans and  automobile  loans.  The Company has  established  a  commercial  loan
department and hired a qualified  person to operate this  department.  It is the
Company's intent to increase lending in commercial loans.

Analysis of Loan Portfolio

         Set forth below is selected  data  relating to the  composition  of the
Bank's  loan  portfolio  by type of loan  and  type  of  security  on the  dates
indicated.
<TABLE>
<CAPTION>
                                                                At September 30,
                                                 ------------------------------------------
                                                         1999                    1998
                                                 -----------------      -------------------
                                                  Amount       %        Amount          %
                                                 -------     -----      -------       -----
                                                          (Dollars in Thousands)
<S>                                              <C>         <C>        <C>           <C>
Real estate loans:
   Loans on existing property .............      $49,704      78.8%     $ 47,79        77.1%
   Participation investment loans purchased         --        --            136          .2
   Real estate sold on contract (1) .......        1,589       2.5        2,163         3.5

Consumer loans:
   Savings account loans ..................           61        .1           65          .1
   Consumer loans(2) ......................       12,094      19.2       12,288        19.8

Less:
   Discounts and other ....................          155        .2          216          .3
   Loan loss reserve ......................          239        .4          228          .4
                                                 -------     -----      -------       -----
     Total loans net ......................      $63,054     100.0%     $61,999       100.0%
                                                 =======     =====      =======       =====
</TABLE>

(1)  In this type of financing the borrower does not have title to the property;
     rather, title remains with the institution.

(2)  Includes home equity loans, second mortgage loans, and auto loans.

                                       3
<PAGE>
<TABLE>
<CAPTION>
                                                   At September 30,
                                    -------------------------------------------
                                            1999                      1998
                                    ------------------       ------------------
                                    Amount         %          Amount        %
                                    -------      -----       -------      -----
                                               (Dollars in Thousands)
<S>                                 <C>          <C>         <C>          <C>
Type of Security:

Residential real estate:
   Single family .............      $49,865       79.1%      $48,497       78.2%
   Two- to four-family .......           27         --            34         .1
   Other dwelling units ......          304         .5           347         .6
Commercial real estate .......        1,097        1.7         1,212        1.9
Savings accounts .............           61         .1            65         .1
Automobiles ..................        1,184        1.9         1,210        1.9
Other ........................       10,910       17.3        11,078       17.9
Less:
   Discounts and other .......          155         .2           216         .3
   Loan loss reserve .........          239         .4           228         .4
                                    -------      -----       -------      -----
     Total ...................      $63,054      100.0%      $61,999      100.0%
                                    =======      =====       =======      =====
</TABLE>

                                       4
<PAGE>
Loan Maturity Schedule

         The  following  table sets forth certain  information  at September 30,
1999,  regarding  the  dollar  amount  of gross  loans  maturing  in the  Bank's
portfolio  based on their  contractual  terms to maturity.  Demand loans,  loans
having no stated schedule of repayments and no stated  maturity,  and overdrafts
are reported as due in one year or less.  Adjustable and floating-rate loans are
included  in the period in which  interest  rates are next  scheduled  to adjust
rather  than in the  period  in which  they  mature,  and fixed  rate  loans are
included in the period in which the final contractual repayment is due.
<TABLE>
<CAPTION>
                                            Within       1-3        3-5      5-10       10-20     Over
                                            1 Year      Years      Years     Years      Years    20 Years   Total
                                            ------      -----      -----     -----      -----    --------   -----
                                                                             (Dollars in Thousands)
<S>                                         <C>        <C>        <C>       <C>        <C>       <C>        <C>
Real Estate:
  Adjustable............................    $  633     $1,688     $7,196    $    4     $    --   $   --     $9,521
  Fixed.................................       452      1,252      2,005     8,638      22,700    6,725     41,772
Consumer................................     1,243      1,097      2,596     3,684       3,535       --     12,155
                                            ------     ------     ------    ------     -------   ------     ------
  Total.................................    $2,328     $4,037     $11,797   $12,326    $26,235   $6,725     $63,448
                                            ======     ======     =======   =======    =======   ======     =======
</TABLE>

 Set forth below is a table  showing the Bank's loan  origination,  purchase and
sales activity for the periods indicated.
<TABLE>
<CAPTION>
                                                               Year Ended September 30,
                                                             ------------------------------
                                                                1999                 1998
                                                             --------             ---------
                                                                     (In Thousands)
<S>                                                          <C>                  <C>
Loans originated:
  Conventional real estate loans:
    Loans on existing property.....................          $  9,335             $  12,140
    Loans refinanced...............................             8,543                 8,010
  Real estate sold on contract.....................                --                    25
  Installment/Consumer loans.......................             8,622                 9,447
                                                             --------             ---------
      Total loans originated.......................          $ 26,500             $  29,622
                                                             ========             =========

Loans purchased:
  Participation loans..............................                --                    --
                                                             --------             ---------
      Total loans purchased........................          $     --             $      --
                                                             ========             =========

Loans sold:
  Whole loans......................................             2,188                 6,437
                                                             --------             ---------
      Total loans sold.............................          $  2,188             $   6,437
                                                             ========             =========
</TABLE>

         Residential  Real Estate Loans.  The Bank's  primary  lending  activity
consists of the origination of one- to four-family, owner-occupied,  residential
mortgage  loans secured by property  located in the Bank's  primary market area.
The Bank currently offers  residential  mortgage loans for terms of from 5 to 30
years,  and with  adjustable or fixed  interest  rates.  The interest rate as of
September 30, 1999 on fixed 10, 15 and 30 year mortgage loans was 7.625%, 7.625%
and 8.25%,  respectively.  Origination  of fixed-rate  mortgage loans versus ARM
loans is  monitored  on an ongoing  basis and is affected  significantly  by the
level of market interest rates,  customer preference,  and loan products offered
by the

                                       5
<PAGE>
Bank's competitors. Therefore, even if management's strategy is to emphasize ARM
loans, market conditions may be such that there is greater demand for fixed-rate
mortgage loans, including the 5 and 7 year balloon loans.

         The  Bank's  fixed-rate  loans  of more  than  15-year  maturities  are
originated  with the  expectation  that they  will be  resold  in the  secondary
mortgage  market.  Fixed-rate  loans of 15 years or less may be  retained in the
Bank's loan portfolio based on market conditions. The Bank's fixed-rate mortgage
loans are  amortized  on a monthly  basis with  principal  and interest due each
month.  Residential real estate loans often remain outstanding for significantly
shorter periods than their  contractual terms because borrowers may refinance or
prepay loans at their option.

         Since 1989, the Bank's policy has been to attempt to sell nearly all of
its fixed-rate  single family  residential  loan  originations  in the secondary
mortgage  market through FHLMC  programs.  This has enabled the Bank to generate
origination fee and servicing fee income without increasing the total asset size
of the Bank.  The Bank sells loans to FHLMC and retains  servicing  on such loan
originations  for which the Bank  retains a fee of .25% of the  stated  interest
rate  of  the  mortgage  loan  sold.  The  Bank  is  subject  to the  risk  that
fluctuations  in market  interest  rates between the date the loan is originated
and the  date  the  loan is  sold  may  make it  infeasible  to sell  such  loan
originations to FHLMC and other secondary  market  purchasers.  Such unsold loan
originations may need to be retained in the Bank's loan portfolio.

         The primary  purpose of  offering  ARM loans is to make the Bank's loan
portfolio more interest rate sensitive.  However,  as the interest income earned
on ARM loans varies with prevailing  interest rates, such loans do not offer the
Bank  predictable  cash flows as would  long-term,  fixed-rate  loans. ARM loans
carry increased credit risk associated with potential higher monthly payments by
borrowers as general market interest rates increase. It is possible,  therefore,
that during periods of rising interest  rates,  the risk of default on ARM loans
may increase due to the upward adjustment of interest costs to the borrower.

         The Bank's ARM loans adjust  annually  with  interest  rate  adjustment
limitations of one (1) percentage point per year and five (5) percentage  points
over the life of the loan.  The  interest  rate on the Bank's ARM loans does not
adjust downward below the initial  interest rate. The interest rate on ARM loans
is based on the one-year U.S. Treasury Constant Maturity Index plus a 2% margin.
In the past, the Bank has also used the Seventh District Monthly Average Cost of
Funds as an index for its ARM loans.  Since the Bank has used different  indices
for its ARM loans,  such as the Seventh  District  Monthly Average Cost of Funds
Index,  the adjustments in the Bank's portfolio of ARM loans tend not to reflect
any one  particular  change in any  specific  interest  rate  index,  but rather
general interest rate trends overall.  The Bank's policy is to qualify borrowers
for ARM  loans  based on the  initial  rate of the ARM loan.  ARM loans  totaled
approximately  $9.5 million,  or 15.1% of the Bank's total net loan portfolio at
September 30, 1999.

         The  Bank's  residential  first  mortgage  loans  customarily   include
due-on-sale clauses, which are provisions giving the Bank the right to declare a
loan  immediately  due and payable in the event,  among other  things,  that the
borrower sells or otherwise  disposes of the underlying real property serving as
security for the loan.  Due-on-sale  clauses are an important means of adjusting
the rates on the Bank's  fixed-rate  mortgage loan  portfolio,  and the Bank has
generally exercised its rights under these clauses.

                                       6
<PAGE>
         Regulations  limit the amount  that a savings  association  may lend in
relationship  to the  appraised  value of the real estate  securing the loan, as
determined  by an appraisal at the time of loan  origination.  Such  regulations
permit a maximum  loan-to-value  ratio of 100% for residential  property and 90%
for all other real estate loans. The Bank's lending policies, however, generally
limit the maximum loan-to-value ratio on both fixed-rate and ARM loans to 80% of
the lesser of the appraised value or the purchase price of the property to serve
as security for the loan.

         The Bank occasionally makes real estate loans with loan-to-value ratios
in excess of 80%. For real estate loans with loan-to-value ratios of between 80%
and 95%,  the Bank  requires  the first 35% of the loan to be covered by private
mortgage insurance.  The Bank does not make real estate loans with loan-to-value
ratios in excess of 95%. The Bank requires fire and casualty insurance,  as well
as title  insurance  or an opinion  of  counsel  regarding  good  title,  on all
properties securing real estate loans made by the Bank.

         Commercial  Real Estate  Loans.  The Bank has always been  selective in
originating  commercial  real estate loans.  Loans  secured by  commercial  real
estate constituted  approximately $1.2 million,  or 1.9%, of the Bank's net loan
portfolio at September 30, 1999.  The Bank's  permanent  commercial  real estate
loans  are  secured  by  improved  property  such  as  offices,  small  business
facilities,  buildings,  warehouses and other non-residential  buildings, all of
which are located in the Bank's  primary  market area and all of which are to be
used or occupied by the borrowers.  Commercial  real estate loans are offered as
five- or seven-year  balloon loans,  amortized over 30 years. The Bank generally
does not originate  commercial real estate  construction loans or land loans. At
September  30,  1999,  the Bank's  largest  commercial  real  estate  loan had a
principal  outstanding  balance of $304,000 and was made to finance rental units
located in Pekin, Illinois.

         Loans secured by  commercial  real estate  generally  involve a greater
degree of risk than  residential  mortgage loans and carry larger loan balances.
This  increased  credit  risk is a result  of  several  factors,  including  the
concentration  of  principal  in a limited  number of loans and  borrowers,  the
effects of general economic  conditions on income  producing  properties and the
increased  difficulty  of  evaluating  and  monitoring  these  types  of  loans.
Furthermore,  the repayment of loans secured by multifamily  and commercial real
estate is typically dependent upon the successful  operation of the related real
estate  project.  If the cash flow from the project is reduced,  the  borrower's
ability to repay the loan may be impaired.

         Consumer Loans.  Illinois-chartered savings institutions are authorized
to make secured and unsecured consumer loans in an aggregate amount up to 30% of
their assets. In addition, the Bank has lending authority above the 30% category
for certain  consumer  loans,  such as equity loans,  home property  improvement
loans, and loans secured by savings accounts.

         As of September 30, 1999, net consumer loans totalled $12.1 million, or
19.2%, of the Bank's net loan  portfolio.  The principal types of consumer loans
offered by the Bank are equity loans,  auto loans,  home improvement  loans, and
loans secured by deposit  accounts.  Home equity loans and second mortgage loans
are  originated  on a fixed-rate  basis only and have terms up to 15 years.  The
Bank's home equity loans and second mortgage loans are generally  secured by the
borrower's principal residence and a personal guarantee.  At September 30, 1999,
home equity loans and home improvement loans totalled $9.0 million,  or 74.4% of
net consumer loans.  Auto loans are originated on a fixed-rate  basis with terms
of up to 7 years,  and passbook  loans charge  interest only at 2 1/2% above the
rate  being  paid on the  savings  account  securing  the loan and have terms no
longer than the terms of the underlying certificates of deposit.

                                       7
<PAGE>
         The  underwriting  standards  employed by the Bank for  consumer  loans
include a determination  of the applicant's  credit history and an assessment of
the  applicant's  ability  to meet  existing  obligations  and  payments  on the
proposed loan. The stability of the applicant's monthly income may be determined
by   verification  of  gross  monthly  income  from  primary   employment,   and
additionally  from any  verifiable  secondary  income.  Creditworthiness  of the
applicant is of primary  consideration.  However,  the underwriting process also
includes a  comparison  of the value of the security in relation to the proposed
loan amount.

         The Bank intends to continue to increase  consumer loan originations in
the future by actively  cross-selling  consumer  loan  products  and services to
existing customers,  and advertising  consumer loan products in its market area.
Consumer  loans tend to have higher  interest  rates than  residential  mortgage
loans, but also tend to have a higher risk of default than residential  mortgage
loans.  Management  believes that the Bank's loan loss  experience in connection
with consumer loans is favorable.  See  "Non-Performing  Assets" and "Classified
Assets" for  information  regarding the Bank's loan loss  experience and reserve
policy.

         Construction  Loans. The Bank occasionally  originates loans to finance
the construction of owner-occupied  residential property. At September 30, 1999,
the Bank had none of its net loan  portfolio  invested  in interim  construction
loans. The Bank makes  construction loans to private  individuals.  Construction
loans  generally are made with either  adjustable  or fixed-rate  terms of up to
twelve  months.  Loan  proceeds are  disbursed  in  increments  as  construction
progresses and as inspections  warrant.  Construction loans are structured to be
converted  to  permanent  loans  originated  by  the  Bank  at  the  end  of the
construction period or upon receiving permanent financing from another financial
institution.

         Loan Solicitation and Processing.  Loan originations are derived from a
number of sources  such as real estate  broker  referrals,  existing  customers,
borrowers,  builders,  attorneys and walk-in  customers.  Upon receipt of a loan
application,  a credit report is made to verify specific information relating to
the applicant's  employment,  income, and credit standing. In the case of a real
estate loan,  an  appraisal  of the real estate  intended to secure the proposed
loan is  undertaken  by an  independent  appraiser  approved by the Bank. A loan
application  file is first  reviewed  by the  Bank's  loan  department  and then
submitted for approval to a loan committee consisting of five senior officers of
the Bank and  subsequently  ratified  by the full  Board of  Directors.  One- to
four-family  residential  mortgage  loans with  principal  balances in excess of
$150,000 must be approved by the Executive  Committee and all  multi-family  and
commercial real estate loans must be submitted by the loan committee directly to
the Board of Directors for approval.  Appraisals on real estate  underlying most
real  estate   loans  in  excess  of  $250,000   must  be  performed  by  either
state-licensed or state-certified appraisers,  depending on the type and size of
the loan.  Once the Board of  Directors  ratifies  or  approves  a loan,  a loan
commitment is promptly issued to the borrower.

         If the loan is approved,  a  commitment  is given which  specifies  the
terms and  conditions  of the proposed  loan  including  the amount of the loan,
interest  rate,   amortization   term,  a  brief  description  of  the  required
collateral,  and required insurance coverage. The borrower must provide proof of
fire  and  casualty  insurance  on the  property  serving  as  collateral  which
insurance must be maintained  during the full term of the loan.  Title insurance
or an attorney's  opinion based on a title search of the property is required on
all loans secured by real property.

                                       8
<PAGE>
         Loan  Origination,  Servicing,  and Other Fees. All loans in the Bank's
portfolio at September  30, 1999,  were  originated  by the Bank. In addition to
interest earned on loans, the Bank generally receives loan origination fees. The
Financial  Accounting Standards Board ("FASB") in December 1986 issued Statement
of  Financial  Accounting  Standards  ("SFAS")  No.  91 on  the  accounting  for
non-refundable fees and costs associated with originating or acquiring loans. To
the extent that loans are originated or acquired for the Banks's portfolio, SFAS
No. 91 requires that the Bank defer loan origination fees and costs and amortize
such amounts as an  adjustment  of yield over the life of the loan by use of the
level yield method. SFAS No. 91 reduces the amount of revenue recognized by many
financial  institutions  at the time such  loans  are  originated  or  acquired.
Because SFAS No. 91 affects the timing of loan fee income, it is not expected to
have an effect on income over an extended  period of time.  Fees deferred  under
SFAS No. 91 are recognized into income  immediately upon the sale of the related
loan.  At September 30, 1999,  the Bank had $97,000 of deferred loan fees.  Loan
origination fees are volatile sources of income.  Such fees vary with the volume
and type of loans made and with competitive  conditions in the mortgage markets,
which in turn respond to the demand and availability of money.

         In addition to loan origination fees, the Bank also receives other fees
and service  charges which consist  primarily of late charges and loan servicing
fees on loans sold. At September 30, 1999,  the Bank was servicing  loans with a
balance of $17.4  million,  as to which it generally  receives fees at an annual
rate of .25% to .375%.  The Bank also receives  fees in  connection  with credit
cards it offers.

         Loans to One Borrower.  Current law and regulations  limit loans to one
borrower in an amount equal to 15% of unimpaired  capital and unimpaired surplus
on an unsecured basis, an additional  amount equal to 10% of unimpaired  capital
and unimpaired surplus if the loan is secured by readily  marketable  collateral
(generally,  financial  instruments and bullion,  but not real estate). The Bank
currently is in compliance with its loans-to-one borrower limitations.

         Delinquencies.  The Bank's  collection  procedures  provide that when a
real  estate  loan is 20 days'  past due (10 days for  consumer  loans),  a late
charge is added and the borrower is contacted by mail and payment is  requested.
If the  delinquency  continues,  subsequent  efforts  are  made to  contact  the
delinquent  borrower.  Additional  late  charges  may be added and,  if the loan
continues  in a  delinquent  status  for 90 days or  more,  the  Bank  generally
initiates foreclosure proceedings.

         Non-Performing  Assets.  The Bank reviews  delinquent or non-performing
loans on a regular basis. Management does not place delinquent or impaired loans
on non-accrual  status, but rather establishes  reserves against the uncollected
interest  when a loan  is 90  days or more  past  due  and  the  loan is  deemed
uncollectible,  the effect of which is to not recognize  interest  income on the
loan  until the loan is made  current.  Foreclosure  proceedings  generally  are
initiated shortly thereafter.

         Real estate  acquired by the Bank as a result of foreclosure or by deed
in lieu of  foreclosure is classified as real estate owned until such time as it
is  sold.  When REO is  acquired,  it is  recorded  at the  lower of the  unpaid
principal  balance of the related loan or its fair market value.  Any write-down
of REO is charged to the allowance for losses on real estate owned. At September
30, 1999,  the Bank had no property  acquired as the result of foreclosure or by
deed in lieu of foreclosure and classified as REO.

                                       9
<PAGE>
         The following  table sets forth  information  regarding  non-performing
assets  at  the  dates  indicated.  At  September  30,  1999,  the  Bank  had no
restructured loans within the meaning of SFAS No. 15, as amended.
<TABLE>
<CAPTION>
                                                                 At September 30,
                                                   -------------------------------------------
                                                     1999                               1998
                                                   --------                           --------
                                                                  (In Thousands)
<S>                                                <C>                                 <C>
Impaired loans: (1)
  Residential real estate...................       $   450                             $   176
  Consumer..................................            38                                  55
                                                   -------                             -------
      Total.................................       $   488                             $   231
                                                   =======                             =======


Percentage of total loans...................           .77%                                .37%
                                                   =======                             =======
Real estate owned(2)........................       $    --                             $    --
                                                   -------                             =======
Total non-performing assets.................       $   488                             $   231
                                                   =======                             =======
Percentage of total assets..................           .52%                                .26%
                                                   =======                             =======
</TABLE>

(1)  During the years ended  September 30, 1999 and 1998, the foregone  interest
     income on loans  accounted  for on a nonaccrual  basis was zero and $3,199,
     respectively.

(2)  Represents  the net book value of  property  acquired  by the Bank  through
     foreclosure or deed in lieu of foreclosure. Upon acquisition, this property
     is recorded at the lower of its fair market  value less  estimated  selling
     costs or the principal balance of the related loan.

         Classified Assets.  Federal  regulations provide for the classification
of loans and other assets such as debt and equity  securities  considered by the
FDIC to be of lesser quality as  "substandard,"  "doubtful" or "loss" assets. An
asset is considered "substandard" if it is inadequately protected by the current
net worth and paying  capacity of the obligor or of the collateral  pledged,  if
any.   "Substandard"   assets  include  those  characterized  by  the  "distinct
possibility"  that the  insured  institution  will  sustain  "some  loss" if the
deficiencies are not corrected.  Assets classified as "doubtful" have all of the
weaknesses   inherent  in  those  classified   "substandard,"   with  the  added
characteristic  that the weaknesses  present make  "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable."  Assets  classified as "loss" are those considered
"uncollectible"  and of such  little  value  that  their  continuance  as assets
without the  establishment  of a specific loss reserve is not warranted.  Assets
that do not expose the bank to risk sufficient to warrant  classification in one
of the aforementioned  categories, but which assets possess some weaknesses, are
required to be designated "special mention" by management.

         When a savings bank classifies  problem assets as either substandard or
doubtful,  it is required to establish general  allowances for loan losses in an
amount  deemed  prudent  by  management.   General  allowances   represent  loss
allowances which have been established to recognize the inherent risk associated
with lending activities,  but which, unlike specific  allowances,  have not been
allocated to particular  problem assets.  When a savings bank classifies problem
assets as "loss," it is required  either to establish a specific  allowance  for
losses equal to 100% of the amount of the assets so  classified or to charge off
such amount.  The Bank's  determination as to the  classification of its assets,
and the  amount of its  valuation  allowances  is  subject to review by the FDIC
which can  order the  establishment  of  additional  general  or  specific  loss
allowances.  The Bank  regularly  reviews the problem  loans in its portfolio to
determine whether any loans require classification in accordance with applicable
regulations.

                                       10
<PAGE>
         At September 30, 1999,  the aggregate  amount of the Bank's  classified
assets, and of the Bank's general and specific loss allowances were as follows:
<TABLE>
<CAPTION>
                                                             At September 30, 1999
                                                             ---------------------
                                                                  (In Thousands)
<S>                                                                  <C>
Substandard assets............................................       $   198
Doubtful assets...............................................           290
Loss assets...................................................            --
                                                                     -------
   Total classified assets....................................       $   488
                                                                     =======

General loss allowances.......................................           239
Specific loss allowances......................................            --
                                                                     -------
   Total allowances...........................................       $   239
                                                                     =======
</TABLE>

         Classified  assets  consisted  of  mortgage  loans  or  consumer  loans
originated in the Bank's primary market area.

         Allowance  for Loan  Losses.  Management's  policy  is to  provide  for
estimated  losses on the Bank's loan portfolio based on management's  evaluation
of the potential losses that may be incurred. Such evaluation,  which includes a
review of all loans of which full  collectibility  of interest and principal may
not be reasonably  assured,  considers,  among other matters,  the estimated net
realizable  value of the underlying  collateral.  During 1999 and 1998, the Bank
added $19,000 and $14,500,  respectively,  to the allowance for loan losses. The
provision for loan losses for the year ended  September 30, 1999 is attributable
to management's  current view of the risks in the Bank's loan portfolio based on
an evaluation of specific loans in its portfolio,  estimated  collateral values,
historical loss  experience,  current  economic trends and the existing level of
the Bank's allowance for loan losses.

         Management  will  continue  to review  the  entire  loan  portfolio  to
determine the extent,  if any, to which further  additional loan loss provisions
may be deemed  necessary.  There can be no assurance that the allowance for loan
losses  will be adequate  to cover  losses  which may in fact be realized in the
future and that additional provisions for loan losses will not be required.

                                       11
<PAGE>
         Analysis of the  Allowance For Loan Losses.  The  following  table sets
forth the  breakdown of the  allowance  for loan losses by loan category for the
periods  indicated.  Management  believes that the allowance can be allocated by
category  only on an  approximate  basis.  The  allocation  to the  allowance by
category is not  necessarily  indicative of further losses and does not restrict
the use of the allowance to absorb losses in any category.
<TABLE>
<CAPTION>
                                                      At or For the Year Ended
                                                            September 30,
                                                      ------------------------
                                                        1999            1998
                                                      --------        --------
                                                           (In Thousands)
<S>                                                   <C>             <C>
Types of Loans:
Residential real estate ........................      $ 50,196        $ 48,878
Commercial real estate .........................         1,097           1,212
Consumer loans .................................        12,155          12,353
Discounts and reserves .........................          (394)           (444)
                                                      --------        --------
  Net loans outstanding ........................      $ 63,054        $ 61,999
                                                      ========        ========
As a percentage of net loans:
Residential real estate ........................          79.6%           78.7%
Commercial real estate .........................           1.7             2.0
Consumer loans .................................          19.3            20.0
Discounts and reserves .........................           (.6)            (.7)
                                                      --------        --------
  Net loans ....................................         100.0%          100.0%
                                                      ========        ========

Average loans outstanding ......................      $ 62,104        $ 59,837
                                                      ========        ========
Allowance balances (at beginning of period) ....      $    228        $    223
Provision for losses:
  Residential ..................................             6               7
  Consumer .....................................            13               7
Charge-offs:
  Residential ..................................          --                (9)
  Consumer .....................................            (8)           --
                                                      --------        --------
Allowance balance (at end of period) ...........      $    239        $    228
                                                      ========        ========
Allowance by type of loan:
  Residential real estate ......................      $    213        $    206
  Commercial real estate .......................          --              --
  Consumer loans ...............................            26              22
                                                      --------        --------
  Total Allowances .............................      $    239        $    228
                                                      ========        ========

Allowance for loan losses as a
 percentage of net loans outstanding ...........           .38%            .37%
Net loans charged off as a
 percentage of average loans outstanding .......           .01%            .02%
</TABLE>

                                       12
<PAGE>
     Analysis of the Allowance for Real Estate Owned.  The following  table sets
forth information with respect to the Bank's allowance for losses on real estate
owned at the dates indicated.
<TABLE>
<CAPTION>
                                                                    At or For the Year Ended
                                                                           September 30,
                                                             ------------------------------------
                                                                1999                       1998
                                                             ---------                  ---------
                                                                         (In Thousands)
<S>                                                          <C>                        <C>
Total real estate owned............................          $      --                  $      --
                                                             =========                  =========

Allowance balance (at beginning of period).........          $      --                  $      --
Provisions charged to income.......................                 --                          5
Charge-offs........................................                 --                         (5)
                                                             ---------                  ---------
Allowance balance (at end of period)...............          $      --                  $      --
                                                             =========                  =========
Allowance for losses on real estate owned
 as a percentage of real estate owned..............                --%                        --%
                                                             ========                   ========
</TABLE>

Investment Activities

         In recent years,  the Bank has sought to decrease the percentage of its
assets invested in  mortgage-backed  securities and other  securities  issued or
guaranteed by the U.S.  Government or an agency thereof.  This decrease has been
due to an increase in the Bank's  origination of higher yielding  mortgage loans
as the Bank has  returned to a more  traditional  thrift  asset  portfolio.  The
increase in mortgage loans retained in the Bank's portfolio reflects the capital
raised in the Conversion and the improved  capital ratios which have enabled the
Bank to reduce liquidity.  The Bank's investment securities consist primarily of
mortgage-backed  securities  issued or guaranteed by FHLMC,  FNMA or GNMA,  U.S.
Treasury notes, and securities issued by agencies of the U.S. Government.

         The Bank is required  under federal  regulations  to maintain a minimum
amount of liquid assets which may be invested in specified short-term securities
and certain other investments.  See "Regulation--Federal  Regulations--Liquidity
Requirements." The Bank generally has maintained a liquidity portfolio in excess
of  regulatory  requirements.  Liquidity  levels may be  increased  or decreased
depending  upon the  yields on  investment  alternatives  and upon  management's
judgment as to the  attractiveness  of the yields then  available in relation to
other  opportunities  and its  expectation  of the  level of yield  that will be
available in the future,  as well as  management's  projections  as to the short
term  demand  for  funds to be used in the  Bank's  loan  origination  and other
activities.

                                       13
<PAGE>
         The following  table sets forth the amortized  cost,  gross  unrealized
gains  and  losses,  and  estimated  market  value  for   held-to-maturity   and
available-for-sale   money  market  investments  and  investment  securities  at
September 30, 1999 and 1998.
<TABLE>
<CAPTION>
                                                                           At September 30, 1999
                                               -------------------------------------------------------------------
                                                                  Gross                Gross             Estimated
                                             Amortized         Unrealized           Unrealized             Market
                                                 Cost              Gains               Losses               Value
                                               ---------      ---------             --------           ---------
                                                                              (In Thousands)
<S>                                            <C>            <C>                   <C>                <C>
Held-to-maturity:
  Investment securities:
    Municipal obligations.................     $   1,606             15             $    (41)          $   1,580
    Stock in Federal Home Loan Bank, at
      cost................................           664             --                   --                 664
                                               ---------      ---------             --------           ---------
                                               $   2,270      $      15             $    (41)          $   2,244
                                               =========      =========             ========           =========
Available-for-sale:
  Money market investments:
    Short-term liquidity funds............     $     141      $      --             $     --           $     141
  Investment securities:
    U.S. Government agencies..............        11,493             --                 (558)             10,935
    Mutual funds..........................           683             --                  (20)                663
                                               ---------      ---------             --------           ---------
                                               $  12,317      $      --             $   (578)          $  11,739
                                               =========      =========             ========           =========
<CAPTION>


                                                                           At September 30, 1998
                                               -------------------------------------------------------------------
                                                                  Gross                Gross             Estimated
                                             Amortized         Unrealized           Unrealized             Market
                                                 Cost              Gains               Losses               Value
                                               ---------      ---------             --------           ---------
                                                                              (In Thousands)
<S>                                            <C>            <C>                   <C>                <C>
Held-to-maturity:
  Investment securities:
    U.S. Governmental agencies............     $   2,499      $       9             $     --             $   2,508
    Municipal obligations.................         1,102             55                   --                 1,157
    Stock in Federal Home Loan Bank, at
      cost................................           634             --                   --                   634
                                               ---------      ---------             --------             ---------
                                               $   4,235      $      64             $     --             $   4,299
                                               =========      =========             ========             =========
Available-for-sale:
  Money market investments:
    Short-term liquidity funds............     $     135      $      --             $     --             $     135
  Investment securities:
    U.S. Treasury securities..............           500             15                   --                   515
    U.S. Governmental agencies............         5,499             40                   --                 5,539
    Mutual funds..........................           648             --                  (10)                  638
                                               ---------      ---------             --------             ---------
                                               $   6,782      $      55             $    (10)            $   6,827
                                               =========      =========             ========             =========
</TABLE>

                                       14
<PAGE>
         The following  table sets forth the amortized  cost,  gross  unrealized
gains  and  losses,  and  estimated  market  value  for   held-to-maturity   and
available-for-sale mortgage-backed securities at September 30, 1999 and 1998.
<TABLE>
<CAPTION>
                                                                           At September 30, 1999
                                             ---------------------------------------------------------------------
                                                                  Gross                Gross             Estimated
                                             Amortized         Unrealized           Unrealized             Market
                                                 Cost              Gains               Losses               Value
                                               ---------      ---------             --------             ---------
                                                                                 (In Thousands)
<S>                                            <C>            <C>                   <C>                  <C>
Held-to-maturity:
  FNMA certificates.......................     $     564      $       7             $     --             $     571
  FHLMC certificates......................           271              1                   (1)                  271
  FNMA interest-only security, net
    of $29 allowance for loss.............            --             --                   --                    --
                                               ---------      ---------             --------             ---------
                                               $     835      $       8             $     (1)            $     842
                                               =========      =========             ========             =========

Available-for-sale:
  FNMA certificates.......................     $   1,702      $       3             $    (40)            $   1,665
  GNMA certificates.......................         6,524              3                 (117)                6,410
  FHLMC certificates......................         1,161              1                  (29)                1,133
                                               ---------      ---------             ---------            ---------
                                               $   9,387      $       7             $   (186)            $   9,208
                                               =========      =========             ========             =========

<CAPTION>
                                                                           At September 30, 1998
                                             ---------------------------------------------------------------------
                                                                  Gross                Gross             Estimated
                                             Amortized         Unrealized           Unrealized             Market
                                                 Cost              Gains               Losses               Value
                                               ---------      ---------             --------             ---------
                                                                                 (In Thousands)
<S>                                            <C>            <C>                   <C>                  <C>
Held-to-maturity:
  FNMA certificates.......................     $   1,866      $      27             $     (1)            $   1,892
  FHLMC certificates......................         1,317              6                   (1)                1,322
  FNMA interest-only security, net
    of $46 allowance for loss.............            --             --                   --                    --
                                               ---------      ---------             --------             ---------
                                               $   3,183      $      33             $     (2)            $   3,214
                                               =========      =========             ========             =========

Available-for-sale:
  FNMA certificates.......................     $     278      $       9             $     --             $     287
  GNMA certificates.......................         3,224             38                  (10)                3,252
  FHLMC certificates......................           923             21                   --                   944
                                               ---------      ---------             --------             ---------
                                               $   4,425      $      68             $    (10)            $   4,483
                                               =========      =========             ========             =========
</TABLE>

                                       15
<PAGE>
Investment Portfolio Maturities

         The  following  table sets  forth the  scheduled  maturities,  carrying
values and average  yields for the Bank's  investment  securities  classified as
held-to-maturity and available-for-sale at September 30, 1999.
<TABLE>
<CAPTION>
                                                         Carrying Value Maturing for Held-to-Maturity Investment Securities
                                                                                  At September 30, 1999
                                   -------------------------------------------------------------------------------------------------
                                      One Year or Less        One to Five Years       Five to Ten Years          More than Ten Years
                                   --------------------    ---------------------     ----------------------     --------------------
                                   Carrying     Average    Carrying      Average     Carrying       Average     Carrying    Average
                                     Value      Yield       Value         Value        Value         Yield       Value      Yield
                                                                                  (Dollars in Thousands)
<S>                                 <C>        <C>         <C>            <C>          <C>            <C>        <C>        <C>
Municipal obligations.............. $  --      $   --      $  507         4.73         $ 596          4.95       $ 503      4.65
Stock in Federal Home Loan Bank
  (no stated maturity).............   664        6.50          --           --            --            --          --        --
                                    -----      ------      ------         ----         -----          ----       -----      ----
    Total ......................... $ 664        6.50%     $  507         4.73%        $ 596          4.95%      $ 503      4.65%
                                    =====      ======      ======         ====         =====          ====       =====      ====

<CAPTION>
                                   ---------------------
                                   Investment Securities
                                   ---------------------
                                   Carrying    Average
                                    Value      Yield
                                  (Dollars in Thousands)
<S>                                  <C>         <C>
Municipal obligations..............  $1,606      4.79
Stock in Federal Home Loan Bank
  (no stated maturity).............     664      6.50
                                     ------      ----
    Total .........................  $2,270      4.89%
                                     ======      ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                   Estimated Market Value Maturing for Available-for-Sale Investment Securities
                                                                                  At September 30, 1999
                                   -------------------------------------------------------------------------------------------------
                                      One Year or Less        One to Five Years       Five to Ten Years          More than Ten Years
                                   --------------------    ---------------------     ----------------------     --------------------
                                   Carrying     Average    Carrying      Average     Carrying       Average     Carrying    Average
                                     Value      Yield       Value         Value        Value         Yield       Value      Yield
                                     -----      -----       -----         -----        -----         -----       -----      -----
                                                                                  (Dollars in Thousands)
<S>                                 <C>        <C>         <C>            <C>         <C>             <C>       <C>         <C>
U.S. Government agencies........... $  --          --      $  963         5.70        $7,170          6.36      $2,802      6.88
Money market investments/
  mutual funds (no stated maturity)   804        5.27          --           --            --            --          --        --
                                    -----      ------      ------         ----         -----          ----       -----      ----

    Total ......................... $ 804        5.27%     $  963         5.70%       $7,170          6.36%      $2,802     6.88%
                                    =====      ======      ======         ====         =====          ====       =====      ====

<CAPTION>
                                   Investment Securities
                                   ---------------------
                                   Carrying    Average
                                    Value      Yield
                                    -----      -----
                                 (Dollars in Thousands)
<S>                                  <C>         <C>
U.S. Government agencies...........  $10,935     6.44
Money market investments/
  mutual funds (no stated maturity)      804     5.27
                                     ------      ----

    Total .........................  $11,739     6.39%
                                     ======      ====
</TABLE>

                                       16
<PAGE>
Subsidiary Activities

         The  Bank's  only  service  corporation  subsidiary  - Pekin  Financial
Service Corporation (the "Service  Corporation") was incorporated in March 1988,
as an Illinois corporation. The Service Corporation is a wholly-owned subsidiary
of the Bank. The principal business of the Service  Corporation is travel agency
services to the public. The Service  Corporation  reported net income of $26,000
for the year ended  September 30, 1999 and $54,000 for the year ended  September
30,  1998.  The  Bank's  investment  in the  Service  Corporation  was $5,000 at
September  30,  1999,  and  the  Service   Corporation   had  total  assets  and
stockholder's equity of $390,000 and $355,000, respectively, at that date.

         Under  FIRREA,  SAIF-insured  institutions  are  required to provide 30
days' advance notice to the FDIC before  establishing  or acquiring a subsidiary
or conducting a new activity in a subsidiary.  The insured institution must also
provide the FDIC such  information as may be required by applicable  regulations
and must  conduct the  activity in  accordance  with the rules and orders of the
FDIC. In addition to other  enforcement  and  supervision  powers,  the FDIC may
determine after notice and opportunity for a hearing that the  continuation of a
savings association's ownership of or relation to a subsidiary (i) constitutes a
serious risk to the safety,  soundness or stability of the savings  association,
or (ii) is inconsistent  with the purposes of FIRREA.  Upon the making of such a
determination,  the FDIC may order the savings bank to divest the  subsidiary or
take other actions.

Sources of Funds

         General.  Deposits are the major source of the Bank's funds for lending
and other investment purposes.  In addition to deposits,  the Bank derives funds
from the  amortization and prepayment of loans and  mortgage-backed  securities,
the sale or maturity of investment securities,  the sale of assets held for sale
and  mortgage-backed  securities,  operations and, if needed,  advances from the
FHLB of Chicago.  Scheduled  loan principal  repayments are a relatively  stable
source of funds,  while deposit  inflows and outflows and loan  prepayments  are
significantly  influenced  by  general  interest  rates and  market  conditions.
Borrowings may be used on a short-term basis to compensate for reductions in the
availability  of funds from other  sources or on a longer term basis for general
business purposes.

         Deposits.  Consumer and commercial  deposits are attracted  principally
from  within the Bank's  primary  market area  through  the  offering of a broad
selection of deposit instruments  including NOW, regular savings,  club savings,
money market  deposits,  term  certificate  accounts and  individual  retirement
accounts.  Deposit account terms vary according to the minimum balance required,
the time periods the funds must remain on deposit and the interest  rate,  among
other factors.  The Bank regularly evaluates the internal cost of funds, surveys
rates  offered  by  competing   institutions,   reviews  the  Bank's  cash  flow
requirements  for lending and  liquidity  and executes  rate changes when deemed
appropriate.  The Bank  does  not  obtain  funds  through  brokers,  nor does it
actively solicit funds outside its primary market area.

         The Bank does not offer premiums to attract or retain deposits. Because
of a decline in market interest rates generally, the Bank has been able to lower
the interest rates on its deposit accounts,  thereby lowering its cost of funds.
In addition,  the Bank currently does not offer 3-month  certificates of deposit
resulting  in  lower-cost  deposits as  investors  have  rolled-over  funds into
lower-yielding passbook savings accounts and money market funds.

                                       17
<PAGE>
         Certificates  of deposit  with  principal  amounts of  $100,000 or more
constituted $4.5 million,  or 6.0% of the Bank's total deposits at September 30,
1999.  These deposits  include  deposits from various  entities and individuals.
These  deposits may be more volatile than other deposit  accounts and may impact
the Bank's cost of funds,  liquidity  and funds  available for lending if one or
more depositors withdraw their funds from the Bank.

Savings Portfolio

         Savings deposits in the Bank as of September 30, 1999, were represented
by the various types of savings programs described below.
<TABLE>
<CAPTION>
Weighted
Average                                                                                                 Percentage
Interest    Minimum                                                             Minimum                  of Total
 Rate       Term                Category                               Amount           Balance          Savings
 ----       ----                --------                               ------           -------          -------
                                                                                     (In Thousands)

                                                            Demand Accounts
                                                            ---------------
<S>       <C>                   <C>                                   <C>               <C>               <C>
0.89%     None                  NOW Accounts                          $   100           $ 4,058             5.4%
2.25      None                  Passbook and Club Accounts                 25             7,916            10.5
2.74      None                  Money Market Accounts                   2,500             3,177             4.2
4.80      None                  Money Maximizer                        20,000             4,347             5.8
                                                                                        -------            ----
                                                                                        $19,498            25.9%
                                                                                        -------            ----
<CAPTION>
                                                        Certificates of Deposit
                                                        -----------------------
<S>       <C>                   <C>                                   <C>               <C>               <C>
3.07       6 months             Fixed term, fixed rate                  1,000           $     3              .1%
4.74      12 months             Fixed term, fixed rate                  1,000             7,576            10.0
          5.1415 months         Fixed term, fixed rate                  5,000             6,247             8.3
          5.8621 months         Fixed term, fixed rate                  5,000             5,877             7.8
5.25      24 months             Fixed term, fixed rate                  1,000             3,838             5.1
5.76      36 months             Fixed term, fixed rate                  1,000             2,183             2.9
6.12      48 months             Fixed term, fixed rate                  1,000             1,875             2.5
6.36      60 months             Fixed term, fixed rate                  1,000            13,131            17.4
2.51      96 months             Fixed term, fixed rate                    500               115             0.2
5.18      Various               IRA                                        50             6,596             8.7
          6.199 months          Fixed term, fixed rate                  1,000               976             1.3
          5.4013 months         Fixed term, fixed rate                  5,000               635             0.8
          5.5217 months         Fixed term, fixed rate                  5,000               879             1.2
          6.2323 months         Fixed term, fixed rate                  5,000             2,874             3.8
          5.4425 months         Fixed term, fixed rate                  5,000             3,008             4.0
                                                                                        -------           -----
                                                                                         55,813            74.1
                                                                                        -------           -----

                                                                                        $75,311           100.0%
                                                                                        =======           =====
</TABLE>

                                       18
<PAGE>
         Certificates  of Deposit.  The following  table indicates the amount of
the Bank's  certificates  of deposit of $100,000 or more by time remaining until
maturity as of September 30, 1999.
<TABLE>
<CAPTION>
                                                  At September 30, 1999
                                                  ---------------------
                                                     (In Thousands)
<S>                                                     <C>
Three months or less.............................       $   100
Three through six months.........................           308
Six through twelve months........................         2,142
Over twelve months...............................         1,991
                                                        -------
                  Total..........................       $ 4,541
                                                        =======
</TABLE>

         Savings  Deposit  Activity.  The following table sets forth the savings
activities of the Bank for the years indicated:
<TABLE>
<CAPTION>
                                                                           At September 30,
                                                              -----------------------------------------
                                                                 1999                           1998
                                                              ---------                      ----------
                                                                           (In Thousands)
<S>                                                           <C>                            <C>
Deposits...........................................           $ 139,444                      $  103,664
Withdrawals........................................             136,682                         105,655
                                                              ---------                      ----------
Net increase (decrease) before interest
      credited.....................................               2,762                           1,991
Interest credited..................................               2,758                           2,723
                                                              ---------                      ----------

    Net increase in savings deposits...............           $   5,520                      $      732
                                                              =========                      ==========
</TABLE>

         In the unlikely event of liquidation  of the Bank,  depositors  will be
entitled to full payment of their  deposit  accounts  prior to any payment being
made to the stockholders of the Bank. Substantially all of the Bank's depositors
are residents of Illinois.

         Borrowings.  Savings  deposits  are the primary  source of funds of the
Bank's lending and investment  activities and for its general business purposes.
The Bank,  if the need arises,  may rely upon  advances from the FHLB of Chicago
and the  Federal  Reserve  Bank  discount  window to  supplement  its  supply of
lendable funds and to meet deposit  withdrawal  requirements.  Advances from the
FHLB are typically  secured by the Bank's stock in the FHLB and a portion of the
Bank's first mortgage  loans.  At September 30, 1999, the Bank had $11.5 million
in  advances  outstanding  from  the  FHLB.  The Bank  does  not have any  other
short-term or long-term borrowings outstanding.

         The FHLB functions as a central  reserve bank providing  credit for the
Bank and other member  savings  associations  and financial  institutions.  As a
member,  the Bank is required to own capital stock in the FHLB and is authorized
to apply for  advances  on the  security  of such stock and  certain of its home
mortgages provided certain standards related to creditworthiness  have been met.
Advances are made pursuant to several  different  programs.  Each credit program
has its own  interest  rate and range of  maturities.  Depending on the program,
limitations on the amount of advances are based either on a fixed  percentage of
a  member   institution's   net  worth  or  on  the  FHLB's  assessment  of  the
institution's creditworthiness.

                                       19
<PAGE>
Competition

         The Bank encounters strong competition both in attracting  deposits and
in  originating  real estate and other loans.  Its most direct  competition  for
deposits  has  come   historically   from   commercial   banks,   other  savings
associations,  brokerage firms, and a large credit union in its market area, and
the Bank expects continued strong  competition from such financial  institutions
in the foreseeable  future.  The Bank's market area includes branches of several
commercial  banks  which  are  substantially  larger  than  the Bank in terms of
state-wide deposits. The Bank competes for savings by offering depositors a high
level of personal  service  together  with a range of  financial  services.  The
competition  for real estate and other loans comes  principally  from commercial
banks, mortgage banking companies, credit unions and other savings associations.
The Bank competes for loans  primarily  through the interest rates and loan fees
it charges and the  efficiency  and  quality of services it provides  borrowers,
real estate  brokers and  builders.  Factors  that  affect  competition  include
general  and  local  economic  conditions,  current  interest  rate  levels  and
volatility of the mortgage markets.

         Based on total assets,  at September 30, 1999,  the Bank was the second
largest  savings  institution  headquartered  in its market area,  consisting of
Mason and Tazewell counties.

                                   REGULATION

         The Bank is an Illinois-chartered savings bank and its deposit accounts
are insured up to applicable limits by the Federal  government under the SAIF of
the FDIC. The Bank is subject to extensive  regulation by the Illinois Office of
the Commissioner of Banks and Trust Companies (the "Commissioner") and the FDIC.
The Bank must file reports with the  Commissioner  and the FDIC  concerning  its
activities  and  financial  condition,   in  addition  to  obtaining  regulatory
approvals  prior to  entering  into  certain  transactions  such as  mergers  or
acquisitions with other depository institutions. There are periodic examinations
of the Bank by the  Commissioner  and the FDIC to review the  Bank's  compliance
with  various  regulatory  requirements.  The Bank is also  subject  to  certain
reserve  requirements  established  by the  Board of  Governors  of the  Federal
Reserve System ( the "FRB").  The Company,  as a bank holding  company,  is also
subject to  regulation  by the FRB and will be required  to file  reports to the
FRB. This  regulation and supervision  establishes a comprehensive  framework of
activities in which a savings bank can engage and is intended  primarily for the
protection of the SAIF and depositors.  The regulatory  structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement  activities and examination  policies,  including  policies with
respect to the  classification  of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such regulation, whether by
the Commissioner,  the FDIC, the FRB or Congress could have a material impact on
the operations of the Bank or the Company.

Illinois Savings Bank and Savings Bank Holding Company Law and Regulation

         In August 1990,  Illinois  enacted the Savings Bank Act ("SBA"),  which
establishes  Illinois-chartered  savings banks. Under the SBA, savings banks are
chartered  and  regulated by the  Commissioner  and possess all of the powers of
federal and Illinois-chartered savings and loan associations.

                                       20
<PAGE>
         As  an  Illinois-chartered   savings  bank,  the  Bank  is  subject  to
regulation and supervision by the Commissioner.  This regulation  covers,  among
other things, the Bank's internal organization (i.e., charter,  bylaws,  capital
requirements,  transactions with directors and officers,  and composition of the
board of  directors),  as well as  supervision  of  permissible  activities  and
mergers and  acquisitions.  The Bank is required to file periodic  reports with,
and is subject to  periodic  examinations  at least once within  every  18-month
period by, the Commissioner. The lending and investment authority of the Bank is
prescribed by Illinois law and regulations,  as well as applicable  Federal laws
and regulations,  and the Bank is prohibited from engaging in any activities not
permitted by such laws and regulations.

         Under  Illinois  law,  savings banks are required to maintain a minimum
core capital to total  assets ratio of 3%. The  Commissioner  is  authorized  to
require  a  savings  bank to  maintain  a higher  minimum  capital  level if the
Commissioner  determines that the savings bank's financial condition or history,
management  or earnings  prospects are not  adequate.  If a savings  bank's core
capital ratio falls below the required level,  the  Commissioner  may direct the
savings  bank  to  adhere  to  a  specific   written  plan  established  by  the
Commissioner  to correct the savings  bank's  capital  deficiency,  as well as a
number of other  restrictions  on the  savings  bank's  operations,  including a
prohibition  on the  declaration  of  dividends  by the savings  bank's board of
directors.  As a matter  of  policy,  the  Commissioner  requires  that  savings
associations  that  convert to savings  banks under the SBA have a minimum  core
capital to assets ratio of 6%. At September 30, 1999, the Bank's regulatory core
capital ratio was 7.3% of total  adjusted  assets,  which  exceeded the required
amount.

         Under  Illinois law, a savings bank may make both secured and unsecured
loans.  However,  loans for  business,  corporate,  commercial  or  agricultural
purposes, whether secured or unsecured, may not in the aggregate exceed 15% of a
savings  bank's total assets  unless  authorized by the  Commissioner.  With the
prior written consent of the Commissioner, savings banks may also engage in real
estate  development  activities,  provided that the total  investment in any one
project may not exceed 15% of total  capital,  and the total  investment  in all
projects may not exceed 50% of total capital.  The total loans and extensions of
credit  outstanding at one time, both direct and indirect,  by a savings bank to
any  borrower  may not  exceed  15% of the  savings  bank's  total  capital.  At
September  30,  1999,  the Bank did not have  any  loans-to-one  borrower  which
exceeded this  limitation.  For information  about the largest  borrowers of the
Bank, see "Lending Activities" above.

         Illinois-chartered savings banks generally have all lending, investment
and other powers which are possessed by federal savings banks based in Illinois.
Recent  federal and state  legislative  developments  have reduced  distinctions
between  commercial  banks and savings  institutions in Illinois with respect to
lending and investment  authority.  As federal law has expanded the authority of
federally  chartered  savings  institutions  to engage in activities  previously
reserved for commercial  banks,  Illinois  legislation and regulations  ("parity
legislation")  have given  Illinois-chartered  savings  institutions such as the
Bank the powers of federally chartered savings institutions.

         The board of directors  of a savings bank may declare  dividends on its
capital stock based upon the savings  bank's  annualized net profits except that
until the paid-in  surplus of the  savings  bank  equals its  capital  stock,  a
dividend  may not be  declared  unless  there has been  transferred  to  paid-in
surplus not less than 10% of the net profits of the  preceding  half year in the
case of  quarterly  or  semiannual  dividends,  or not less  than 10% of the net
profits for the preceding  year in the case of annual  dividends.  Dividends may
not be  declared  if a  savings  bank  fails to meet its  capital  requirements.
Further  written  approval of the  Commissioner is required before any dividends
exceeding 50% of a savings bank's profits for any fiscal year may be declared. A
dividend may be declared out of retained earnings at any time.

                                       21
<PAGE>
         An  Illinois-chartered  savings  bank  may not  make a loan to a person
owning 10% or more of its stock, an affiliated  person,  an agent or an attorney
of the savings bank,  either  individually or as an agent or partner of another,
except under the rules of the  Commissioner  and  regulations of the FDIC.  This
restriction  does not  apply,  however,  to loans  made (i) on the  security  of
single-family residential property used by the borrower as his or her residence,
and (ii) to a non-profit,  religious,  charitable or fraternal organization or a
corporation  in which  the  savings  bank has been  authorized  to invest by the
Commissioner.  Furthermore,  a savings bank may not purchase, lease or acquire a
site for an office  building  or an  interest  in real  estate  from an officer,
director, employee or the holder of more than 10% of the savings bank's stock or
certain  affiliated  persons  as set forth in  Illinois  law,  unless  the prior
written approval of the Commissioner is obtained.

         The SBA  provides  that any  depository  institution  may merge  into a
savings  bank  operating  under the SBA.  The Board of Directors of each merging
institution must approve a plan of merger by resolution adopted by majority vote
of all members of the respective boards. After such approval, the plan of merger
must be submitted to the Commissioner for approval. The Commissioner may make an
examination of the affairs of each merging  institution (and their  affiliates).
The  Commissioner  shall not  approve a merger  agreement  unless he finds that,
among other things, (i) the resulting  institution meets all requirements of the
SBA; (ii) the merger  agreement is fair to all persons  affected;  and (iii) the
resulting  institution will be operated in a safe and sound manner.  If approved
by the Commissioner, the plan of merger must be submitted to stockholders of the
depository  institution  for  approval,  and may be required to be  submitted to
members  if a  mutual  savings  bank  is  one  of the  constituent  entities.  A
two-thirds affirmative vote is required for approval of the plan of merger.

         The SBA permits an Illinois  savings bank holding company to control or
own more than 5% of the  voting  shares or rights of a savings  bank only if the
principal  place of business of the savings  bank is located in those  states in
which a savings bank holding company is permitted to acquire an Illinois savings
bank.  When  requested,  the  Commissioner  will review the laws of the state to
determine whether the laws of that state expressly authorize an Illinois savings
bank holding company to acquire a savings bank in that state.

         A savings bank holding company may invest in the stock of or other form
of equity ownership of any company which the board of directors determines to be
in the best interests of stock owners and  depositors,  and such investment must
be documented in the holding  company's  minutes with reference to such items as
price/earning ratios, future prospects, sources of income and compatibility with
the overall business plan of the holding company.

                                       22
<PAGE>
The Federal Deposit Insurance Corporation Improvement Act of 1991

         On December 19, 1991, the FDICIA became law. FDICIA primarily addressed
the  recapitalization of the BIF, which insures the deposits of commercial banks
and  savings  associations.  In  addition,  FDICIA  established  a number of new
mandatory supervisory measures for savings associations and banks.

         Standards for Safety and  Soundness.  FDICIA  requires the federal bank
regulatory agencies to prescribe regulatory standards for all insured depository
institutions  and  depository  institution  holding  companies  relating to: (i)
internal   controls,   information   systems  and  audit   systems;   (ii)  loan
documentation;  (iii) credit underwriting; (iv) interest rate risk exposure; (v)
asset  growth;  and (vi)  compensation,  fees  and  benefits.  The  compensation
standards  would  prohibit   employment   contracts,   compensation  or  benefit
arrangements,  stock  option  plans,  fee  arrangements  or  other  compensatory
arrangements that provide excessive compensation, fees or benefits or could lead
to material financial loss. In addition the federal banking regulatory  agencies
are  required to  prescribe  by  regulation  standards  specifying:  (i) maximum
classified assets to capital ratios;  (ii) minimum earnings sufficient to absorb
losses without impairing  capital;  and (iii) to the extent feasible,  a minimum
ratio of market value to book value for  publicly  traded  shares of  depository
institutions and depository institution holding companies. In November 1993, the
federal banking agencies, including the FDIC, proposed regulations regarding the
implementation of these standards.

         Prompt Corrective  Action  Regulation.  FDICIA  establishes a system of
prompt   corrective   action  to  resolve  the   problems  of   undercapitalized
institutions.  Under this system,  which became  effective on December 19, 1992,
the FDIC and the other banking regulators are required to establish five capital
categories  ("well-capitalized,"  "adequately capitalized,"  "undercapitalized,"
"significantly  undercapitalized" and "critically undercapitalized") and to take
certain  mandatory  supervisory  actions  (and  are  authorized  to  take  other
discretionary   actions)   with   respect   to   institutions   in   the   three
undercapitalized  categories, the severity of which will depend upon the capital
category in which the  institution  is placed.  Generally,  FDICIA  requires the
appropriate  banking  regulator  to appoint a  receiver  or  conservator  for an
institution that is critically undercapitalized.

         Under  the  FDIC  rule   implementing  the  prompt   corrective  action
provisions,  a bank  that  has a total  risk-based  capital  ratio  of  10.0% or
greater,  a Tier 1  risk-based  capital  ratio of 6.0% or greater and a leverage
ratio of 5.0% or greater,  and is not subject  toany written  agreement,  order,
capital  directive or prompt  corrective action directive to meet and maintain a
specific   capital   level   for  any   capital   measure   is   deemed   to  be
"well-capitalized."  A bank that has a total risk-based capital ratio of 8.0% or
greater,  a Tier 1  risk-based  capital  ratio of 4.0% or greater and a leverage
ratio of 4.0% or greater  (or a greater  ratio of 3.0% or greater if the bank is
rated  composite  "1" under the CAMEL rating system and is not  experiencing  or
anticipating  significant  growth)  and  does  not  meet  the  definition  of  a
"well-capitalized"  bank is considered to be  "adequately  capitalized."  A bank
that has a total risk-based capital of less than 8.0% or has a Tier 1 risk-based
capital ratio that is less than 4.0% (or a leverage ratio that is less than 3.0%
if the  Bank is  rated a  composite  "1"  under  the  CAMEL  rating  system)  is
considered "undercapitalized." A bank that has total risk-based capital ratio of
less than 6.0%, or a Tier 1 risk-based capital ratio that is less than 3.0% or a
leverage ratio that is less than 3.0% is considered to be

                                       23
<PAGE>
"significantly undercapitalized," and a bank that has a ratio of tangible equity
to total assets (core  capital,  such as common equity  capital,  and cumulative
perpetual  preferred  stock  minus all  intangible  assets,  except for  limited
amounts of purchased  mortgage servicing rights) to assets equal to or less than
2% is deemed to be "critically  undercapitalized." Under the FDIC rule, the FDIC
may  reclassify  a  well-capitalized  bank as  adequately  capitalized,  and may
require an adequately  capitalized  bank or an  undercapitalized  bank to comply
with certain mandatory or discretionary  supervisory actions as if the bank were
in the next lower capital  category  (except that the FDIC may not  reclassify a
significantly undercapitalized bank as critically undercapitalized), if the FDIC
determines  the  Bank is in an  unsafe  or  unsound  condition  or the  Bank has
received  and not  corrected  a less  than  satisfactory  rating  for any of the
categories of asset quality, management, earnings or liquidity.

         An  undercapitalized  institution  is required to submit an  acceptable
capital  restoration  plan to its appropriate  federal banking agency.  The plan
must  specify:  (i) the steps  the  institution  will take to become  adequately
capitalized;  (ii) the capital  levels to be attained  each year;  (iii) how the
institution will comply with any regulatory sanctions then in effect against the
institution;  and  (iv)  the  types  and  levels  of  activities  in  which  the
institution will engage.

         Under FDICIA, an insured  depository  institution cannot make a capital
distribution  (as broadly  defined to include,  among other  things,  dividends,
redemptions and other repurchases of stock) or pay management fees to any person
that controls the  institution if thereafter it would be  undercapitalized.  The
appropriate  federal banking agency,  however,  may (after consultation with the
FDIC) permit an insured depository institution to repurchase,  redeem, retire or
otherwise acquire its shares if such action: (i) is taken in connection with the
issuance of additional  shares or obligations in at least an equivalent  amount;
and (ii) will  reduce  the  institution's  financial  obligations  or  otherwise
improve its financial condition.  An undercapitalized  institution  generally is
prohibited  from  increasing  its  average  total  assets.  An  undercapitalized
institution also generally is prohibited from making acquisitions,  establishing
any branches or engaging in any new line of business  except in accordance  with
an accepted  capital  restoration  plan or with the approval of the  appropriate
federal banking agency. In addition,  the appropriate  federal banking agency is
given authority with respect to any undercapitalized  depository  institution to
take  any of the  actions  it is  required  to or may  take  with  respect  to a
significantly  undercapitalized  institution as described below if it determines
that such actions are necessary to carry out the purpose of FDICIA.

         FDICIA provides that the  appropriate  federal  regulatory  agency must
require   an   insured    depository    institution    that   is   significantly
undercapitalized,   or  is  undercapitalized  and  either  fails  to  submit  an
acceptable capital restoration plan within the time period allowed by regulation
or fails in any  material  respect  to  implement  a  capital  restoration  plan
accepted by the appropriate  federal banking agency,  to take one or more of the
following  actions:  (i) sell a sufficient amount of equity securities to become
adequately  capitalized;  (ii) enter into a business  combination  with  another
institution  (or holding  company),  but only if grounds exist for  appointing a
conservator  or  receiver;  (iii)  restrict  certain  transactions  with banking
affiliates as if the "sister bank" exception to the  requirements of Section 23A
of the  Federal  Reserve  Act ("FRA")  did not exist;  (iv)  otherwise  restrict
transactions with bank or nonbank  affiliates;  (v) restrict interest rates that
the  institution  pays on  deposits  to the rates  offered in the  institution's
market area;  (vi) restrict  asset growth or reduce total  assets;  (vii) alter,
reduce or terminate  activities;  (viii) hold a new election of directors;  (ix)
dismiss any director or senior  executive  officer who held office for more than

                                       24
<PAGE>
180 days immediately  before the institution became  undercapitalized,  provided
that in  requiring  dismissal of a director or senior  officer,  the agency must
comply with certain  procedural  requirements,  including the opportunity for an
appeal; (x) employ "qualified" senior executive  officers;  (xi) cease accepting
deposits  from  correspondent  depository  institutions;  (xii)  divest  certain
non-depository  affiliates  which  pose a danger to the  institution;  (xiii) be
divested by the institution's  holding company;  and (xiv) take any other action
that the agency  determines  would  better  carry out the purposes of the prompt
corrective action provisions.

         In addition to the foregoing  sanctions,  without the prior approval of
the  appropriate  federal  banking  agency,  a  significantly   undercapitalized
institution  may not pay any bonus to any senior  executive  officer or increase
the  rate of  compensation  for such an  officer  without  regulatory  approval.
Furthermore,  in the case of an undercapitalized  institution that has failed to
submit or implement an acceptable  capital  restoration  plan,  the  appropriate
federal banking agency cannot approve any such bonus.

         No  later  than  90  days  after  an  institution   becomes  critically
undercapitalized,  the  appropriate  federal  banking agency for the institution
must appoint a receiver (or, with the  concurrence  of the FDIC, a  conservator)
unless the agency,  as well as the FDIC  concludes that another course of action
would  be  appropriate.  Notwithstanding  the  foregoing,  a  receiver  must  be
appointed after 270 days unless the FDIC concludes that the institution: (i) has
positive net worth; (ii) is in compliance with a capital restoration plan; (iii)
is  profitable  or has a  sustainable  upward  trend  in  earnings;  and (iv) is
reducing  its ratio of  nonperforming  loans to total  loans and the head of the
appropriate  federal banking agency and the FDIC certify that the institution is
viable and not expected to fail.  The FDIC is required by regulation or order to
"restrict the activities" of such critically undercapitalized  institutions. The
restrictions must include prohibitions on the following activities without prior
FDIC  approval:  (i) entering  into any material  transactions  not in the usual
course of business; (ii) extending credit for any highly leveraged transactions;
(iii)  engaging in any "covered  transaction"  (as defined in Section 23A of the
Federal Reserve Act) with an affiliate;  (iv) paying  excessive  compensation or
bonuses;  and (v)  paying  interest  on new or  renewed  liabilities  that would
increase  the  institution's  average  cost of  funds  to a level  significantly
exceeding prevailing rates in the market.

                                       25
<PAGE>
         The following table sets forth the Bank's  regulatory  capital position
at  September  30,  1999,  as compared to the  capital  requirements  to be well
capitalized under the prompt corrective action provisions.
<TABLE>
<CAPTION>
                                                                                  To Be Well Capitalized Under
                                                                                    Prompt Corrective Action
                                                             Actual                         Provisions
                                                         (In thousands)                   (In thousands)
                                                         --------------                   --------------
                                                   Amount            Ratio            Amount            Ratio
                                                   ------            -----            ------            -----
<S>                                                <C>               <C>              <C>                <C>
Total capital (to risk weighted assets)            $7,031            17.6%            $3,989             10%
Tier I capital (to risk weighted assets)            6,799            17.1%             2,393              6%
Tier I capital (to average assets)                  6,799             7.3%             4,623              5%
</TABLE>

         The Company's  consolidated  capital  ratios at September 30, 1999 were
17.8%,  17.1% and 7.4% for  total  capital  (to  risk-weighted  assets),  Tier 1
capital  (to  risk-weighted  assets)  and Tier 1 capital  (to  average  assets),
respectively.

         Conservatorship and Receivership Amendments. FDICIA amended the grounds
for the  appointment  of a  conservator  or receiver  for an insured  depository
institution  to  include  the  following  events:  (i)  consent  by the board of
directors of the  institution;  (ii) cessation of the  institution  status as an
insured depository  institution;  (iii) the institution is undercapitalized  and
has no reasonable prospect of becoming  adequately  capitalized when required to
do so,  fails to  submit  an  acceptable  capital  plan or  materially  fails to
implement an  acceptable  capital plan;  or (iv) the  institution  is critically
undercapitalized  or otherwise has substantially  insufficient  capital.  FDICIA
provides that an institution's directors shall not be liable to its stockholders
or creditors for consenting to the appointment of the FDIC or RTC as receiver or
conservator or to a supervisory acquisition of the institution.

         Other Deposit  Insurance  Reforms.  FDICIA amended the Federal  Deposit
Insurance  Act  to  prohibit  insured  depository   institutions  that  are  not
well-capitalized  from  accepting  brokered  deposits  unless a waiver  has been
obtained from the FDIC. Deposit brokers are required to register with the FDIC.

         Consumer  Protection  Provisions.   FDICIA  enacted  consumer  oriented
provisions including a requirement of notice to regulators and customers for any
proposed  branch  closing and  provisions  intended to encourage the offering of
"lifeline" banking accounts and lending in distressed  communities.  FDICIA also
requires  depository  institutions to make additional  disclosures to depositors
with respect to the rate of interest and the terms of their deposit accounts.

         Uniform Lending  Standard.  Under FDICIA,  the federal banking agencies
are required to adopt uniform regulations  prescribing  standards for extensions
of credit that are secured by liens on  interests in real estate or made for the
purpose of financing the  construction  of a building or other  improvements  to
real estate.  Savings associations must adopt and maintain written policies that
establish  appropriate  limits and standards  for  extensions of credit that are
secured  by liens or  interests  in real  estate or are made for the  purpose of
financing permanent  improvements to real estate.  These policies must establish
loan  portfolio  diversification   standards,   prudent  underwriting  standards
(including  LTV  limits)  that are clear  and  measurable,  loan  administration
procedures,  and documentation,  approval and reporting  requirements.  The real
estate lending  policies must reflect  consideration of the Guidelines that have
been adopted by the federal banking regulators.

                                       26
<PAGE>
         The Guidelines,  among other things, require depository institutions to
establish  internal  loan-to-value  limits for real estate loans that are not in
excess of the following supervisory limits: (i) for loans secured by undeveloped
land, the supervisory LTV limit is 65% of the value of the collateral;  (ii) for
land development  loans,  the supervisory  limit is 75%; (iii) for loans for the
construction of commercial,  multi-family or other nonresidential  property, the
supervisory  limit is 80%; (iv) for loans for the  construction of one- to four-
family  properties,  the supervisory  limit is 85%; and (v) for loans secured by
other  improved  property  (e.g.   farmland,   commercial   property  and  other
income-producing  property  including  non-owner-occupied,  one- to four- family
property) the supervisory limit is 85%.

         The  Guidelines  indicate  that  on a  case-by-case  basis  it  may  be
appropriate  to  originate  or  purchase  loans with LTV ratios in excess of the
supervisory LTV limits,  based on the support  provided by other credit factors.
The aggregate amount of loans in excess of the supervisory LTV limits,  however,
should not exceed 100% of total  capital and the total of such loans  secured by
commercial,  agricultural,  multi-family  and  other  non-one-  to four-  family
residential properties should not exceed 30% of total capital.

         The supervisory loan-to-value limits do not apply to certain categories
of loans including  loans insured or guaranteed by the United States  Government
and its agencies or by financially capable state, local or municipal governments
or  agencies,  loans  backed by the full faith and credit of state  governments,
loans that are to be sold  promptly  after  origination  without  recourse  to a
financially   responsible   party,   loans  that  are  renewed,   refinanced  or
restructured  in connection  with a workout,  loans to facilitate  sales of real
estate  acquired by the  institution in the ordinary course of collecting a debt
previously  contracted  and  loans  where  the real  estate  is not the  primary
collateral.

Accounting

         In June 1997,  the FASB issued SFAS No.  130,  Reporting  Comprehensive
Income.  This statement  establishes  standards for the reporting and display of
comprehensive  income  and  its  components  in a full  set  of  general-purpose
financial  statements.  Comprehensive income is defined as "the change in equity
of a business  enterprise during a period from transactions and other events and
circumstances from nonowner sources.  It includes all changes in equity during a
period except those resulting from  investments by owners and  distributions  to
owners.  Presently,  there are  certain  changes in assets and  liabilities  not
reported in a statement  that reports  results of  operations  for the period in
which they are recognized but instead are included in balances within a separate
component  of equity in a  statement  of  financial  position.  Statements  that
contain these changes include SFAS No. 87,  Employers'  Accounting For Pensions,
and SFAS No. 115,  Accounting for Certain Debt and Equity  Securities.  SFAS No.
130 amends SFAS No. 87 and 115 to require  that changes in the balances of items
that under those  statements  are reported  directly in a separate  component of
equity in a statement of financial position be reported in a financial statement
that is displayed as prominently as other financial  statements.  Items required
by accounting standards to be reported as direct adjustments to paid-in-capital,
retained earnings, or other non-income equity accounts are not to be included as
components of comprehensive  income. SFAS No. 130 was effective for fiscal years
beginning  after  December  15, 1997 with  earlier  application  permitted.  The
Company  has only one item of other  comprehensive  income  and has  elected  to
report  comprehensive  income  in the  consolidated  statements  of  changes  in
stockholders' equity, with reclassification of 1998 amounts.

                                       27
<PAGE>
Recapitalization of SAIF and Its Impact on SAIF Premiums

         The Bank's  deposits are currently  insured by the Savings  Association
Insurance Fund (the "SAIF"), which is administered by the FDIC. Under the FDIC's
"risk-based"  system each  institution is assigned a deposit  insurance  premium
assessment rate. Until 1995, the risk-based  deposit insurance  premiums paid by
institutions  insured by the SAIF and the Bank  Insurance  Fund (the  "BIF") had
been  assessed  based on  identical  rate  schedules  having the above  range of
premium  assessment  rates.  The SAIF and BIF are each  required  by  statute to
attain,  and thereafter to maintain,  a reserve to deposits ratio of 1.25%.  The
BIF attained its required  reserve level in late May 1995,  because of the BIF's
greater premium revenues while the SAIF has not primarily due to the fact that a
substantial portion of the SAIF premiums is required to be used to repay certain
bonds (the "FICO  Bonds")  issued for the purpose of funding the  resolution  of
failed thrift institutions.

         The  FDIC  had  adopted   amendments  to  its   regulations  to  reduce
substantially the deposit insurance premiums  assessment rate for members of the
BIF to between 0.00% and 0.27%.  With respect to SAIF member  institutions,  the
FDIC  adopted a final  rule to retain  the  existing  assessment  rate  schedule
applicable to SAIF member institutions of 0.23% to 0.31%. As a result, there was
a significant disparity between the assessment rate for BIF and SAIF members. As
long as the deposit rate premium disparity continued,  SAIF-insured institutions
such as the Bank were placed at a significant  competitive  disadvantage  due to
their higher premium costs, and the financial condition of the SAIF could worsen
if its deposit base shrinks as a result of the disparity.

Holding Company Regulation

         General.  The Company,  as the sole  shareholder of the Bank, is a bank
holding company. Bank holding companies are subject to comprehensive  regulation
and regular examinations by the FRB under the Bank Holding Company Act ("BHCA"),
and the regulations of the FRB. The FRB also has extensive enforcement authority
over bank  holding  companies,  including,  among other  things,  the ability to
assess civil money penalties, to issue cease and desist or removal orders and to
require  that  a  holding  company  divest  subsidiaries   (including  its  bank
subsidiaries).  In general,  enforcement actions may be initiated for violations
of law and regulations and unsafe or unsound practices.

         Under FRB  policy,  a bank  holding  company  must serve as a source of
strength for its subsidiary  bank. Under this policy,  the FRB may require,  and
has required in the past, a holding company to contribute  additional capital to
an undercapitalized subsidiary bank.

                                       28
<PAGE>
         Under the BHCA, a bank holding company must obtain FRB approval before:
(i) acquiring, directly or indirectly, ownership or control of any voting shares
of another bank or bank holding company if, after such acquisition, it would own
or control  more than 5% of such shares  (unless it already owns or controls the
majority of such shares);  (ii) acquiring all or substantially all of the assets
of another bank or bank holding company;  or (iii) merging or consolidating with
another bank holding company.

         The  BHCA  also  prohibits  a  bank  holding   company,   with  certain
exceptions,  from acquiring direct or indirect ownership or control of more than
5% of the  voting  shares  of any  company  which is not a bank or bank  holding
company,  or from engaging directly or indirectly in activities other than those
of  banking,  managing or  controlling  banks,  or  providing  services  for its
subsidiaries.  The principal  exceptions to these  prohibitions  involve certain
non-bank  activities  which, by statute or by FRB regulation or order, have been
identified as activities  closely related to the business of banking or managing
or  controlling  banks.  The list of  activities  permitted by the FRB includes,
among other things,  operating a savings institution,  mortgage company, finance
company,  credit card  company or  factoring  company;  performing  certain data
processing  operations;  providing  certain  investment  and  financial  advice;
underwriting   and  acting  as  an   insurance   agent  for  certain   types  of
credit-related  insurance;  leasing  property  on a  full-payout,  non-operating
basis; selling money orders,  travelers' checks and United States Savings Bonds;
real  estate and  personal  property  appraising;  providing  tax  planning  and
preparation services; and, subject to certain limitations,  providing securities
brokerage services for customers.

         Dividends. The FRB has issued a policy statement on the payment of cash
dividends by bank holding companies,  which expresses the FRB's view that a bank
holding  company  should pay cash  dividends only to the extent that the holding
company's  net  income  for the past year is  sufficient  to cover both the cash
dividends and a rate of earnings  retention that is consistent  with the holding
company's capital needs, asset quality and overall financial condition.  The FRB
also indicated that it would be inappropriate for a company experiencing serious
financial  problems to borrow  funds to pay  dividends.  Furthermore,  under the
prompt corrective action regulations  adopted by the FRB, the FRB may prohibit a
bank holding  company from paying any  dividends if the holding  company's  bank
subsidiary is classified as "undercapitalized."

         Bank  holding  companies  are  required  to give the FRB prior  written
notice of any purchase or redemption of its outstanding equity securities if the
gross  consideration for the purchase or redemption,  when combined with the net
consideration paid for all such purchases or redemptions during the preceding 12
months,  is  equal  to 10% or more of the  consolidated  net  worth  of the bank
holding  company.  The FRB may  disapprove  such a purchase or  redemption if it
determines that the proposal would  constitute an unsafe or unsound  practice or
would violate any law,  regulation,  FRB order, or any condition  imposed by, or
written agreement with, the FRB. This notification requirement does not apply to
any company that meets the well-capitalized standard for commercial banks, has a
safety and soundness  examination rating of at least a "2" and is not subject to
any unresolved supervisory issues.

Federal Securities Law

         The common stock of the Company is registered  with the  Securities and
Exchange  Commission ("SEC") under the Exchange Act. The Company is also subject
to the information,  proxy solicitation,  insider trading restrictions and other
requirements of the SEC under the Exchange Act.

                                       29
<PAGE>
         Company  Common  Stock held by persons  who are  affiliates  (generally
officers, directors and principal stockholders) of the Company may not be resold
without  registration,  unless  such  Common  Stock is sold in  accordance  with
certain  resale  restrictions.  If the Company meets  specified  current  public
information  requirements,  each affiliate of the Company is able to sell in the
public  market,  without  registration,  a  limited  number  of  shares  in  any
three-month period.

Federal Home Loan Bank System

         The  Bank  is a  member  of the  FHLB-Chicago,  which  is one of the 12
regional  Federal Home Loan Banks. As a member of the FHLB, the Bank is required
to purchase and maintain  stock in the FHLB in an amount equal to the greater of
1% of its aggregate unpaid  residential  mortgage loans, home purchase contracts
or similar  obligations  at the beginning of each year, or 1/20 (or such greater
fraction as established by the FHLB) of outstanding FHLB advances.  At September
30, 1999, the Bank had $663,900 in FHLB stock, which was in compliance with this
requirement.  In past years the Bank has  received  dividends on its FHLB stock.
Over the past two years such dividends have averaged 6.6%, and were 6.5% for the
fiscal years ended  September  30, 1999 and 1998,  respectively.  All 12 Federal
Home Loan Banks are  required  by law to provide  financial  assistance  for the
resolution  of troubled  savings  associations  and to  contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community  investment and low- and moderate-income  housing projects.  These
contributions  could  cause rates on the FHLB  advances  to  increase  and could
affect adversely the level of FHLB dividends paid and the value of FHLB stock in
the future.

         The FHLB serves as a reserve or central bank for its members within its
assigned  region.  It is funded primarily from proceeds derived from the sale of
consolidated  obligations  of the FHLB System.  It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the board of
directors  of the  FHLB.  These  policies  and  procedures  are  subject  to the
regulation and oversight of the Federal Housing Finance Board (the "FHFB").

         FHLB advances are subject to certain  collateral  requirements.  First,
all advances must be fully secured by sufficient collateral as determined by the
FHLB.  Eligible  collateral  consists  of  first  mortgage  loans  fewer  than a
specified number of days  delinquent.  Other forms of collateral may be accepted
as  collateralization  or, under  certain  circumstances,  to renew  outstanding
advances.  All  long-term  advances are required to be used to provide funds for
residential home financing.  In addition,  the FHLB has established standards of
community  service  that  members  must meet to  maintain  access  to  long-term
advances.  In addition,  pursuant to FHLB regulations,  each FHLB is required to
establish  programs for affordable  housing that involve interest subsidies from
the FHLBs on advances to members engaged in lending at subsidized interest rates
for low- and moderate-income, owner-occupied housing and affordable housing, and
certain other community purposes.

                           FEDERAL AND STATE TAXATION

         Federal  Taxation.  For federal income tax purposes,  the Company,  the
Bank and the  Bank's  subsidiary  will file a  consolidated  federal  income tax
return on a fiscal year basis. The Company and the Bank are subject to the rules
of federal  income  taxation  generally  applicable  to  corporations  under the
Internal Revenue Code of 1986, as amended (the "Code").

                                       30
<PAGE>
         Most corporations are not permitted to make deductible additions to bad
debt reserves under the Code. However, savings and loan associations and savings
banks such as the Bank,  which meet  certain  tests  prescribed  by the Code are
permitted  to  establish  reserves  for bad debts and to make  annual  additions
thereto which may, within specified  formula limits,  be taken as a deduction in
computing taxable income for federal income tax purposes.  The amount of the bad
debt  reserve  deduction  form  "non-qualifying  loans"  is  computed  under the
experience  method. For tax years beginning before December 31, 1995, the amount
of  the  bad  debt  reserve  deduction  for  "qualifying  real  property  loans"
(generally,  loans secured by improved real estate) may be computed under either
the  experience  method or the  percentage of taxable income method (based on an
annual election).  If a savings and loan association or savings bank elected the
latter method,  it could claim,  each year, a deduction based on a percentage of
taxable  income,  without  regard  to  actual  bad debt  experience.  Under  the
experience  method, the bad debt reserve deduction is an amount determined under
a formula based upon the bad debts actually  sustained by the institution over a
period of years.

         Under recently  enacted  legislation,  the percentage of taxable income
method has been repealed for years beginning  after December 31, 1995.  Pursuant
to  this  legislation,  the  Bank  will  continue  to be  permitted  to use  the
experience  method,  but will be required to recapture (i.e.,  take into income)
over a six year period its applicable excess reserves,  i.e., the balance of its
reserves for losses on  qualifying  loans and  non-qualifying  loans,  as of the
close of the last tax year beginning before January 1, 1996, over the greater of
(a) the balance of such reserves as of December 31, 1987 (pre-1988  reserves) or
(b) an amount that would have been the balance of such  reserves as of the close
of the  last tax year  beginning  before  January  1,  1996 had the bank  always
computed the additions to its reserves using the experience method. Postponement
of the  recapture is possible for a two-year  period if an  institution  meets a
minimum  level of mortgage  lending for 1997 and 1998. As of September 30, 1999,
the Bank's bad debt reserve subject to recapture over a four-year period totaled
approximately $78,000.

         If an  institution  ceases to qualify  as a "bank" (as  defined in code
Section  581) or converts  to a credit  union,  the  pre-1988  reserves  and the
supplemental  reserve are  restored to income  ratably  over a six-year  period,
beginning in the tax year the  institution  no longer  qualifies as a bank.  The
balance of the  pre-1988  reserves  are also subject to recapture in the case of
certain excess  distributions  to (including  distributions  on liquidation  and
disillusion), or redemptions of, shareholders.

         Effective  October 1, 1993, the Bank adopted SFAS No. 109,  "Accounting
for  Income  Taxes."  Under the asset and  liability  method of  Statement  109,
deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  To the extent that current  available  evidence  about the future raises
doubt about the realization of a deferred tax asset, a valuation  allowance must
be  established.  Deferred tax assets and liabilities are measured using enacted
tax rates  expected  to apply to  taxable  income  in the  years in which  those
temporary  differences are expected to be recovered or settled.  Under Statement
109, the effect on deferred tax assets and  liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.

                                       31
<PAGE>
         The Bank is subject to the corporate  alternative  minimum tax which is
imposed to the extent it exceeds the Bank's regular income tax for the year. The
alternative  minimum  tax  will be  imposed  at the  rate of 20% of a  specially
computed tax base.  Included in this base will be a number of preference  items,
including the following:  (i) 100% of the excess of a savings  association's bad
debt  deduction  over the amount that would have been  allowable on the basis of
actual experience; (ii) interest on certain tax-exempt bonds issued after August
7, 1986; and (iii) for years  beginning after 1989 an amount equal to 75% of the
amount  by  which  a  savings  association's  "adjusted  current  earnings"  (as
specially  defined)  exceeds  its  taxable  income  with  certain   adjustments,
including the addition of preference items. In addition, for purposes of the new
alternative  minimum tax, the amount of alternative  minimum taxable income that
may be offset by net operating  losses is limited to 90% of alternative  minimum
taxable income.

         Distributions.   To  the  extent  that  the  Bank  makes   "nondividend
distributions" to the Company,  such  distributions will be considered to result
in  distributions  from the balance of its bad debt  reserve as of December  31,
1987 (or a lesser amount if the Bank's loan portfolio  decreased  since December
31, 1987) and then from the  supplemental  reserve for losses on loans  ("Excess
Distributions"),  and an  amount  based  on the  Excess  Distributions  will  be
included  in  the  Bank's  taxable  income.  Nondividend  distributions  include
distributions  in excess of the Bank's  current  and  accumulated  earnings  and
profits,  distributions  in redemption of stock and  distributions in partial or
complete  liquidation.  However,  dividends  paid out of the  Bank's  current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be  considered  to result in a  distribution  from the  Bank's bad debt
reserve.  The  amount  of  additional  taxable  income  created  from an  Excess
Distribution  is an amount  that,  when reduced by the tax  attributable  to the
income,  is equal to the amount of the  distribution.  Thus, if the Bank makes a
"nondividend  distribution,"  then  approximately one and one-half the times the
Excess  Distribution  would be includable in gross income for federal income tax
purposes, assuming a 34% corporate income tax rate (exclusive of state and local
taxes).  The Bank does not presently intend to pay dividends that wold result in
a recapture of any portion of its tax bad debt reserve.

         Corporate   Alternative   Minimum  Tax.  The  Code  imposes  a  tax  on
alternative  minimum taxable income ("AMTI") at a rate of 20%. The excess of the
tax bad debt reserve  deduction  using the  percentage of taxable  income method
over the deduction that would have been allowable under the experience method is
treated as a preference  item for purposes of computing  the AMTI.  In addition,
only  90% of AMTI  can be  offset  by net  operating  loss  carryovers.  AMTI is
increased by an amount  equal to 75% of the amount by which the Bank's  adjusted
current earnings exceeds its AMTI (determined  without regard to this preference
and prior to reduction for net operating  losses).  For taxable years  beginning
after  December 31, 1986, and before  January 1, 1996, an  environmental  tax of
0.12% of the excess of AMTI (with  certain  modification)  over $2.0  million is
imposed on  corporations,  including  the Bank,  whether  or not an  Alternative
Minimum Tax is paid.

         Dividends-Received  Deduction.  The Company may exclude from its income
100% of  dividends  received  from the Bank as a member  of the same  affiliated
group of corporations.  The corporate  dividends-received deduction is generally
70% in the case of dividends received from unaffiliated  corporations with which
the Company and the Bank will not file a consolidated tax return, except that if
the  Company  or the  Bank  owns  more  than 20% of the  stock of a  corporation
distributing a dividend, then 80% of any dividends received may be deducted.

         Illinois  Taxation.  The  Company  and the Bank are subject to Illinois
taxation  and file  Illinois  income tax returns.  For  Illinois  income tax and
replacement tax purposes,  the Bank was taxed at a rate equal to 7.13% of income
during 1998. For these  purposes,  "net income"  generally means federal taxable
income,  subject to certain  adjustments  (including  the  addition  of interest
income on state and  municipal  obligations).  The exclusion of income on United
States  Treasury  obligations  has the effect of reducing the  Illinois  taxable
income of savings associations.

                                       32
<PAGE>
         The Bank has been  audited  by the  Internal  Revenue  Service  through
August 31, 1984. For additional  information regarding taxation,  see Note 11 of
Notes to Consolidated Financial Statements.

Personnel

         As of September 30, 1999, the Bank and its subsidiary had a total of 29
full-time  and  18  part-time  employees.   None  of  the  Bank's  employees  is
represented  by  a  collective   bargaining  group.   Management   believes  its
relationship with the Bank's employees is good.

ITEM 2. PROPERTIES

Properties

         The Bank conducts  business  through its main office  located in Pekin,
Illinois, and one branch office located in Manito, Illinois. The following table
sets forth certain information  concerning the main office and the Bank's branch
office at  September  30,  1999.  The  aggregate  net book  value of the  Bank's
premises and  equipment  was $988,000 at September  30, 1999.  The Bank believes
that its current  facilities  are  adequate to meet the present and  immediately
foreseeable needs of the Bank.

Location                 Year Opened                   Owned or Leased
--------                 -----------                   ---------------

601-617 Court St.           1969                            Owned
Pekin, IL 61554

108 South Adams Street      1979                            Owned
Manito, IL 61546


         The Bank's  accounting and record keeping  activities are maintained on
an  on-line  base  with an  independent  service  bureau.  The  Bank  owns  data
processing  equipment it uses for its internal  processing  needs.  The net book
value of such data processing equipment at September 30, 1999, was $128,000.

ITEM 3. LEGAL PROCEEDINGS

         There are various claims and lawsuits in which the Bank is periodically
involved,  such  as  claims  to  enforce  liens,   condemnation  proceedings  on
properties  in which the Bank holds  security  interests,  claims  involving the
making and  servicing of real  property  loans and other issues  incident to the
Bank's business. In the opinion of management, no material loss is expected from
any of such pending claims or lawsuits.

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

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

                                       33
<PAGE>
                                     PART II

ITEM 5. MARKET FOR COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

         The  "Stockholder   Information"   section  of  the  annual  report  to
stockholders for the fiscal year ended September 30, 1999 (the "Annual Report to
Stockholders")  is  incorporated  herein by reference.  No other sections of the
Annual Report to Stockholders are incorporated herein by this reference.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

         The  "Management's  Discussion and Analysis of Financial  Condition and
Results  of  Operations"  section  of  the  Annual  Report  to  Stockholders  is
incorporated  herein by  reference.  No other  sections of the Annual  Report to
Stockholders are incorporated herein by this reference.

ITEM 7. FINANCIAL STATEMENTS

         Pages  16  through  44  of  the  Annual  Report  to  Stockholders   are
incorporated  herein by  reference.  No other  sections of the Annual  Report to
Stockholders are incorporated herein by this reference.

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

         There has been no current  report on Form 8-K filed within  twenty four
months  prior to the date of the most recent  financial  statements  reporting a
change of accountants and/or reporting disagreements on any matter of accounting
principal or financial statement disclosure.

                                       34
<PAGE>
                                    PART III

ITEM 9. DIRECTORS AND PRINCIPAL OFFICERS OF THE BANK

         (a) Information concerning the directors of the Company is incorporated
herein by reference hereunder in the Proxy Statement.

         (b) Set forth below is information  concerning the principal  executive
officers of the Company.

Name                          Age          Positions Held With the Company
----                          ---          -------------------------------

James A. Crafton              58           Vice President - Installment Loans

Lisa M. Harness               42           Vice President - Loan Servicing

David E. Riley                38           Vice President - Mortgage Loans

Eugene Van Vooren             67           Vice President and Treasurer

ITEM 10. MANAGEMENT COMPENSATION

         Information  with respect to management  compensation  and transactions
required  under this item is  incorporated  by reference  hereunder in the Proxy
Statement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         AND MANAGEMENT

         Information  concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Proxy Statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information  concerning certain  relationships and related transactions
is incorporated herein by reference from the Proxy Statement.

ITEMS 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a)(1) Financial Statements

         The following  information  appearing in the Registrant's Annual Report
to  Stockholders  for the year ended  September  30, 1999,  is  incorporated  by
reference in this Annual Report on Form 10-KSB as Exhibit 13.

                                       35
<PAGE>
Annual Report Section

Independent Auditor's Report

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Changes in
Stockholders' Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

         With the exception of the aforementioned information,  the Registrant's
Annual  Report to  Stockholders  for the year ended  September  30,  1999 is not
deemed filed as part of this Annual Report on Form 10-KSB.

         (a)(2) Financial Statement Schedules

         All  financial  statement  schedules  have been omitted as the required
information is  inapplicable  or has been included in the Notes to  Consolidated
Financial Statements.

         (b) Reports on Form 8-K:

         The  Company  did not file  any  Current  Reports  on Form 8-K with the
Securities  and Exchange  Commission  during the last quarter of the fiscal year
ended September 30, 1999.

                                       36
<PAGE>
         (c) Exhibits
<TABLE>
<CAPTION>
                                                                           Reference to Prior
                                                                           Filing or Exhibit
Regulation S-K                                                             Number Attached
Exhibit Number                    Document                                       Hereto
--------------                    --------                                       ------
<S>                     <C>                                                     <C>
     2                  Plan of Acquisition
                        or Reorganization                                       None

     3                  Articles of Incorporation                               3.1

     3                  Bylaws                                                  3.2

     4                  Instruments defining the rights                         3.1
                        of security holders, including
                        debentures

     9                  Voting Trust Agreement                                  None

    10                  Material contracts                                      None

    11                  Statement re: computation                               Not
                        of per share earnings                                   Required

    12                  Statement re: computation                               Not
                        of ratios                                               Required

    13                  Form of Annual Report to                                13
                        Security Holders

    18                  Letter re: change in accounting principles              None

    21                  Subsidiaries of Registrant                              21

    22                  Published Reports Regarding                             None
                        Matters Submitted to Vote of
                        Security Holders

    23                  Consent of Experts and Counsel                          Not Applicable

    24                  Power of Attorney                                       Not Required

    27                  Financial Data Schedule                                 27

    99                  Additional Exhibits                                     None
</TABLE>

*Filed as exhibits to the Registrant's Application for Approval of Conversion on
 Form AC,  filed  with the Office of Thrift  Supervision  on June 30,  1992,  as
 amended on August 7, 1992. All such  previously  filed  documents is are hereby
 incorporated by reference in accordance with Item 601 of Regulation S-K.

                                       37
<PAGE>
                                   SIGNATURES

         Pursuant to the  requirements of Section 13 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.


                                         PROGRESSIVE BANCORP, INC.

Date: December 27, 1999                  By: /s/ Arthur E. Krile, Jr.
                                             ------------------------
                                         Arthur E. Krile, Jr.
                                         President and Chief Executive Officer

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

By: /s/ Arthur E. Krile, Jr              By: /s/ Eugene Van Vooren
    -------------------------------          ---------------------------------
    Arthur E. Krile, Jr.                     Eugene Van Vooren
    President, Chief Executive Officer       Vice President and Treasurer
    and Director                             (Principal Executive Officer)
    (Principal Financial Officer)

Date: December 27, 1999                  Date: December 27, 1999


By: /s/ William J. Leman                 By: /s/ R.H. More
    -------------------------------          ---------------------------------
    William J. Leman                         R.H. More
    Director                                 Vice Chairman of the Board and
                                             Director

Date: December 27, 1999                  Date: December 27, 1999


By: /s/ John L. Steger                   By: /s/ James S. Wolf
    -------------------------------          ---------------------------------
    John L. Steger                           James S. Wolf
    Director                                 Chairman of the Board and Director

Date: December 27, 1999                  Date: December 27, 1999


By: /s/ Patrick E. Oberle                By: /s/ E. Glen Rittenhouse
    -------------------------------          ---------------------------------
    Patrick E. Oberle                        E. Glen Rittenhouse
    Director                                 Senior Vice President, Secretary
                                             and Director

Date: December 27, 1999                  Date: December 27, 1999