<PAGE>

                                  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, 1998
                                        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 Identification
            or organization)                                  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 $10.4
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, 1998 was $5,864,040. (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 11, 1998, 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, 1998.

         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, 1998, the Company had total assets of $87.3 million, total deposits of $69.8
million, and stockholders' equity of $6.7 million. The Company had net income of
$702,000 and $695,000 for the fiscal years ended September 30, 1998 and 1997,
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, 1998, one- to four-family loans and
mortgage-backed securities secured by one- to four-family residential mortgage
loans represented 64.4% 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 1.9% of the Bank's net
loan portfolio at September 30, 1998. 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.

<PAGE>

         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.

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, 1998,
the Bank's gross loan portfolio totalled $62.4 million, of which $48.5 million,
or 77.7% consisted of one-to four-family residential mortgage loans. The
remainder of the Bank's loan portfolio at such date consisted of consumer loans
(19.8%) and apartment real estate loans and non-residential real estate loans
(2.5%). 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 


                                       2
<PAGE>

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 adjusted
to 10 1/2%. As of September 30, 1998, the Bank had $2.2 million of real estate
sold on contract. During the year ended September 30, 1998, the average interest
rate paid on those contracts was 8.9%. Over 97% of these related to single
family residences. As of September 30, 1998, 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, 1998, the Bank originated $5.5 million of the term balloon
mortgage loans. At September 30, 1998 approximately $9.9 million or 15.9% 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. Construction and commercial real estate lending
activity has been significantly reduced in recent years. The Bank has no present
plans to increase originations of such loans.


                                       3
<PAGE>

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,
                                                          -------------------------------------------------
                                                                   1998                      1997
                                                          ----------------------    -----------------------
                                                           Amount            %        Amount           %
                                                          --------         -----    ---------        ----- 
                                                                       (Dollars in Thousands)
<S>                                                       <C>               <C>     <C>               <C>  
Real estate loans:
   Loans on existing property........................     $ 47,791          77.1%   $  45,075         77.8%
   Participation investment loans purchased..........          136            .2          169           .3
   Real estate sold on contract (1)..................        2,163           3.5        3,022          5.2

Consumer loans:
   Savings account loans.............................           65            .1          105           .2
   Consumer loans(2).................................       12,288          19.8       10,082         17.4

Less:
   Discounts and other...............................          216            .3          293           .5
   Loan loss reserve.................................          228            .4          223           .4
                                                          --------         -----    ---------        ----- 
     Total loans net.................................     $ 61,999         100.0%   $  57,937        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.

<TABLE>
<CAPTION>


                                                                          At September 30,
                                                          -------------------------------------------------
                                                                   1998                      1997
                                                          ----------------------    -----------------------
                                                           Amount            %        Amount           %
                                                          --------         -----    ---------        ----- 
                                                                       (Dollars in Thousands)
TYPE OF SECURITY:
<S>                                                       <C>               <C>     <C>               <C>  
Residential real estate:
   Single family.....................................     $ 48,497          78.2%   $  46,706         80.6%
   Two- to four-family...............................           34            .1           54           .1
   Other dwelling units..............................          347            .6          388           .7
Commercial real estate...............................        1,212           1.9        1,118          1.9
Savings accounts.....................................           65            .1          105           .2
Automobiles..........................................        1,210           1.9        1,091          1.9
Other................................................       11,078          17.9        8,991         15.5
Less:
   Discounts and other...............................          216            .3          293           .5
   Loan loss reserve.................................          228            .4          223           .4
                                                          --------         -----    ---------        ----- 
     Total...........................................     $ 61,999         100.0%   $  57,937        100.0%
                                                          --------         -----    ---------        ----- 
                                                          --------         -----    ---------        ----- 

</TABLE>


                                       4
<PAGE>


LOAN MATURITY SCHEDULE

         The following table sets forth certain information at September 30,
1998, 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............................    $  837     $  209     $   --    $    5     $    --   $   --     $1,051
  Fixed.................................       170      1,745      8,912     7,010      23,429    7,773     49,039
Consumer................................       976      1,329      2,176     5,983       1,889       --     12,353
                                            ------     ------     -------   -------    -------   ------     -------

  Total.................................    $1,983     $3,283     $11,088   $12,998    $25,318   $7,773     $62,443
                                            ------     ------     -------   -------    -------   ------     -------
                                            ------     ------     -------   -------    -------   ------     -------
</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,
                                                             -------------------------------
                                                                1998                 1997   
                                                             --------             ---------
                                                                     (In Thousands)
<S>                                                          <C>                  <C>      
Loans originated:
  Conventional real estate loans:
    Loans on existing property.....................          $ 12,140             $  11,585
    Loans refinanced...............................             8,010                 4,135
  Real estate sold on contract.....................                25                    39
  Installment/Consumer loans.......................             9,447                 7,800
                                                             --------             ---------
      Total loans originated.......................          $ 29,622             $  23,559
                                                             --------             ---------
                                                             --------             ---------
Loans purchased:
  Participation loans..............................                --                    --
                                                             --------             ---------
      Total loans purchased........................          $     --             $      --
                                                             --------             ---------
                                                             --------             ---------
Loans sold:
  Whole loans......................................             6,437                 5,775
                                                             --------             ---------
      Total loans sold.............................          $  6,437             $   5,775
                                                             --------             ---------
                                                             --------             ---------
</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, 1998 on fixed 10, 15 and 30 year mortgage loans was 6.875%, 6.875%
and 7.25%, respectively. The interest rate at September 30, 1998 on fixed five
year term balloon mortgage loans was 7.25%. 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 Bank's competitors. 


                                       5
<PAGE>

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 $1.1 million, or 1.7% of the Bank's total net loan portfolio at
September 30, 1998.

         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.

         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 


                                       6
<PAGE>

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, 1998. 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, 1998, the Bank's largest commercial real estate loan had a
principal outstanding balance of $306,000 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, 1998, net consumer loans totalled $12.3 million, or
19.8%, 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, 1998,
home equity loans and home improvement loans totalled $10.2 million, or 82.9% 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.

         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 


                                       7
<PAGE>

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, 1998,
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.

         LOAN ORIGINATION, SERVICING, AND OTHER FEES. All loans in the Bank's
portfolio at September 30, 1998, other than $136,000 of commercial loan
participations, 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 applies to fiscal years 


                                       8
<PAGE>

beginning after December 15, 1987. 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, 1998, the Bank had $113,000 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, 1998, the Bank was servicing loans with a
balance of $21.0 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 real estate losses. At September 30,
1998, 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, 1998, the Bank had no
restructured loans within the meaning of SFAS No. 15, as amended.
<TABLE>
<CAPTION>

                                                                 At September 30,                  
                                                   -------------------------------------------
                                                     1998                                1997  
                                                   -------                             -------
                                                                  (In Thousands)
<S>                                                <C>                                 <C>    
Impaired loans: (1)
  Residential real estate...................       $   176                             $   458
  Consumer..................................            55                                   6
                                                   -------                             -------
      Total.................................       $   231                             $   464
                                                   -------                             -------
                                                   -------                             -------

Percentage of total loans...................           .37%                                .80%
                                                   -------                             -------
                                                   -------                             -------
Real estate owned(2)........................       $    --                             $    --
                                                   -------                             -------
                                                   -------                             -------
Total non-performing assets.................       $   231                             $   464
                                                   -------                             -------
                                                   -------                             -------
Percentage of total assets..................           .26                                 .54%
                                                   -------                             -------
                                                   -------                             -------
</TABLE>

----------
(1)  During the years ended September 30, 1998 and 1997, the foregone interest 
     income on loans accounted for on a nonaccrual basis was $3,199 and $11,814,
     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, 1998, 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, 1998
                                                               ---------------------
                                                                   (In Thousands)


<S>                                                                  <C>    
Substandard assets............................................       $   127
Doubtful assets...............................................           104
Loss assets...................................................            --
                                                                     -------
   Total classified assets....................................       $   231
                                                                     -------
                                                                     -------

General loss allowances.......................................           228
Specific loss allowances......................................            --
                                                                     -------
   Total allowances...........................................       $   228
                                                                     -------
                                                                     -------
</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 1998 and 1997, the Bank
added $14,500 and $12,000, respectively, to the allowance for loan losses. The
provision for loan losses for the year ended September 30, 1998 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,
                                                             ------------------------------------
                                                               1998                        1997   
                                                             --------                   ---------
                                                                        (In Thousands)
<S>                                                          <C>                        <C>      
Types of Loans:
Residential real estate............................          $ 48,878                   $  47,148
Commercial real estate.............................             1,212                       1,118
Consumer loans.....................................            12,353                      10,187
Discounts and reserves.............................              (444)                       (516)
                                                             --------                   ---------
  Net loans outstanding............................          $ 61,999                   $  57,937
                                                             --------                   ---------
                                                             --------                   ---------

AS A PERCENTAGE OF NET LOANS:
Residential real estate............................              78.7%                       81.4%
Commercial real estate.............................               2.0                         1.9
Consumer loans.....................................              20.0                        17.6
Discounts and reserves.............................               (.7)                        (.9)
                                                             --------                   ---------
  Net loans........................................             100.0%                      100.0%
                                                             --------                   ---------
                                                             --------                   ---------

Average loans outstanding..........................          $ 59,837                   $  55,265
                                                             --------                   ---------
                                                             --------                   ---------
Allowance balances (at beginning of period)                  $    223                   $     218
Provision for losses:
  Residential......................................                 7                          12
  Consumer.........................................                 7                          --
Charge-offs:
  Residential......................................                (9)                         (6)
  Consumer.........................................               --                           (1)
                                                             --------                   ---------
Allowance balance (at end of period)                         $    228                   $     223
                                                             --------                   ---------
                                                             --------                   ---------
ALLOWANCE BY TYPE OF LOAN:
  Residential real estate..........................          $    206                   $     201
  Commercial real estate...........................                --                          --
  Consumer loans...................................                22                          22
                                                             --------                   ---------
  Total Allowances.................................          $    228                   $     223
                                                             --------                   ---------
                                                             --------                   ---------
Allowance for loan losses as a
 percentage of net loans outstanding...............               .37%                        .38%
Net loans charged off as a
 percentage of average loans outstanding...........               .02%                        .01%
</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,
                                                             ------------------------------------
                                                               1998                        1997  
                                                             ---------                  ---------
                                                                        (In Thousands)

<S>                                                          <C>                        <C>      
Total real estate owned............................          $      --                  $      --
                                                             ---------                  ---------
                                                             ---------                  ---------

Allowance balance (at beginning of period).........          $      --                  $       8
Provisions charged to income.......................                  5                         --
Charge-offs........................................                 (5)                        (8)
                                                             ---------                  ---------
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, 1998 and 1997.

<TABLE>
<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>

<TABLE>
<CAPTION>

                                                                           At September 30, 1997
                                               -------------------------------------------------------------------
                                                                  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............     $   4,487      $       2            $    (24)            $       4,465
    Municipal obligations.................           990             28                  --                     1,018
    Stock in Federal Home Loan Bank, at                                                                
      cost................................           619             --                  --                       619
                                               ---------      ---------            --------             -------------
                                               $   6,096      $      30            $    (24)            $       6,102
                                               ---------      ---------            --------             -------------
                                               ---------      ---------            --------             -------------
Available-for-sale:                                                                                    
  Money market investments:                                                                            
    Short-term liquidity funds............     $     128      $      --            $     --             $         128
  Investment securities:                                                                               
    U.S. Treasury securities..............         2,490             41                 (4)                     2,527
    U.S. Government agencies..............         2,499             26                  --                     2,525
    Mutual funds..........................           613             --                 (5)                       608
                                               ---------      ---------            --------             -------------
                                               $   5,730      $      67            $    (9)             $       5,788
                                               ---------      ---------            --------             -------------
                                               ---------      ---------            --------             -------------
</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, 1998 and 1997.

<TABLE>
<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>
<TABLE>
<CAPTION>

                                                                           At September 30, 1997
                                               -------------------------------------------------------------------
                                                                 Gross                Gross             Estimated
                                               Amortized       Unrealized           Unrealized            Market
                                                 Cost            Gains               Losses               Value 
                                               ---------       ----------           ----------          ---------
                                                                          (In Thousands)
<S>                                            <C>            <C>                  <C>                  <C>          
Held-to-maturity:
  FNMA certificates.......................     $   2,929      $      33            $     --             $   2,962
  FHLMC certificates......................         2,256              7                  (6)                2,257
  FNMA interest-only security, net
    of $62 allowance for loss.............            --             --                  --                    --
                                               ---------      ---------            --------             ---------
                                               $   5,185      $      40            $     (6)            $   5,219
                                               ---------      ---------            --------             ---------
                                               ---------      ---------            --------             ---------

Available-for-sale:
  FNMA certificates.......................     $     368      $       9            $     (1)            $     376
  GNMA certificates.......................         1,992             14                  (8)                1,998
  FHLMC certificates......................           557              7                  --                   564
                                               ---------      ---------            --------             ---------
                                               $   2,917      $      30            $     (9)            $   2,938
                                               ---------      ---------            --------             ---------
                                               ---------      ---------            --------             ---------
</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, 1998.
<TABLE>
<CAPTION>


                                                          Carrying Value Maturing for Held-to-Maturity Investment Securities
                                                                                  At September 30, 1998
                                                       --------------------------------------------------------------------------
                                                           One Year Or Less       One To Five Years           Five To Ten Years    
                                                       ---------------------    ---------------------      ----------------------
                                                        Carrying     Average    Carrying      Average      Carrying       Average  
                                                         Value        Yield      Value         Yield        Value          Yield   
                                                       --------      -------    --------      -------      --------       ------- 
                                                                                   (Dollars in Thousands)
<S>                                                    <C>             <C>        <C>           <C>        <C>                 
U.S. Government agencies ...........................   $    500        5.38%      $ 1,999       6.01%      $    --          --%
Municipal obligations ..............................         --          --           507       4.73           595         4.95
Stock in Federal Home Loan Bank ....................        634        6.70            --         --            --           --
                                                       --------        ----       -------       ----       -------         ---- 
    Total ..........................................   $  1,134        6.04%      $ 2,506       4.77%      $   595         4.95%
                                                       --------        ----       -------       ----       -------         ---- 
                                                       --------        ----       -------       ----       -------         ---- 
</TABLE>

<TABLE>
<CAPTION>


                                                                                         Total 
                                                         More Than Ten Years     Investment Securities 
                                                        ---------------------    ---------------------
                                                        Carrying      Average    Carrying     Average   
                                                         Value         Yield      Value        Yield  
                                                        --------      -------    --------     -------
<S>                                                    <C>                        <C>          <C>  
U.S. Government agencies ...........................     $  --           --%      $ 2,499      5.88%
Municipal obligations ..............................        --           --         1,102      4.85
Stock in Federal Home Loan Bank ....................        --           --           634      6.70
                                                         -----           --       -------      ----- 
    Total ..........................................     $  --           --%      $ 4,235      5.26%
                                                         -----           --       -------      ----- 
                                                         -----           --       -------      ----- 
</TABLE>


<TABLE>
<CAPTION>


                                                      Estimated Market Value Maturing for Available-for-Sale Investment Securities
                                                                                   At September 30, 1998
                                                      ----------------------------------------------------------------------------
                                                           One Year Or Less       One To Five Years           Five To Ten Years    
                                                       ---------------------    ---------------------      ----------------------
                                                        Carrying     Average    Carrying      Average      Carrying       Average  
                                                         Value        Yield      Value         Yield        Value          Yield   
                                                       --------      -------    --------      -------      --------       ------- 
                                                                                  (Dollars in Thousands)
<S>                                                    <C>             <C>        <C>           <C>        <C>                 
U.S. Treasury securities.................              $  --           --         $   515       7.50%      $    --          --%     
U.S. Government agencies.................                 --           --           2,525       6.86         3,014          6.81    
Money market investments/mutual funds
  (no stated maturity)...................                773         5.49              --         --            --            --    
                                                       -----         ----         -------       ----       -------          ----    
    Total ...............................              $ 773         5.49%        $ 3,040       6.97%      $ 3,014          6.81%   
                                                       -----         ----         -------       ----       -------          ----    
                                                       -----         ----         -------       ----       -------          ----    

</TABLE>

<TABLE>
<CAPTION>


                                                                                         Total 
                                                         More Than Ten Years     Investment Securities  
                                                        ---------------------    ---------------------
                                                        Carrying      Average    Carrying     Average   
                                                         Value         Yield      Value        Yield 
                                                        --------      -------    --------     -------
<S>                                                    <C>                       <C>            <C>  
U.S. Treasury securities.................              $ --             --%      $   515        7.50%
U.S. Government agencies.................                --             --         5,539        6.84 
Money market investments/mutual funds                                                                
  (no stated maturity)...................                --             --           773        5.49 
                                                       -----           ---       -------        ---- 
    Total ...............................              $  --            --%      $ 6,827        6.78%
                                                       -----           ---       -------        ---- 
                                                       -----           ---       -------        ---- 
</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 the sale of
annuities. However, in October 1993, the Service Corporation began to offer
travel agency services to the public. The Service Corporation reported net
income of $54,000 for the year ended September 30, 1998 and $42,000 for the year
ended September 30, 1997. The Bank's investment in the Service Corporation was
$5,000 at September 30, 1998, and the Service Corporation had total assets and
net worth of $422,000 and $329,000, 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 and 6-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 $3.1 million, or 4.5% of the Bank's total deposits at September 30,
1998. 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, 1998, 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)
<S>               <C>           <C>                                    <C>              <C>               <C>
                                                   DEMAND ACCOUNTS

 .93%              None          NOW Accounts                           $  100           $ 4,032             5.8%
2.48%             None          Passbook and Club Accounts                  1             8,032            11.5
2.98%             None          Money Market Accounts                   2,500             3,229             4.6
4.53%             None          Money Maximizer                        20,000             2,531             3.6
                                                                                        --------          ------
                                                                                        $17,824            25.5%
                                                                                        --------          ------
                                                                                        --------          ------

                                                   CERTIFICATES OF DEPOSIT

2.51               6 months     Fixed term, fixed rate                    500                 8              .1
5.41              12 months     Fixed term, fixed rate                    500             9,803            14.0
5.87              15 months     Fixed term, fixed rate                    500             7,258            10.4
5.87              21 months     Fixed term, fixed rate                    500             2,557             3.7
5.70              24 months     Fixed term, fixed rate                    500             5,607             8.0
5.91              36 months     Fixed term, fixed rate                    500             2,849             4.1
6.36              48 months     Fixed term, fixed rate                    500             2,403             3.4
6.26              60 months     Fixed term, fixed rate                    500            15,141            21.7
2.51              96 months     Fixed term, fixed rate                    500               112              .2
5.83              18 months     IRA                                       500             6,229             8.9
                                                                                        --------          ------
                                                                                         51,967            74.5
                                                                                        --------          ------

                                                                                        $69,791           100.0%
                                                                                        --------          ------
                                                                                        --------          ------

</TABLE>

        CERTIFICATES OF DEPOSIT BY RATES. The following table sets forth the
certificates of deposit of the Bank classified by rates as of the dates
indicated.

<TABLE>
<CAPTION>

                                                                  At September 30,
                                                             ------------------------
                                                             1998                1997 
                                                          ----------          ----------
                                                                  (In Thousands)
<S>                                                       <C>                 <C>
2.90 - 6.00%......................................        $   38,107          $   31,485
6.01 - 8.00%......................................            13,860              21,878
                                                          ----------          ----------
                                                          $   51,967          $   53,363
                                                          ----------          ----------
                                                          ----------          ----------

</TABLE>


                                       18

<PAGE>


        CERTIFICATES OF DEPOSIT MATURITY SCHEDULE. The following table sets
forth the amount and maturities of the Bank's certificates of deposit at
September 30, 1998.

<TABLE>
<CAPTION>


                                                                               Amount Due
                                                  ------------------------------------------------------------------
                                                  Less Than        1-2           2-3          After
                                                   One Year       Years         Years         3 Years        Total 
                                                  ----------     --------     ---------      --------      ---------
                                                                              (In Thousands)
<S>                                                <C>           <C>          <C>            <C>           <C>
2.90 -  6.00%...............................       $ 23,593      $   8,627    $   1,195      $   4,692     $  38,107
6.01 - 8.00%................................          5,261          4,674        1,496          2,429        13,860
                                                  ----------     --------     ---------      --------      ---------
                                                   $ 28,854      $  13,301     $  2,691      $   7,121     $  51,967
                                                  ----------     --------     ---------      ---------      --------
                                                  ----------     --------     ---------      ---------      --------

</TABLE>


        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, 1998.

<TABLE>
<CAPTION>

                                                         At September 30, 1998
                                                         ---------------------
                                                             (In Thousands)
<S>                                                             <C>    
Three months or less..............................               $   314
Three through six months..........................                   735
Six through twelve months.........................                   664
Over twelve months................................                 1,436
                                                                 -------
                  Total...........................               $ 3,149
                                                                 -------
                                                                 -------

</TABLE>


        SAVINGS DEPOSIT ACTIVITY. The following table sets forth the savings
activities of the Bank for the years indicated:

<TABLE>
<CAPTION>

                                                          At September 30,
                                                     ------------------------
                                                       1998            1997 
                                                     ---------       --------
                                                           (In Thousands)
<S>                                                  <C>             <C>     
Deposits...........................................  $ 103,664       $ 87,465
Withdrawals........................................    105,655         88,336
                                                     ---------       --------
    Net decrease before interest credited..........     (1,991)          (871)
Interest credited..................................      2,723          2,607
                                                     ---------       --------
    Net increase in savings deposits                 $     732       $  1,736
                                                     ---------       --------
                                                     ---------       --------

</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 


                                       19

<PAGE>


September 30, 1998, the Bank had $9.5 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.

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, 1998, 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 


                                       20

<PAGE>


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.

        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, 1998, the Bank's regulatory core
capital ratio was 7.4% 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, 1998, 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


                                       21

<PAGE>


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.

        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 to any 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 "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."


                                       23

<PAGE>


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 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.


                                       24

<PAGE>


        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.

        The following table sets forth the Bank's regulatory capital position at
September 30, 1998, 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)            $ 6,700               15.5%           $ 4,329                10%
Tier I capital (to risk weighted assets)             6,439               14.9              2,597                 6
Tier I capital (to average assets)                   6,439                7.4              4,336                 5

</TABLE>

        The Company's consolidated capital ratios at September 30, 1998 were
15.7%, 15.1% and 7.5% 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


                                       25

<PAGE>


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.

        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


                                       26

<PAGE>


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 1996, the FASB released SFAS No. 125, ACCOUNTING FOR TRANSFERS
AND EXTINGUISHMENTS OF LIABILITIES. SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. SFAS No. 125 requires a consistent application
of a financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, and
derecognizes liabilities when extinguished. SFAS No. 125 also requires that
servicing assets and liabilities be subsequently measured by amortization in
proportion to and over the period of estimated net servicing income or loss and
requires assessment for asset impairment or increases obligation based on their
fair values. SFAS No. 125 applies to transfers and extinguishments occurring
after December 31, 1996 and early or retroactive application was not permitted.
The adoption of SFAS No. 125 had no material impact on the financial position or
results of operations of the Bank.

        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 shall be effective for fiscal
years beginning after December 15, 1997 with earlier application permitted. All
comparative financial statements provided for earlier periods shall be
reclassified to reflect application of the provisions of this statement.

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


                                       27

<PAGE>


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.

        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 ofactivities 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.


                                       28

<PAGE>


        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 maydisapprove 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.

        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, 1998, the Bank had $634,300 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 6.8%, and were 6.7% for the
fiscal year ended September 30, 1998. 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


                                       29

<PAGE>


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").

        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


                                       30

<PAGE>


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, 1998, the Bank's bad debt reserve subject to recapture
over a four-year period totaled approximately $104,000.

        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.

        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


                                       31

<PAGE>


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.

        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, 1998, the Bank and its subsidiary had a total of 30
full-time and 19 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.


                                       32

<PAGE>


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, 1998. The aggregate net book value of the Bank's
premises and equipment was $979,000 at September 30, 1998. The Bank believes
that its current facilities are adequate to meet the present and immediately
foreseeable needs of the Bank.

<TABLE>
<CAPTION>

       Location                  Year Opened                Owned Or Leased
       --------                  -----------                ---------------
<S>                              <C>                         <C>
    601-617 Court St.               1969                        Owned
    Pekin, IL 61554

    108 South Adams Street          1979                        Owned
    Manito, IL 61546

</TABLE>

        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, 1998, was $35,000.

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,
1998.

                                     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, 1998 (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.


                                       33

<PAGE>


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 15 through 42 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.


                                    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.

<TABLE>
<CAPTION>

     NAME                    AGE             POSITIONS HELD WITH THE COMPANY
------------------          -----           -----------------------------------
<S>                           <C>           <C>
James A. Crafton              57            Vice President - Installment Loans

Lisa M. Harness               41            Vice President - Loan Servicing

David E. Riley                37            Vice President - Mortgage Loans

Eugene Van Vooren             66            Vice President and Treasurer

</TABLE>


                                       34

<PAGE>


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, 1998, is incorporated by reference
in this Annual Report on Form 10-KSB as Exhibit 13.

<TABLE>
<CAPTION>

ANNUAL REPORT SECTION
----------------------
<S>                                                   <C>
Independent Auditor's Report                          15

Consolidated Balance Sheets                           16

Consolidated Statements of Income                     17

Consolidated Statements of Changes in                 19
Stockholders' Equity

Consolidated Statements of Cash Flows                 20

Notes to Consolidated Financial Statements            22

</TABLE>


        With the exception of the aforementioned information, the Registrant's
Annual Report to Stockholders for the year ended September 30, 1998 is not
deemed filed as part of this Annual Report on Form 10-KSB.


                                       35

<PAGE>


        (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, 1998.

        (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

</TABLE>


                                       36

<PAGE>

<TABLE>
<S>                         <C>                                        <C>
        18                 Letter re: change in accounting                  None
                                     principles

        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 30, 1998                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 Financial Officer) 
   (Principal Executive Officer) 

   Date: December 30, 1998                Date: December 30, 1998 



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 30, 1998                 Date: December 30, 1998 



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 30, 1998                Date: December 30, 1998 


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


                                       38