<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 1998

                        Commission file number: 33-80333

                         First Decatur Bancshares, Inc.
             (Exact name of Registrant as specified in its charter)

                Delaware                                  37-1085161
(State or other jurisdiction of                        (I.R.S. Employer
 incorporation or organization)                       Identification No.)

 130 North Water Street, Decatur, Illinois                 62523
(Address of Principal Executive Offices)                (Zip Code)

      Registrant's telephone number, including area code: (217) 424-1111

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

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

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  filing
requirements for the past 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-K or any amendment to this
Form 10-K. [X]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant  at  February  28,  1999  was  $65,845,416.   For  purposes  of  this
determination,  directors and executive  officers of the Registrant,  along with
the Registrant's Employee Stock Ownership Plan (approximately 15% of outstanding
common shares) have been presumed to be affiliates.  The market for Common Stock
of the Registrant is very limited;  market value is based upon $28.00 per share,
the most recent sale price known to management.

2,761,142  shares of the  Registrant's  common stock,  par value $.01 per share,
were outstanding at February 28, 1999.


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                                TABLE OF CONTENTS

PART I

                                                                        Page No.
   Item 1.   Business                                                      5

             Information  Regarding Bancshares                             5
                Description of Business                                    5
                Acquisitions and Mergers                                   5
                Local Market and Economy                                   6
                Banking Subsidiaries                                       6
                Lending Activities                                         6
                Deposits and Financial Service                             7
                Competition                                                8
                Fiscal and Monetary Policies                               8
                Employees                                                  8

             Information Regarding FirsTech                                9
                Description of Business                                    9
                Competition                                                9

             Supervision and Regulation                                   10
                General                                                   10
                Community Reinvestment Act                                10
                Deposit Insurance                                         11
                Capital Adequacy                                          11
                Dividends                                                 11
                Acquisition and Expansion                                 12

   Item 2.   Properties                                                   13

   Item 3.   Legal Proceedings                                            13

   Item 4.   Submission of Matters to a Vote of Security Holders          14

PART II

   Item 5.   Market for Registrant's Common Equity and Related 
             Stockholder Matters                                          14

   Item 6.   Selected Financial Data                                      15

   Item 7.   Management's Discussion and Analysis of Financial Condition 
             and Results of Operations                                    16

                Results of Operations                                     16
                    Net Interest Income                                   16
                    Provision for Loan Losses                             19
                    Other Income                                          20
                    Other Expense                                         21
                    Income Taxes                                          22

                                      (2)
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                                TABLE OF CONTENTS

                                                                        Page No.

                Financial Condition                                       22
                    Cash and Cash Equivalents                             22
                    Securities                                            22
                    Loans                                                 25
                    Nonperforming Assets                                  27
                    Allowance for Loan Losses and Impaired Loans          28
                    Premises and Equipment                                30
                    Other Assets                                          30
                    Deposits                                              30
                    Borrowings                                            31
                    Other Liabilities                                     32
                    Capital                                               32
                    Inflation and Changing Prices                         32
                    Liquidity                                             32
                    Market Risk and Interest Rate Sensitivity             33
                    Capital Resources                                     35
                    Year 2000                                             35
                    New Accounting Pronouncements                         36

   Item 8.   Financial Statements                                         38

                Independent Auditor's Report                              38
                Consolidated Balance Sheet                                39
                Consolidated Statement of Income                          40
                Consolidated Statement of Changes in Stockholders' Equity 41
                Consolidated Statement of Cash Flows                      42
                Notes to Consolidated Financial Statements                43
 
   Item 9.   Changes in and Disagreements with Accountants on Accounting 
             and Financial Disclosure                                     60

PART III

   Item 10.  Directors and Executive Officers of the Registrant           60

   Item 11.  Executive Compensation                                       61

                Annual Compensation                                       61
                Retirement Income Plan                                    63
                Director Compensation                                     63
                Employment Contracts                                      64

   Item 12.  Security Ownership of Certain Beneficial Owners and 
             Management                                                   65

   Item 13.  Certain Relationships and Related Transactions               67

                                      (3)
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                                TABLE OF CONTENTS

PART IV
                                                                        Page No.
   Item 14.  Exhibits, Financial Statement Schedules and Reports 
             on Form 8-K                                                  68

   Signatures                                                             69
   Supplemental Information                                               69
   Exhibit Index                                                          70
             Exhibit 21.1 Registrant's Subsidiaries                       71

                                      (4)
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PART I

ITEM 1.  BUSINESS

INFORMATION REGARDING BANCSHARES

Description of Business

     First Decatur Bancshares, Inc. ("Bancshares"),  a Delaware corporation, was
organized on February 28, 1980 and is a registered  bank holding  company  under
the Bank Holding  Company Act of 1956, as amended (the "BHCA").  Bancshares owns
all of the  outstanding  capital  stock of the First  National  Bank of  Decatur
("Decatur  Bank"),  FirsTech,  Inc.  ("FirsTech")  and the First  Trust  Bank of
Shelbyville  ("Shelby Bank"). The Decatur Bank, FirsTech and the Shelby Bank are
referred to as the "Subsidiaries."

     The principal activity of Bancshares is the ownership and management of the
Subsidiaries. The Board of Directors of Bancshares establishes corporate policy,
strategy and goals for Decatur Bank, Shelby Bank and FirsTech.

     Substantially  all of the income of  Bancshares  is derived from  dividends
received from its  subsidiaries.  The amount of dividends payable by the Decatur
Bank and  Shelby  Bank are  subject  to  certain  regulatory  restrictions.  See
"Supervision and Regulation."

     At  December  31,  1998,   Bancshares  had  consolidated  total  assets  of
approximately   $441.7  million  and  stockholders'  equity  of  $53.4  million.
Bancshares  had  consolidated  total  revenue of $37.2 million and net income of
$5.6 million for the year ended December 31, 1998.  Refer to Note 22 - "Business
Industry  Segments" of the Notes to the  Consolidated  Financial  Statements for
financial information relating to Bancshare's industry segments.

Acquisitions and Mergers

     On April 1, 1996,  Bancshares  completed  the  acquisition  of First Shelby
Financial Group,  Inc. ("First Shelby") and its subsidiary bank, Shelby Bank. As
a result of the  transaction,  First Shelby became a wholly owned  subsidiary of
Bancshares,  and each share of First Shelby Common Stock outstanding immediately
prior to the merger was converted into 45.68 shares of Bancshares  Common Stock.
Bancshares  issued 695,852 shares of its common stock in exchange for all of the
issued and outstanding  shares of First Shelby.  Cash of approximately  $125,000
was paid to one First Shelby  dissenting  shareholder for 5,481 shares. No other
cash, except for fractional shares, was paid in the transaction.

     The pooling-of-interest  method of accounting for business combinations was
used to account for this transaction. Accordingly, the results of operations and
financial  position of Bancshares  and First Shelby have been combined as if the
combination had been in effect for all periods presented.

     On May 13, 1997 First Shelby was dissolved and its subsidiary,  First Trust
Bank of  Shelbyville,  is now a wholly owned  subsidiary of Bancshares.  The net
assets of First Shelby totaled  $11,492,000 on May 13, 1997 and were transferred
to Bancshares.

                                      (5)
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Local Market and Economy

     Decatur  is the  largest  city in  Macon  County,  Illinois  and is a major
manufacturing  center in Central Illinois.  Jobs in the manufacturing sector are
divided among 10 major employers: Caterpillar, Archer Daniels Midland Co., A. E.
Staley Mfg. Co., Bridgestone/Firestone,  Wagner Castings Co., Mueller Co., Zexel
Illinois,  Inc.,  PPG  Industries  Inc.  and Taylor  Pharmacal  Co. The  largest
employers of non-manufacturing  sector jobs are the Decatur School District, two
local hospitals, and Illinois Power Company.

     Because a substantial number of employees work for companies that are under
union  labor  contracts,  labor  discord  and unrest have an impact on the local
economy  along  with  swings in the  national  economy  which  affect  levels of
employment.  Also, with  Caterpillar  employment  levels  somewhat  dependent on
international sales and Bridgestone/Firestone and Wagner Castings Co. employment
levels  dependent on the  production  and sales to the U.S.  automobile  market,
Bancshares  management  carefully monitors what is happening in those particular
industries.  The  agri-businesses of Archer Daniels Midland Co. and A. E. Staley
Mfg.  Co. are not  affected  by  adverse  conditions  in any one  segment of the
economy to the extent that the other manufacturing industries are affected.

Banking Subsidiaries

     The  Decatur  Bank is a national  banking  association  located in Decatur,
Illinois.  It is operated as a community  bank -- a  locally-owned  and operated
financial  institution that uses  professional,  highly  motivated  employees to
provide  individualized,  quality services with personal,  "hometown" attention.
The Shelby  Bank is an  Illinois  banking  association  located in  Shelbyville,
Illinois.

     The  Decatur  Bank and the  Shelby  Bank  offer a full  range of  financial
services to commercial,  industrial,  and individual  customers.  These services
include  demand,  savings,  and time deposit  accounts  and  programs  including
individual  retirement  accounts and interest and non-interest  bearing checking
accounts; commercial,  consumer, agricultural, and real estate lending including
installment  loans  and  personal  lines  of  credit;  safe  deposit  and  night
depository  services;  farm management;  and additional services tailored to the
needs of individual customers. In addition, the Decatur Bank and the Shelby Bank
offer  an array of  non-deposit  investment  products  including  mutual  funds,
annuities  and  discount  brokerage.  The Decatur  Bank and the Shelby Bank also
operate full service trust departments.

     Principal sources of income are interest and fees on loans and investments,
trust fees and service  fees.  Their  principal  expenses are  interest  paid on
deposits and general operating expenses.

Lending Activities

     The lending  activities  of  Bancshares  are  separated  into three lending
areas: commercial/ agricultural,  consumer and real estate. Loans are originated
by lending  officers at the Decatur Bank and the Shelby Bank. Loan  applications
that exceed the loan  approval  authority of the lending  officers are sent to a
Loan Committee.  Each Bank has a Loan Committee.  The Loan Committees review and
approve loans up to the Bank's legal lending limit,  monitor  concentrations  of
credit,  problem and past due loans and charge-offs of uncollectible  loans, and
formulate   recommendations   regarding   loan   policy   modifications,    loan
classifications  and loan  charge-offs.  In  addition,  Bancshares  maintains  a
separate loan review  department.  The loan review department is responsible for
monitoring  loan  activities  and  ensuring  compliance  with loan  policies and
authorities by loan officers.

                                      (6)
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     Bancshares maintains  conservative loan policies and underwriting practices
in order to address and manage loan risks.  These policies and practices include
(i)  granting  loans on a sound and  collectible  basis,  (ii)  investing  funds
profitably  for  the  benefit  of the  shareholders  and the  protection  of the
depositors,  (iii) serving the legitimate needs of the community and the general
market area while  obtaining a balance  between  maximum yield and minimum risk,
(iv) ensuring  that primary and  secondary  sources of repayment are adequate in
relation to the amount of the loan, (v)  administering  loan policies  through a
directors   loan   committee,   (vi)   developing   and   maintaining   adequate
diversification  of the loan  portfolio  as a whole and of the loans within each
category,  (vii)  ensuring  that  each  loan  is  properly  documented  and,  if
appropriate,  secured or guaranteed by government  agencies,  and that insurance
coverage is  adequate,  especially  with respect to certain  agricultural  loans
because  of the  risks of poor  weather,  and  (viii)  developing  and  applying
adequate collection procedures.

     Bancshares' commercial loans include secured and unsecured loans, including
real  estate  loans,  to  individuals  and  companies  for a myriad of  business
purposes  and to  governmental  units within the market area of the Decatur Bank
and the Shelby Bank.  Bancshares  does not have a  concentration  of  commercial
loans in any single  industry or business.  As of December 31, 1998,  Bancshares
had  commercial  loans  of  approximately  $56.6  million  (25.7%  of  the  loan
portfolio),  which includes $11.5 million in agricultural  credits, $7.6 million
in construction loans and $1.5 million in loans to tax exempt entities.

     Bancshares'   consumer  loans  include  secured  and  unsecured  loans  for
personal, family or household purposes, such as automobile installment loans and
personal  lines of credit.  The  consumer  lending  officers  also  handle  some
business loans for fleet vehicles and small equipment purchases as well as floor
plan loans for both new and used automobile  dealers.  In addition,  home equity
loans and some home improvement loans are also granted. As of December 31, 1998,
Bancshares had consumer installment loans of approximately $55.7 million,  which
represents approximately 25.3% of the loan portfolio.

     Bancshares' real estate lending activities consist of residential  mortgage
lending.  In addition,  the Decatur Bank offers 15 to 30 year  mortgages that it
sells in the  secondary  market to the  Federal  National  Mortgage  Association
("FNMA"). The Decatur Bank retains servicing rights on loans sold to FNMA. As of
December 31, 1998,  Bancshares had loans totaling  approximately  $107.6 million
for real estate purposes, which represents 49.0% of the total loan portfolio. In
addition,  the Decatur Bank sold $25.4 million of  residential  mortgages in the
secondary  market during 1998.  Mortgage  loans  serviced for FNMA totaled $69.4
million as of December 31, 1998.

Deposits and Financial Service

     The principal  deposit services  offered by Bancshares are demand,  savings
and time deposit accounts and programs,  which include interest and non-interest
bearing demand deposits and individual  retirement accounts.  During 1998, total
average deposits of Bancshares were approximately $333.3 million,  consisting of
average  demand  deposits of $135  million,  average  savings  deposits of $53.3
million, and average time deposits of $145 million.

     To  attract  and  retain  stable  depositors,  Bancshares  markets  various
programs such as Classic Ones and Senior Savers, which assist senior citizens in
their  banking  needs,  and  FirstCheque,  a "debit  card" or "check  card".  In
addition, Bancshares has offered brokerage services since 1985.

                                      (7)
<PAGE>

     Bancshares' trust departments are among the largest in the Central Illinois
market with approximately 874 trust accounts under management as of December 31,
1998.  The trust  department  provides  a full  complement  of asset  management
services for individuals and companies.  The trust  departments had assets under
management of approximately $384 million at December 31, 1998.

     Bancshares also provides farm management, farm consultation, farm appraisal
and farm real estate brokerage services through its farm management departments.
At December 31, 1998, the farm management  departments  served 198 farms as well
as managed or directed  approximately  41,000 acres of farmland in Macon County,
Illinois, Shelby County, Illinois and surrounding counties.

Competition

     The  activities  in  which  Bancshares  engages  are  highly   competitive.
Bancshares primarily serves a market area consisting of Macon County,  Illinois,
Shelby County, Illinois, and surrounding  communities.  Within this market area,
each activity engaged in by Bancshares involves competition with other banks, as
well as with non-banking financial  institutions and non-financial  enterprises.
Bancshares  estimates its share of the savings deposit base to be  approximately
16% in Macon County and 20% in Shelby County and estimates its share of the loan
market  to be  approximately  25% in  Macon  County  and 14% in  Shelby  County.
Bancshares  encounters active  competition to obtain deposits and make loans, in
the scope and types of services offered, in interest rates paid on time deposits
and charged on loans, in providing full brokerage,  trust, investment,  and farm
management services and other aspects of banking.

Fiscal and Monetary Policies

     The commercial  banking  business is affected not only by general  economic
conditions,  but also by the fiscal and monetary policies of the Federal Reserve
Board.  Changes in the discount rate on Federal Reserve member bank  borrowings,
availability of borrowings at the Federal Reserve "discount window", open market
operations, the imposition of and changes in reserve requirements against member
banks' deposits,  the imposition of and changes in reserve  requirements against
certain  borrowings  by member  banks and their  affiliates,  and the placing of
limits on interest rates which member banks may pay on time and savings deposits
are some of the  instruments  of fiscal and  monetary  policy  available  to the
Federal Reserve Board.  Fiscal and monetary  policy  influences to a significant
extent the  overall  growth of bank  loans,  investments  and  deposits  and the
interest rates charged on loans or paid on time and savings deposits. The nature
of future  monetary  policies  and the  effect of such  policies  on the  future
business and earnings of Bancshares, the Decatur Bank and the Shelby Bank cannot
be predicted.

Employees

     As  of  December  31,  1998,  Bancshares  had a  total  of  273  employees,
consisting of 233 full-time  employees and 40 part-time  employees.  None of the
employees are represented by a union or similar group.

                                      (8)
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INFORMATION REGARDING FIRSTECH

Description of Business

     In 1988 Bancshares organized FirsTech, a retail payment processing company.
FirsTech provides the following  services to electric,  water and gas utilities,
telecommunication    companies,    cable   television   firms   and   charitable
organizations:  retail lockbox  processing of payments  delivered by mail to the
biller;  processing  of  payments  delivered  by  customer to pay agents such as
grocery  stores,  convenience  stores and check cashers;  and  concentration  of
payments  delivered by the  Automated  Clearing  House  ("ACH")  network,  money
management  software such as Quicken and through networks such as Visa e-Pay and
Mastercard  RPS. For the years ended December 31, 1998,  1997and 1996,  FirsTech
accounted  for  $5,880,000  (16%),   $4,838,000  (14%),  and  $6,230,000  (17%),
respectively,  of the  consolidated  total revenues of Bancshares  (prior to the
elimination on a consolidated basis of inter-company transactions) and accounted
for $562,000  (7%),  $636,000  (9%), and $774,000  (11%),  respectively,  of the
consolidated income before income tax of Bancshares.

     FirsTech provides retail lockbox  processing for organizations  through the
firm's Decatur,  Illinois and Hammond,  Indiana  processing  centers.  For 1998,
remittance processing for these companies accounted for approximately 57% of the
total revenue of FirsTech.

     FirsTech  processes  payments  delivered  by customers to pay agents in the
firm's Decatur center.  Many businesses and merchants such as grocery stores and
convenience  stores  located  throughout  Illinois,   Indiana,  Ohio,  Michigan,
Missouri,  Maine,  Florida  and the  province  of  Alberta  serve as  agents  of
utilities in collecting  customer payments.  In 1998, the remittance  collection
business  for  these  companies  accounted  for  approximately  33% of the total
revenue of FirsTech.

     FirsTech's  contracts to process  payments for Ameritech,  Inc.  expired in
1996 and were not renewed. The loss of Ameritech,  Inc. was the main contributor
to the decrease in  FirsTech's  total  revenue and net income from 1996 to 1997.
There was no Ameritech  revenue during 1998.  FirsTech  provided both remittance
processing and remittance collection services for Ameritech,  Inc. For the years
ended December 31, 1997 and 1996 these services represented approximately 1% and
26%,  respectively,  of FirsTech's  total revenue and  approximately  0% and 5%,
respectively, of total consolidated revenue of Bancshares.

Competition

     FirsTech competes in the retail payment processing  business with companies
that  range  from  large  national  companies  to small,  local  businesses.  In
addition,  many  companies  do  their  own  remittance  processing  rather  than
out-source the work to an independent processor such as FirsTech.  The principal
methods of  competition  in the  remittance  processing  industry are pricing of
services, use of technology and quality of service.

                                      (9)
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SUPERVISION AND REGULATION

General

     Bank holding  companies and banks are  extensively  regulated under federal
and state laws and regulations.  As a result, the business,  financial condition
and prospects of  Bancshares  and its  subsidiaries  can be affected not only by
management  decisions and general  economic  conditions,  but also by applicable
statutes  and  regulations  and other  regulatory  pronouncements  and  policies
adopted  by  regulatory   agencies  with  authority  over   Bancshares  and  its
subsidiaries.  The effect of such statutes, regulations and other pronouncements
and  policies  can be  significant,  cannot be  predicted  with a high degree of
certainty  and can change over time.  The  following  information  describes the
material  state and federal  statutory and regulatory  provisions  affecting the
businesses of Bancshares,  Decatur Bank and Shelby Bank, and such  discussion is
qualified in its entirety by reference to such statutes and  regulations.  These
laws  and  regulations  are  generally  designed  for  the  protection  of  bank
depositors and not the shareholders of Bancshares.

     Bancshares is currently  registered  as a "bank  holding  company" with the
Federal Reserve Board. As such,  Bancshares is currently  subject to supervision
by the Federal Reserve Board under the BHCA. Bank holding companies are required
to file with the Federal  Reserve  Board  periodic  reports and such  additional
information as the Federal  Reserve Board may require  pursuant to the BHCA. The
Federal  Reserve  Board  examines  Bancshares  and may  examine  its  affiliated
financial institutions.

     Shelby Bank is an Illinois State bank chartered under the Illinois  Banking
Act.  Shelby Bank is subject to regulation,  supervision  and examination by the
Office of Banks and Real Estate,  State of Illinois,  under the Illinois Banking
Act  and by  the  Federal  Deposit  Insurance  Corporation  ("FDIC")  under  the
provisions  of the Federal  Deposit  Insurance  Act.  The FDIC and the Office of
Banks  and  Real  Estate  regularly  examine  such  areas  as  reserves,  loans,
investments, management practices and other aspects of Shelby Bank's operations.
In addition to these regular examinations,  Shelby Bank must furnish to the FDIC
and the Office of Banks and Real Estate quarterly reports  containing a full and
accurate  statement  of affairs.  The deposits of Shelby Bank are insured by the
Bank Insurance Fund (the "BIF") which is administered by the FDIC.

     Decatur  Bank is a national  bank  chartered  under the banking laws of the
United States.  Decatur Bank is a member bank of the Federal  Reserve System and
its deposits are insured by the BIF of the FDIC.  Decatur Bank's  operations are
also subject to the regulations of the Office of the Comptroller of the Currency
(the  "OCC"),  the Federal  Reserve  Board and the FDIC.  The OCC is the primary
supervisory  authority  regulating Decatur Bank. The OCC regularly examines such
areas as reserves, loans, investments, management practices and other aspects of
Decatur Bank's operations.  In addition to these regular  examinations,  Decatur
Bank must furnish to the OCC and FDIC  quarterly  reports  containing a full and
accurate statement of affairs.

Community Reinvestment Act

     In 1977  Congress  enacted the  Community  Reinvestment  Act (the "CRA") to
encourage  banks and  thrifts  to help  meet the  credit  needs of their  entire
communities,  including low- and moderate-income neighborhoods,  consistent with
safe and sound lending  practices.  On April 19, 1995,  Federal banking agencies
adopted  a new rule  amending  the CRA.  The new CRA rule was  phased  in over a
period of time and became fully  effective  July 1, 1997. All  institutions  are
evaluated under CRA

                                      (10)
<PAGE>

performance  tests which  include the  following:  (I) the lending  test,  which
evaluates  an  institution's  record of  helping to meet its  assessment  area's
credit needs through its lending  activities by evaluating home mortgage,  small
business and  community  development  lending;  (ii) an investment  test,  which
evaluates a financial  institution's  record of meeting  assessment  area credit
needs through  qualified  investments  within its  assessment  area; and (iii) a
service test, by which the FDIC analyzes the availability and effectiveness of a
financial  institution's  system for delivering  retail banking services and the
extent and innovativeness of its community development services.

     The FDIC assigns a rating of outstanding, satisfactory, needs to improve or
substantial  noncompliance,  depending upon an institution's  performance  under
each  of  the  tests.   Regulatory   agencies  take  into  account  a  financial
institution's  rating when  evaluating  various types of  applications,  such as
applications for branches,  office  relocations,  mergers,  consolidations,  and
purchase and assumption  transactions,  and may deny or condition approval of an
application  on  the  basis  of  an  unsatisfactory  CRA  rating.  In  reviewing
applications  by bank holding  companies,  the Federal  Reserve Board takes into
account  the record of  compliance  of a holding  company's  subsidiary  banking
institutions  with the CRA. The Decatur  Bank and the Shelby Bank were  assigned
composite ratings of "outstanding" and  "satisfactory,"  respectively,  in their
most recent CRA examinations.

Deposit Insurance

     The Decatur  Bank's and the Shelby Bank's  deposits are insured by the FDIC
under the BIF. The FDIC also  maintains the Savings  Association  Insurance Fund
(the "SAIF),  which primarily insures savings association  deposits.  Applicable
law  requires  that the SAIF and BIF funds each  achieve and maintain a ratio of
insurance  reserves to total deposits equal to 1.25%. The BIF reached this 1.25%
reserve  level during 1995,  and the FDIC  announced a reduction in BIF premiums
for most banks.  Based on this  reduction,  the Decatur Bank and the Shelby Bank
paid $0.122 per $1,000 of deposits during 1998.

Capital Adequacy

     Refer to Note 17 -  "Regulatory  Capital" of the Notes to the  Consolidated
Financial  Statements for a discussion of Capital  Adequacy as well as a summary
of ratios at December 31, 1998 and 1997.

Dividends

     Bancshares'  stockholders  are  entitled to receive  such  dividends as are
declared  by the  Board of  Directors,  which  considers  payment  of  dividends
quarterly.  While  Bancshares  anticipates  paying  quarterly  dividends  in the
future,  the timing and  amount of  dividends  will  depend  upon the  earnings,
capital  requirements  and financial  condition of Bancshares as well as general
economic conditions and other relevant factors affecting Bancshares. The ability
of the Company to pay dividends is dependent  upon its receipt of dividends from
the Decatur Bank, the Shelby Bank and FirsTech.

     The Decatur Bank may not pay a dividend in any  calendar  year in excess of
its net profits for the current year plus its adjusted  retained profits for the
two prior  years,  unless it  obtains  OCC  approval.  Net  profits  from  which
dividends  may be paid must be adjusted  for losses and the amount of  statutory
bad debts in excess of the balance of the Bank's  allowance for possible  credit
losses.  As of January 1, 1999,  Decatur  Bank had  approximately  $3.1  million
legally  available to pay dividends  without prior approval of the OCC, provided
Decatur Bank maintains adequate capital.

                                      (11)
<PAGE>

     Under the  Illinois  Banking  Act,  Shelby Bank may not  declare  dividends
except out of net profits and unless Shelby Bank has  transferred  to surplus at
least one-tenth of its net profits since the date of the declaration of the last
preceding  dividend,  until the amount of its  surplus is at least  equal to its
capital.  Net profits under the Illinois Banking Act must be adjusted for losses
and bad  debts.  As of  January 1, 1999,  Shelby  Bank had  approximately  $10.3
million available to pay dividends.

     Additionally,  the payment of dividends by any financial institution or its
holding  company is affected by the  requirement  to maintain  adequate  capital
pursuant to applicable capital adequacy  guidelines and regulations.  Bancshares
and its  subsidiaries  will be unable to pay  dividends  in an amount that would
reduce its capital  below the amount  required by the FDIC.  Banking  regulators
also have the  authority to prohibit the payment of any  dividends by Bancshares
or any of its subsidiaries if it is determined the distribution would constitute
an unsafe or unsound practice.

Acquisitions and Expansion

     The BHCA requires  Bancshares  to obtain the prior  approval of the Federal
Reserve  Board before  merging with or  consolidating  into another bank holding
company,  acquiring  substantially  all the  assets of any bank or bank  holding
company or acquiring direct or indirect  ownership or control of more than 5% of
the voting shares of any bank or bank holding company.  In its approval process,
the  Federal  Reserve  Board is required  to weigh the  expected  benefit to the
public, such as greater convenience and increased competition, against the risks
of possible adverse effects, such as undue concentration of resources, decreased
or unfair competition,  conflicts of interest or unsound banking practices.  The
Federal  Reserve  Board also gives  consideration  to  compliance  with the CRA,
including the rating assigned by the FDIC.

     The BHCA  prohibits  Bancshares,  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 and from  engaging in any  business  other than
that of banking,  managing and controlling banks or furnishing services to banks
and their subsidiaries.  Bancshares,  however, may engage in, and may own shares
of companies  engaged in, certain  businesses  determined by the Federal Reserve
Board to be so closely related to banking or managing or controlling banks as to
be a proper incident thereto.  The BHCA does not place territorial  restrictions
on the activities of non-bank subsidiaries of bank holding companies.

     Traditionally,  all banks in Illinois have been restricted as to the number
and geographic location of branches that they could establish. Effective June 7,
1993, the Illinois Banking Act was amended to expand the branching rights of all
banks  located in  Illinois.  The  Illinois  Banking  Act now  permits  banks in
Illinois  to  maintain  any  number of  branches  anywhere  within  the State of
Illinois,  without regard to any numeric,  geographic or home office  protection
limits.

     On September 29, 1994,  the  Riegle-Neal  Interstate  Banking and Branching
Efficiency Act of 1994 (the  "Branching  Act") was enacted.  Since September 29,
1995, the Branching Act has permitted bank holding companies that are adequately
capitalized and adequately  managed to acquire banks located in any other state,
provided  that the  acquisition  does not  result  in the bank  holding  company
controlling  more than 10% of the deposits in the United States,  or 30% or more
of the deposits in the state in which the bank to be acquired is located.  As of
June 1, 1997, the Branching Act also allows interstate  branching and merging of
existing banks.  States that enacted legislation before June 1, 1997 could elect
to prohibit interstate branching and merger  transactions.  This applies equally
to all out-of-state banks and expressly prohibits mergers involving out-of-state
banks. This state "opt out"

                                      (12)
<PAGE>

provision  does not apply to bank  holding  company  acquisitions.  The State of
Illinois has enacted  legislation  opting in the Branching Act effective June 1,
1997.

     As a result of the  Branching  Act,  Bancshares  is currently  permitted to
acquire banks located in any state outside Illinois and any organization located
outside Illinois is permitted to acquire Bancshares. These provisions should not
materially  affect  Bancshares  because  Illinois  law, for several  years,  has
permitted  institutions  located  in any state of the  United  States to acquire
banks or bank  holding  companies  within  Illinois  subject  to the  ability of
Illinois  institutions to acquire banks and bank holding companies in such other
state on similar  conditions as Illinois law. The fact that Illinois has decided
to permit interstate  branching beginning June 1, 1997, means that if Bancshares
did acquire an institution  outside Illinois,  Bancshares could, if it deemed it
appropriate,  convert such  institution's  offices into  branches of the Decatur
Bank or any other banking  subsidiary  then in existence.  Bancshares,  however,
does not have any  current  plans to acquire any  banking  organization  located
outside the state of Illinois.


ITEM 2.  PROPERTIES

     Bancshares  principal  executive  offices  are  located at 130 North  Water
Street, Decatur,  Illinois, which is also the main banking office of the Decatur
Bank.  The  building  consists  of  a  three-story  office  building  containing
approximately  10,000 square feet of office  space,  all of which is utilized by
the Decatur Bank. The Decatur Bank owns the building and the surrounding parking
lots.

     In  addition,  the Decatur  Bank owns the land and building for five branch
office facilities. Three of the branch offices are located in Decatur and two of
the branch offices are located in Mt. Zion, Illinois, which is approximately ten
miles from the main office of the Decatur Bank.

     FirsTech's  business  activities  are  conducted  from  operations  centers
located at 124 North Franklin Street, Decatur,  Illinois and 5131 Hohman Avenue,
Hammond,  Indiana.  These two centers consist of approximately 4,800 square feet
and 6,850 square  feet,  respectively,  of office  space.  The  Franklin  Street
facility is owned by Bancshares and the Hammond facility is leased by FirsTech.

     Shelby  Bank has its main  office  at 200 West  Main  Street,  Shelbyville,
Illinois, which is comprised of approximately 12,600 square feet and is owned by
the Shelby Bank.  The Shelby Bank  operates  three  drive-in  lanes at this main
office. The Shelby Bank also operates a branch office facility in Johnston's IGA
Supermarket in Shelbyville,  Illinois.  The Shelby Bank leases approximately 420
square feet of space for this branch facility, which was opened in March 1981.

     Bancshares and its subsidiaries believe that its facilities are adequate to
serve its present needs.


ITEM 3.  LEGAL PROCEEDINGS

     Bancshares, the Decatur Bank, FirsTech and the Shelby Bank are from time to
time a party to legal  proceedings  in the ordinary  course of business that are
incident  to  the  business  of  banking.  Neither  Bancshares  nor  any  of its
Subsidiaries  is engaged in any legal  proceedings  of a material  nature at the
present time.

                                      (13)
<PAGE>


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

         None


PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS

     Shares of  Bancshares  Common  Stock  are not  traded  on any  national  or
regional securities exchange;  however, Bancshares Common Stock is listed in the
"pink sheets"  maintained  by the National  Quotation  Bureau.  Trades have been
small and infrequent through this listing. Other than trades in which Bancshares
was involved,  management of Bancshares  has no knowledge of the sales prices of
trades in Bancshares  Common Stock.  Based on  transactions  Bancshares has been
involved in, the price for  Bancshares  Common Stock has been between $21.00 and
$22.00 per share for the last two years.  The source of this information is from
privately negotiated  transactions (not involving any broker or dealer) of which
Bancshares has been a party.  However,  as part of the annual  evaluation of the
Employee Stock Option Plan, the market price of the Bancshares  Common Stock was
determined to be $28.00 per share as of December 31, 1998.

     Following is a listing of sales of  unregistered  securities for the last 3
years:
<TABLE>
<CAPTION>

          Date               Amount       # of Shares    Share Price      Purchaser                     Relationship
        --------           ---------      ------------   -------------------------------              ----------------------------
<S>     <C>                <C>            <C>            <C>         <C>                              <C>
        3/15/96              114,744         5,464            21.00  First Decatur & Co.              ESOP Purchase
        4/30/96               10,500           500            21.00  Shirley Hamilton                 None
        4/30/96               10,500           500            21.00  Lawrence Hamilton                None
        5/03/96               31,500          1500            21.00  Tom Sloan                        Bancshares Director
        5/03/96               21,000          1000            21.00  Fred L. Kenney                   Bancshares Director
       12/04/96              105,000          5000            21.00  Tom Sloan                        Bancshares Director
        2/20/97                6,300           300            21.00  Patricia Brahier                 Bancshares Director's Wife
        3/10/97              110,607         5,267            21.00  First Decatur & Co.              ESOP Purchase
        3/12/97               21,000         1,000            21.00  Phil Wise                        Executive Officer
        3/13/97               21,000         1,000            21.00  Thomas Cooley                    None
        3/24/97               21,000         1,000            21.00  Christopher Behnke               None
        3/27/97                4,200           200            21.00  James Chiligiris                 None
         4/2/97                4,200           200            21.00  First Decatur & Co.              Trust
         4/3/97               21,000         1,000            21.00  James Gahwiler                   None
        4/14/97               21,000         1,000            21.00  Cynmak                           None
        4/18/97               21,000         1,000            21.00  Ronald Ruecker                   None
        4/24/97               21,000         1,000            21.00  Steve Lewis                      None
         5/6/97               63,000         3,000            21.00  Tom Sloan                        Bancshares Director
         6/5/97                2,100           100            21.00  Patricia Brahier                 Bancshares Director's Wife
        8/25/97               42,000         2,000            21.00  First Trust Bank of Shelbyville  Profit Sharing Plan
         3/6/98              178,640         8,120            22.00  First Decatur & Co.              ESOP Purchase

          Total             $851,291        40,151
                 ==================== =============
</TABLE>

     As of December 31, 1998,  Bancshares had  approximately 380 stockholders of
record.  Bancshares  declared  and paid  quarterly  cash  dividends at an annual
dividend  rate of $0.52  per  share in 1998 and  $0.48  per  share in 1997.  See
"Supervision and Regulation" and Note 16 - "Dividends and Capital  Restrictions"
of the  Notes to the  Consolidated  Financial  Statements  for a  discussion  of
certain dividend constraints.

                                      (14)
<PAGE>


ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

 Year Ended December 31
 (dollars in thousands, except share data)           1998          1997           1996          1995          1994
                                                  ---------------------------------------------------------------------
<S>                                             <C>           <C>           <C>            <C>           <C>          
 Year-End Balance Sheet Data
   Total assets                                 $     441,692 $     392,237 $      394,123 $     382,949 $     376,081
   Earning assets                                     394,897       355,557        346,808       327,929       331,357
   Net loans                                          214,812       196,522        196,514       185,774       191,312
   Deposits                                           355,768       321,128        320,162       322,710       320,561
   Other borrowings                                    10,278        11,599         19,302         9,806        10,636
   FHLB Borrowings                                     17,904         2,954          2,500
   Total stockholders' equity                          53,368        52,299         48,494        45,880        41,369

 Average Balance Sheet Data
   Total assets                                       422,387       384,882        380,844       378,131       368,218
   Earning assets                                     374,246       341,972        336,873       331,148       320,133
   Net loans                                          203,229       204,059        192,783       189,259       190,786
   Deposits                                           333,329       312,699        313,175       319,184       311,852
   Other borrowings                                    15,230        14,336         14,461        10,662        12,735
   FHLB Borrowings                                     14,325         2,962          1,526
   Total stockholders' equity                          54,514        50,277         46,695        43,978        40,285

 Earnings and Dividends
   Net interest income                                 14,707        14,605         13,859        13,328        13,794
   Provision for loan losses                              274           432            310           275           300
   Other income                                         9,619         8,361          9,671        12,496        11,378
   Other expenses                                      16,044        15,123         16,447        19,236        18,312
   Net earnings                                         5,611         5,093          4,520         4,293         4,432
   Cash dividends declared and paid                     1,500         1,385          1,277         1,157         1,114

 Per Share Data
   Basic earnings                                        1.95          1.77           1.56          1.48          1.53
   Cash dividends declared and paid                       .52           .48            .44           .40           .38
   Book value (at year-end)                             19.27         18.17          16.80         15.82         14.26
   Weighted average number of shares outstanding    2,882,370     2,885,090      2,900,533     2,901,477     2,904,495
   Number of shares outstanding at year-end         2,768,942     2,878,487      2,887,036     2,900,577     2,900,958

 Key Financial Ratios
   Return on average total assets                       1.33%         1.32%          1.19%         1.14%         1.20%
   Return on average total stockholders' equity        10.29%        10.13%          9.68%         9.76%        11.00%
   Net interest yield on average earning assets (1)     4.09%         4.40%          4.23%         4.14%         4.44%
   Average equity to average assets                    12.91%        13.06%         12.26%        11.63%        10.94%
   Dividend payout ratio                               26.67%        27.12%         28.21%        27.03%        24.84%
</TABLE>
         (1) On a fully taxable equivalent basis

                                      (15)
<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

     The  following  discussion  and  analysis  is  intended to provide a better
understanding of the consolidated  financial condition and results of operations
of Bancshares and its subsidiaries as of December 31, 1998 and 1997 and for each
of the years in the three year period ended December 31, 1998.  This  discussion
and  analysis  should be read in  conjunction  with the  consolidated  financial
statements,  related notes and selected  financial data  appearing  elsewhere in
this report.

     On April 1, 1996,  Bancshares completed the acquisition of First Shelby and
the Shelby  Bank.  As a result of the merger,  First  Shelby and the Shelby Bank
became wholly owned  subsidiaries  of Bancshares.  The acquisition was accounted
for as a pooling of interests  and,  accordingly,  the  financial  condition and
results of operations  of  Bancshares  and First Shelby have been combined as if
the combination had been in effect for each of the periods presented.

RESULTS OF OPERATIONS

     Bancshares recorded net income of $5,611,000 for 1998, an increase of 10.2%
over 1997.  On a per share  basis,  net income was $1.95 in 1998,  up 10.2% from
$1.77 in 1997. The banking subsidiaries recorded net income of $5,241,000 during
1998, an increase of $583,000 or 12.51%  compared 1997.  This increase is mainly
attributed  to an increase in net interest  income,  fiduciary  activities,  and
gains on loan sales.  FirsTech  recorded  net income of $367,000  during 1998, a
decrease  of $42,000 or 10.22%  compared  to 1997.  FirsTech  revenue  increased
$984,000  (20.62%)  during 1998.  This increase is attributed to the addition of
new clients during the year as well as increased  activity on existing  clients.
However,  expenses increased  $1,115,000  (26.53%).  The increase in expenses is
primarily  salaries and employee benefits and correspondent  bank charges as the
result of increased activity.

     From 1996 to 1997  Bancshares'  net  income  increased  573,000 or 12.7% to
$5,093,000  and net  income  per share  increased  $0.21 or 13.5% to $1.77.  The
banking subsidiaries  recorded net income of $4,659,000 during 1997, an increase
of  $445,000 or 10.57%  compared to 1996.  This  increase  is  attributed  to an
increase in net interest income, fiduciary activities,  and gains on loan sales.
FirsTech  recorded  net  income of  $409,000,  a  decrease  of $65,000 or 13.64%
compared to 1996.  This decrease is mainly  attributed to the  expiration of the
Ameritech,  Inc.  contracts.   FirsTech's  contracts  to  process  payments  for
Ameritech,  Inc.  expired in 1996 and were not renewed.  FirsTech  provided both
remittance  processing and remittance  collection  services for Ameritech,  Inc.
During  1996,  these  services  represented  26% of  FirsTech's  total  revenue.
However,  during 1997,  Ameritech,  Inc. represented only 1% of FirsTech's total
revenue.

     See further  discussion in "--Net Interest Income",  "--Other Income",  and
"--Other Expenses" below.

Net Interest Income

     The largest  source of  operating  revenue for  Bancshares  is net interest
income from the banks.  Net interest  income  represents the difference  between
total interest  income earned on earning assets and total interest  expense paid
on interest-bearing liabilities. The amount of interest income is dependent upon
many factors  including the volume and mix of earning assets,  the general level
of interest  rates and the  dynamics of changes in interest  rates.  The cost of
funds necessary to support

                                      (16)
<PAGE>

earning  assets varies with the volume and mix of interest  bearing  liabilities
and the rates paid to attract and retain such funds.

     For  purposes of this  discussion  and  analysis,  the  interest  earned on
tax-exempt  assets is adjusted to an amount  comparable  to interest  subject to
normal income taxes. The adjustment is referred to as the tax equivalent  ("TE")
adjustment.

     Bancshares  average balances,  interest income and expense and rates earned
or paid for major balances are set forth in the following table (in thousands):

TABLE 1    Distribution of Assets, Liabilities and Stockholders' Equity;  
           Interest Rates and Net Yields
<TABLE>
<CAPTION>
                                                  1998                          1997                          1996
                                      ------------------------------------------------------------------------------------------
                                       Avg Bal      Int      Rate    Avg Bal      Int      Rate     Avg Bal     Int      Rate
                                      ------------------------------------------------------------------------------------------
<S>                                    <C>        <C>        <C>     <C>        <C>        <C>     <C>        <C>      <C>
Assets
  Loans  (1) (2) (3)                   $ 203,229  $ 17,625    8.67%  $ 204,058  $ 17,925    8.78%  $ 192,783  $ 16,833    8.73%
  Taxable securities                     129,551     7,917    6.11%    110,400     7,018    6.36%    121,997     7,609    6.24%
  Tax exempt securities (3)               22,127     1,603    7.24%     15,589     1,186    7.61%     12,753       977    7.66%
  Federal funds sold                      17,901       955    5.33%     10,681       588    5.51%      8,032       421    5.24%
  Other invested funds                     1,438       108    7.51%      1,244        62    4.98%      1,308        29    2.22%
                                      ------------------------------------------------------------------------------------------
    Total earning assets and                                  
     interest income                     374,246    28,208    7.54%    341,972    26,779    7.83%    336,873    25,869    7.68%
                                      ------------------------------------------------------------------------------------------
  Cash and due from banks                 31,344                        25,993                        25,460
  Premises and equipment                   8,874                         9,603                        11,633
  Other assets                             7,923                         7,314                         6,878
                                      ------------------------------------------------------------------------------------------
     Total noninterest earning assets     48,141                        42,910                        43,971
                                      ==========================================================================================
       Total assets                    $ 422,387                     $ 384,882                     $ 380,844
                                      ==========================================================================================
Liabilities and Stockholders' Equity
  Interest bearing demand deposits      $ 76,919   $ 2,147    2.79%    $66,757   $ 1,680    2.52%   $ 63,404   $ 1,509    2.38%
  Savings                                 53,335     1,631    3.06%     45,436     1,337    2.94%     46,181     1,357    2.94%
  Time deposits                          145,020     7,895    5.44%    151,064     8,100    5.36%    155,085     8,299    5.35%
  Federal funds purchased and 
   securities sold under repurchase                                                   
   agreements                             13,439       326    2.43%     12,543       304    2.42%     12,755       293    2.30%
  U.S. Treasury demand notes               1,791        95    5.30%      1,793        94    5.24%      1,706        84    4.92%
  FHLB borrowings                         14,325       806    5.63%      2,962       201    6.79%      1,526        77    5.05%
                                      ------------------------------------------------------------------------------------------
    Total interest-bearing liabilities
     and interest expense                304,829    12,900    4.23%    280,555    11,716    4.18%    280,657    11,619    4.14%
                                      ------------------------------------------------------------------------------------------
  Noninterest bearing deposits            58,055                        49,442                        48,505
  Other liabilities                        4,989                         4,608                         4,987
                                      ------------------------------------------------------------           -------------------
                                                                                                  -----------
      Total liabilities                  367,873                       334,605                       334,149
  Stockholders' equity                    54,514                        50,277                        46,695
                                      ==========================================================================================
     Total liabilities and             
      stockholders'equity              $ 422,387                     $ 384,882                     $ 380,844
                                      ==========================================================================================
Interest spread (average rate                                 
 earned minus average rate paid)                              3.31%                         3.65%                         3.54%
Net interest income (TE)                          $ 15,308                      $ 15,063                      $ 14,250
Net yield on interest earning assets (TE)                     4.09%                         4.40%                         4.23%
</TABLE>

(1) Loans  are net of the  allowance  for loan  losses.  Nonaccrual  loans  are
    included in totals.
(2) Loan fees of approximately  $199,000,  $285,000,  and $283,000 in 1998, 1997
    and 1996,  respectively,  included  in loan  interest.  
(3) Full tax equivalent yields on tax-exempt loans and securities have been 
    calculated  using a 34% tax rate.

     Changes in net  interest  income may also be  analyzed by  segregating  the
volume  and rate  components  of  interest  income  and  interest  expense.  The
following table summarizes the approximate  relative  contribution of changes in
average volume and interest rates to changes in net interest income (TE) for the
past two years (in thousands).  The  rate/volume  variance has been allocated in
the  table  to 

                                      (17)
<PAGE>

the volume and rate  variances  according to the ratio of the absolute  value of
each of the totals.  There are no out-of-period items or adjustments that should
have been excluded.

TABLE 2  Analysis of Changes in Interest Income and Interest Expense
<TABLE>
<CAPTION>
                                                      1998 Compared to 1997                    1997 Compared to 1996
                                                 Total        Due to        Due to         Total        Due to       Due to
                                                Change        Volume         Rate         Change        Volume        Rate
                                            -----------------------------------------------------------------------------------
<S>                                             <C>           <C>           <C>           <C>           <C>          <C> 
Interest Income
   Loans (1)                                    $   (300)     $    (73)     $   (227)     $   1,092     $    990      $    102
   Taxable securities                                 899         1,179         (280)         (591)        (735)           144
   Tax exempt securities (1)                          417           476          (59)           209          216           (7)
   Federal funds sold                                 367           386          (19)           167          145            22
   Other interest income                               46            11            35            33          (1)            34
                                            -----------------------------------------------------------------------------------
     Total interest income                      $   1,429     $   2,460    $  (1,031)      $    910     $    395      $    515
                                            -----------------------------------------------------------------------------------

 Interest Expense
   Interest bearing demand deposits              $    467      $    272      $    195      $    171     $     82      $     89
   Savings                                            294           240            54          (20)         (22)             2
   Time deposits                                    (205)         (328)           123         (199)        (216)            17
   Federal funds purchased and securities                                           0
     sold under repurchase agreements                  22            22                          11          (5)            16
   U.S. Treasury demand notes                           1             0             1            10            4             6
   FHLB borrowings                                    605           507            98           124           38            86
                                            -----------------------------------------------------------------------------------
     Total interest expense                     $   1,184     $   1,025      $    159      $     97    $     (4)      $    101
                                            ===================================================================================
 Net interest income (TE)                        $    245     $   1,434    $  (1,189)      $    813     $    399      $    414
                                            ===================================================================================
</TABLE>

(1) Full tax  equivalent  yields on tax exempt  loans and  securities  have been
    calculated using a 34% tax rate.

     On a tax equivalent basis, net interest income increased  $245,000 or 2% in
1998,  compared to an increase of $813,000 or 6% in 1997.  As set forth in Table
2, the increase in net interest  income in 1998 was mainly due to an increase in
volumes on  securities,  Federal  Funds sold and a reduction  in volumes on time
deposits  offset by a reduction in rates on loans and  securities  as well as an
increase in volumes on interest  bearing  deposits,  savings  deposits  and FHLB
borrowings.  The  improvement  in net interest  income in 1997 was mainly due to
increases in the volume of loans, tax exempt  securities and Federal funds sold,
an increase in interest rates associated with taxable  securities and a decrease
in the volume of time deposits, offset by an increase in the volume and rates of
interest bearing deposits and FHLB borrowings.

     Interest income on loans decreased $300,000 from 1997 to 1998 primarily due
to a decrease in rates of  $227,000.  The average  rate paid on loans  decreased
from 8.78% in 1997 to 8.67% in 1998.  The  reduction in rates is  primarily  the
result of the Federal  Reserve Bank's  decision to lower rates during the second
half of 1998. Loan interest income increased $1,092,000 from 1996 to 1997 due to
an  increase in volume.  The  increase in volume is the result of an increase in
total  average  loans of  $11,275,000  from 1996 to 1997.  The  majority of this
increase is attributed to an increase in commercial and real estate loans offset
by a decrease in loans to individuals.

     Interest income on securities increased $1,316,000 from 1997 to 1998 due to
an increase in the volume of both taxable and tax exempt  securities offset by a
reduction in the rate of taxable securities.  The average balance on taxable and
tax exempt securities increased $19,151,000 and $6,538,000, respectively, during
1998.  This  increase in average  balances  was offset by reduction in the rates
paid on new purchases.  Lower rates were obtained during the second half of 1998
as the result of the Federal  Reserve Bank's  decision to lower rates.  Interest
income on securities  decreased  $382,000 from 1996 to 1997 due to a decrease in
taxable  security  volume  offset by an increase in taxable  

                                      (18)
<PAGE>

security rates and tax-exempt  security volume.  The average balance for taxable
securities  declined  $11,597,000  during  1997  and  the  average  balance  for
tax-exempt  securities increased  $2,836,000.  For both years, there was a shift
from  U.S.  Treasury  securities  to  federal  agency  securities  and state and
municipal securities.  This change primarily occurred because federal agency and
state  and  municipal  securities  were  offered  at higher  interest  rates and
provided better tax-effected yields.

     Interest income on Federal funds sold increased  $367,000 from 1997 to 1998
due  to an  increase  in  volume.  The  average  Federal  funds  sold  increased
$7,220,000  during  1998 as a  result  of the  increase  in  deposits  and  FHLB
borrowings.  Interest income on Federal funds sold increased  $167,000 from 1996
to 1997 due to an increase in volume.  The average  Federal funds sold increased
$2,649,000  during  1997 as a result of the  decline in the  average  balance of
securities offset by an increase in the average balance of loans.

     Interest expense on  interest-bearing  demand deposits increased  $467,000,
interest expense on savings deposits  increased $294,000 and interest expense on
time  deposits   decreased   $205,000  from  1997  to  1998.   The  increase  in
interest-bearing  demand and savings  deposits is primarily  due to increases in
volumes.  Interest-bearing  demand  deposits  showed  increased  volumes  in two
products  added by the  Decatur  Bank in 1997 and  savings  deposits  showed  an
increase  in the usage of  business  sweep  accounts.  The  average  balances of
interest-bearing   demand  and  savings  deposits   increased   $10,162,000  and
$7,899,000,  respectively,  in 1998.  The decrease in time deposits is primarily
the  result  of not  maintaining  certificates  of  deposit  with  the  State of
Illinois.   Interest  expense  on  interest-bearing  demand  deposits  increased
$171,000 and interest expense on time deposits  decreased  $199,000 from 1996 to
1997. Both the increase in expense for interest-bearing  demand deposits and the
decrease in expense for time  deposits  can be  attributed  to the Decatur  Bank
adding two new  interest-bearing  products in 1997. These new accounts  provided
increased interest rates for larger balances.  As a result,  balances were moved
from time deposit accounts to interest bearing demand deposit accounts.

     Interest expense on FHLB advances  increased  $605,000 from 1997 to 1998 as
the result of volumes.  Bancshares  obtained two $5,000,000  long-term  advances
during the first quarter of 1998 and one  $5,000,000  advance  during the second
quarter of 1998.  Two of these  advances were used to purchase  higher  yielding
securities with the same maturities as the advances.  The other advance is being
used to fund loan growth with  matching  maturities.  These  advances have rates
ranging from 5.05% to 5.34% and are due at various  dates  through  June,  2008.
Interest  expense on FHLB advances  increased  $124,000 from 1996 to 1997 as the
result of both  volume and  rates.  During  January  1997,  Bancshares  borrowed
$3,000,000  at 6.84% for 10 years.  This loan was matched  against a  commercial
loan with the same maturity.

Provision for Loan Losses

     Asset quality,  particularly in the loan area, continues to be an important
concern of  Bancshares'  management.  Both the Decatur  Bank and the Shelby Bank
maintain a separate loan review department that continuously reviews problem and
significant  loans and the adequacy of the allowance  for loan losses.  Separate
loan  committees  of the board of  directors at the Decatur Bank and Shelby Bank
meet at least  quarterly to review past due loans and problem  credits,  lending
policies and practices and results of the loan review department's analyses.

     The provision for loan losses in 1998 was $274,000  compared to $432,000 in
1997 and $310,000 in 1996. The provision for loan losses has remained relatively
constant, as net charge-offs

                                      (19)
<PAGE>

and  nonperforming  loans have also remained  constant.  For information on loss
experience and nonperforming loans see the "Nonperforming Assets" and "Allowance
for Loan Losses and Impaired Loans" sections below.

Other Income

     An important  source of Bancshares's  revenue is derived from other income.
The following table sets forth the major components of other income for the last
three years (in thousands):

TABLE 3  Other Income
<TABLE>
<CAPTION>

                                                                                            Change from prior year
                                                                                -----------------------------------------------
                                                                                         1998                    1997
                                                                                ----------------------- -----------------------
                                              1998        1997        1996         Amount       %age       Amount       %age
                                           ----------- ----------- ------------ ------------- --------- ------------- ---------
<S>                                          <C>         <C>          <C>           <C>         <C>       <C>           <C>
Remittance processing income                 $  5,165    $  4,241     $  5,748      $    924       22%    $  (1,507)     (26%)
Fiduciary activities                            1,724       1,623        1,535           101        6%            88        6%
Service charges on deposit accounts             1,002       1,064        1,128          (62)      (6%)          (64)      (6%)
Loan service fees                                  68         154          171          (86)     (56%)          (17)     (10%)
Net gains on loan sales                           507         283          224           224       79%            59       26%
Other income                                    1,087         985          873           102       10%           112       13%
Securities gains (losses)                          66          11          (8)            55      500%            19      238%
                                           ----------- ----------- ------------ ------------- --------- ------------- ---------
    Total other income                       $  9,619    $  8,361     $  9,671     $   1,258       15%    $  (1,310)     (14%)
                                           =========== =========== ============ ============= ========= ============= =========
</TABLE>

     Remittance processing and collecting income generated by FirsTech increased
by $924,000 or 22% during  1998 as compared to a decrease of  $1,507,000  or 26%
during  1997.  The  increase  in 1998 is due to an  increase  in retail  lockbox
customers and an increase in volumes of existing customers. The decrease in 1997
is  primarily  the  result of the loss of the  Ameritech  contracts.  FirsTech's
contracts  to  process  payments  for  Ameritech  expired  in 1996  and were not
renewed.

     Loan service fees generated by the banks  decreased  $86,000 (56%) in 1998.
This decrease is mainly  attributed to a reduction in interest rates bringing on
an increase in the number of refinancings. As a result, fees were taken into net
gains on loan sales.

     Net gains on loan sales increased  $224,000 or 79% in 1998,  compared to an
increase of $59,000 or 26% in 1997. The Decatur Bank sells residential  mortgage
loans in the secondary  market to FNMA. All loans are sold without  recourse and
with normal servicing fees being retained. The fluctuation in income is based on
the  fluctuation  in the  volume  of  loans  sold to  FNMA.  Loans  sold to FNMA
represented $25,374,000,  $13,066,000,  and $10,357,000 in 1998, 1997, and 1996,
respectively.  Refer to the  "Financial  Condition -- Loans"  section  below for
further  explanation.  Net gains on loan  sales  also  increased  because of the
adoption of  Statement  of  Financial  Accounting  Standards  ("SFAS")  No. 122,
Accounting  for  Mortgage  Servicing  Rights.  Income  increased  due to the net
capitalization  of mortgage  servicing  rights of $148,000 and $109,000 for 1998
and 1997, respectively. For a complete explanation of SFAS No. 122 refer to Note
7 - "Loan Servicing" of the Notes to Consolidated Financial Statements.

     Other income  increased  $102,000 or 10% in 1998 as compared to an increase
of $112,000 or 13% in 1997.  The increase in both years is mainly  attributed to
an  increase in  brokerage  commissions  within the  investment  departments  of
Decatur Bank and Shelby Bank and an increase in Automated Teller Machine ("ATM")
fees  generated by the banks.  ATM fee increases  were  attributed to additional
usage and higher fees.

                                      (20)
<PAGE>

Other Expense

     The  major  categories  of other  expense  include  salaries  and  employee
benefits,   occupancy  and  equipment  expenses  and  other  operating  expenses
associated  with the day-to-day  operations of Bancshares.  The following  table
sets forth the major  components  of other  expense for the last three years (in
thousands):

TABLE 4  Other Expenses
<TABLE>
<CAPTION>
                                                                                          Change from prior year
                                                                                --------------------------------------------
                                                                                        1998                   1997
                                                                                ---------------------- ---------------------
                                              1998        1997        1996           Amount      %age       Amount     %age
                                           ----------- ----------- ------------ ------------- -------- ------------- -------
<S>                                           <C>         <C>          <C>           <C>        <C>         <C>       <C> 
Salaries and employee benefits                $ 8,466     $ 7,864      $ 8,164       $   602       8%       $ (300)    (4%)
Net occupancy expenses                          1,118       1,137        1,142          (18)     (2%)           (6)    (1%)
Equipment expenses                              2,050       2,179        2,483         (129)     (6%)         (304)   (12%)
Data processing fees                              241         326          370          (85)    (26%)          (44)   (12%)
Service charges from corresponding banks          755         498          756           257      52%         (258)   (34%)
Deposit and other insurance expense               221         247          223          (26)    (11%)            24     11%
Supplies                                          478         409          467            69      17%          (58)   (12%)
Professional fees                                 410         366          709            44      12%         (343)   (48%)
Postage                                           362         372          362          (10)     (3%)            10      3%
Other expenses                                  1,943       1,725        1,771           218      13%          (46)    (3%)
                                           ----------- ----------- ------------ ------------- -------- ------------- -------
    Total other expenses                      $16,044     $15,123      $16,447       $   922     (6%)     $ (1,324)    (8%)
                                           =========== =========== ============ ============= ======== ============= =======
</TABLE>

     Salaries  and  employee  benefits  increased  $602,000  (8%)  in  1998  and
decreased  $300,000  (4%) in 1997.  The increase in 1998 is primarily due to the
addition of new  FirsTech  clients as well as  increased  volumes  with  current
clients.  The  decrease  in  1997 is the  result  of the  loss of the  Ameritech
contracts.  FirsTech's  contracts to process  payments for Ameritech  expired in
1996 and were not renewed.

     Equipment  expenses decreased $129,000 or 6% in 1998 and $304,000 or 12% in
1997. The decrease in 1998 is due to a reduction in the depreciation  expense of
equipment of $108,000 by the banking subsidiaries and $52,000 by FirsTech offset
by an increase of $40,000 in computer  maintenance by FirsTech.  The decrease in
1997 is due to a reduction in the depreciation  expense of equipment of $320,000
by FirsTech  offset by an increase in the  depreciation  expense of equipment of
$61,000 by the banking subsidiaries.

     Service charges increased $257,000 or 52% in 1998 compared to a decrease of
$258,000  or 34% in 1997.  The  increase  in 1998 is due to the  addition of new
FirsTech clients as well as increased volumes with current clients. The decrease
in 1997 is  attributed  to a  reduction  in the  number  of items  processed  by
FirsTech as the result of the loss of the Ameritech contracts.

     Supplies  increased  $69,000 (17%) in 1998 and  decreased  $58,000 (12%) in
1997. The increase in 1998 is for stationary and personal  computer supplies due
to the addition of new FirsTech  clients.  The decrease in 1997 is attributed to
the  acquisition of a new in-house  computer system for the Decatur Bank and new
image  equipment  and  software  to  FirsTech  and  increased   efficiencies  in
technology.

                                      (21)
<PAGE>

     Professional  fees decreased  $343,000 or 48% in 1997. The decrease in 1997
is mainly  attributed to the  acquisition of First Shelby during 1996. The costs
of the acquisition were recorded at the Holding Company level.

     Other  expenses  increased  $218,000  or  13% in  1998.  This  increase  is
primarily  due to  increases  in  telephone  expenses  of $13,000 by the banking
subsidiaries  and  $60,000  by  FirsTech,  advertising  expenses  of  $64,000 by
FirsTech, and increases in contributions of $42,000 by the banking subsidiaries.

Income Taxes

     Income tax expense increased $78,000 in 1998 and increased $64,000 in 1997.
Bancshares'  effective  tax rate  (income tax expense  divided by income  before
taxes)  was 29.9% in 1998,  31.3% in 1997 and 33.3% in 1996.  Higher  income tax
expense  in 1998  and  1997  was  principally  due to the  increase  in  pre-tax
earnings.


FINANCIAL CONDITION

     Bancshares assets increased  $49,455,000 from December 31, 1997 to December
31,  1998.  Growth  occurred  primarily  at the bank  level  with  increases  in
investment  securities  ($24,897,000),   loans  ($18,290,000),   cash  and  cash
equivalents ($3,344,000),  and other assets ($3,113,000).  The increase in total
assets was offset by an increase in deposits  ($34,640,000)  and FHLB borrowings
($14,950,000) offset by a reduction in other short-term borrowings ($1,321,000).
FirsTech  assets  remained  constant  with  an  increase  of  only  $107,000  to
$5,332,000.

Cash and Cash Equivalents

     Cash and cash  equivalents  increased  $3,344,000 from December 31, 1997 to
December 31, 1998.  This change occurred due to an increase in cash and due from
banks  offset by a  reduction  in federal  funds  sold.  Cash and due from banks
increased $7,234,000, while federal funds sold decreased $3,890,000 during 1998.
Refer  to the  "Consolidated  Statement  of  Cash  Flows"  in  the  Consolidated
Financial Statements for details representing this increase.  Federal funds sold
are of a short-term  nature and provide the needed liquidity to fund loan growth
and security acquisitions.

Securities

     Bancshares'   overall   investment  goal  is  to  maximize  earnings  while
maintaining  liquidity in securities  having  minimal credit risk. The types and
maturities  of  securities  purchased  are  primarily  based on the  Bancshares'
current and projected  liquidity and interest rate  sensitivity  positions.  The
following  table sets forth the year-end book values of securities  for the last
three years (in thousands):

                                      (22)
<PAGE>

TABLE 5  COMPOSITION OF SECURITIES
<TABLE>
<CAPTION>

                                                                            December 31
                                        ------------------------------------------------------------------------------------
                                                   1998                        1997                        1996
                                        ------------------------------------------------------------------------------------
                                                                 % of                        % of                        % of
                                                  Amount         Total        Amount         Total        Amount         Total
                                        ------------------------------------------------------------------------------------
<S>                                            <C>             <C>          <C>            <C>         <C>            <C>
Available for sale
   U.S. Treasury                               $   27,569       17%         $  28,790       21%        $   32,579       25%
   Federal agencies                                91,900       56%            61,598       45%            54,779       42%
   State and municipal                              6,419        4%             3,137        2%                 0        0%
   Mortgage-backed securities                      11,801        7%            13,075        9%             6,994        5%
                                        ------------------------------------------------------------------------------------
         Total available for sale                 137,689       84%           106,600       77%            94,352       72%
                                        ------------------------------------------------------------------------------------
Held to maturity
   U.S. Treasury                                      749        0%             2,449        2%             5,204        4%
   Federal agencies                                   500        0%             2,452        2%             2,757        2%
   State and municipal                             17,521       11%            17,642       13%            14,004       11%
   Mortgage-backed securities                       6,797        5%             9,216        6%            14,825       11%
                                        ------------------------------------------------------------------------------------
         Total held to maturity                    25,567       16%            31,759       23%            36,790       28%
                                        ====================================================================================
         Total investment securities           $  163,256      100%        $  138,359      100%        $  131,142      100%
                                        ====================================================================================
</TABLE>

     SFAS No.  115  "Accounting  for  Certain  Investments  in Debt  and  Equity
Securities"  requires  that all debt and  equity  securities  be  classified  as
held-to-maturity,  available-for-sale or trading. Securities that Bancshares has
the ability and intent to hold to maturity are  classified  as  held-to-maturity
and are  carried  at  amortized  cost.  Securities  that  may be sold as part of
liquidity  management,  interest  rate risk  strategies  or in response to or in
anticipation  of changes in interest  rates and  prepayment  risk,  or for other
similar factors, are classified as available-for-sale  and are carried at market
value with  unrealized  gains and losses  reported  as a separate  component  of
stockholders' equity.

     SFAS No. 115  essentially  eliminates  the ability to  transfer  investment
securities from held-to-maturity to available-for-sale.  Also, SFAS No. 115 only
allows for the sale of  securities in the  held-to-maturity  category in extreme
circumstances,    such   as   significant    deterioration   in   the   issuer's
creditworthiness.  Therefore,  prudent  management of the  investment  portfolio
according to SFAS No. 115 should  provide for a greater than  adequate  level of
investment  securities  to be  available  for sale in the  event  of  unforeseen
occurrences  such as a significant  swing in interest rates or a sudden increase
in loan demand or deposit withdrawals.

     The book value of  investment  securities  increased  by  $24,897,000  from
December  31, 1997 to December  31,  1998.  During  1998,  Bancshares  purchased
$94,206,000  ($92,658,000 classified as available-for-sale),  sold $7,570,000 of
securities classified as  available-for-sale,  and had $62,154,000  ($54,480,000
classified  as  available-for-sale)  mature.  In  addition  to the  increase  in
securities of $24,897,000, the average balance of securities was up $25,689,000.
Bancshares' management also changed the mix of the securities during 1998. U. S.
Treasury securities decreased $2,921,000 while

                                      (23)
<PAGE>

federal  agency  securities  increased   $28,350,000  and  state  and  municipal
securities increased $3,161,000.  This change primarily occurred because federal
agency and state and municipal  securities were offered at higher interest rates
and provided better tax-effected yields.

     The book  value of  investment  securities  increased  by  $7,217,000  from
December  31,  1996 to  December  31,  1997.  However,  the  average  balance of
securities  decreased  $8,761,000 during the same time period. The book value of
investments  increasing  and average  balances  decreasing  is the result of net
purchases  of  $14,505,000  during  the  fourth  quarter  while  there  was  net
sale/maturities  of $7,448.000  during the first  three-quarters of 1997. During
1997,    Bancshares   purchased   $52,805,000    ($47,998,000    classified   as
available-for-sale),    sold    $5,994,000   of    securities    classified   as
available-for-sale,    and   had   $39,794,000    ($29,987,000   classified   as
available-for-sale)  mature.  In  addition  to the  increase  in  securities  of
$7,217,000, Bancshares' management also changed the mix of the securities. U. S.
Treasury  securities  decreased  $6,544,000  during 1997,  while federal  agency
securities  increased  $6,514,000 and state and municipal  securities  increased
$6,775,000.  This change primarily occurred because federal agency and state and
municipal  securities  were offered at higher interest rates and provided better
tax-effected yields.

     As  of  December  31,  1998,   Bancshares  held  $18,598,000   ($11,801,000
classified  as   available-for-sale)   of  mortgage-backed   securities.   These
securities  are  issued  by U.S.  Government  agencies  or one of its  sponsored
enterprises  and are guaranteed or insured by the issuing  agency.  Of the total
mortgage-backed  securities,  $8,051,000 was invested in CMO PAC's, of which all
had  ratings  of AAA  by one or  more  of  the  rating  agencies.  Additionally,
Bancshares investments in CMO PAC's are agency-backed.

     Mortgage-backed  securities are subject to prepayments and changing yields.
These prepayments,  which have increased in recent years as underlying mortgages
have been refinanced at lower interest rates as well as interest rate changes on
adjustable rate mortgage-backed securities,  could have an effect on Bancshares'
asset/liability management strategy.

     With the  exception  of  securities  of the U.S.  Treasury  and other  U.S.
Government agencies and corporations, Bancshares did no hold any securities of a
single issuer,  payable from and secured by the same source of revenue or taxing
authority,  the book value of which exceeded 10 percent of stockholders'  equity
at December 31, 1998 or 1997.

     The contractual maturity of Bancshares' securities as of December 31, 1998,
are presented in the following table along with the weighted average yields (TE)
(dollars  in  thousands).  Expected  maturities  will  differ  from  contractual
maturities because issuers may have the right to call or prepay obligations with
or without call or prepayment penalties.

                                      (24)
<PAGE>

TABLE 6  Security Maturities
<TABLE>
<CAPTION>

                                   Within 1 Year        1 - 5 Years        5 - 10 Years      After 10 Years          Total
                                 -------------------------------------------------------------------------------------------------
                                    Amount    Yield    Amount    Yield    Amount    Yield     Amount    Yield    Amount    Yield
                                 -------------------------------------------------------------------------------------------------
<S>                                 <C>      <C>       <C>       <C>     <C>        <C>      <C>       <C>      <C>       <C>
Available for sale
   U.S. Treasury                    $ 9,364   6.48%    $18,205    6.09%                                         $ 27,569    6.25%
   Federal agencies                   8,645   6.01%     34,012    5.95%  $ 43,220    6.44%    $ 6,023   6.99%     91,900    6.28%
   State and municipal                                     165    5.48%     1,880    4.26%      4,374   4.96%      6,419    4.79%
   Mortgage-backed securities           684   6.62%      6,440    6.00%       504    6.20%      4,173   9.11%     11,801    7.72%
                                 -------------------------------------------------------------------------------------------------
      Total available for sale       18,693   6.27%     58,822    6.00%    45,604    6.35%     14,570   6.99%    137,689    6.26%
                                 -------------------------------------------------------------------------------------------------

Held to maturity
   U.S. Treasury                        749   6.94%                                                                  749    6.94%
   Federal agencies                     500   6.98%                                                                  500    6.98%
   State and municipal                  990   5.25%      8,190    5.06%     7,004    5.50%      1,337   5.25%     17,521    5.30%
   Mortgage-backed securities                                                 818    6.00%      5,979   6.52%      6,797    6.49%
                                 -------------------------------------------------------------------------------------------------
      Total held to maturity          2,239   6.20%      8,190    5.06%     7,822    5.55%      7,316   6.29%     25,567    5.66%
                                 =================================================================================================
     Total investment securities    $20,932   6.26%   $ 67,012    5.89%  $ 53,426    6.23%   $ 21,886   6.76%  $ 163,256    6.17%
                                 =================================================================================================
</TABLE>

     The net unrealized  gain on securities  available-for-sale  at December 31,
1998, which is recorded as an increase in stockholders' equity, is $622,000, net
of deferred  taxes of  $320,000.  At December  31,  1997,  Bancshares  had a net
unrealized  gain on  securities  available-for-sale  recorded  in  stockholders'
equity of $380,000, net of deferred taxes of $196,000.

Loans

     The loan  portfolio  is the  largest  category of the  Bancshares'  earning
assets.  Bancshares management was not aware of any loan concentration exceeding
10% which is not otherwise disclosed as a category of loans. The following table
summarizes  the  composition  of the loan  portfolio for the last five years (in
thousands):

TABLE 7  Composition of Loans
<TABLE>
<CAPTION>

                                                                            December 31
                                     ------------------------------------------------------------------------------------------
                                           1998              1997              1996              1995              1994
                                     ------------------------------------------------------------------------------------------
                                                  % of              % of              % of              % of              % of
                                        Amount   Total    Amount   Total    Amount   Total    Amount   Total    Amount   Total
                                     ------------------------------------------------------------------------------------------
<S>                                   <C>        <C>     <C>       <C>    <C>        <C>    <C>        <C>    <C>        <C>
Commercial and industrial loans       $ 35,998     16%   $29,695     15%  $ 25,742     13%  $ 21,986     12%  $ 29,406     15%
Real estate loans                      107,610     49%    93,885     47%    84,220     42%    79,296     42%    84,829     44%
Construction loans                       7,588      3%     6,708      3%    11,659      6%    10,215      5%     6,734      3%
Agricultural production financing               
 and other loans to farmers             11,497      5%     7,822      4%     7,837      4%     7,453      4%     5,296      3%
Individuals' loans for household                
  and other personal expenditures
  and other loans                       54,179     26%    60,343     30%    68,404     34%    68,124     36%    66,719     34%
Tax-exempt loans                         1,514      1%     1,600      1%     2,033      1%     2,056      1%     1,703      1%
                                     ==========================================================================================
      Total loans                    $ 218,386    100% $ 200,053    100% $ 199,895    100% $ 189,130    100% $ 194,687    100%
                                     ==========================================================================================
</TABLE>

     Total loans increased by $18,333,000 from December 31, 1997 to December 31,
1998.  The increase was primarily due to increases in commercial  and industrial
loans, real estate loans, and

                                      (25)
<PAGE>

agricultural production financing and other loans to farmers offset by decreases
in loans to individuals for household and other personal  expenditures and other
loans.  Commercial and industrial loans increased by $6,303,000 due to increased
local demand and  increased  participations  with other banks in the area.  Real
estate loans increased by $13,725,000 due primarily to increased activity in the
commercial real estate market. Agricultural production financing and other loans
to farmers  increased  $3,675,000  due to increased  lending on loans secured by
farm   equipment.   Loans  to  individuals  for  household  and  other  personal
expenditures decreased by $6,164,000 due to stronger underwriting guidelines and
increased competition.

     Bancshares  continues to sell  residential  mortgage loans in the secondary
market to FNMA. Since loans are sold to FNMA on the same day as the loan closes,
Bancshares  does not carry any loans  held for sale in the loan  portfolio.  All
loans are sold without  recourse and with normal  servicing fees being retained.
The decision to sell loans to FNMA in the future will depend on the availability
of funds, liquidity needs, and the return available. Bancshares sold $25,374,000
to FNMA in 1998 and $13,066,000 in 1997.

     Total loans  increased by $158,000  from  December 31, 1996 to December 31,
1997,  however,  average loans were $11,275,000 higher in 1997 than in 1996. The
increase was primarily due to increases in commercial and  industrial  loans and
real  estate  loans,  offset by  decreases  in  construction  loans and loans to
individuals  for  household  and other  personal  expenditures  and other loans.
Commercial and industrial  loans  increased by $3,953,000 due to increased local
demand.  Real estate loans increased by $9,665,000 due to competitive rates in a
refinancing   market  and  construction  loans  being  refinanced  as  permanent
mortgages.  Construction  decreased  $4,951,000  as  a  result  of  construction
projects  being  completed  and  refinanced  as  permanent  mortgages.  Loans to
individuals  for  household  and  other  personal   expenditures   decreased  by
$8,061,000 due to stronger  underwriting  guidelines and increased  competition.
The reason for the  difference  between  the slight loan  increase  and the high
average  balance  increase is that a substantial  amount of loans were paid down
during December 1997.

     The  maturity  distribution  and  interest  rate  sensitivity  of  loans at
December 31, 1998 are set forth below (in thousands):

TABLE 8  Loan Maturity Distribution and Interest Rate Sensitivity of Selected 
         Loan Types
<TABLE>
<CAPTION>


                                                          Within 1 Year   1-5 Years   After 5 years     Total
                                                          --------------------------------------------------------
<S>                                                       <C>             <C>         <C>               <C>     
Commercial and industrial loans                                $ 22,432      $ 12,256      $  1,310      $ 35,998
Construction loans                                                6,548           909           131         7,588
Agricultural production financing and other loans                                                    
  to farmers                                                      6,301         4,717           479        11,497
                                                          --------------------------------------------------------
      Total                                                    $ 35,281      $ 17,882      $  1,920      $ 55,083
                                                          ========================================================

Fixed rate loans                                               $  9,242      $ 16,628      $  1,328      $ 27,198
Variable rate loans                                              26,039         1,254           592        27,855
                                                          --------------------------------------------------------
      Total                                                    $ 35,281      $ 17,882      $  1,920      $ 55,083
                                                          ========================================================

</TABLE>

                                      (26)
<PAGE>

Nonperforming Assets

     Nonperforming  assets  include  nonaccrual  loans,  loans  where  scheduled
payments  are 90 days or more past due and other real estate  owned.  Bancshares
places loans on nonaccrual  status when management  believes,  after considering
the  borrowers'  financial  condition and other  relevant  factors,  that future
collection of principal or interest in accordance with contractual  terms may be
doubtful.  Loans 90 days or more past due are  transferred to nonaccrual  status
unless they are well secured and in the process of collection. Other real estate
owned  includes  properties  acquired  through  foreclosure  or  deed in lieu of
foreclosure.  The  properties are recorded at the lower of the book value of the
loan or fair value,  less  estimated  costs to sell.  Other real estate owned at
December 31, 1998 and 1997 was immaterial.

     The  following  table  sets  forth the  aggregate  amount of the  Company's
nonperforming assets for the last five years (in thousands):

TABLE 9  Nonperforming Assets
<TABLE>
<CAPTION>

                                                                                     December 31
                                                          ------------------------------------------------------------------
                                                            1998          1997          1996          1995          1994
                                                          ----------    ----------    ----------    ----------    ----------
<S>                                                         <C>           <C>           <C>           <C>           <C>  
Nonaccrual loans                                              $ 381         $ 322         $ 173         $  69         $  23
                                                          ==========    ==========    ==========    ==========    ==========
Loans past due 90 days or more                                  669           423           650           372           365
                                                          ==========    ==========    ==========    ==========    ==========
Restructured loans                                                0             0             0             0             0
                                                          ==========    ==========    ==========    ==========    ==========
Nonperforming loans to loans                                  0.48%         0.37%         0.41%         0.23%         0.20%
                                                          ==========    ==========    ==========    ==========    ==========
</TABLE>

     Bancshares'  management  believes that  nonperforming and potential problem
loans are appropriately  identified and monitored,  based on extensive  analysis
performed  by  internal  loan  review  personnel,  management  and the  board of
directors.  Historically,  there  has not  been a  significant  amount  of loans
charged off which had not been  previously  identified  as problem or  potential
problem loans.

     There  were no  other  interest  bearing  assets  that are  required  to be
disclosed  as being  nonperforming  if such other  assets were  loans.  Interest
income  that  would have been  recorded  in 1998 if  non-accrual  loans had been
performing  according to original loan terms and interest  income on non-accrual
loans that was included in 1998 interest income were immaterial.

     At December 31, 1998, Bancshares had approximately  $2,851,000 in potential
problem loans.  Potential problem loans are those loans identified by management
that are worthy of special  attention,  and although currently  performing,  may
have some underlying weaknesses.  These included watch list classified loans and
special mention loans. During the last quarter of 1998, a commercial line in the
service  business  totaling  $872,000  which was  substantially  unsecured and a
commercial  line  in  the  manufacturing  technical  service  business  totaling
approximately  $1,200,000,  partially secured by business assets,  were added to
the special  mention  loans  category.  Potential  problem  loans of  $1,588,000
existed at December 31, 1997. Of the  potential  problem  loans  outstanding  at
December 31, 1997, there were no individually  significant  problem loans and no
specific industry concentration.

                                      (27)
<PAGE>

     Bancshares  accounts for impaired loans in accordance with SFAS No. 114 and
No. 118,  "Accounting by Creditors for an Impairment of a Loan" and  "Accounting
by Creditors for  Impairment of a Loan - Income  Recognition  and  Disclosures".
These  Statements  require  that  impaired  loans  within  the  scope  of  these
Statements  be  measured  at the  present  value of  expected  future cash flows
discounted at the loan's effective  interest rate, or as a practical  expedient,
at the loan's  observable  market price or fair value of the collateral,  if the
loan is  collateral  dependent.  A loan  is  impaired  when,  based  on  current
information and events, it is probable that a creditor will be unable to collect
all amounts due, both principal and interest, according to the contractual terms
of the note. The amount of impaired  loans  outstanding at December 31, 1998 and
1997 and during 1998 and 1997 were immaterial.

Allowance for Loan Losses and Impaired Loans

     The allowance for loan losses is maintained at a level management  believes
to be  adequate to provide for known and  potential  risks  inherent in the loan
portfolios.  On a  quarterly  basis,  management  assesses  the  adequacy of the
allowance  for loan  losses.  Management's  evaluation  of the  adequacy  of the
allowance  considers  such factors as prior loss  experience,  loan  delinquency
levels and trends,  loan portfolio  growth and reviews of impaired loans and the
value of  underlying  collateral  securing  these  loans.  The  analysis  of the
commercial and industrial loan portfolio includes  assessments based on historic
loan losses and current quality grades of specific credits,  current  delinquent
and non-performing  loans, current economic conditions,  growth in the portfolio
and  the  results  of  recent  internal  loan  reviews,  audits  and  regulatory
examinations.  For the review of the adequacy of the  allowance  for loan losses
for real estate loans,  assessments are based on current economic conditions and
real estate values,  historic loan losses and current quality grades of specific
credits,  recent growth and current  delinquent and  non-performing  loans.  The
adequacy of the  allowance  for loan losses as it pertains to the consumer  loan
portfolio is based on the assessments of current economic  conditions,  historic
loan losses and the mix of loans,  recent growth and the current  delinquent and
non-performing loans.

     Although the risk of non-payment  for any reason exists with respect to all
loans,  certain other more specific risks are associated with each type of loan.
The primary risks associated with commercial and industrial loans are quality of
the borrower's management and the impact of national and local economic factors.
Currently the business  atmosphere  remains  stable for the local economy in the
Decatur,  Macon County and Shelby County areas,  although there is deterioration
in the  agricultural  industry.  Even though  direct  loans to the  agricultural
related industry are not material,  the entire market area is dependent upon the
general  agricultural  economy.  Risks associated with real estate loans include
concentrations of loans in a loan type, such as residential real estate, decline
in real estate values and a sudden rise in interest rates. Individual loans face
the risk of a  borrower's  unemployment  as a result of  deteriorating  economic
conditions or renewed  contract  differences  between  unions and  management of
several large companies in Bancshares's market area.  Bancshares's strategy with
respect to  addressing  and managing  these types of risks is for  Bancshares to
follow its loan policies and underwriting criteria.

         A  provision  for loan  losses is  charged  to income to  increase  the
allowance to a level  deemed to be adequate  based on  management's  evaluation.
When a loan or a part thereof is considered by management to be uncollectible, a
charge is made against the allowance. Recoveries of previously charged-off loans
are credited back to the allowance.  The following table  summarizes the changes
in the allowance for loan losses for the last five years (in thousands):

                                      (28)
<PAGE>

TABLE 10 Allowance for Loan Losses
<TABLE>
<CAPTION>

                                                          1998          1997          1996          1995          1994
                                                      ----------------------------------------------------------------------
<S>                                                       <C>           <C>           <C>           <C>           <C>     
Allowance - beginning of year                              $  3,531      $  3,382      $  3,356      $  3,375      $  3,259
 Loans charged off:
   Commercial and industrial loans                               66           145                          25
   Real estate loans                                             15            25                          41            14
   Individuals' loans for household and other          
      personal expenditures and other loans                     256           438           463           417           456
                                                      ----------------------------------------------------------------------
       Total charge -offs                                       337           608           463           483           470
                                                      ----------------------------------------------------------------------

Recoveries on loans previously charged-off:
   Commercial and industrial loans                               36            85            14            44            72
   Real estate loans                                              1           131            51             2            64
   Individuals' loans for household and other          
      personal expenditures and other loans                      68           109           114           143           150
                                                      ----------------------------------------------------------------------
       Total recoveries                                         105           325           179           189           286
                                                      ----------------------------------------------------------------------
Net charge-offs                                                 232           283           284           294           184
                                                      ----------------------------------------------------------------------
Provision for loan losses                                       274           432           310           275           300
                                                      ======================================================================
Allowance - end of year                                    $  3,573      $  3,531      $  3,382      $  3,356      $  3,375
                                                      ======================================================================

Net charge-offs to average loans                              0.11%         0.14%         0.15%         0.16%         0.10%
Allowance for loan losses to loans                            1.64%         1.77%         1.72%         1.81%         1.76%
</TABLE>

     For many years,  Bancshares has minimized  credit risk by adhering to sound
underwriting  and credit review  policies.  These policies are reviewed at least
annually and changes  approved by the board of directors.  Senior  management is
actively involved in business development efforts and maintenance and monitoring
of credit underwriting and approval.

     Management  believes  the  allowance  for loan losses is adequate to absorb
probable  loan losses and that the policies and  procedures in place to identify
and monitor loans for potential losses are satisfactory.

     The following table sets forth an allocation of the  Bancshares'  allowance
for loan losses for the last five years (in thousands):

TABLE 11 Allocation of the Allowance for Loan Losses
<TABLE>
<CAPTION>

                                         1998              1997             1996              1995              1994
                                   ----------------------------------------------------------------------------------------
                                            % of             % of              % of             % of              % of
                                    Amount   Total   Amount   Total    Amount   Total   Amount   Total    Amount   Total
                                   ----------------------------------------------------------------------------------------
<S>                                 <C>     <C>      <C>      <C>      <C>     <C>      <C>     <C>       <C>     <C>
Commercial and industrial loans         878     32%    $ 664      25%    $ 575      23%   $ 460      20%    $ 400      17%
Real estate loans                       860     32%    1,022      40%    1,007      41%   1,001      43%    1,019      44%
Construction Loans                        0                0                 0                0                 0
Agricultural production financing
  and other loans to farmers             90      3%       15       1%       18       1%      15       1%       15       1%
Individuals' loans for household             
  and other personal expenditures                    
  and other loans                       880     33%      865      34%      860      35%     855      36%      906      38%
Tax exempt loans                          0                0                 0                0                 0
Unallocated                             865     N/A      965      N/A      922      N/A   1,025      N/A    1,035      N/A
                                   ========================================================================================
     Total                          $ 3,573    100%  $ 3,531     100%  $ 3,382     100% $ 3,356     100%  $ 3,375     100%
                                   ========================================================================================
</TABLE>

                                      (29)
<PAGE>

     The  percentages  of  allocation of the allowance for loan losses among the
various  categories of loans have remained  relatively steady for the years 1994
through 1997 due to the various loan markets remaining stable. The allocation of
the allowance for loan losses to commercial  and industrial  loans  increased in
1998 due to the addition of  approximately  $2,072,000  of  commercial  loans as
potential  problem  loans.  The  unallocated  portion of the  allowance for loan
losses represents the amount that management feels is necessary to cover current
adverse conditions in the loan portfolio including a deteriorating  agricultural
industry and new loan products outside the market area.

Premises and Equipment

     Premises and equipment  decreased  $190,000 or 2% from December 31, 1997 to
December 31, 1998.  This decrease is attributed to  depreciation  of $944,000 by
the banks,  $332,000 by FirsTech,  and $24,000 by the Holding  Company offset by
purchases  of $837,000 by the banks and $274,000 by FirsTech  during  1998.  The
majority  of  purchases  for both the  banks  and  FirsTech  were  comprised  of
non-major items.

     Premises and equipment  decreased  $895,000 or 9% from December 31, 1996 to
December 31, 1997.  This decrease is attributed to depreciation of $1,053,000 by
the banks,  $384,000 by FirsTech,  and $24,000 by the Holding  Company offset by
purchases  of $300,000 by the banks and $267,000 by FirsTech  during  1997.  The
majority  of  purchases  for both the  banks  and  FirsTech  were  comprised  of
non-major items.

Other Assets

     Other assets increased by $3,113,000 from December 31, 1997 to December 31,
1998.  This  increase is mainly  attributed  to an increase in accrued  interest
receivable at the banks due to increased loans and securities at year end.

     Other assets  increased by $348,000  from December 31, 1996 to December 31,
1997.  This increase is mainly  attributed to a two-year  equipment  maintenance
contract  signed by FirsTech.  As a result  FirsTech  was able to  substantially
reduce monthly maintenance costs on equipment.

Deposits

     Bancshares'  earning  assets  are  funded  by a  combination  of  consumer,
commercial  and  public  fund  deposits.  The  following  table  summarizes  the
composition of major deposit categories for the last three years (in thousands):

                                      (30)
<PAGE>

TABLE 12 Average Balance and Weighted Average Rate of Deposits
<TABLE>
<CAPTION>

                                                                         December 31,
                                      -----------------------------------------------------------------------------------
                                                 1998                        1997                        1996
                                      --------------------------- --------------------------- ---------------------------
                                                      Weighted                    Weighted                    Weighted
                                         Average       Average       Average      Average        Average      Average
                                         Balance        Rate         Balance         Rate        Balance         Rate
                                      -------------- ------------ --------------- ----------- --------------- -----------
<S>                                      <C>           <C>           <C>          <C>            <C>          <C>
Demand
   Noninterest bearing                    $  58,055                    $  49,442                   $  48,505
   Interest bearing                          76,919        2.79%          66,757       2.52%          63,404       2.38%
Savings                                      53,335        3.06%          45,436       2.94%          46,181       2.94%
Time
   $100,000 and over                         42,759        5.49%          46,976       5.45%          50,757       5.32%
   Under $100,000                           102,261        5.43%         104,088       5.32%         104,328       5.37%
                                      ==============              ===============             ===============
Total average deposits                   $  333,329                   $  312,699                  $  313,175
                                      ==============              ===============             ===============
</TABLE>

     From 1996 to 1998, total average deposits have increased $20,154,000. There
was a $20,630,000  increase from 1997 to 1998 and a $476,000  decrease from 1996
to 1997.  In  addition,  within  the  specific  deposit  types,  Bancshares  has
experienced  a  decline  in  time  deposits  with  an  offsetting   increase  in
noninterest  bearing,  interest bearing,  and savings.  This change is primarily
attributed to the Decatur Bank adding two new interest  bearing products in 1997
and an  increased  usage  of  business  sweep  accounts.  Refer to  "Results  of
Operations - Net Interest  Income" for an explanation of this change in interest
rates.

     The following  table sets forth the maturity  distribution of time deposits
of $100,000 or more at December 31, 1998 (in thousands):

TABLE 13 Maturity Distribution of Time Deposits > $100,000

3 months or less                                    $13,512
3 to 6 months                                        15,855
6 to 12 months                                       10,374
Over 12 months                                        5,363
                                                   ==========
  Total                                             $45,104
                                                   ==========

Borrowings

     Borrowings  consist of  securities  sold under  agreements  to  repurchase,
federal  funds  purchased,  Federal  Home Loan Bank  ("FHLB")  advances and U.S.
Treasury demand notes.  Borrowings increased  $13,629,000 from 1997 to 1998. The
increase is attributed to an increase in FHLB advances.  The average  balance of
FHLB advances also  increased  $11,363,000.  Bancshares  obtained two $5,000,000
long-term  advances during the first quarter of 1998 and one $5,000,000  advance
during the second  quarter of 1998.  Two of these advances were used to purchase
higher yielding  securities with the same maturities as the advances.  The other
advance is being used to fund loan growth  with  matching  maturities.  Refer to
Note 9 - "Short-Term  Borrowings" and Note 10 - "Federal Home Loan Bank Advances
of the Notes to  Consolidated  Financial  Statements for further  explanation of
short-term borrowings.

                                      (31)
<PAGE>

Other Liabilities

     Other liabilities increased $117,000 from December 31, 1997 to December 31,
1998 and  increased  $593,000 from December 31, 1996 to December 31, 1997 mainly
due to an increase in deferred income taxes $439,000.

Capital

     Total stockholders'  equity rose $1,069,000 or 2% from December 31, 1997 to
December 31, 1998. The increase is mainly attributed to net income of $5,611,000
less cash  dividends of $1,500,000,  net treasury stock  purchases of $3,338,000
and an increase  in the  unrealized  gain on  securities  available  for sale of
$242,000,  net of deferred taxes. During the fourth quarter of 1998,  Bancshares
management  approved a tender offer to repurchase 130,000 shares of common stock
at $30 per share for a total cost of  $3,900,000.  By December  31,  1998,  over
113,000 shares had been repurchased at a cost of $3,400,000.

     Total  stockholders'  equity rose $3,805,000 or 7.8% from December 31, 1996
to  December  31,  1997.  The  increase  is mainly  attributed  to net income of
$5,093,000  less cash dividends of $1,385,000,  net treasury stock  purchases of
$171,000 and an increase in the unrealized gain on securities available for sale
of $247,000, net of deferred taxes.

     Financial  institutions  are  required by  regulatory  agencies to maintain
minimum levels of capital based on asset size. Currently, Bancshares is required
to maintain  adequate  capital based on two  measurements  used by  Bancshares's
primary regulator:  the total assets leverage ratio and the risk-weighted assets
ratio.  Refer to Note 17 -  "Regulatory  Capital"  of the Notes to  Consolidated
Financial Statements for a summary of Bancshares key capital ratios.

Inflation and Changing Prices

     Changes in  interest  rates and  Bancshares's  ability to react to interest
rate  fluctuations  have a much  greater  impact  on its  balance  sheet and net
interest income than inflation.  A review of net interest income,  liquidity and
rate  sensitivity  should assist in the  understanding of how well Bancshares is
positioned to react to changes in interest rates.

Liquidity

     Liquidity  management in banking  involves the ability to generate funds to
support  asset growth and meet cash flow  requirements  of  customers  and other
obligations.  Cash flows fluctuate with changes in economic conditions,  current
interest  rate trends and as a result of  management  strategies  and  programs.
Bancshares was able to adequately  fund asset growth and meet liquidity needs in
1997. At December 31, 1998, federal funds sold and securities having contractual
maturities of one year or less totaled  $34.2  million.  Bancshares's  immediate
liquidity needs have  historically been met by federal funds sold and cash flows
from  securities.  Other  sources of  potential  liquidity  include  the sale of
securities classified as  available-for-sale,  borrowings under informal federal
funds lines with correspondent banks and advances with the FHLB.

     Refer to the  "Consolidated  Statement  of Cash Flows" in the  Consolidated
Financial  Statements for details of net cash provided by operating  activities,
net cash  used by  investing  activities  and net  cash  provided  by  financing
activities.

                                      (32)
<PAGE>

Market Risk and Interest Rate Sensitivity

     Asset/liability  management involves the funding and investment  strategies
necessary to maintain an appropriate  balance between interest  sensitive assets
and liabilities.  It also involves providing adequate liquidity while sustaining
stable  growth in net interest  income.  Regular  review and analysis of deposit
trends,  cash flows in various  categories  of loans and  monitoring of interest
spread  relationships  are vital to this  process.  The  nature  of the  banking
business  requires  Bancshares  maintain  adequate  liquidity to meet changes in
composition and volume of assets and  liabilities  due to seasonal,  cyclical or
other reasons.  Liquidity  describes the ability of Bancshares to meet financial
obligations  that arise  during  the normal  course of  business.  Liquidity  is
primarily  needed to meet the borrowing and deposit  withdrawal  requirements of
the  customers  of  Bancshares,  as well as meeting  current and future  planned
expenditures. This liquidity is typically provided by the funds received through
customer  deposits,  investment  maturities,  loan  repayments,  borrowings  and
income.  Bancshares'  management  considers the current liquidity position to be
adequate to meet the needs of customers.

     Bancshares  seeks to  contain  the  risks  associated  with  interest  rate
fluctuations  by managing  the balance  between  interest  sensitive  assets and
liabilities.  Managing to mitigate interest rate risk is, however,  not an exact
science.  Not only does the interval until repricing of interest rates on assets
and liabilities change from day to day as the assets and liabilities change, but
for some  assets and  liabilities,  contractual  maturity  and  actual  maturity
experienced are not the same. For example,  mortgage-backed  securities may have
contractual  maturities  well in excess of five  years but,  depending  upon the
interest  rate  carried  by the  specific  underlying  mortgages  and  the  then
currently  prevailing  rate of interest,  these  securities  may be prepaid in a
shorter  time  period.   Accordingly,   the   mortgage-backed   securities   and
collateralized  mortgage  obligations  that have average  stated  maturities  in
excess of five years,  are evaluated as part of the  asset/liability  management
process using their expected average lives due to anticipated prepayments on the
underlying  loans. NOW and savings  accounts,  by contract,  may be withdrawn in
their entirety upon demand.  While these  contracts are extremely  short, it has
been  Bancshare's  experience  that these accounts turn over at the rate of five
percent  per  year.  If all of the NOW and  savings  accounts  were  treated  as
repricing in one year or less, the  cumulative  negative gap at one year or less
would be $168.7 million or 41.71% of interest earning assets.  Due to their very
liquid  nature,  the entire  balance of money  market  accounts is assumed to be
repriced within one year.

     Interest rate  sensitivity is an important  factor in the management of the
composition  and  maturity  configurations  of  Bancshare's  earning  assets and
funding sources. An Asset/Liability Committee ("ALCO") manages the interest rate
sensitivity  position in order to maintain an  appropriate  balance  between the
maturity  and  repricing  characteristics  of  assets  and  liabilities  that is
consistent with Bancshare's  liquidity  analysis,  growth,  and capital adequacy
goals.  Bancshares sells fixed-rate real estate loans in the secondary  mortgage
market.  Bancshare's  management  believes that by selling  certain loans rather
than retaining them in its portfolio,  it is better able to match the maturities
of  interest  sensitive  assets to  interest  sensitive  liabilities.  It is the
objective of the ALCO to maximize net interest  margins  during  periods of both
volatile and stable  interest  rates,  to attain earnings growth and to maintain
sufficient  liquidity to satisfy depositors'  requirements and meet credit needs
of customers.

     Sources  of market  risk  include  interest  rate  risk,  foreign  currency
exchange rate risk,  commodity price risk, and equity price risk.  Bancshares is
only  subject  to  interest  rate  risk.   Bancshares   purchased  no  financial
instruments for trading purposes during 1998.

                                      (33)
<PAGE>

     The following  table  summarizes,  as of December 31, 1998, the anticipated
maturities  or  repricing  of   Bancshare's   interest   sensitive   assets  and
liabilities,  Bancshare's interest sensitivity gap (interest-earning assets less
interest-bearing  liabilities),  Bancshares cumulative interest rate sensitivity
gap  and  Bancshare's   cumulative  interest  sensitivity  repricing  gap  ratio
(cumulative  interest rate sensitivity gap divided by total assets).  A negative
gap for any period means that more interest-bearing  liabilities will reprice or
maturing during that time period than interest-earning assets. During periods of
rising  interest  rates,  a  negative  gap  position  would  generally  decrease
earnings,  and during  periods  of  declining  interest  rates,  a negative  gap
position would  generally  increase  earnings.  The converse would be true for a
positive gap position.

TABLE 14 Gap Table
<TABLE>
<CAPTION>
                                                                                              After                  Fair
                                    Year 1      Year 2     Year 3      Year 4     Year 5     Year 5      Total       Value
                                   ---------- ----------- ---------- ----------- ---------- ---------- ----------- ----------
<S>                                 <C>         <C>        <C>         <C>        <C>        <C>        <C>         <C>     
Loans (1)
   Fixed rate                        $21,750     $16,521    $21,820     $23,964    $33,651    $28,341    $146,047   $152,139
   Average interest rate               8.51%       8.37%      8.79%       8.77%      8.25%      7.43%       8.16%
   Variable rate                      49,218       4,244      5,073       3,070      6,945      3,789      72,339     75,361
    Average interest rate              8.15%       7.69%      7.71%       7.79%      7.41%      6.87%       7.94%
Securities (2)
   Fixed rate                         21,129      23,266     19,884       8,850     12,998     74,029     160,155    160,715
   Average interest rate               6.45%       5.89%      5.93%       6.57%      6.06%      6.29%       6.21%
   Variable rate                                     500         47         206        504      1,843       3,101      3,124
    Average interest rate                          5.59%      6.13%       6.46%      6.56%      6.86%       6.41%
Federal funds sold                    13,255                                                               13,255     13,255
    Average interest rate              5.33%                                                                5.33%
                                   ---------- ----------- ---------- ----------- ---------- ---------- ----------- ----------
  Total interest-earning assets      105,352      44,531     46,824      36,090     54,098    108,002     394,897    404,494
                                   ---------- ----------- ---------- ----------- ---------- ---------- ----------- ----------

NOW and savings accounts               5,560       5,560      5,560       5,560      5,560     83,408     111,208    111,208
    Average interest rate              2.66%       2.66%      2.66%       2.66%      2.66%      2.66%       2.66%
Money market accounts                 33,537                                                               33,537     33,537
    Average interest rate              3.64%                                                                3.64%
Time deposits
   Fixed rate                        117,772      20,887      3,587         506        931                143,683    144,632
    Average interest rate              5.24%       5.65%      5.25%       6.06%      6.21%                  5.31%
   Variable rate                       1,192         254                                                    1,446      1,456
    Average interest rate              4.33%       4.90%                                                    4.43%
Federal funds purchased and                                                                                         
 securities sold under      
 repurchase agreements                 9,386                                                                9,386      9,386
    Average interest rate              5.07%                                                                5.07%
FHLB advances                             53          57         61          66         70     17,597      17,904     18,090
    Average interest rate              6.84%       6.84%      6.84%       6.84%      6.84%      5.49%       5.49%
U.S. Treasury demand notes               892                                                                  892        892
    Average interest rate              5.30%                                                                5.30%
                                   ---------- ----------- ---------- ----------- ---------- ---------- ----------- ----------
  Total interest-bearing liabilities 168,392      26,758      9,208       6,132      6,561    101,005     318,056    319,201
                                   ---------- ----------- ---------- ----------- ---------- ---------- ----------- ----------
Interest-earning assets less
 interest-bearing liabilities  
 ("Gap")                           $(63,040)     $17,773    $37,616     $29,958   $ 47,537    $ 6,997     $76,841    $85,393
                                   ========== =========== ========== =========== ========== ========== =========== ==========
Cumulative gap                     $(63,040)   $(45,267)   $(7,651)     $22,307   $ 69,844   $ 76,841     $76,841    $85,393
                                   ========== =========== ========== =========== ========== ========== =========== ==========
Cumulative  Gap  as a  percentage
of total interest earning assets    (15.96%)    (11.46%)    (1.94%)       5.65%     17.69%     19.46%      19.46%     21.62%
                                   ========== =========== ========== =========== ========== ========== =========== ==========
</TABLE>

(1) Includes consumer loans net of unearned income, and excludes  nonaccrual and
    impaired loans. 
(2) Reflects fair value adjustments for securities available for sale.

     At December  31,  1998,  the table above  reflects  that  Bancshares  has a
negative  liability gap due to the level of interest bearing demand deposits and
savings that are generally subject to immediate

                                      (34)
<PAGE>

withdrawal  and are  repriceable at any time. As such, the effect of an increase
in the prime rate of 100 basis  points would  decrease  net  interest  income by
approximately $630,000 (annualized) in one year and $453,000 in 2 years assuming
no management intervention. A fall in the interest rates would have the opposite
effect for the same period. In analyzing interest rate sensitivity,  Bancshares'
management  considers these  differences and incorporates  other assumptions and
factors,  such as  balance  sheet  growth  and  prepayments,  to better  measure
interest rate risk.

     While the gap analysis provides an indication of interest rate sensitivity,
experience  has  shown  that it does not  fully  capture  the true  dynamics  of
interest  rate  changes.  Essentially,  the  analysis  presents  only  a  static
measurement of asset and liability volumes based on contractual  maturity,  cash
flow estimates or repricing opportunity.  It fails to reflect the differences in
the timing and degree of  repricing  of assets and  liabilities  due to interest
rate changes. In analyzing interest rate sensitivity, management considers these
differences and  incorporates  other  assumptions  and factors,  such as balance
sheet growth and prepayments, to better measure interest rate risk.

Capital Resources

     At December 31, 1998,  Bancshares had no material  commitments  for capital
expenditures.

Year 2000

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

     The Company's lending and deposit activities,  like those of most financial
institutions,  depend  significantly upon computer systems to process and record
transactions.  The Company is aware of the potential Year 2000 problems that may
affect the operating  systems that control our computers as well as those of our
third party software providers who supply the software that maintain many of our
records and those of our  customers.  In 1997,  the Company began the process of
identifying Year 2000 related problems that may affect the Company's  systems. A
task force of Company  officers and  employees  was  established  to address the
issues related to those problems.  Outside consultants have and will be utilized
when required to complete this project.

     The task force  analyzed the  Company's  operations  and  identified  those
functions  that would be affected by the Year 2000 issues and  determined  which
functions were vital to the day-to-day operations of the Company. The Company is
working with vendors that supply or service the  Company's  computer  systems to
identify  and remedy any Year 2000  related  systems.  Inventory  and testing of
computer equipment was conducted during 1998. New equipment has been obtained to
replace  equipment  that is not  found to be Year 2000  compliant.  The Board of
Directors is monitoring the progress in addressing Year 2000 issues.

     The  Company's  primary  lending and savings  systems have been  maintained
in-house,  however,  they are run on software  provided by a third party vendor.
These  systems  have  been  identified  as  being  critical  to  the  day-to-day
operations of the Company.  The data center of the Company has been working with
the third party vendor that  supplied the software to test for Year 2000 issues.
No material deficiencies were noted as a result of testing.

                                      (35)
<PAGE>

     The Company's  direct  expenses to date (other than the salary of employees
involved in the  project)  have been less than  $15,000 and the Company does not
currently anticipate that its Year 2000 costs will exceed $30,000.

     Although the Company  believes it is taking the necessary  steps to address
the Year 2000  compliance  issue,  no assurances can be given that some problems
will not  occur or that we will not incur  significant  additional  expenses  in
future periods. In the event that the Company is ultimately required to purchase
replacement  computer systems,  programs and equipment,  or to incur substantial
expenses to make current systems,  programs,  and equipment Year 2000 compliant,
the Company's net income and financial condition could be adversely affected.

     Because the Company's loan portfolio to individual borrowers is diversified
and its market  area does not depend on one  employer or  industry,  it does not
expect  any Year  2000  related  difficulties  that may  affect  depositors  and
borrowers to significantly affect the Company's net earnings or cash flow.

     The Company is  developing  a  contingency  plan to deal with the Year 2000
related issues. This program will provide for dealing with situations that might
occur that are both related to the Company's operation (e.g., computer system or
equipment  liquidity)  and those  beyond  the  Company's  control  (e.g.,  power
failure,  phone/communication  line failure).  The plan will include  methods to
deal with these situations and continue to service  customers  despite Year 2000
problems  arising.  The Company has established March 31, 1999 as a deadline for
the completion of this plan.


New Accounting Pronouncements

     During 1998,  the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement  No.  133,   "Accounting   for  Derivative   Instruments  and  Hedging
Activities".  This  statement  requires  companies to record  derivatives on the
balance sheet at their fair value.  Statement No. 133 also acknowledges that the
method of recording a gain or loss depends upon the use of the  derivative.  The
new  Statement  applies to all entities.  If hedge  accounting is elected by the
entity, the method of assessing  effectiveness of the hedging derivative and the
measurement  approach  of  determining  the  hedge's   ineffectiveness  must  be
established at the inception of the hedge.

     Statement No. 133 amends Statement No. 52 and supersedes Statements No. 80,
105, and 119. Statement No. 107 is amended to include the disclosure  provisions
about the concentrations of credit risk from Statement No. 105. Several Emerging
Issues Task Force consensuses are also changed or nullified by the provisions of
Statement No. 133.

     Statement  No. 133 will be effective for all fiscal years  beginning  after
June 15,  1999.  The  Statement  may not be applied  retroactively  to financial
statements  of prior  periods.  The  adoption  of this  Statement  will  have no
material impact on the Company's financial condition or result of operations.

     During  1998,  the FASB also  issued  Statement  No. 134,  "Accounting  for
Mortgage-Backed  Securities  Retained After the Securitization of Mortgage Loans
Held  for Sale by a  Mortgage  Banking  Enterprise.  It  establishes  accounting
standards for certain  activities of mortgage banking  enterprises and for other
enterprises  with similar mortgage  operations.  This Statement amends Statement
No. 65.

                                      (36)
<PAGE>

     Statement  No. 65, as  previously  amended by  Statements  No. 115 and 125,
required a mortgage banking enterprise to classify a mortgage-backed security as
a trading security  following the  securitization  of the mortgage loan held for
sale.  This  Statement No. 134 further  amends  Statement No. 65 to require that
after the  securitization  of mortgage loans held for sale, an entity engaged in
mortgage  banking  activities  must  reclassify  the  resulting  mortgage-backed
security or other related  interests based on the entity's ability and intent to
sell  or  hold  those   investments.   The   determination  of  the  appropriate
classification  for  securities  retained after the  securitization  of mortgage
loans by a mortgage  banking  enterprise  now conforms to Statement No. 115. The
only new requirement is that if an entity has a sales  commitment in place,  the
security must be classified into trading.

     This  Statement is effective for the first fiscal quarter  beginning  after
December 15, 1998. On the date this  Statement is initially  applied,  an entity
may  reclassify   mortgage-backed  securities  and  other  beneficial  interests
retained  after the  securitization  of  mortgage  loans  held for sale from the
trading  category,  except  for those  with sales  commitments  in place.  Those
securities and other interests shall be classified based on the entity's present
ability and intent to hold the investments.  The adoption of this Statement will
have no material  impact on the  Company's  financial  condition  and results of
operations.

     During 1998, the Accounting  Standards Executive Committee issued Statement
of Position 98-5,  "Reporting on the Costs of Start-Up Activities.  Statement of
Position   98-5   will   affect   all   non-governmental   entities,   including
not-for-profits reporting start-up costs in their financial statements.

     Some  existing  industry   practices  result  in  the   capitalization  and
amortization  of  start-up  costs.  This  Statement  of Position  requires  that
start-up costs be expensed when incurred.  The Statement of Position  applies to
start-up  activities and  organizational  costs associated with both development
stage and  established  operating  entities.  According to Statement of Position
98-5,  start-up  activities are "those one-time  activities related to opening a
new facility, introducing a new product or service, conducting business in a new
territory,  conducting  business  with a new class of customer  or  beneficiary,
initiating  a new  process  in an  existing  facility,  or  commencing  some new
operation.  Start-up  activities  include activities related to organizing a new
entity, commonly referred to as organizational costs."

     Statement of Position  98-5 is effective  for fiscal years  beginning on or
after  December 31, 1998.  Earlier  application  is  encouraged  in fiscal years
during which annual financial  statements have not yet been issued. The adoption
of this  Statement  will not have a material  impact on the Company's  financial
condition and results of operations.

                                      (37)
<PAGE>

ITEM 8.  FINANCIAL STATEMENT

Independent Auditor's Report


To the Stockholders and
Board of Directors
First Decatur Bancshares, Inc.
Decatur, Illinois


     We have audited the consolidated balance sheet of First Decatur Bancshares,
Inc.  and  subsidiaries  as of  December  31,  1998 and  1997,  and the  related
consolidated statements of income, stockholders' equity, and cash flows for each
of  the  years  in  the  three-year   period  ended  December  31,  1998.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

     In our opinion,  the  consolidated  financial  statements  described  above
present fairly, in all material respects, the consolidated financial position of
First  Decatur  Bancshares,  Inc. and  subsidiaries  as of December 31, 1998 and
1997,  and the results of their  operations and their cash flows for each of the
years in the  three-year  period ended  December 31, 1998,  in  conformity  with
generally accepted accounting principles.


/s/ Olive LLP
Olive LLP


Decatur, Illinois
January 29, 1999

                                      (38)
<PAGE>


<TABLE>
<CAPTION>

                                      First Decatur Bancshares, Inc. and Subsidiaries
                                                Consolidated Balance Sheet

December 31                                                                                    1998             1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                   <C>      
Assets
   Cash and due from banks                                                              $      30,114,165     $  22,879,696
   Federal funds sold                                                                          13,255,000        17,145,000
                                                                                        ------------------------------------
     Cash and cash equivalents                                                                 43,369,165        40,024,696
   Investment securities
     Available for sale                                                                       137,688,906       106,600,089
     Held to maturity (fair value of $26,150,193 and $32,176,190)                              25,567,253        31,758,682
                                                                                        ------------------------------------
         Total investment securities                                                          163,256,159       138,358,771
   Loans, net of allowance for loan losses of $3,573,320 and $3,530,749                       214,812,279       196,522,407
   Premises and equipment                                                                       9,081,662         9,271,264
   Other assets                                                                                11,173,097         8,060,228
                                                                                        ------------------------------------
         Total assets                                                                        $441,692,362      $392,237,366
                                                                                        ====================================

Liabilities
   Deposits
     Noninterest bearing                                                                   $   65,893,829     $  53,436,395
     Interest bearing                                                                         289,874,276       267,691,475
                                                                                        ------------------------------------
         Total deposits                                                                       355,768,105       321,127,870
   Short-term borrowings                                                                       10,277,956        11,599,077
   Federal Home Loan Bank advances                                                             17,904,373         2,954,140
   Other liabilities                                                                            4,373,600         4,257,076
                                                                                        ------------------------------------
         Total liabilities                                                                    388,324,034       339,938,163
                                                                                        ------------------------------------
Commitments and Contingencies
Stockholders' Equity
   Preferred stock, no par value
     Authorized and unissued -- 200,000 shares
   Common stock, $0.01 par value
     Authorized -- 5,000,000 shares
     Issued -- 2,909,397, of which 140,455 shares and 30,910 shares
       were held as treasury stock                                                                 29,094            29,094
   Additional paid-in capital                                                                   7,873,913         7,857,952
   Paid-in capital-- phantom stock                                                                220,090           166,470
   Retained earnings                                                                           48,617,866        44,506,036
   Accumulated other comprehensive income                                                         621,819           380,134
                                                                                        ------------------------------------
                                                                                               57,362,782        52,939,686
   Treasury stock, at cost                                                                     (3,994,454)         (640,483)
                                                                                        ------------------------------------
         Total stockholders' equity                                                            53,368,328        52,299,203
                                                                                        ------------------------------------

         Total liabilities and stockholders' equity                                          $441,692,362      $392,237,366
                                                                                        ====================================
</TABLE>

See notes to consolidated financial statements.

                                      (39)
<PAGE>

<TABLE>
<CAPTION>
                                      First Decatur Bancshares, Inc. and Subsidiaries
                                             Consolidated Statement of Income


Year Ended December 31                                                       1998              1997             1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>              <C>               <C>
Interest Income
   Loans receivable
     Taxable                                                              $17,461,029      $17,766,929       $16,657,056
     Tax exempt                                                               108,009          103,761           116,411
   Investment securities
     Taxable                                                                7,917,093        7,018,176         7,609,289
     Tax exempt                                                             1,057,645          782,958           645,095
   Federal funds sold                                                         955,222          587,597           421,399
   Other interest income                                                      107,776           62,010            28,609
                                                                       -----------------------------------------------------
         Total interest income                                             27,606,774       26,321,431        25,477,859
                                                                       -----------------------------------------------------
Interest Expense
   Deposits                                                                11,672,926       11,117,142        11,164,465
   Federal funds purchased and securities sold under repurchase               
     agreements                                                               326,315          304,524           293,105
   Federal Home Loan Bank advances                                            805,663          201,017            77,471
   U.S. Treasury demand notes                                                  95,286           93,522            83,587
                                                                       -----------------------------------------------------
         Total interest expense                                            12,900,190       11,716,205        11,618,628
                                                                       -----------------------------------------------------
Net Interest Income                                                        14,706,584       14,605,226        13,859,231
   Provision for loan losses                                                  274,000          432,000           310,000
                                                                       -----------------------------------------------------
Net Interest Income After Provision for Loan Losses                        14,432,584       14,173,226        13,549,231
                                                                       -----------------------------------------------------
Other Income
   Remittance processing income                                             5,164,537        4,240,590        5,747,797,
   Fiduciary activities                                                     1,724,297        1,623,343         1,534,915
   Service charges on deposit accounts                                      1,002,295        1,063,557         1,127,468
   Loan servicing fees                                                         67,868          154,180           171,345
   Net realized gains (losses) on sales of securities available for            
     sale                                                                      65,988           11,019            (7,868)
   Net gains on loan sales                                                    506,535          282,356           223,988
   Other income                                                             1,087,248          985,487           873,485
                                                                       -----------------------------------------------------
         Total other income                                                 9,618,768        8,360,532         9,671,130
                                                                       -----------------------------------------------------
Other Expenses
   Salaries and employee benefits                                           8,465,898        7,864,296         8,164,051
   Net occupancy expenses                                                   1,118,471        1,136,502         1,141,855
   Equipment expenses                                                       2,050,050        2,179,185         2,482,713
   Data processing fees                                                       240,563          325,828           369,662
   Service charges from corresponding banks                                   755,281          497,987           756,001
   Deposit and other insurance expense                                        221,138          247,278           222,768
   Supplies                                                                   477,523          408,707           466,647
   Professional fees                                                          410,440          366,143           709,444
   Postage                                                                    361,772          371,910           362,334
   Other expenses                                                           1,942,969        1,724,903         1,771,425
                                                                       -----------------------------------------------------
         Total other expenses                                              16,044,105       15,122,739        16,446,900
                                                                       -----------------------------------------------------
Income Before Income Tax                                                    8,007,247        7,411,019         6,773,461
   Income tax expense                                                       2,395,823        2,317,961         2,253,537
                                                                       -----------------------------------------------------
Net Income                                                               $  5,611,424     $  5,093,058      $  4,519,924
                                                                       =====================================================
Basic Earnings per Share                                               $           1.95 $           1.77  $           1.56
Diluted Earnings per Share                                             $           1.94 $           1.76  $           1.55
</TABLE>

See notes to consolidated financial statements.

                                      (40)
<PAGE>



                 First Decatur Bancshares, Inc. and Subsidiaries
                 Consolidated Statement of Stockholders' Equity
<TABLE>
<CAPTION>

                                          Common Stock                                  Paid-in                
                                                            Additional                  Capital --             
                                        Shares                Paid-in    Comprehensive  Phantom    Retained    
                                        Issued    Amount      Capital        Income     Stock      Earnings 
--------------------------------------------------------------------------------------------------------------
<S>                                   <C>        <C>        <C>           <C>           <C>       <C>         
Balances, January 1, 1996             2,909,397  $29,094    $7,852,780                  $91,403   $37,665,237 
                                                                                                                 
   Comprehensive income
     Net income                                                           $4,519,924                4,519,924    
     Other comprehensive income, 
       net of tax
     Unrealized losses on securities, 
       net of reclassification 
       adjustment                                                          (282,365)                      
                                                                          ===========
   Comprehensive income                                                   $4,237,559
                                                                          ===========
   Cash dividends ($.44 per share)                                                                (1,277,085)
   Cash payment to acquisition 
     dissenter                                                (14,763)                              (110,261)        
   Paid-in capital-- phantom stock                                                       54,459                  
   Net treasury stock transactions                              15,620                                           
                                      ------------------------------------              ----------------------
Balances, December 31, 1996           2,909,397   29,094     7,853,637                  145,862    40,797,815  

   Comprehensive income
     Net income                                                           $5,093,058               
     Other comprehensive income, 
       net of tax                                                          
     Unrealized gains on securities, 
       net of reclassification
       adjustment                                                            247,468                          
                                                                          ===========
   Comprehensive income                                                   $5,340,526
                                                                          ===========
   Cash dividends ($.48 per share)                                                                (1,384,837)        
   Paid-in capital-- phantom stock                                                       20,608
   Net treasury stock transactions                               4,315                    
                                      ------------------------------------              -----------------------
Balances, December 31, 1997           2,909,397   29,094     7,857,952                  166,470    44,506,036

   Comprehensive Income
     Net income                                                           $5,611,424                5,611,424
     Other comprehensive income, 
       Net of tax
     Unrealized gains on securities, 
       Net of reclassification    
       adjustment                                                            241,685                           
                                                                          ===========
   Comprehensive income                                                   $5,853,109
                                                                          ===========
   Cash dividends ($.52 per share)                                                                (1,499,594)
   Paid-in capital-- phantom stock                                                       53,620          
   Net treasury stock transactions                              15,961                     
                                      ====================================             =======================
Balances, December 31, 1998           2,909,397  $29,094    $7,873,913                 $220,090   $48,617,866
                                      ====================================             =======================
</TABLE>

<PAGE>

                 First Decatur Bancshares, Inc. and Subsidiaries
                 Consolidated Statement of Stockholders' Equity (Continued)

                                     Accumulated
                                        Other
                                    Comprehensive     Treasury
                                        Income         Stock         Total
-------------------------------------------------------------------------------

Balances, January 1, 1996             $ 415,031      $  (173,639)  $45,879,906
                                                                            
   Comprehensive income
     Net income                                                      4,519,924
     Other comprehensive income, 
       net of tax
     Unrealized losses on securities, 
       net of reclassification 
       adjustment                     (282,365)                      (282,365)
                                                                          
   Comprehensive income                            
                                                                     
   Cash Dividends ($.44 per share)                                 (1,277,085)
   Cash payment to acquisition 
     dissenter                                                       (125,024)
   Paid-in capital-- phantom stock                                      54,459
   Net treasury stock transactions                      (291,125)    (275,505)
                                      -----------------------------------------
Balances, December 31, 1996             132,666         (464,764)   48,494,310

   Comprehensive income
     Net income                                                      5,093,058
     Other comprehensive income,
       net of tax    
     Unrealized gains on securities,
       net of reclassification
       adjustment                       247,468                        247,468
 
   Comprehensive income                                              
                                                                     
   Cash dividends ($.48 per share)                                 (1,384,837)
   Paid-in capital-- phantom stock                                      20,608
   Net treasury stock transactions                      (175,719)    (171,404)
                                      -----------------------------------------
Balances, December 31, 1997             380,134         (640,483)   52,299,203

   Comprehensive Income
     Net income                                                      5,611,424
     Other comprehensive income,
       net of tax       
     Unrealized gains on securities, 
       net of reclassification      
       adjustment                       241,685                        241,685
                                                                          
   Comprehensive income                                                   
                                                                           
   Cash dividends ($.52 per share)                                 (1,499,594)
   Paid-in capital-- phantom stock                                      53,620 
   Net treasury stock transactions                    (3,353,971)  (3,338,010)
                                      =========================================
Balances, December 31, 1998            $621,819      $(3,994,454)  $53,368,328
                                      =========================================

See notes to consolidated financial statements.

                                      (41)
<PAGE>

<TABLE>
<CAPTION>
                                      First Decatur Bancshares, Inc. and Subsidiaries
                                           Consolidated Statement of Cash Flows

Year Ended December 31                                                       1998              1997             1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>                <C>                <C>         
Operating Activities
   Net income                                                          $     5,611,424    $   5,093,058      $  4,519,924
   Adjustments to reconcile net income to net cash provided
     by operating activities
     Provision for loan losses                                                 274,000          432,000           310,000
     Amortization of goodwill                                                   26,232           28,015            26,234
     Depreciation                                                            1,300,489        1,461,133         1,720,233
     Deferred income tax                                                        24,758          322,598          (119,771)
     Investment securities amortization, net                                    16,201          176,280           384,845
     Investment securities (gains) losses                                      (65,988)         (11,019)            7,868
     Gains on loan sales                                                      (251,794)        (151,706)         (117,802)
     Loans originated for resale                                           (25,374,060)     (13,066,120)      (10,356,691)
     Proceeds from sales of loans originated for resale                     25,625,854       13,217,826        10,474,493
     Paid-in capital--phantom stock                                              53,620           20,608            54,459
     Net change in
       Other assets                                                         (3,139,101)        (375,523)          527,333
       Other liabilities                                                       (32,738)         153,506          (614,844)
                                                                       -----------------------------------------------------
         Net cash provided by operating activities                           4,068,897        7,300,656         6,816,281
                                                                       -----------------------------------------------------

Investing Activities
   Purchases of securities available for sale                              (92,658,212)     (47,977,838)      (23,686,550)
   Proceeds from maturities of securities available for sale                54,480,067       29,986,637        16,782,157
   Proceeds from sales of securities available for sale                      7,570,408        5,993,748         2,983,125
   Purchases of securities held to maturity                                 (1,547,739)      (4,826,700)       (3,146,220)
   Proceeds from maturities of securities held to maturity                   7,674,064        9,807,164        12,858,791
   Net change in loans                                                     (18,563,872)        (440,846)      (11,049,087)
   Proceeds from disposal of premises and equipment                                                             1,513,744
   Purchases of premises and equipment                                      (1,110,887)        (566,350)         (827,791)
                                                                       -----------------------------------------------------
         Net cash used by investing activities                             (44,156,171)      (8,024,185)       (4,571,831)
                                                                       -----------------------------------------------------

Financing Activities
   Net change in
     Demand and savings deposits                                            36,982,578        9,701,278        (3,555,276)
     Certificates of deposit                                                (2,342,343)      (8,735,499)        1,007,697
     Short-term borrowings                                                  (1,321,121)      (7,703,123)        9,495,865
   Federal Home Loan Bank advances                                          15,000,000        3,000,000         2,500,000
   Repayment of Federal Home Loan Bank advances                                (49,767)      (2,545,860)
   Cash dividends                                                           (1,499,594)      (1,384,837)       (1,277,085)
   Cash payment to acquisition dissenter                                                                         (125,024)
   Net cash purchase of treasury stock                                      (3,338,010)        (171,404)         (275,505)
                                                                       -----------------------------------------------------
         Net cash provided (used) by financing activities                   43,431,743       (7,839,445)        7,770,672
                                                                       -----------------------------------------------------

Net Change in Cash and Cash Equivalents                                      3,344,469       (8,562,974)       10,015,122

Cash and Cash Equivalents, Beginning of Year                                40,024,696       48,587,670        38,572,548
                                                                       -----------------------------------------------------


Cash and Cash Equivalents, End of Year                                     $43,369,165      $40,024,696       $48,587,670
                                                                       =====================================================

Additional Cash Flows Information
   Interest paid                                                           $12,805,990      $11,773,964       $11,689,216
   Income tax paid                                                           2,324,000        1,902,061         2,338,015
</TABLE>

See notes to consolidated financial statements.

                                      (42)
<PAGE>

                 First Decatur Bancshares, Inc. and Subsidiaries
                   Notes to Consolidated Financial Statements


Note 1 -- Nature of Operations and Summary of Significant Accounting Policies

The  accounting  and  reporting  policies  of  First  Decatur  Bancshares,  Inc.
("Company"),  and its wholly  owned  subsidiaries,  The First  National  Bank of
Decatur ("Decatur Bank"),  FirsTech, Inc. ("FirsTech"),  and First Trust Bank of
Shelbyville ("Shelby Bank"), conform to generally accepted accounting principles
and reporting  practices followed by the banking industry.  The more significant
of the policies are described below.

During May,  1997 First  Shelby  Financial  Group,  Inc.  ("First  Shelby")  was
dissolved and its subsidiary,  Shelby Bank,  became a wholly owned subsidiary of
the Company. The net assets of First Shelby were transferred to the Company. 

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

The Company is a holding company whose  principal  activity is the ownership and
management of the  subsidiaries.  Decatur Bank operates under a national charter
and provides full banking  services,  including  trust  services.  As a national
bank,  Decatur Bank is subject to regulation by the Office of the Comptroller of
the Currency and the Federal Deposit Insurance Corporation ("FDIC"). Shelby Bank
operates  under a  state  bank  charter  and  provides  full  banking  services,
including trust services.  As a state bank, Shelby Bank is subject to regulation
by the Office of Banks and Real Estate, State of Illinois, and the FDIC.

The Banks generate commercial,  mortgage and consumer loans and receive deposits
from  customers  located  primarily  in Central  Illinois.  The Banks' loans are
generally  secured by specific  items of  collateral  including  real  property,
consumer assets and business assets. FirsTech is a remittance processing company
that provides various remittance processing services primarily for several large
utility companies.

Consolidation--The consolidated financial statements include the accounts of the
Company and the  subsidiaries  after  elimination  of all material  intercompany
transactions and accounts.

Investment  Securities--Debt  securities are classified as held to maturity when
the  Company  has the  positive  intent and  ability to hold the  securities  to
maturity.  Securities  held to maturity  are  carried at  amortized  cost.  Debt
securities  not  classified as held to maturity are  classified as available for
sale.  Securities  available for sale are carried at fair value with  unrealized
gains and losses reported as part of accumulated other  comprehensive  income in
stockholders' equity, net of tax.

Amortization  of premiums and  accretion  of discounts  are recorded as interest
income from  securities.  Realized gains and losses are recorded as net security
gains  (losses).  Gains and losses on sales of securities  are determined on the
specific-identification method.

Mortgage servicing rights on originated loans are capitalized by allocating the
total cost of the mortgage loans between the mortgage  servicing  rights and the
loans based on their  relative  fair values.  Capitalized  servicing  rights are
amortized in proportion to and over the period of estimated servicing revenues.

Loans are  carried  at the  principal  amount  outstanding.  Interest  income is
accrued on the principal  balances of loans,  except for installment  loans with
add-on interest,  for which a method that approximates the level yield method is
used.  The  accrual of  interest  on impaired  loans is  discontinued  when,  in
management's  opinion,  the  borrowers  may be unable to meet  payments  as they
become due. When interest accrual is  discontinued,  all unpaid accrued interest
is reversed  when  considered  uncollectible.  Interest  income is  subsequently
recognized only to the extent cash payments are received.

                                      (43)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Allowance  for  loan  losses  is  maintained  to  absorb  loan  losses  based on
management's  continuing  review and  evaluation of the loan  portfolios and its
judgment  as to  the  impact  of  economic  conditions  on the  portfolios.  The
evaluation by management includes consideration of past loss experience, changes
in the composition of the portfolios,  the current condition and amount of loans
outstanding,  and the probability of collecting all amounts due.  Impaired loans
are  measured by the present  value of expected  future cash flows,  or the fair
value of the collateral of the loan, if collateral dependent.

The  determination  of the adequacy of the allowance for loan losses is based on
estimates  that are  particularly  susceptible  to  significant  changes  in the
economic  environment  and market  conditions.  Management  believes  that as of
December  31,  1998,  the  allowance  for  loan  losses  is  adequate  based  on
information  currently available.  A worsening or protracted economic decline in
the area within which the Company  operates  would  increase the  likelihood  of
additional  losses due to credit and market  risks and could create the need for
additional loss reserves.

Premises  and  equipment  are carried at cost net of  accumulated  depreciation.
Depreciation  is  computed  using  primarily  the  straight-line   method  based
principally on the estimated useful lives of the assets. Maintenance and repairs
are expensed as incurred while major additions and improvements are capitalized.
Gains and losses on dispositions are included in current operations.

Intangible  assets are being  amortized  on a  straight-line  basis over fifteen
years. Such assets are periodically  evaluated as to the recoverability of their
carrying value.

Treasury stock is stated at cost. Cost is determined by the first-in,  first-out
method.

Income tax in the consolidated  statement of income includes deferred income tax
provisions or benefits for all significant  temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. The Company
files consolidated income tax returns with its subsidiaries.

Earnings per share - Basic  earnings per share have been computed based upon the
weighted average common shares  outstanding  during each year.  Diluted earnings
per share  reflects the  potential  dilution  that could occur if  securities or
other  contracts to issue common stock were  exercised or converted  into common
stock or  resulted  in the  issuance  of common  stock  that then  shared in the
earnings of the Company.


Note 2 -- Business Combination

On April 1, 1996,  the Company  consummated  a business  combination  with First
Shelby.  The Company  issued  695,852 shares of common stock in exchange for the
outstanding shares of First Shelby common stock. The pooling-of-interest  method
of accounting for business combinations was used to account for the transaction.

For the three month period  ended March 31,  1996,  the Company and First Shelby
had total interest and other income of $7,778,736 and $1,150,385, and net income
of $947,531  and  $184,444,  respectively.  In  addition,  the Company and First
Shelby paid  dividends  totaling  $243,121  and $77,151,  respectively,  and the
Company also had net treasury stock sales of $10,992.

                                      (44)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 3 -- Restriction on Cash and Due From Banks

The Banks are required to maintain  reserve funds in cash and/or on deposit with
the Federal  Reserve  Bank.  The reserve  required at  December  31,  1998,  was
$7,897,000.

Note 4 -- Investment Securities
<TABLE>
<CAPTION>

                                                                                  1998
                                             -------------------------------------------------------------------------------
                                                                         Gross             Gross
                                                   Amortized          Unrealized         Unrealized            Fair
December 31                                          Cost                Gains             Losses             Value
----------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                 <C>                 <C>               <C>             
Available for sale
   U.S. Treasury                               $     26,992,024    $       576,631                       $     27,568,655
   Federal agencies                                  91,550,844            501,485     $    (152,169)          91,900,160
   State and municipal                                6,316,397            115,757           (13,521)           6,418,633
   Mortgage-backed securities                        11,887,491             46,443          (132,476)          11,801,458
                                             -------------------------------------------------------------------------------
         Total available for sale                   136,746,756          1,240,316          (298,166)         137,688,906
                                             -------------------------------------------------------------------------------
Held to maturity
   U.S. Treasury                                        749,341             12,768                                762,109
   Federal agencies                                     500,461              6,569                                507,030
   State and municipal                               17,520,927            518,534            (1,850)          18,037,611
   Mortgage-backed securities                         6,796,524             46,919                              6,843,443
                                             -------------------------------------------------------------------------------
         Total held to maturity                      25,567,253            584,790            (1,850)          26,150,193
                                             -------------------------------------------------------------------------------
         Total investment securities           $    162,314,009     $    1,825,106     $    (300,016)    $    163,839,099
                                             ===============================================================================
</TABLE>

<TABLE>
<CAPTION>

                                                                                  1997
                                             -------------------------------------------------------------------------------
                                                                         Gross             Gross
                                                   Amortized          Unrealized         Unrealized            Fair
December 31                                          Cost                Gains             Losses             Value
----------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>                  <C>                <C>               <C>             
Available for sale
   U.S. Treasury                               $     28,497,217     $      305,392     $     (12,244)    $     28,790,365
   Federal agencies                                  61,355,239            299,325           (56,555)          61,598,009
   State and municipal                                3,103,114             33,768                              3,136,882
   Mortgage-backed securities                        13,068,558             43,265           (36,990)          13,074,833
                                             -------------------------------------------------------------------------------
         Total available for sale                   106,024,128            681,750          (105,789)         106,600,089
                                             -------------------------------------------------------------------------------
Held to maturity
   U.S. Treasury                                      2,449,117             17,336            (1,141)           2,465,312
   Federal agencies                                   2,452,357              9,562            (1,236)           2,460,683
   State and municipal                               17,641,535            399,122              (107)          18,040,550
   Mortgage-backed securities                         9,215,673                               (6,028)           9,209,645
                                             -------------------------------------------------------------------------------
         Total held to maturity                      31,758,682            426,020            (8,512)          32,176,190
                                             -------------------------------------------------------------------------------
         Total investment securities            $   137,782,810    $     1,107,770      $   (114,301)     $   138,776,279
                                             ===============================================================================
</TABLE>

                                      (45)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

The amortized  cost and fair value of securities  held to maturity and available
for sale at  December  31,  1998,  by  contractual  maturity,  are shown  below.
Expected maturities will differ from contractual  maturities because issuers may
have the right to call or prepay  obligations with or without call or prepayment
penalties.

<TABLE>
<CAPTION>
                                                        Held to Maturity                      Available for Sale
                                             -------------------------------------------------------------------------------
                                                Amortized Cost          Fair           Amortized Cost          Fair
                                                                        Value                                  Value
                                             -------------------------------------------------------------------------------

<S>                                               <C>                <C>                 <C>                  <C>        
Within one year                                   $  2,519,587       $  2,550,968        $17,871,963          $18,008,285
One to five years                                    8,289,798          8,483,097         54,269,377           54,995,699
Five to ten years                                    7,188,383          7,468,645         42,391,083           42,486,189
After ten years                                        772,961            804,040         10,326,842           10,397,275
                                             -------------------------------------------------------------------------------
                                                    18,770,729         19,306,750        124,859,265          125,887,448
Mortgage-backed securities                           6,796,524          6,843,443         11,887,491           11,801,458
                                             -------------------------------------------------------------------------------

         Totals                                    $25,567,253        $26,150,193       $136,746,756         $137,688,906
                                             ===============================================================================
</TABLE>

Securities with a carrying value of  approximately  $66,954,000 and $63,995,000
were pledged at December 31, 1998 and 1997 to secure certain deposits and for 
other purposes as permitted or required by law.

Proceeds from sales of securities  available for sale during 1998, 1997 and 1996
were $7,570,408,  $5,993,748,  and $2,983,125.  Gross gains of $65,988, $11,019,
and  $3,527;  and gross  losses of $0, $0, and  $11,395  were  realized on those
sales.

There  were no  sales  of  securities  held to  maturity  or  transfers  between
classifications during 1998, 1997 or 1996.

With the exception of securities of the U.S. Treasury and other U.S.  Government
agencies and  corporations,  the Company did not hold any securities of a single
issuer,  payable  from and  secured  by the same  source  of  revenue  or taxing
authority,  the book  value of which  exceeds  10% of  stockholders'  equity  at
December 31, 1998.

Note 5 -- Loans and Allowance
<TABLE>
<CAPTION>

December 31                                                                                 1998               1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                <C>          
Commercial and industrial loans                                                          $  35,997,500      $  29,694,594
Real estate loans                                                                          107,609,951         93,884,764
Construction loans                                                                           7,587,662          6,707,481
Agricultural production financing and other loans to farmers                                11,497,710          7,822,468
Individuals' loans for household and other personal expenditures
   and other loans                                                                          55,692,188         62,578,433
Tax-exempt loans                                                                             1,514,039          1,600,170
                                                                                     ---------------------------------------
                                                                                           219,899,050        202,287,910
Unearned interest on loans                                                                  (1,513,451)        (2,234,754)
Allowance for loan losses                                                                   (3,573,320)        (3,530,749)
                                                                                     ---------------------------------------
         Total loans                                                                      $214,812,279       $196,522,407
                                                                                     =======================================
</TABLE>

                                      (46)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

Year Ended December 31                                                       1998              1997             1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>              <C>               <C>         
Allowance for loan losses
   Balances, January 1                                                     $  3,530,749     $  3,381,519      $  3,355,735
   Provision for losses                                                         274,000          432,000           310,000
   Recoveries on loans                                                          104,982          325,499           178,652
   Loans charged off                                                           (336,411)        (608,269)         (462,868)
                                                                       -----------------------------------------------------

   Balances, December 31                                                   $  3,573,320     $  3,530,749      $  3,381,519
                                                                       =====================================================
</TABLE>

The amounts of impaired loans  outstanding  at December 31, 1998,  1997 and 1996
and during 1998, 1997 and 1996 were immaterial.


Note 6 -- Premises and Equipment
<TABLE>
<CAPTION>

December 31                                                                                    1998             1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>               <C>         
Land                                                                                        $  1,655,652      $  1,655,652
Buildings and improvements                                                                     7,520,851         7,516,037
Equipment                                                                                      9,428,578         9,121,990
                                                                                        ------------------------------------
         Total cost                                                                           18,605,081        18,293,679
Accumulated depreciation                                                                      (9,523,419)       (9,022,415)
                                                                                        ------------------------------------
         Net                                                                                $  9,081,662      $  9,271,264
                                                                                        ====================================
</TABLE>

Note 7 -- Loan Servicing

Loans  serviced  for others are not  included in the  accompanying  consolidated
balance  sheet.  The unpaid  principal  balances  of loans  serviced  for others
totaled $69,354,000,  $67,022,000, and, $64,902,000, at December 31, 1998, 1997,
and 1996.

The aggregate fair value of capitalized  mortgage  servicing  rights at December
31, 1998 and 1997, totaled $358,417 and $210,234. Comparable market values and a
valuation model that calculates the present value of future cash flows were used
to  estimate   fair  value.   For   purposes  of  measuring   impairment,   risk
characteristics  including product type,  investor type, and interest rates were
used to stratify the originated mortgage servicing rights.

<TABLE>
<CAPTION>
Year Ended December 31                                                       1998              1997             1996
----------------------------------------------------------------------------------------------------------------------------

Mortgage Servicing Rights
<S>                                                                       <C>              <C>            <C>
   Balances, January 1                                                    $     210,234    $     101,279  $              0
   Servicing rights capitalized                                                 254,740          130,650           103,567
   Amortization of servicing rights                                            (106,557)         (21,695)           (2,288)
                                                                       =====================================================
   Balances, December 31                                                  $     358,417    $     210,234     $     101,279
                                                                       =====================================================
</TABLE>

                                      (47)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 8 -- Deposits
<TABLE>
<CAPTION>

December 31                                                                                 1998               1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                <C>         
Demand deposits                                                                           $148,655,592       $127,287,607
Savings deposits                                                                            61,983,329         46,368,736
Certificates and other time deposits of $100,000 or more                                    45,103,602         44,819,624
Other certificates and time deposits                                                       100,025,582        102,651,903
                                                                                     ---------------------------------------
         Total deposits                                                                   $355,768,105       $321,127,870
                                                                                     =======================================

Certificates and other time deposits maturing in years ending December 31,
   1999                                                                                      $118,963,558
   2000                                                                                        21,141,486
   2001                                                                                         3,586,685
   2002                                                                                           506,068
   2003                                                                                           931,387
                                                                                       --------------------
                                                                                             $145,129,184
                                                                                       ====================
</TABLE>

Note 9 -- Short-Term Borrowings
<TABLE>
<CAPTION>

December 31                                                                                    1998             1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                       <C>                <C>          
Federal funds purchased                                                                   $       15,000     $     455,000
Securities sold under repurchase agreements                                                    9,371,310         7,993,064
U. S. Treasury demand notes                                                                      891,646         3,151,013
                                                                                        ------------------------------------
         Total short-term borrowings                                                         $10,277,956       $11,599,077
                                                                                        ====================================
</TABLE>

Securities  sold under  agreements to repurchase  consist of  obligations of the
Company to other  parties.  The  obligations  are secured by various  investment
securities and such  collateral is held by various  institutions in safekeeping.
The maximum  amount of outstanding  agreements at any month-end  during 1998 and
1997  totaled  $18,328,019  and  $15,249,708  and  the  daily  average  of  such
agreements  totaled  $11,572,390  and $10,786,770 The agreements at December 31,
1998, mature within twelve months.

                                      (48)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 10 --         Federal Home Loan Bank Advances

December 31                                            1998           1997
                                                   ===========================

Federal Home Loan Bank advances, rates ranging 
 from 5.05% to 6.84%, due at various dates through 
 June, 2008                                        $17,904,373    $  2,954,140
                                                   ===========================

The Federal Home Loan Bank advances are secured by first-mortgage loans totaling
$58,724,000.  Advances are subject to  restrictions or penalties in the event of
repayment.

Maturities in years ending December 31

   1999                                  $       53,330
   2000                                          57,149
   2001                                          61,240
   2002                                          65,625
   2003                                          70,324
   Thereafter                                17,596,705
                                         -------------------
                                            $17,904,373
                                         ===================

Note 11 --         Stockholders' Equity

The Company has an employee stock option plan ("Plan") which is accounted for in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees,  and  accordingly,  no  compensation  expense for the stock
option grants has been recognized.  Under this plan, the Company grants selected
key officers stock option awards which vest and become fully  exercisable  after
the fifth  anniversary  of date of the grant.  Stock options  granted under this
plan shall expire ten years from date of grant. At December 31, 1998, there were
options  (not  intended  to  be  incentive  stock  options)  for  17,250  shares
outstanding.  These options were granted on December 31, 1993,  with an exercise
price of $16.67 per share and a remaining  contractual  life of five  years.  No
shares  have been  exercised  pursuant  to the Plan and no shares  are vested or
exercisable at December 31, 1998, 1997, and 1996. During 1997, options for 1,200
shares were forfeited.

The Company has a deferred  compensation  plan for nonemployee  directors of the
Company in which a  participating  director may defer  directors fees in a fixed
income fund or, alternatively,  in the form of "phantom stock units." A deferred
compensation  account,  for those  directors  electing to receive phantom stock,
shall be credited  with phantom  stock units.  Phantom stock units shall also be
increased by any stock  dividends or stock  splits  declared by the Company.  At
December 31, 1998 and 1997, $220,090 and $166,470 had been deferred and credited
to equity  from this plan,  which  represented  10,205 and 8,172  phantom  stock
units.

                                      (49)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 12 --         Income Tax
<TABLE>
<CAPTION>

Year Ended December 31                                                       1998              1997             1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>              <C>               <C>
Income tax expense
   Currently payable
     Federal                                                               $  2,369,359     $  1,988,381      $  2,328,323
     State                                                                        1,706            6,982            44,985
   Deferred
     Federal                                                                     24,758          322,598          (119,771)
                                                                       -----------------------------------------------------
         Total income tax expense                                          $  2,395,823     $  2,317,961      $  2,253,537
                                                                       =====================================================

Reconciliation of federal statutory to actual tax expense
   Federal statutory income tax at 34%                                     $  2,722,464     $  2,519,746      $  2,302,977
   Tax exempt interest                                                         (356,022)        (266,477)         (258,912)
   Nondeductible expenses                                                        31,821           22,320           161,301
   Effect of state income taxes                                                   1,126            4,608            29,690
   Other                                                                         (3,566)          37,764            18,481
                                                                       -----------------------------------------------------
         Actual tax expense                                                $  2,395,823     $  2,317,961      $  2,253,537
                                                                       =====================================================
</TABLE>

A cumulative  net deferred tax liability is included in other  liabilities.  The
components are as follows:

<TABLE>
<CAPTION>

December 31                                                                                    1998             1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>               <C>          
Assets
   Loan losses                                                                             $     515,922     $     501,448
   Equipment sales                                                                                 8,029            11,206
   Other                                                                                             590             2,965
                                                                                        ------------------------------------
         Total assets                                                                            524,541           515,619
                                                                                        ------------------------------------
Liabilities
   Depreciation                                                                                  634,585           691,393
   Pensions and other employee benefits                                                          173,269           120,680
   Net unrealized gain on securities available for sale                                          320,331           195,827
   Discount accretion                                                                             30,647            43,129
   Mortgage servicing rights                                                                     121,862            71,480
                                                                                        ------------------------------------
         Total liabilities                                                                     1,280,694         1,122,509
                                                                                        ====================================
                                                                                          $     (756,153)   $     (606,890)
                                                                                        ====================================
</TABLE>

The income tax expense  (benefit)  attributed to net gains or losses on sales of
securities  available  for sale during 1998,  1997,  and 1996 was  approximately
$22,436, $3,747, and $(2,675).

                                      (50)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 13 --         Other Comprehensive Income
<TABLE>
<CAPTION>

                                                                                               1998
                                                                       -----------------------------------------------------
                                                                       Before-Tax Amount       Tax        Net-of-Tax Amount
Year Ended December 31                                                                       Expense
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>              <C>                <C>
Unrealized gains on securities:
   Unrealized holding gains arising during the year                      $      432,177   $     (146,940)    $     285,237
   Less: reclassification adjustment for gains realized in net income            65,988          (22,436)           43,552
                                                                       =====================================================
   Other comprehensive income                                             $     366,189   $     (124,504)    $     241,685
                                                                       =====================================================
</TABLE>

<TABLE>
<CAPTION>

                                                                                               1997
                                                                       -----------------------------------------------------
                                                                       Before-Tax Amount       Tax        Net-of-Tax Amount
Year Ended December 31                                                                       Expense
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>              <C>                <C>
Unrealized gains on securities:
   Unrealized holding gains arising during the year                        $    375,199     $   (120,459)    $     254,740
   Less: reclassification adjustment for gains realized in net income            11,019           (3,747)            7,272
                                                                       =====================================================
   Other comprehensive income                                              $    364,180    $    (116,712)     $    247,468
                                                                       =====================================================
</TABLE>

<TABLE>
<CAPTION>

                                                                                               1996
                                                                       -----------------------------------------------------
                                                                       Before-Tax Amount       Tax        Net-of-Tax Amount
Year Ended December 31                                                                       Benefit
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>              <C>                <C>
Unrealized losses on securities:
   Unrealized holding losses arising during the year                     $    (424,922)     $   137,364      $   (287,558)
   Less: reclassification adjustment for losses realized in net income          (7,868)           2,675            (5,193)
                                                                       =====================================================
   Other comprehensive income                                            $    (417,054)    $    134,689     $    (282,365)
                                                                       =====================================================
</TABLE>


Note 14 --         Commitments and Contingent Liabilities

In  the  normal  course  of  business  there  are  outstanding  commitments  and
contingent liabilities, such as commitments to extend credit and standby letters
of credit, which are not included in the accompanying financial statements.  The
Banks' exposure to credit loss in the event of nonperformance by the other party
to the  financial  instruments  for  commitments  to extend  credit and  standby
letters of credit is represented by the  contractual or notional amount of those
instruments.  The Banks use the same credit policies in making such  commitments
as they do for instruments that are included in the consolidated balance sheet.

Financial  instruments  whose  contract  amount  represents  credit  risk  as of
December 31 were as follows:

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

Commitments to extend credit       $57,150,000         $46,555,000
Standby letters of credit            1,224,000           4,626,000

                                      (51)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent future cash  requirements.  The Banks evaluate each customer's  credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary  by the Banks'  upon  extension  of credit,  is based on  management's
credit evaluation.  Collateral held varies but may include accounts  receivable,
inventory, property and equipment, and income-producing commercial properties.

Standby  letters of credit are  conditional  commitments  issued by the Banks to
guarantee the performance of a customer to a third party.

The Company and subsidiaries are also subject to claims and lawsuits which arise
primarily in the ordinary  course of business.  It is the opinion of  management
that the disposition or ultimate resolution of such claims and lawsuits will not
have a material  adverse effect on the  consolidated  financial  position of the
Company.


Note 15 --         Year 2000

Like all entities,  the Company and subsidiaries are exposed to risks associated
with  the Year  2000  Issue,  which  affects  computer  software  and  hardware;
transactions  with  customers,   vendors,  and  other  entities;  and  equipment
dependent upon  microchips.  The Company has begun,  but not yet completed,  the
process of identifying and remediating  potential Year 2000 problems.  It is not
possible for any entity to guarantee the results of its own remediation  efforts
or to accurately predict the impact of the Year 2000 Issue on third parties with
which the Company and  subsidiaries do business.  If remediation  efforts of the
Company or third parties with which the Company and subsidiaries do business are
not successful, the Year 2000 Issue could have negative effects on the Company's
financial condition and results of operations in the near term.

Note 16 --         Dividends and Capital Restrictions

Without  prior  approval of the  Comptroller  of the  Currency,  Decatur Bank is
restricted by national banking laws as to the maximum amount of dividends it can
pay in any calendar year to Decatur Bank's retained net profits (as defined) for
that year and the two  preceding  years.  At January 1, 1999,  Decatur  Bank had
available  retained  earnings  of  approximately  $3,138,000  for the payment of
dividends without obtaining prior regulatory approval.

Without  prior  approval,   Shelby  Bank  is  restricted  by  Illinois  law  and
regulations of the Office of Banks and Real Estate,  State of Illinois,  and the
FDIC as to the  maximum  amount  of  dividends  it can pay to its  parent to the
balance of the retained  earnings  account,  adjusted for defined bad debts.  At
January 1, 1999,  Shelby Bank had available  retained  earnings of approximately
$10,276,000 for the payment of dividends.

As a practical matter,  the Banks restrict  dividends to a lesser amount because
of their goal to maintain a strong capital structure.

                                      (52)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 17 --         Regulatory Capital

The  Company and Banks are subject to various  regulatory  capital  requirements
administered  by the  federal  banking  agencies  and are  assigned to a capital
category.  The assigned capital  category is largely  determined by three ratios
that are calculated  according to the regulations:  total risk adjusted capital,
Tier 1 capital,  and Tier 1 leverage ratios.  The ratios are intended to measure
capital  relative to assets and credit  risk  associated  with those  assets and
off-balance  sheet exposures of the entity.  The capital category assigned to an
entity can also be affected by qualitative judgments made by regulatory agencies
about the risk  inherent  in the  entity's  activities  that are not part of the
calculated ratios.

There are five capital categories defined in the regulations,  ranging from well
capitalized to critically  undercapitalized.  Classification of a bank in any of
the  undercapitalized  categories can result in actions by regulators that could
have a material effect on a bank's operations. At December 31, 1998, the Company
and  Banks are  categorized  as well  capitalized  and met all  subject  capital
adequacy requirements. There are no conditions or events since December 31, 1998
that management believes have changed the Company's or Banks' classification.

The Company's and Banks' actual and required  capital  amounts and ratios are as
follows:

<TABLE>
<CAPTION>

                                                                                 1998
                                            --------------------------------------------------------------------------------
                                                                          Required for Adequate          To Be Well
                                                       Actual                   Capital 1               Capitalized 1
                                            --------------------------------------------------------------------------------
December 31                                       Amount        Ratio       Amount        Ratio       Amount       Ratio
----------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>             <C>        <C>           <C>        <C>            <C>
Total capital 1 (to risk-weighted assets)
   Consolidated                                  $55,398,000     23.8%      $18,653,000   8.0%                      N/A
   Decatur Bank                                   36,340,000     17.5        16,595,000   8.0        $20,744,000    10.0%
   Shelby Bank                                    11,402,000     40.2         2,272,000   8.0          2,840,000    10.0

Tier I capital 1 (to risk-weighted assets)
   Consolidated                                   52,475,000     22.5         9,327,000   4.0                       N/A
   Decatur Bank                                   33,757,000     16.3         8,297,000   4.0         12,446,000     6.0
   Shelby Bank                                    11,243,000     39.6         1,136,000   4.0          1,704,000     6.0

Tier I capital 1 (to average assets)
   Consolidated                                   52,475,000     12.4        16,886,000   4.0                       N/A
   Decatur Bank                                   33,757,000      9.0        14,977,000   4.0         18,722,000     5.0
   Shelby Bank                                    11,243,000     16.1         2,799,000   4.0          3,499,000     5.0

</TABLE>

                                      (53)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

                                                                                 1997
                                            --------------------------------------------------------------------------------
                                                                          Required for Adequate          To Be Well
                                                       Actual                   Capital 1               Capitalized 1
                                            --------------------------------------------------------------------------------
December 31                                       Amount        Ratio       Amount        Ratio       Amount       Ratio
----------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>             <C>        <C>           <C>        <C>            <C>
Total capital 1 (to risk-weighted assets)
   Consolidated                                  $54,203,000     26.8%      $16,151,000   8.0%                      N/A
   Decatur Bank                                   35,103,000     19.3        14,552,000   8.0        $18,190,000    10.0%
   Shelby Bank                                    12,075,000     45.4         2,128,000   8.0          2,660,000    10.0

Tier I capital 1 (to risk-weighted assets)
   Consolidated                                   51,667,000     25.6         8,075,000   4.0                       N/A
   Decatur Bank                                   32,815,000     18.0         7,276,000   4.0         10,914,000     6.0
   Shelby Bank                                    11,939,000     44.9         1,064,000   4.0          1,596,000     6.0

Tier I capital 1 (to average assets)
   Consolidated                                   51,667,000     13.0        15,897,000   4.0                       N/A
   Decatur Bank                                   32,815,000     10.2        12,813,000   4.0         16,016,000     5.0
   Shelby Bank                                    11,939,000     17.1         2,790,000   4.0          3,487,000     5.0

</TABLE>

1 As defined by regulatory agencies

Note 18 --         Employee Benefit Plans

The Company's  defined-benefit  pension plan covers substantially all of Decatur
Bank's  and  FirsTech's  employees.  The  following  table sets forth the plan's
funded status and amounts recognized in the consolidated financial statements:

<TABLE>
<CAPTION>

December 31                                                                  1998              1997             1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>              <C>             <C>    
Change in benefit obligation
   Benefit obligation at beginning of year                               $    7,329,830   $    7,143,765  $      6,591,863
   Service cost                                                                 333,557          313,654           345,998
   Interest cost                                                                515,981          481,060           469,549
   Actuarial (gain) loss                                                      2,025,857         (320,464)           26,901
   Benefits paid                                                               (333,369)        (288,185)         (290,546)
                                                                       -----------------------------------------------------
   Benefit obligation at end of year                                          9,871,856        7,329,830         7,143,765
                                                                       -----------------------------------------------------
Change in plan assets
   Fair value of plan assets at beginning of year                             9,606,834        8,315,335         7,547,099
   Actual return on plan assets                                               1,582,727        1,579,684         1,058,782
   Benefits paid                                                               (333,369)        (288,185)         (290,546)
                                                                       -----------------------------------------------------
   Fair value of plan assets at end of year                                  10,856,192        9,606,834         8,315,335
                                                                       -----------------------------------------------------

   Funded status                                                                984,336        2,277,004         1,171,570
   Unrecognized net actuarial (gain) loss                                       288,888         (954,917)          254,154
   Unrecognized prior service cost                                             (212,302)        (238,038)         (257,493)
   Unrecognized transition asset                                               (318,198)        (424,262)         (530,326)
                                                                       =====================================================
   Prepaid benefit cost                                                   $     742,724    $     659,787     $     637,905
                                                                       =====================================================
</TABLE>

                                      (54)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

Year Ended December 31                                                       1998              1997             1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>              <C>               <C>    
Components of net periodic benefit cost
   Service Cost                                                           $     333,557    $     313,654     $     345,998
   Interest Cost                                                                515,981          481,060           469,549
   Expected return on plan assets                                              (799,956)        (691,077)         (629,396)
   Amortization of prior service cost                                           (25,736)         (19,455)          (19,455)
   Amortization of transitional asset                                          (106,064)        (106,064)         (106,064)
   Recognized net actuarial (gain) loss                                            (719)
                                                                       =====================================================
   Net periodic benefit cost                                             $      (82,937)   $     (21,882)    $      60,632
                                                                       =====================================================
Assumptions used in the accounting were:
   Discount Rate                                                                 7.00%            7.25%             7.25%
   Rate of increase in compensation                                              5.00%            5.00%             5.00%
   Expected long-term rate of return on assets                                   8.50%            8.50%             8.50%
</TABLE>


Decatur  Bank  and  FirsTech  have a  retirement  savings  401(k)  plan in which
substantially all employees may participate. Under this plan, employees are able
to make payroll deferrals not to exceed 15% of a participant's compensation.  No
matching contributions are made by the Company.

Decatur Bank and FirsTech also have an Employee  Stock  Ownership  Plan covering
substantially  all employees.  The cost of the plan is borne by Decatur Bank and
FirsTech  through  contributions to an Employee Stock Ownership Trust in amounts
determined by the Board of  Directors.  The  contributions  to the plan in 1998,
1997 and 1996 were $185,000, $173,000, and $156,000.

Shelby Bank has a profit  sharing plan  covering  substantially  all  employees.
Profit sharing expense for this plan was $54,488, $46,902, and $44,948 for 1998,
1997 and 1996.

Note 19 --         Related Party Transactions

The Banks have  entered into  transactions  with  certain  directors,  executive
officers,  significant  stockholders and their affiliates or associates (related
parties).  Such  transactions  were made in the  ordinary  course of business on
substantially  the same  terms  and  conditions,  including  interest  rates and
collateral,  as those  prevailing at the same time for  comparable  transactions
with other  customers,  and did not, in the opinion of management,  involve more
than normal credit risk or present other unfavorable features.

The  aggregate  amount of loans,  as defined,  to such  related  parties were as
follows:

Balances, January 1, 1998                            $ 3,038,000
Changes in composition of related parties                 98,000
New loans, including renewals                          2,512,000
Payments, etc., including renewals                    (1,416,000)
                                                 ===================
Balances, December 31, 1998                          $ 4,232,000
                                                 ===================

Deposits  from  related  parties held by the Banks at December 31, 1998 and 1997
totaled $3,418,000 and $3,154,000.

                                      (55)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Note 20 --         Earnings Per Share

Earnings per share (EPS) were computed as follows:
<TABLE>
<CAPTION>

                                Year Ended December 31, 1998      Year Ended December 31, 1997     Year Ended December 31, 1996
                              -----------------------------------------------------------------------------------------------------
                                           Weighted      Per                 Weighted     Per                 Weighted      Per
                                            Average     Share                 Average    Share                 Average   Share
                                Income       Shares    Amount     Income       Shares    Amount    Income       Shares    Amount
                              -----------------------------------------------------------------------------------------------------
<S>                            <C>          <C>           <C>    <C>          <C>          <C>    <C>          <C>           <C>  
Basic Earnings Per Share
   Income available to
     common stockholders       $5,611,424   2,882,370     $1.95  $5,093,058   2,885,090    $1.77  $4,519,924   2,900,533     $1.56
Effect of Dilutive Securities
   Stock options                                7,351                             3,557                            3,804
   Phantom stock units                          8,238                             7,157                            5,862
                              -----------------------------------------------------------------------------------------------------
Diluted Earnings Per Share
   Income available to
     common stockholders and
     assumed  conversions      $5,611,424   2,897,959     $1.94  $5,093,058   2,895,804    $1.76  $4,519,924   2,910,199     $1.55
                              =====================================================================================================
</TABLE>


Note 21 --         Fair Values of Financial Instruments

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instrument:

Cash  and Cash  Equivalents  -- The  fair  value  of cash  and cash  equivalents
approximates carrying value.

Securities  and  Mortgaged-Backed  Securities -- Fair values are based on quoted
market prices.

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

Interest  Receivable/Payable  -- The fair values of interest  receivable/payable
approximate carrying values.

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

Federal Funds Purchased and Securities Sold Under Repurchase Agreements--Federal
funds purchased and securities sold under  repurchase  agreements are short-term
borrowing  arrangements.  The rates at December  31,  1998 and 1997  approximate
market rates, thus, the fair value approximates carrying value.

U.S. Treasury Demand Notes -- The fair value of U.S. Treasury demand notes 
approximates carrying value.

FHLB  Advances  -- The  fair  value  of  these  borrowings  is  estimated  using
discounted cash flow analysis using interest rates currently  available for FHLB
advances with similar terms.

                                      (56)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

Off-Balance  Sheet  Commitments  --  Commitments  include  commitments to extend
credit and standby  letters of credit and are generally of a short-term  nature.
The fair value of such commitments are based on fees currently  charged to enter
into  similar  arrangements,  taking  into  account the  remaining  terms of the
agreements and the counterparties' credit standings.

The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>

                                                                    1998                               1997
                                                     -----------------------------------------------------------------------
                                                          Carrying           Fair            Carrying           Fair
December 31                                                Amount            Value            Amount            Value
----------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>              <C>               <C>              <C>         
Assets
   Cash and cash equivalents                             $ 43,369,165     $ 43,369,165      $ 40,024,696     $ 40,024,696
   Investment securities
     Available for sale                                   137,688,906      137,688,906       106,600,089      106,600,089
     Held to maturity                                      25,567,253       26,150,193        31,758,682       32,176,190
   Loans                                                  214,812,279      227,500,454       196,522,407      207,630,728
   Interest receivable                                      4,258,552        4,258,552         3,511,452        3,511,452

Liabilities
   Deposits                                               355,768,105      356,726,544       321,127,870      324,561,770
   Federal funds purchased and securities sold under
     repurchase agreements                                  9,386,310        9,386,310         8,448,064        8,448,064
   U.S. Treasury demand notes                                 891,646          891,646         3,151,013        3,151,013
   FHLB advances                                           17,904,373       18,090,023         2,954,140        2,985,306
   Interest payable                                         2,487,981        2,487,981         2,393,781        2,393,781

Off-balance sheet assets (liabilities)
   Commitments to extend credit                                     0                0                 0                0
   Standby letters of credit                                        0                0                 0                0

</TABLE>

Note 22 --         Business Industry Segments

The Company currently  operates in two industry  segments.  The primary business
involves  providing  the  typical  banking  services  of  generating  loans  and
receiving  deposits  from  customers.   The  Company  also  provides  remittance
processing and  remittance  collection  services.  The following is a summary of
selected data for the various business segments:

<TABLE>
<CAPTION>

                                         Banking         Remittance
                                        Services          Services        Company (1)      Eliminations         Total
----------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>               <C>             <C>                  <C>      
1998
   Total interest income                 $27,606,774    $     126,510                     $     (126,510)      $27,606,774
   Total non-interest income               4,400,676        5,753,214     $     140,889         (676,011)        9,618,768
   Total interest expense                 13,026,700                                            (126,510)       12,900,190
   Total non-interest expense             11,265,806        5,317,631           136,679         (676,011)       16,044,105
   Income before income tax                7,440,944          562,093             4,210                          8,007,247
   Income tax expense                      2,199,453          194,938             1,432                          2,395,823
   Total assets                          438,563,027        5,331,970        53,359,620      (55,562,255)      441,692,362
   Capital expenditures                      836,694          274,193                                            1,110,887
   Depreciation and amortization             970,601          332,000            24,120                          1,326,721
</TABLE>


                                      (57)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

                                         Banking         Remittance
                                        Services          Services        Company (1)      Eliminations         Total
----------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>            <C>               <C>             <C>                  <C>      
1997
   Total interest income                 $26,321,431   $       68,781                     $      (68,781)      $26,321,431
   Total non-interest income               3,984,798        4,769,532     $     140,654         (534,452)        8,360,532
   Total interest expense                 11,784,986                                             (68,781)       11,716,205
   Total non-interest expense             11,352,176        4,202,700           102,315         (534,452)       15,122,739
   Income before income tax                6,737,067          635,613            38,339                          7,411,019
   Income tax expense                      2,078,283          226,643            13,035                          2,317,961
   Total assets                          389,659,511        5,225,033        52,300,955      (54,948,133)      392,237,366
   Capital expenditures                      299,553          266,797                                              566,350
   Depreciation and amortization           1,080,848          384,300            24,000                          1,489,148

1996
   Total interest income                  25,477,859           46,896                            (46,896)       25,477,859
   Total non-interest income               3,850,088        6,183,478           145,951         (508,387)        9,671,130
   Total interest expense                 11,665,524                                             (46,896)       11,618,628
   Total non-interest expense             11,170,194        5,456,380           328,713         (508,387)       16,446,900
   Income (loss) before income tax         6,182,229          773,994          (182,762)                         6,773,461
   Income tax expense (benefit)            1,968,681          300,403           (15,547)                         2,253,537
   Total assets                          391,594,756        4,921,160        48,521,772      (50,914,827)      394,122,861
   Capital expenditures                      520,373          307,418                                              827,791
   Depreciation and amortization           1,018,082          704,000            24,385                          1,746,467

</TABLE>

(1) Excludes dividend income received from subsidiaries.

Information  related to services or transfers  between business  segments is not
reflected because such items are immaterial.


Note 23 --         Condensed Financial Information (Parent Company Only)

Presented  below is condensed  financial  information as to financial  position,
results of operations and cash flows of the Company:

<TABLE>
<CAPTION>

                                                  Condensed Balance Sheet
December 31                                                                                    1998             1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>               <C>          
Assets
   Cash                                                                                    $     978,217     $     302,695
   Investment in Banks                                                                        45,536,165        45,365,229
   Investment in FirsTech                                                                      5,462,609         5,282,809
   Other assets                                                                                1,443,047         1,398,070
                                                                                        ------------------------------------
         Total assets                                                                        $53,420,038       $52,348,803
                                                                                        ====================================

Liabilities                                                                               $       51,710     $      49,600
Stockholders' Equity                                                                          53,368,328        52,299,203
                                                                                        ------------------------------------
         Total liabilities and stockholders' equity                                          $53,420,038       $52,348,803
                                                                                        ====================================

</TABLE>

                                      (58)
<PAGE>

First Decatur Bancshares, Inc. and Subsidiaries
Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

                                               Condensed Statement of Income

Year Ended December 31                                                       1998              1997             1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>              <C>               <C>         
Income
   Dividends from Banks                                                   $  5,312,239     $  1,397,837      $  1,367,709
   Dividends from FirsTech                                                     187,355          187,102           159,078
   Other income                                                                140,889          140,654           145,951
                                                                       -----------------------------------------------------
         Total income                                                        5,640,483        1,725,593         1,672,738
                                                                       -----------------------------------------------------
Expenses                                                                       136,679          102,315           328,713
                                                                       -----------------------------------------------------
Income before income tax and equity in undistributed income of
   subsidiaries                                                              5,503,804        1,623,278         1,344,025
   Income tax expense                                                            1,432           13,035               690
                                                                       -----------------------------------------------------

Income before equity in undistributed income of subsidiaries                 5,502,372        1,610,243         1,343,335
Equity in undistributed income of subsidiaries                                 109,052        3,482,815         3,176,589
                                                                       =====================================================
Net Income                                                                $  5,611,424     $  5,093,058      $  4,519,924
                                                                       =====================================================
</TABLE>

<TABLE>
<CAPTION>


                                             Condensed Statement of Cash Flows
Year Ended December 31                                                       1998              1997             1996
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>              <C>               <C>         
Operating Activities
   Net income                                                             $  5,611,424     $  5,093,058      $  4,519,924
   Adjustments to reconcile net income to net cash provided by
     operating activities
     Equity in undistributed income of subsidiaries                           (109,052)      (3,482,815)       (3,176,589)
     Depreciation                                                               24,120           24,000            24,385
     Net changes in
       Other assets                                                            (15,476)          86,420           165,066
       Liabilities                                                               2,110           22,138            (2,708)
                                                                       -----------------------------------------------------
     Net cash provided by operating activities                               5,513,126        1,742,801         1,530,078

Financing Activities
   Dividends paid                                                           (1,499,594)      (1,384,837)       (1,277,085)
   Cash payment to acquisition dissenter                                                                         (125,024)
   Net treasury stock transactions                                          (3,338,010)        (171,404)         (275,505)
                                                                       -----------------------------------------------------
         Net cash used by financing activities                              (4,837,604)      (1,556,241)       (1,677,614)
                                                                       -----------------------------------------------------
Net Change in Cash                                                             675,522          186,560          (147,536)
Cash at Beginning of Year                                                      302,695          116,135           263,671
                                                                       -----------------------------------------------------
Cash at End of Year                                                        $   978,217      $   302,695       $   116,135
                                                                       =====================================================

</TABLE>

                                      (59)
<PAGE>
    
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         None


PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth  information  concerning each person who
is  currently  a director of  Bancshares  and each  person who is  currently  an
executive officer of Bancshares:
<TABLE>
<CAPTION>

Name                          Age     Bancshares Position                           General Information
----------------------------  ------- --------------------------------------------  --------------------------------------------
<S>                           <C>     <C>                                           <C>         
Ritchie G. Barnett            61      Senior Vice  President and Trust Officer of   Senior Vice  President and Trust Officer of
                                      the Decatur Bank                              the  Decatur  Bank since 1984 and  employed
                                                                                    by the Decatur Bank since 1965.

Milton J. Brahier             57      Director  and   President  of  the  Decatur   Director  and   President  of  the  of  the
                                      Bank; and Director of the Shelby Bank         Decatur  Bank  since 1997 and  employed  by
                                                                                    the Decatur Bank since March 1987.

J. Gerald Demirjian           66      Director of Bancshares,  the Decatur Bank ,   President   of  Climate   Control  Inc.  in
                                      and FirsTech                                  Decatur,  Illinois.  Climate  Control  Inc.
                                                                                    manufactures air conditioning  compressors,
                                                                                    carbon  seals  and  carburetion  equipment.
                                                                                    Mr.   Demirjian  has  been  a  director  of
                                                                                    Bancshares since March 1995.

Tom R. Dickes                 71      Chairman  of  the  Board  and  Director  of   Chairman  of  the  Board  of  Christy-Foltz
                                      Bancshares   and  the   Decatur   Bank  and   Inc., a  construction  contracting  company
                                      Director of FirsTech                          located in Decatur,  Illinois.  Mr.  Dickes
                                                                                    has been a  director  of  Bancshares  since
                                                                                    1981.

William T. Eichenauer         69      Director of Bancshares,  the Decatur Bank ,   Chairman  and Chief  Executive  Officer  of
                                      and FirsTech                                  Eichenauer  Services,  Inc., a  distributor
                                                                                    and   servicer  of  food   equipment.   Mr.
                                                                                    Eichenauer   has   been   a   director   of
                                                                                    Bancshares since 1994.

Pete P. Grosso                63      Secretary and  Treasurer of Bancshares  and   Secretary   and   Treasurer  of  Bancshares
                                      Senior Vice President/Personal  Banking and   since  1980  and  has  been   Senior   Vice
                                      Cashier of the Decatur Bank                   President  and Cashier of the Decatur  Bank
                                                                                    since 1991.

Larry D. Haab                 61      Director of Bancshares,  the Decatur Bank ,   Retired Director,  Chairman,  President and
                                      and FirsTech                                  Chief  Executive  Officer of Illinois Power
                                                                                    Company,   a   public   electric   and  gas
                                                                                    utility.    He   was   also   director   of
                                                                                    Illinova,  the holding company for Illinois
                                                                                    Power   Company.   Mr.   Haab  has  been  a
                                                                                    director of Bancshares since 1987.

Fred L. Kenney                40      Director of Bancshares,  the Decatur Bank ,   Attorney for Winters, Featherstun,  Gaumer,
                                      and FirsTech                                  Kenney,   Postlewait  and  Stocks.  He  has
                                                                                    been a director of Bancshares  since March,
                                                                                    1996.
</TABLE>

                                      (60)
<PAGE>

<TABLE>
<CAPTION>

Name                          Age     Bancshares Position                           General Information
----------------------------  ------- --------------------------------------------  --------------------------------------------
<S>                           <C>     <C>                                           <C>         
Gary S. Likins                58      Director of Bancshares,  the Decatur Bank ,   President  of  BLDD  Architects,  Inc.,  an
                                      and FirsTech                                  architectural  firm in  Decatur,  Illinois.
                                                                                   
                                                                                    He
                                                                                    has
                                                                                    been
                                                                                    a
                                                                                    director
                                                                                    of
                                                                                    Bancshares
                                                                                    since
                                                                                    1993.

John W. Luttrell              67      Director  and Chief  Executive  Officer  of   Director and President of Bancshares  since
                                      Bancshares;  Director of the Decatur  Bank;   1980.  In  addition,  he has been  employed
                                      Chairman  of  the  Board  and  Director  of   by  and a  Director  of  the  Decatur  Bank
                                      FirsTech; and Director of the Shelby Bank     since 1962 and 1967, respectively.

Robert M. Pancoast            53      Senior Vice  President and Trust Officer of   Senior Vice  President and Trust Officer of
                                      the Shelby  Bank;  Director  of the Decatur   the  Shelby   Bank  since  1984  and  1978,
                                      Bank and the Shelby Bank                      respectively.  He has been  employed by and
                                                                                    director  of the Shelby Bank since 1971 and
                                                                                    1978,  respectively.  Mr. Pancoast has been
                                                                                    a director  of the  Decatur  Bank since May
                                                                                    1996.  In  addition,  he  is  President  of
                                                                                    Shelbyville      Abstract     and     Title
                                                                                    Corporation,   an  abstracting   and  title
                                                                                    insurance firm in Shelbyville.

William E. Penhallegon        53      Director of Bancshares,  the Decatur Bank ,   Mr.  Penhallegon  is a  farm  operator.  He
                                      and FirsTech                                  has been a  director  of  Bancshares  since
                                                                                    1988.


Tom Sloan                     48      Director of Bancshares,  the Decatur Bank ,   President  and Chief  Executive  Officer of
                                      and FirsTech                                  Sloan  Implement  Co.,  Inc.,  a John Deere
                                                                                    implement  dealer in Assumption,  Illinois.
                                                                                    He has been a director of Bancshares  since
                                                                                    March 1995.

Jack L. Tate                  59      President of the Shelby  Bank;  Director of   President  of the Shelby  Bank since  1972.
                                      Bancshares,   the  Decatur   Bank  and  the   In  addition,  he has been  employed  and a
                                      Shelby Bank                                   director  of the Shelby Bank since 1960 and
                                                                                    1965,  respectively.  Mr.  Tate  has been a
                                                                                    director  of  Bancshares  and  the  Decatur
                                                                                    Bank since May 1996.

H. Gale Zacheis               60      Director of Bancshares,  the Decatur Bank ,   Practicing   physician   and   surgeon   in
                                      and FirsTech                                  Decatur,  Illinois.  He has been a director
                                                                                    of Bancshares since 1990.
</TABLE>


ITEM 11.  EXECUTIVE COMPENSATION

     The  executive  officers of  Bancshares  do not receive  compensation  from
Bancshares  in  their  capacities  as  officers  thereof,  but  instead  receive
compensation in their  capacities as officers of the Decatur Bank,  FirsTech and
the Shelby Bank.

Annual Compensation

     The following  table sets forth  compensation  for the years  presented for
services in all capacities for  Bancshares,  the Decatur Bank,  FirsTech and the
Shelby Bank by the President of Bancshares and the three executive  officers who
earned greater than $100,000 in salary and bonus during the fiscal

                                      (61)
<PAGE>

year ended  December 31, 1998. No other  executive  officer of Bancshares or its
subsidiaries  earned greater than $100,000 in salary and bonus during the fiscal
year ended December 31, 1998.
<TABLE>
<CAPTION>

                                                                                  Annual Compensation (1)
                                                                ------------------------------------------------------------
                                                                                                           All Other
                           Employee                              Year     Salary ($)    Bonus ($)     Compensation ($) (2)
--------------------------------------------------------------- -------- ------------- ------------- -----------------------
<S>                                                             <C>       <C>           <C>          <C>       
John W. Luttrell                                                1998          210,000        37,500      11,154.71 (3)
  President and Chief Executive Officer of Bancshares;          1997          210,000        30,000      15,054.56     
  Director of the Decatur Bank,  Chairman of the Board          1996          210,000        28,000      14,352.21         
  and Director of FirsTech; and Director of the Shelby                                                     
  Bank                                                                                                

Milton J. Brahier                                               1998          145,000        25,000       7,153.74 (4)
  Director and President of the Decatur Bank; and               1997          135,000        20,000       7,122.67
  Director of the Shelby Bank                                   1996          120,000        16,000       8,784.38

Matthew C. Graves (5)                                           1997            3,923
  Vice President/Financial Officer of the Decatur Bank          1996          102,000        10,000       5,257.86
  And President of FirsTech

 Pete P. Grosso                                                 1998           98,000        12,000       4,862.25 (6)
  Secretary and Treasurer of Bancshares and Senior Vice         1997           95,000        10,500       6,338.95
  President/Personal Banking and Cashier of the Decatur         1996           88,000        10,000       5,770.54
  Bank

Jack L. Tate                                                    1998          102,707        15,406       7,763.02 (7)
  President of the Shelby Bank; Director of                     1997           97,515        14,550       7,306.32
  Bancshares,  the Decatur Bank and the Shelby Bank             1996           93,500        14,025       7,012.50

Robert Pancoast                                                 1998           86,707        13,006       6,503.01 (8)
   Senior Vice President and Trust Officer of the               1997           82,630        11,850       6,189.86
   Shelby Bank; Director of the Decatur Bank                    1996           79,100        11,265       5,929.50
   and the Shelby Bank

</TABLE>

     (1) None of the named executive  officers received any perquisites or other
personal  benefits,  securities  or property in an amount  exceeding  10% of his
salary and bonus during the period listed.

     (2) All  allocations  to  Bancshares  Employee  Stock  Ownership  Plan (the
"ESOP")  referenced  in this column  represents  allocations  determined  in the
current year for service in the prior year.  Bancshares  has not  finalized  the
allocations to the ESOP accounts for service in 1998.

     (3) Includes  $6,728.71 in allocations to Mr. Luttrell's  account under the
ESOP and $4,426.00 in term life insurance premiums paid.

     (4) Includes  $6,453.74 in allocations to Mr.  Brahier's  account under the
ESOP and $700.00 in term life insurance premiums paid.

     (5) Mr.  Graves gave his  resignation  during  December of 1996,  effective
January 10, 1997.

     (6) Includes  $4,425.25 in  allocations to Mr.  Grosso's  account under the
ESOP and $437.00 in term life insurance premiums paid.

     (7)  Represents  Mr. Tate's  allocation  of the Shelby Bank Profit  Sharing
Plan.

     (8) Represents Mr. Pancoast's  allocation of the Shelby Bank Profit Sharing
Plan.

                                      (62)
<PAGE>

     The following  table shows for each of the named  executives the number and
value of unexercised stock options at the end of fiscal year 1997.
<TABLE>
<CAPTION>

                                         FISCAL YEAR-END OPTION/SAR VALUES
                                    Number of Securities Underlying                 Value of Unexercised
                                        Unexercised Options Held                    in-the-Money Options
                                           at Fiscal Year-End                        at Fiscal Year-End
Name                              Exercisable         Unexercisable         Exercisable        Unexercisable (1)
------------------------------- ----------------- ----------------------- ----------------- ------------------------
<S>                               <C>                 <C>                   <C>                <C>     
John W. Luttrell                       0                          15,000         0                         $154,950
Milton J. Brahier                      0                           1,500         0                           15,495
</TABLE>

     (1) Based upon an assumed fair market value of a share of Bancshares Common
Stock at December 31, 1998 of $28.00.

     No stock  options were  granted or  exercised  during the 1998 fiscal year.
During 1997 1,200 shares were forfeited  during the year due to the  resignation
of Mr.  Graves,  effective  January 10,  1997.  None of the issued  options were
exercisable at December 31, 1998, but become exercisable on January 1, 1999.

Retirement Income Plan

     Bancshares  maintains The First National Bank of Decatur  Retirement Income
Plan  ("RIP").  The  RIP  is  a  non-contributory,   defined  benefit  plan  for
substantially  all of the  employees  of the Decatur  Bank and  FirsTech.  To be
eligible to  participate  in the RIP an employee must have completed one year of
full-time  service.  The  amount  of a  participant's  pension  benefit  depends
primarily on years of  employment,  age at  retirement,  death or disability and
annual compensation levels.  Eligible employees accrue an annual pension benefit
of 2.75% of their annual compensation.  The normal retirement pension equals the
sum of such annual pension benefits.  Participants  become fully vested in their
accrued pension  benefits after five years of  participation in the RIP. The RIP
is not  integrated  with Social  Security.  Payment of vested  pension  benefits
normally begins at age 65 (the normal  retirement  age) but an early  retirement
benefit at a reduced level may be paid if a participant  is at least 55 years of
age with 5 years of service.  In  addition,  a  disability  benefit will be paid
before  age 65 if a  participant's  employment  is  terminated  by  reason  of a
disability and  participant is at least 50 years of age with 15 years of service
before termination.

     As of December 31, 1998, the estimated annual pension benefits payable upon
retirement  at age 65 for the  executive  officers  named  above in the  Summary
Compensation  Table are as follows:  $150,000 for Mr. Luttrell,  $60,000 for Mr.
Brahier,  and  $65,000  for  Mr.  Grosso.  These  estimates  are  based  on  the
assumptions  that each of the  officers,  will remain as employees of Bancshares
until age 65 without an increase from 1996 levels in the  compensation  included
for purposes of the RIP and that the annual  benefit rate remains 2.75% of total
annual compensation.

Director Compensation

     During 1998, Tom R. Dickes, Chairman of the Board of Bancshares, received a
monthly  retainer of $2,583.33.  He did not receive any other  compensation  for
board meetings attended. All other non-employee directors of Bancshares received
a monthly  retainer of $416.66 in 1998.  In addition,  for each regular  monthly
Bancshares board meeting attended, each non-employee director received $350; and
for each special board meeting of Bancshares, the Decatur Bank or FirsTech

                                      (63)
<PAGE>

attended  and for each  committee  meeting of  Bancshares,  the Decatur  Bank or
FirsTech  attended,  each  non-employee  director  received  $175.  Directors of
Bancshares who are directors of the Decatur Bank and FirsTech do not receive any
additional  compensation  for  regular  monthly  meetings  of the  boards of the
Decatur and FirsTech.  Employee  directors do not receive any  compensation  for
serving as directors.

     In lieu of receiving  cash  payments for  attendance at board and committee
meetings,  non-employee  directors of Bancshares  may  participate in a deferred
directors  compensation program which was adopted June 30, 1994. Under the plan,
a  non-employee  director  may  defer  director  fees into a fixed  income  fund
maintained by the trust  department of the Decatur Bank or,  alternatively,  may
receive  phantom stock units in lieu of director  fees.  Bancshares  maintains a
record of the number of phantom stock units each director  acquires  through the
deferral fees.  Phantom stock units are purchased at a price equal to the market
price of Bancshares Common Stock based upon the most recent purchase of stock by
Bancshares.  Each  participating  director's  account is  increased by an amount
equal to any stock dividend or stock split  declared and paid by Bancshares.  At
December  31,  1998,  7  non-employee  directors  had  deferred an  aggregate of
$220,090 in director fees, which represented 10,265 phantom stock units.

     During 1998,  directors of the Shelby Bank  received  $600 for each regular
monthly board meeting attended and $400 for each special board meeting attended.
In  addition,  there is a $3,500  annual  retainer  fee for  members of the Loan
Committee and Audit Committee. Jack L. Tate and Robert M. Pancoast each received
a  $1,000  annual  retainer  fee as  Chairmen  of the Loan  and  Trust  Advisory
Committees, respectively.

     Bancshares maintains a compensation  committee consisting of six members of
the Board of Directors.  The following directors are members of the compensation
committee:  Tom Dickes, John Luttrell,  Gary Likins,  William Penhallegon,  Fred
Kenney and Gale Zacheis.  Mr.  Luttrell is the only  executive  officer who is a
member of the committee.

Employment Contracts

     Bancshares  and the Decatur Bank have entered  into  individual  employment
agreements with Messrs.  Luttrell,  Brahier and Grosso. The agreements were made
as of June 1, 1987 for an initial term of employment  through  December 31, 1989
and  successive  three-year  periods  thereafter.  The  current  period  expired
December 31, 1998.  Neither  Bancshares nor either employee has delivered notice
terminating  such agreements;  accordingly,  the agreements will continue for an
additional  three-year  period until December 31, 2001, unless sooner terminated
by their  respective  terms.  The  employment  agreements  set forth the monthly
salary and general benefits to be provided Messrs. Luttrell, Brahier and Grosso.
The employment agreements are terminable by the employee upon 30 days' notice to
Bancshares. Bancshares may terminate the employment agreement for cause, such as
fraud or illegal acts, and upon 30 days' written  notice,  without cause. If the
employee is terminated  without  cause,  the Decatur Bank is required to pay the
employee a severance  payment  equal to two times the  employee's  then  current
annual salary. Messrs. Luttrell, Brahier and Grosso also are entitled to receive
such severance  payment amount in the event of involuntary  termination due to a
permanent disability.

     In the event the employment  agreements with Mr.  Luttrell,  Mr. Brahier or
Mr. Grosso are involuntarily  terminated within two years of a change in control
of the Decatur Bank,  either  terminated  employee is entitled to receive a lump
sum cash payment equal to 200% of such  employee's  then current base salary.  A
change in control is defined in the employment agreements as the acquisition of

                                      (64)
<PAGE>

40% or more of the voting control of the Decatur Bank by any one person or group
or a change in the  majority of the board of  directors  following a  successful
tender offer, merger or other business combination.

     Bancshares and Shelby Bank have entered into an agreement with Messrs. Tate
and  Pancoast.  The agreement  provides  that Messrs.  Tate and Pancoast will be
employed  by the Shelby  Bank in his  current  positions  for a five year period
(beginning  April 1, 1996) at an agreed upon salary and  benefits.  The employee
may be terminated with or without cause;  however, if the employee is terminated
without  cause the Shelby  Bank is  required  to pay the  employee  a  severance
payment  equal to what the  employee  would have been paid under the term of the
agreement  and is required to allow the employee to continue to  participate  in
all employee benefit plans as if the employee continued to be an employee of the
Shelby Bank for the remaining term of the five-year  period.  During the term of
the  agreement  and for a five-year  period after the  employee's  employment is
terminated  ("Noncompete  Period"),  the employee has agreed not to compete with
Bancshares within a 60-mile radius around the Shelby Bank.  However, if a Change
in Control  relating to Bancshares or the Shelby Bank occurs,  the employee will
not be subject to the noncompetition provisions except that the employee will be
subject to such noncompete  provision during such part of the Noncompete  Period
the employee is paid monthly  compensation  equal to the employee's  most recent
salary.  The  agreement  defines  the  term  "Change  in  Control"  to mean  the
acquisition  by one  entity,  person  or group  (other  than an  entity in which
Bancshares holds more than 50% of the voting stock) of 40% or more of the voting
stock of  Bancshares or the Shelby Bank or a change in the majority of the board
of directors of Bancshares  or the Shelby Bank after a successful  tender offer,
merger or other  business  combination,  excluding any merger or other  business
combination  with any  entity  in which  Bancshares  holds  more than 50% of the
voting stock of such entity.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain  information  regarding  Bancshares'
Common Stock beneficially owned on December 31, 1998 with respect to all persons
known to  Bancshares  to be the  beneficial  owner of more than five  percent of
Bancshares'  Common Stock,  each director and nominee,  each  executive  officer
named in the Summary Compensation Table and all directors and executive officers
of Bancshares as a group.

                                      (65)
<PAGE>

<TABLE>
<CAPTION>

                      Name of Beneficial Owner                        Number of Shares          % of Class
                                                                                                   (1)
--------------------------------------------------------------------- -----------------        -------------
<S>                                                                   <C>                      <C>
5% Stockholders:

CEDE & Co.                                                                     286,752  (2)          10.36%

  P.O. Box 20

  Bowling Green Station

  New York, NY 10274


The First National Bank of Decatur, as Trustee                                 482,373  (3)          17.42%

  130 North Water Street

  Decatur, IL  62523


John Robinson Bumstead                                                         141,858                5.12%

  11 Downing Way

  Madison CN 06443


Directors:

Milton J. Brahier                                                                9,456  (4)               *

J. Gerald Demirjian                                                                500                    *

Tom R. Dickes                                                                  156,226  (5)           5.64%

William T. Eichenauer                                                            1,000                    *

Larry D. Haab                                                                    3,600                    *

Fred L. Kenney                                                                   1,970  (6)               *

Gary S. Likins                                                                   1,050                    *

John W. Luttrell                                                                33,145  (7)           1.20%

Robert M. Pancoast                                                              21,225                    *

William E. Penhallegon                                                           5,358  (8)               *

Tom Sloan                                                                       14,636                    *

Jack L. Tate                                                                    33,500                1.21%

H. Gale Zacheis, M.D.                                                            4,900  (9)               *


Directors as a group (13 persons)                                              286,566               10.35%
</TABLE>


         *      Less than one percent.

     (1) Based upon 2,768,942 issued and outstanding shares of Bancshares Common
Stock at December 31, 1998.

                                      (66)
<PAGE>

     (2) CEDE & Co. holds such shares as nominee for Midwest  Clearing  House, a
clearing  operation or brokerage firms.  Bancshares does not have any additional
information regarding the ownership of such shares.

     (3)  Includes  122,954  shares  held as  trustee of  Bancshares's  ESOP and
359,419  shares  held as  trustee  of  other  individual  trusts,  none of which
beneficially holds five percent or more of Bancshares Common Stock.

     (4)  Includes  500  shares  held  individually,  2,100  shares  held  in an
individual  retirement  account,  1,800  shares held in joint  tenancy  with his
spouse,  3,228  shares  (rounded to nearest  whole  share) in the ESOP and 1,828
shares held by spouse individually.

     (5) Includes  134,976  shares held  individually  and 21,250 shares held by
spouse individually.

     (6)  Includes  780 shares  held  individually,  1,000  shares held in joint
tenancy with his spouse, and 190 shares held by spouse individually.

     (7)  Includes  12,750  shares held  individually,  3,671  shares held in an
individual retirement account, 12,724 shares (rounded to nearest whole share) in
the ESOP and 4,000 shares held by his spouse individually.

     (8)  Includes  5,058  shares held  individually  and 300 shares held by his
spouse individually.

     (9)  Includes  4,300  shares held  individually  and 600 shares held by his
spouse individually.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Since January 1, 1994, the Decatur Bank has paid Christy-Foltz Inc. a total
of  approximately   $128,000  for  construction   services  in  connection  with
remodeling and repairing the Decatur Bank's offices. Tom R. Dickes,  Chairman of
the  Board  of  Bancshares,  is a  shareholder  and  Chairman  of the  Board  of
Christy-Foltz Inc.

     Mr.  Kenney  is an  attorney  for  Winters,  Featherstun,  Gaumer,  Kenney,
Postlewait and Stocks, a law firm in Decatur, Illinois.  Bancshares does not use
the services of this law firm.

     Mr. Pancoast owns and operates  Shelbyville Abstract and Title Corporation,
a real estate abstract and title company located in Shelbyville, Illinois, which
does real estate work for the Shelby  Bank.  Shelby  Bank  utilizes  Shelbyville
Abstract  and Title  Corporation,  along with  other  local  abstract  and title
companies,  for its real estate  work.  Bancshares  intends to increase the real
estate lending activities of the Shelby Bank.

     The  Decatur  Bank and the  Shelby  Bank has made  loans to its  directors,
officers and employees in the ordinary course of business. These loans were made
on substantially  the same terms,  including  interest rates and collateral,  as
those prevailing at the time the loan was originated for comparable transactions
with  non-affiliated  persons and do not, in the opinion of Bancshares,  involve
more than the normal risk of  collectibility  or present  any other  unfavorable
features.  As of December 31, 1998,  the Decatur Bank and the Shelby Bank had an
aggregate of  approximately  $4.2 million of outstanding  loans to its directors
and executive officers and their affiliates.

                                      (67)
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)  Financial Statement Schedules

     The  following   consolidated   financial  statements  and  financial  
     statement schedules of the  registrant  are filed as part of this  document
     under Item 8, Financial Statements:

     Consolidated Balance Sheet - December 31, 1998 and 1997

     Consolidated  Statement of Income - For the Years Ended  December 31, 1998,
     1997 and 1996

     Consolidated  Statement of Changes in Stockholders'  Equity - For the Years
     Ended December 31, 1998, 1997 and 1996

     Consolidated  Statement  of Cash Flows - For the Years Ended  December  31,
     1998, 1997 and 1996

     Notes to Consolidated  Financial  Statements - For the Years Ended December
     31, 1998, 1997 and 1996


(b)  Reports on Form 8-K

     There were no reports  on Form 8-K filed by the  registrant  during the
     quarter ended December 31, 1998.


(c)  Exhibits

     The exhibits  required by Item 601 of Regulation S-K and filed herewith
     are listed in the Exhibit Index that follows the Signature Page and  
     immediately precedes the exhibits filed.

                                      (68)
<PAGE>


                                  SIGNATURES

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

                              FIRST DECATUR BANCSHARES, INC.

                              By: /s/ John W. Luttrell            3/9/99
                                  ---------------------------     -------
                                  John W. Luttrell, President     Date
                                  and Chief Executive Officer

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

By: /s/ John W. Luttrell          3/9/99     By: /s/ Tom R. Dickes       3/9/99
    ---------------------------   -------        ---------------------- -------
    John W. Luttrell, President   Date           Tom R. Dickes,         Date
    and Chief Executive Officer                  Chairman of the Board

By: /s/ Craig A. Wells            3/9/99
    ---------------------------   ------
    Craig A. Wells, Principal     Date
    Principal Financial and  
    Controller

By: /s/ Milton J. Brahier         3/9/99      By: /s/ Gerald Demirjian   3/9/99
    ---------------------------   -------         ---------------------- ------
    Milton J. Brahier,            Date            Gerald Demirjian,      Date
    Director                                      Director

By: /s/ William Eichenauer        3/9/99      By:
    ---------------------------   -------         ---------------------- ------
    William Eichenauer,           Date            Larry D. Haab,         Date
    Director                                      Director

By:                                           By: /s/ Gary S. Likins     3/9/99
    ---------------------------   -------         ---------------------- -------
    Fred L. Kenney,               Date            Gary S. Likins,        Date
    Director                                      Director

By: /s/ William E. Penhallegon    3/9/99      By: /s/ Tom Sloan          3/9/99
    ---------------------------   -------         ---------------------- -------
    William E. Penhallegon,       Date            Tom Sloan,             Date
    Director                                      Director

By: /s/ Jack L. Tate              3/9/99      By: /s/ H. Gale Zacheis    3/9/99
    ---------------------------   -------         ---------------------- -------
    Jack L. Tate,                 Date            H. Gale Zacheis, M.D., Date
    Director                                      Director


Supplemental  Information to Be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.

         Bancshares  Annual Report to Stockholders and Proxy Statement have been
supplied supplementally to the Commission.


                                      (69)
<PAGE>


                                  EXHIBIT INDEX
<TABLE>
<CAPTION>

   Exhibit    
     No.                               Description                               Filing or Incorporation Reference       
-------------     ------------------------------------------------------    ------------------------------------------------------
<S>               <C>                                                       <C>         
3.1               Articles of Incorporation                                 Incorporated  by  reference  to  Exhibit  3.1  to the
                                                                            Registrant's Form S-4, Registration Statement,  filed
                                                                            on December 13, 1995, Registration No. 33-80333

3.2               Bylaws of the Company                                     Incorporated  by  reference  to  Exhibit  3.2  to the
                                                                            Registrant's Form S-4, Registration Statement,  filed
                                                                            on December 13, 1995, Registration No. 33-80333

10.1              First Decatur Bancshares,  Inc. Employee Stock Option     Incorporated  by  reference  to Exhibits  10.1 to the
                  Plan                                                      Registrant's Form S-4,  Registration  Statement filed
                                                                            on December 13, 1995, Registration No. 33-80333

10.2              Employment  Contract  dated as of June 1,  1997  with     Incorporated  by  reference  to Exhibits  10.2 to the
                  John W. Luttrell                                          Registrant's Form S-4,  Registration  Statement filed
                                                                            on December 13, 1995, Registration No. 33-80333

10.3              Employment  Contract  dated as of June 3,  1987  with     Incorporated  by  reference  to Exhibits  10.3 to the
                  Milton J. Brahier                                         Registrant's Form S-4,  Registration  Statement filed
                                                                            on December 13, 1995, Registration No. 33-80333

10.4              Employment  Contract  dated as of June 1,  1987  with     Incorporated  by  reference  to Exhibits  10.4 to the
                  Pete P. Grosso                                            Registrant's Form S-4,  Registration  Statement filed
                                                                            on December 13, 1995, Registration No. 33-80333

10.5              Employment Agreement with Jackie L. Tate                  Incorporated  by  reference  to Exhibits  10.5 to the
                                                                            Registrant's Form S-4,  Registration  Statement filed
                                                                            on December 13, 1995, Registration No. 33-80333

10.6              Employment Agreement with Robert M. Pancoast              Incorporated  by  reference  to Exhibits  10.6 to the
                                                                            Registrant's Form S-4,  Registration  Statement filed
                                                                            on December 13, 1995, Registration No. 33-80333

21.1              Subsidiaries of the Registrant                            Filed herewith

27.1              Financial Data Schedule                                   Filed herewith
</TABLE>

                                      (70)