As filed with the Securities and Exchange Commission on September 25,
1996 Registration No. 333-9891

- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

AMENDMENT NO. 2 TO

FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
------------------------
UNIONBANCORP, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 6027 36-3145350
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)

------------------------
122 WEST MADISON STREET

OTTAWA, ILLINOIS 61350
(815) 434-3900
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
R. SCOTT GRIGSBY

CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
UNIONBANCORP, INC.
122 WEST MADISON STREET
OTTAWA, ILLINOIS 61350
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

With copies to:

JOHN E. FREECHACK, ESQ. RICHARD G. CLEMENS, ESQ.
DENNIS R. WENDTE, ESQ. TRACY D. DAW, ESQ.
BARACK, FERRAZZANO, KIRSCHBAUM & SIDLEY & AUSTIN
PERLMAN ONE FIRST NATIONAL PLAZA
333 WEST WACKER DRIVE, SUITE 2700 CHICAGO, ILLINOIS 60603
CHICAGO, ILLINOIS 60606 (312) 853-7000
(312) 984-3100

Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy, nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.

SUBJECT TO COMPLETION, DATED SEPTEMBER 25, 1996

1,100,000 SHARES

UNIONBANCORP, INC.

COMMON STOCK

All of the shares of Common Stock, par value $1.00 per share (the "Common
Stock"), of UnionBancorp, Inc. (the "Company") being offered hereby (this
"Offering") are being sold by the Company. The Company, which is headquartered
in Ottawa, Illinois, had two subsidiary banks as of June 30, 1996, UnionBank,
with its main office located in Streator, Illinois, and UnionBank/Sandwich, with
its main office located in Sandwich, Illinois. In August, 1996, the Company
purchased Prairie Bancorp, Inc., a multi-bank holding company headquartered in
Princeton, Illinois, and its six bank subsidiaries. See "The Acquisitions --
Prairie Bancorp, Inc. -- Business." Immediately prior to the closing of this
Offering, the Company also expects to complete the purchase of Country
Bancshares, Inc., a bank holding company headquartered in Macomb, Illinois, and
its bank subsidiary, Omni Bank. See "The Acquisitions -- Country Bancshares,
Inc. -- Business." It is estimated that the offering price for the Common Stock
will be between $11.00 and $12.00 per share. The proceeds of this Offering will
be used to retire debt that was incurred or assumed by the Company in connection
with these acquisitions. See "Use of Proceeds" and "The Acquisitions." At the
request of the Company, the Underwriter has reserved up to approximately 110,000
shares of Common Stock for sale to directors, executive officers and other
affiliates of the Company who have expressed an interest in purchasing shares of
Common Stock in this Offering.

The Common Stock is currently quoted on the OTC Bulletin Board, and has
been approved for quotation on the Nasdaq National Market under the symbol
"UBCD" upon consummation of the Offering. As of September 24, 1996, the last per
share sale price for Common Stock quoted on the OTC Bulletin Board was $12.00.
See "Market for Common Stock and Dividends."

THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.

SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY EACH PROSPECTIVE INVESTOR.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------

- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
PRICE TO PROCEEDS TO
PUBLIC UNDERWRITING COMPANY(2)
DISCOUNT AND
COMMISSIONS(1)

- ---------------------------------------------------------------------------------------------------
Per Share.................. $ $ $
- ---------------------------------------------------------------------------------------------------
Total(3)................... $ $ $
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------

(1) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $ .
(3) The Company has granted the Underwriter a 30-day option to purchase up to
165,000 additional shares of Common Stock, on the same terms and conditions
as set forth above, solely to cover over-allotments, if any. See
"Underwriting." If the Underwriter exercises such option in full, the total
Price to Public, Underwriting Discount and Commissions and Proceeds to
Company will be $ , $ and $ , respectively.
---------------------

The shares of Common Stock are offered by the Underwriter when, as and if
received and accepted by it, subject to its right to reject orders in whole or
in part and subject to certain other conditions. It is expected that delivery of
the certificates for the shares of Common Stock will be made against payment
therefor in Chicago, Illinois, on or about , 1996.

HOEFER & ARNETT
INCORPORATED

, 1996
3

UNIONBANCORP, INC.

CURRENT AND PROPOSED MARKET AREA

UNIONBANCORP MAP

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the detailed
information and financial statements appearing elsewhere in this Prospectus. All
per share amounts in this Prospectus have been adjusted for a three-for-one
split of the Common Stock in the form of a dividend which took effect on May 20,
1996. Unless the context clearly suggests otherwise, references in this
Prospectus to the Company include all of its direct and indirect subsidiaries.
Except as otherwise indicated, the information contained in this Prospectus
assumes the Underwriter's over-allotment option is not exercised.

THE COMPANY

UnionBancorp, Inc. (the "Company"), is a multi-bank holding company
headquartered in Ottawa, Illinois, located approximately 85 miles southwest of
Chicago. The Company is one of the leading banking and trust institutions in
LaSalle and contiguous counties in north central Illinois as evidenced by its
approximate 11% share of deposits in LaSalle County. The Company conducts a full
service community banking and trust business through its two subsidiary banks:
UnionBank ("UnionBank/Streator") and UnionBank/Sandwich ("UnionBank/Sandwich,"
and collectively with UnionBank/Streator, the "Union Banks"). The Company also
operates three non-bank subsidiaries engaged in providing data processing, debt
collection and property management services to the Union Banks and third
parties. At June 30, 1996, the Company had consolidated assets of approximately
$296.6 million, deposits of approximately $259.1 million and stockholders'
equity of approximately $23.5 million.

UnionBank/Streator has four locations in Ottawa, three in Streator, and one
in each of Triumph and Peru, Illinois. UnionBank/Sandwich has one location in
each of Sandwich and Plano, Illinois. The Union Banks operate as community banks
that focus on long-term relationships with customers and providing
individualized quality service. Reflecting its community banking heritage, the
Company has a stable deposit base from customers located within its north
central Illinois market area. Its recent financial performance is characterized
by consistent core earnings, an increasingly diversified loan portfolio and
strong asset quality.

On August 6, 1996, the Company acquired six additional bank subsidiaries
through the purchase of Prairie Bancorp, Inc. ("Prairie"), a multi-bank holding
company headquartered in Princeton, Illinois. The main offices of Prairie's
subsidiary banks (collectively, the "Prairie Banks") are located in the Illinois
communities of Ferris, Hanover, Ladd, Manlius, Tampico and Tiskilwa. The Prairie
Banks also have branches in three other Illinois communities. Immediately prior
to the closing of this Offering, the Company also expects to complete the
acquisition of Country Bancshares, Inc., a one-bank holding company
headquartered in Hull, Illinois ("Country"), with offices in six western
Illinois communities not currently served by the Company. The acquisition of
Prairie (the "Prairie Acquisition") and the acquisition of Country (the "Country
Acquisition," and, together with the Prairie Acquisition, the "Acquisitions")
will increase the total assets of the Company from approximately $296.6 million
to $633.3 million, an increase of 114%. See the summary descriptions of the
acquisitions set forth below and "The Acquisitions." On August 1, 1996, the
Company also acquired LaSalle County Collections, Inc. ("LaSalle Collections"),
a small collection agency located in Ottawa, Illinois.

The Company's strategic plan contemplates an increase in profitability and
stockholder value through a significant expansion of the Company's market area,
substantial growth in its asset size and improved operational efficiencies. In
1993, the Company began implementing this plan by realigning its management
structure through the redefinition of certain officers' duties and functions,
hiring additional experienced senior executives and developing among its
employees an aggressive sales culture. The acquisitions of Prairie and Country
are expected to increase significantly the presence of the Company within the
region's banking industry. Because of the reputations of the Company and its
executive officers in the banking industry, the Company believes that it will be
an attractive alternative to future sellers of community banks and thrifts. The
Company believes that it can successfully manage these community-based
institutions to increase their profitability by expanding cross-selling efforts
and emphasizing those products and services offering the highest return on
investment.

3
5

The Company's operating strategy is to provide customers with the business
sophistication and breadth of products of a regional financial services company,
while retaining the special attention to personal service and the local appeal
of a community bank. Decentralized decision making authority vested in the
presidents and senior officers of the Company's bank subsidiaries allows for
rapid response time and flexibility in dealing with customer requests and credit
needs. The participation of the Company's directors, officers and employees in
area civic and service organizations demonstrates the Company's continuing
commitment to the communities it serves. Management believes that these
qualities distinguish the Company from its competitors and will allow the
Company to compete successfully in its market area against larger regional and
out-of-state institutions.

THE ACQUISITIONS

The Prairie Acquisition was completed on August 6, 1996, and the Country
Acquisition is expected to be consummated immediately prior to the closing of
this Offering. The Acquisitions will increase the Company's assets from $296.6
million to $633.3 million and the number of its banking locations from 11 to 27.

Prairie is a multi-bank holding company that owns the six Prairie Banks. In
addition to their respective main office locations, the Prairie Banks have four
branch locations in the Illinois communities of Carthage, Elizabeth and
Princeton. Country is a one-bank holding company that owns all of the capital
stock of Omni Bank. Omni Bank's main office is located in Macomb, Illinois, with
branch locations in five nearby Illinois communities. Prairie and Country had
consolidated assets at June 30, 1996 of approximately $226.0 million and $103.2
million, respectively.

Management of the Company believes that the Acquisitions present an
excellent opportunity for increased earnings. The Prairie Banks have
traditionally maintained a low loan to deposit ratio and instead have
concentrated on attempting to increase earnings through management of their
investment portfolios. Recently, profitability of the Prairie Banks has declined
as interest rates have continued to rise and investment portfolio values have
fallen. The Company intends to increase the profitability of the Prairie Banks
by expanding their loan portfolios. The Company believes that it can grow the
Prairie Banks' loan portfolios by enhancing marketing efforts, expanding loan
products and increasing employee training. The Company also believes that by
following a more conservative investment policy, it will be able to reduce the
size of and better manage the investment portfolios of the Prairie Banks.

Omni Bank has experienced rapid growth in recent years. In certain
circumstances, this rapid growth has strained Omni Bank's administrative and
data processing capabilities. The Company believes that consolidation of the
administrative operations of Omni Bank and improved management controls will
lead to improved efficiencies and will help to ensure that future expansion is
managed profitably.

In addition to the immediate increase in asset size and the potential for
improved future profitability, the Acquisitions will allow the Company to expand
its market area into what it believes are desirable banking locations. Most of
the Prairie Banks are the sole financial institution in their communities and
many are located in county seats and Omni Bank is based in a growing college
community. Through the Acquisitions, the Company will increase from two bank
subsidiaries with 11 locations in north central Illinois; to nine bank
subsidiaries and 27 locations in 13 counties across northern, north central and
western Illinois. The resulting market area of the Company will extend from the
far western suburbs of the Chicago metropolitan area across central and northern
Illinois to the Mississippi River in western Illinois. This expansion will
increase the geographic diversity of the Company's loan portfolio which is
expected to decrease the Company's overall lending risks. See "The Acquisitions
- -- Prairie Bancorp, Inc." and "-- Country Bancshares, Inc."

4
6

The table below presents certain unaudited condensed and consolidated
historical financial and operating data for the Company and certain unaudited
pro forma condensed combined financial and operating data for the Company after
giving effect to (i) this Offering, (ii) the Acquisitions as if they had each
occurred as of June 30, 1996 and (iii) the pro forma adjustments described in
the Notes to the Unaudited Pro Forma Combined Condensed Financial Statements of
the Company which appear elsewhere in this Prospectus. The amount of Pro Forma
Combined Net Income for the six-month period ended June 30, 1996, shown below
does not reflect revenue enhancements or cost savings anticipated by management
of the Company as a result of the Acquisitions.

AS OF AND FOR THE
SIX MONTHS ENDED
JUNE 30, 1996
---------------------
PRO FORMA
ACTUAL COMBINED
-------- ---------
(DOLLARS IN
THOUSANDS)

Assets.................................................................. $296,605 $ 633,254
Loans, net of unearned discount......................................... 185,840 325,001
Deposits................................................................ 259,087 537,773
Stockholders' equity.................................................... 23,452 41,659
Net income.............................................................. 1,111 1,493

THE OFFERING

Common Stock being offered
hereby........................... 1,100,000 shares(1)(2)
Common Stock outstanding after the
Offering......................... 3,951,403 shares(1)
Use of proceeds.................... The net proceeds of the Offering will be used to
facilitate the Acquisitions by retiring debt that was
incurred or assumed by the Company in connection with
the Acquisitions, thus allowing the Company to continue
to meet its necessary regulatory capital requirements.
See "Use of Proceeds."
Nasdaq symbol...................... "UBCD"

- -------------------------
(1) An additional 165,000 shares of Common Stock may be sold pursuant to an
over-allotment option granted by the Company to the Underwriter. See
"Underwriting."

(2) Of such shares, 110,000 have been reserved for sale to the Company's
directors, executive officers and other affiliates. See "Beneficial
Ownership of Common Stock" and "Underwriting."

5
7

UNIONBANCORP, INC.

SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------

STATEMENT OF INCOME DATA
Interest income..................... $ 11,278 $ 10,193 $ 21,368 $ 18,627 $ 18,604 $ 20,127 $ 19,437
Interest expense.................... 5,850 5,217 11,249 8,706 8,798 10,482 11,595
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income............... 5,428 4,976 10,119 9,921 9,806 9,645 7,842
Provision for loan losses........... 500 342 684 660 1,268 1,297 650
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses....... 4,928 4,634 9,435 9,261 8,538 8,348 7,192
Noninterest income.................. 1,324 1,187 2,570 2,283 2,512 1,893 1,580
Noninterest expense................. 4,761 4,413 8,771 8,247 7,841 7,335 6,965
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before income taxes...... 1,491 1,408 3,234 3,297 3,209 2,906 1,807
Provision for income taxes.......... 380 365 881 703 747 595 507
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........................ $ 1,111 $ 1,043 $ 2,353 $ 2,594 $ 2,462 $ 2,311 $ 1,300
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA(1)
Net income.......................... $ 0.51 $ 0.49 $ 1.09 $ 1.22 $ 1.15 $ 1.08 $ 0.61
Cash dividends...................... 0.07 0.07 0.13 0.12 0.09 0.07 0.07
Dividend payout ratio............... 12.77% 13.61% 12.06% 9.57% 7.78% 6.13% 10.91%
Book value.......................... $ 11.00 $ 10.40 $ 11.01 $ 9.21 $ 8.92 $ 7.83 $ 6.82
Weighted average shares
outstanding....................... 2,169,012 2,131,737 2,148,897 2,132,712 2,132,760 2,132,760 2,136,195
Period end shares outstanding....... 2,131,737 2,131,737 2,131,737 2,131,737 2,132,760 2,132,760 2,132,760
BALANCE SHEET DATA
Investments and Federal funds
sold.............................. $ 87,154 $ 89,376 $ 95,182 $ 86,460 $ 95,098 $ 83,057 $ 90,902
Total loans......................... 185,840 175,227 180,819 161,134 148,371 146,569 131,915
Allowance for loan losses........... 1,597 1,871 2,014 1,704 1,787 1,586 1,384
Total assets........................ 296,605 282,987 303,533 272,038 266,666 249,121 240,535
Total deposits...................... 259,087 247,939 261,727 232,334 237,455 222,513 214,520
Stockholders' equity................ 23,452 22,164 23,475 19,629 19,026 16,702 14,553
EARNINGS PERFORMANCE DATA
Return on average total assets(2)... 0.75% 0.76% 0.83% 0.98% 0.97% 0.95% 0.60%
Return on average stockholders'
equity(2)......................... 9.49 10.11 10.83 13.29 13.88 15.00 9.64
Net interest margin ratio........... 4.23 4.27 4.15 4.38 4.46 4.52 4.18
Efficiency ratio(3)................. 64.95 68.18 68.35 66.17 65.81 64.96 72.64
ASSET QUALITY RATIOS
Nonperforming assets to total
assets............................ 0.64% 0.52% 0.95% 0.87% 1.64% 1.64% 2.04%
Nonperforming loans to total
loans............................. 0.70 0.32 1.22 0.90 2.06 2.32 3.07
Net loan charge-offs to average
loans(2).......................... 1.00 0.10 0.22 0.49 0.71 0.78 0.34
Allowance for loan losses to total
loans............................. 0.86 1.07 1.11 1.06 1.20 1.08 1.05
Allowance for loan losses to
nonperforming loans............... 122.75 337.55 90.93 117.44 58.61 46.56 34.18
CAPITAL RATIOS
Average equity to average assets.... 7.95% 7.62% 7.67% 7.38% 6.98% 6.34% 6.27%
Total capital to risk adjusted
assets............................ 12.54 12.07 12.35 12.28 10.97 10.23 8.72
Tier 1 leverage..................... 7.92 7.79 7.95 7.68 7.00 6.33 6.33

- -------------------------
(1) Restated to reflect the three-for-one stock split which took effect May 20,
1996.

(2) Interim periods annualized.

(3) Calculated as noninterest expense less amortization of intangibles and
expenses related to other real estate owned divided by the sum of net
interest income before provision for loan losses and total noninterest
income excluding securities gains and losses.

6
8

UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

The following unaudited pro forma combined condensed financial statements
set forth the consolidated balance sheet at June 30, 1996 and at December 31,
1995 and the consolidated income statements for the six month period ended June
30, 1996 and for the year ended December 31, 1995, for the Company, Prairie and
Country and the adjustments reflecting the August, 1996 acquisition of Prairie,
the proposed acquisition of Country, the effects of the Offering and the pro
forma combined information following all such transactions. The Acquisitions
will be accounted for as purchases and the assets acquired and liabilities
assumed in the Acquisitions will be recorded at their estimated fair market
values, with the excess of the respective purchase prices over the net fair
market values recorded as goodwill. None of the information regarding the
Company has been adjusted to reflect the acquisition of LaSalle Collections on
August 1, 1996, which, in the opinion of the Company's management, did not have
a material effect on the Company from a financial viewpoint. The information
with respect to the Company, Prairie and Country as of June 30, 1996, and the
pro forma information are unaudited. The pro forma balance sheets assume that
the Acquisitions and the Offering were consummated on the balance sheet date.
The pro forma income statements assume that the Acquisitions and the Offering
were consummated at the beginning of the period indicated. The pro forma
financial statements should be read in conjunction with the financial statements
and footnotes thereto appearing elsewhere in this Prospectus. The pro forma
combined balance sheet and statements of income are not necessarily indicative
of the combined financial position at consummation of the Acquisitions or the
results of operations following consummation of the Acquisitions and the
Offering.

UNIONBANCORP, INC.

PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1996 (UNAUDITED)

PRO FORMA
PRO FORMA ADJUSTMENTS ADJUSTMENTS
----------------------- UNIONBANCORP ----------- UNIONBANCORP
UNIONBANCORP PRAIRIE COUNTRY PRAIRIE(A) COUNTRY(B) PRO FORMA(C) OFFERING(D) PRO FORMA(E)
------------ -------- -------- ---------- ---------- ------------ ----------- ------------
(DOLLARS IN THOUSANDS)

ASSETS
Cash and due from
banks............. $ 11,403 $ 7,967 $ 2,945 $ (5,235) $(11,445) $ 23,626 $ 11,000 $ 23,626
5,235 11,445 (11,000)
1,311
Federal funds
sold.............. 225 2,131 2,075 4,431 4,431
-------- -------- -------- -------- --------
Total cash and cash
equivalents....... 11,628 10,098 5,020 28,057 28,057
Securities available
for sale.......... 58,003 39,459 26,131 123,593 123,593
Securities held to
maturity.......... 28,926 97,832 -- (2,547) 124,211 124,211
Loans, net of
unearned
discount.......... 185,840 73,834 66,573 (1,246) 325,001 325,001
Less: Allowance for
loan losses....... (1,597) (784) (500) (2,881) (2,881)
-------- -------- -------- -------- --------
Net loans........... 184,243 73,050 66,073 322,120 322,120
Premises and
equipment, net.... 6,830 3,184 3,633 121 150 13,853 13,853
(65)
Accrued interest
receivable........ 2,940 2,099 1,215 6,254 6,254
Other real estate... 346 22 69 437 437
Goodwill............ 518 -- 76 3,524 4,274 8,392 8,392
Core deposits....... 355 -- -- 900 800 2,055 2,055
Other assets........ 2,816 288 955 592 (369) 4,282 4,282
-------- -------- -------- ------- -------- -------- -------- --------
Total assets........ $296,605 $226,032 $103,172 $ 2,590 $ 4,855 $633,254 $ -- $633,254
======== ======== ======== ======= ======== ======== ======== ========
LIABILITIES
Deposits............
Noninterest-bearing $ 34,515 $ 12,378 $ 10,491 $ 57,384 $ 57,384
Interest bearing.... 224,572 175,462 80,355 480,389 480,389
-------- -------- -------- -------- --------
Total deposits...... 259,087 187,840 90,846 537,773 537,773
-------- -------- -------- -------- --------
Federal funds
purchased and
securities sold
under repurchase
agreements........ 7,544 8,470 100 16,114 16,114
Other borrowings.... 4,391 3,950 4,150 $ 5,235 $ (4,150) 25,021 $ 1,003 15,024
11,445 (11,000)
FHLB Advances....... -- 11,721 4,300 16,021 16,021
Accounts payable and
accrued
liabilities....... 2,131 1,543 1,336 5,010 5,010
-------- -------- -------- -------- --------
Total liabilities... 273,153 213,524 100,732 599,939 589,942
-------- -------- -------- -------- --------
MINORITY INTEREST IN
SUBSIDIARIES........ -- 796 -- 796 796
-------- -------- --------
MANDATORY REDEEMABLE
PREFERRED STOCK..... -- -- -- 857 857 857
------- -------- --------
STOCKHOLDERS' EQUITY
Preferred stock..... -- 6,092 314 (6,092) (314) 500 500
500
Common stock........ 2,400 1 26 (1) (26) 3,111 1,100 4,211
711
Paid-in capital..... 1,033 1,579 1,058 (1,579) (5,208) 8,032 9,900 17,932
6,999 4,150
Retained earnings... 21,537 3,874 1,157 (3,874) (1,157) 21,537 21,537
Deferred
compensation
related to ESOP... -- -- -- -- (1,003) (1,003)
Unrealized gain
(loss) on
securities
available for
sale.............. (997) 166 (115) (166) 115 (997) (997)
Less: Treasury
stock............. (521) -- -- (521) (521)
-------- -------- -------- -------- --------
Total stockholders'
equity............ 23,452 11,712 2,440 31,662 41,659
-------- -------- -------- ------- -------- -------- -------- --------
Total liabilities
and stockholders'
equity............ $296,605 $226,032 $103,172 $ 2,590 $ 4,855 $633,254 $ -- $633,254
======== ======== ======== ======= ======== ======== ======== ========

See Notes to Pro Forma Combined Condensed Balance Sheet (Unaudited)

7
9

UNIONBANCORP, INC.

PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)

PRO FORMA UNIONBANCORP
UNIONBANCORP PRAIRIE COUNTRY ADJUSTMENTS PRO FORMA
------------ ------- ------- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Interest income........................... $ 11,278 $ 7,527 $3,818 $ 150F $ 22,761
(12)G
Interest expense.......................... 5,850 4,792 2,449 (172)H 13,153
------- ------ ------ -------
234I
Net interest income....................... 5,428 2,735 1,369 9,608
Provision for loan losses................. 500 20 145 665
------- ------ ------ -------
Net interest income after provision for
loan losses............................. 4,928 2,715 1,224 8,943
------- ------ ------ -------
Noninterest Income:
Service charges on deposit accounts....... 151 205 311 667
Other service charges..................... 748 -- -- 748
Trust service fees........................ 183 -- -- 183
Other operating income.................... 242 51 290 583
------- ------ ------ -------
Total noninterest income.................. 1,324 256 601 2,181
------- ------ ------ -------
Noninterest expense:
Salaries and employee benefits............ 2,544 1,206 856 4,606
Net occupancy expense..................... 384 351 237 3J 979
4K
Equipment expense......................... 331 -- -- 331
Other noninterest expense................. 1,502 660 507 345L 3,014
------- ------ ------ -------
Total noninterest expense................. 4,761 2,217 1,600 8,930
------- ------ ------ -------
Income before income tax expense.......... 1,491 754 225 2,194
Minority interest......................... -- 42 -- 42
Income tax expense........................ 380 215 70 (6)M 659
------- ------ ------ ----- -------
Net income................................ 1,111 497 155 1,493
------- ------ ------ -------
Primary earnings per common share......... $ 0.51 $ 0.35
Weighted average number of common shares
outstanding (in thousands).............. 2,169 N 3,892
------- -------

See Notes to Pro Forma Combined Condensed Statement of Income (Unaudited)

8
10

UNIONBANCORP, INC.

PRO FORMA COMBINED CONDENSED BALANCE SHEET
DECEMBER 31, 1995
(UNAUDITED)

PRO FORMA
PRO FORMA ADJUSTMENTS ADJUSTMENTS
----------------------- UNIONBANCORP ----------- UNIONBANCORP
UNIONBANCORP PRAIRIE COUNTRY PRAIRIE(A) COUNTRY(B) PRO FORMA(C) OFFERING(D) PRO FORMA(E)
------------ -------- ------- ---------- ---------- ------------ ----------- ------------

ASSETS
Cash and due from
banks................. $ 16,166 $ 4,458 $2,215 $ (5,235) $(11,445) $ 23,413 $11,000 $ 23,413
5,235 11,445 (11,000)
574
Federal funds sold...... 2,265 2,045 10,045 14,355 14,355
-------- -------- ------- -------- --------
Total cash and cash
equivalents........... 18,431 6,503 12,260 37,768 37,768
Securities available for
sale.................. 63,891 103,826 22,630 190,347 190,347
Securities held to
maturity.............. 29,026 42,499 -- (2,253) 69,272 69,272
Loans, net of unearned
discount.............. 180,819 67,133 56,597 (509) 304,040 304,040
Less: Allowance for loan
losses................ (2,014) (741) (420 ) (3,175) (3,175)
-------- -------- ------- -------- --------
Net loans............... 178,805 66,392 56,177 300,865 300,865
Premises and equipment,
net................... 6,571 3,327 3,749 121 150 13,853 13,853
(65)
Accrued interest
receivable............ 3,386 2,114 1,085 6,585 6,585
Other real estate....... 441 -- 54 495 495
Goodwill................ 551 18 124 3,215 4,252 8,160 8,160
Core deposits........... 391 4 -- 900 800 2,095 2,095
Other assets............ 2,040 291 526 478 (369) 2,966 2,966
-------- -------- ------- ------- ------- -------- ------- --------
Total assets............ $303,533 $224,974 $96,605 $ 2,461 $ 4,833 $632,406 $ -- $632,406
======== ======== ======= ======= ======= ======== ======= ========
LIABILITIES
Deposits:
Noninterest-bearing... $ 35,688 $ 13,017 $10,880 $ 59,585 $ 59,585
Interest bearing...... 226,039 170,279 75,666 471,984 471,984
-------- -------- ------- -------- --------
Total deposits.......... 261,727 183,296 86,546 531,569 531,569
-------- -------- ------- -------- --------
Federal funds purchased
and securities sold
under repurchase
agreements............ 11,505 6,456 100 18,061 18,061
Other borrowings........ 4,346 3,950 4,150 $ 5,235 $ (4,150) 24,976 $ 1,003 14,979
11,445 (11,000)
FHLB Advances........... -- 16,993 2,000 18,993 18,993
Accounts payable and
accrued liabilities... 2,480 1,663 1,347 5,490 5,490
-------- -------- ------- -------- --------
Total liabilities....... 280,058 212,358 94,143 599,089 589,092
-------- -------- ------- -------- --------
MINORITY INTEREST IN
SUBSIDIARIES............ -- 775 -- 775 775
-------- -------- --------
MANDATORY REDEEMABLE
PREFERRED STOCK......... -- -- -- 857 857 857
------- -------- --------
STOCKHOLDERS' EQUITY
Preferred stock......... -- 6,092 315 (6,092) (315) 500 500
500
Common stock............ 2,400 1 26 (1) (26) 3,111 1,100 4,211
711
Paid-in capital......... 1,026 1,579 1,058 (1,579) (5,208) 8,025 9,900 17,925
6,999 4,150
Retained earnings....... 20,568 3,686 1,001 (3,686) (1,001) 20,568 20,568
Deferred compensation
related to ESOP....... -- -- -- -- (1,003) (1,003)
Unrealized gain on
securities available
for sale.............. 2 483 62 (483) (62) 2 2
Less: Treasury stock.... (521) -- -- (521) (521)
-------- -------- ------- -------- --------
Total stockholders'
equity................ 23,475 11,841 2,462 31,685 41,682
-------- -------- ------- ------- ------- -------- ------- --------
Total liabilities and
stockholders'
equity................ $303,533 $224,974 $96,605 $ 2,461 $ 4,833 $632,406 $ -- $632,406
======== ======== ======= ======= ======= ======== ======= ========

See Notes to Pro Forma Combined Condensed Balance Sheet (Unaudited)

9
11

UNIONBANCORP, INC.

PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)

PRO FORMA UNIONBANCORP
UNIONBANCORP PRAIRIE COUNTRY ADJUSTMENTS PRO FORMA
------------ ------- ------- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Interest income..................... $ 21,368 $15,123 $6,030 $ 300F $ 42,797
(24)G
Interest expense.................... 11,248 10,327 3,532 (317)H 25,259
------- ------- ------ -------
469I
Net interest income................. 10,120 4,796 2,498 17,538
Provision for loan losses........... 684 (31) 40 693
------- ------- ------ -------
Net interest income after provision
for loan losses................... 9,436 4,827 2,458 16,845
------- ------- ------ -------
NONINTEREST INCOME
Service charges on deposit
accounts.......................... 952 317 494 1,763
Other service charges............... 242 -- -- 242
Trust service fees.................. 330 -- -- 330
Other operating income.............. 1,046 676 94 1,816
------- ------- ------ -------
Total noninterest income............ 2,570 993 588 4,151
------- ------- ------ -------
Noninterest expense
Salaries and employee benefits...... 4,451 2,424 1,511 8,386
Net occupancy expense............... 665 702 493 6J 1,874
8K
Equipment expense................... 584 -- -- 584
Other noninterest expense........... 3,071 1,496 836 690L 6,093
------- ------- ------ -------
Total noninterest expense........... 8,771 4,622 2,840 16,937
------- ------- ------ -------
Income before income tax expense.... 3,235 1,198 206 4,059
Minority interest................... -- 95 -- 95
Income tax expense (benefit)........ 882 275 (3) (23) M 1,131
------- ------- ------ -------
Net Income.......................... 2,353 828 209 2,833
------- ------- ------ -------
Primary earnings per common share
net income........................ $ 1.09 $ 0.66
Weighted average number of common
shares outstanding (in
thousands)........................ 2,149 N 3,872
------- -------

See Notes to Pro Forma Combined Condensed Statement of Income (Unaudited)

10
12

UNIONBANCORP, INC.

NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)

(A) The consideration for the Prairie Acquisition consisted of:

The allocation of excess cost is as follows:

Investment securities......................................................... $(2,547)
Fixed assets (estimate)....................................................... 121
Core deposit intangible (estimate)............................................ 900
Goodwill (estimate)........................................................... 3,524
Deferred tax asset............................................................ 592
-------
$ 2,590
=======

The Company incurred $5.235 million in debt in connection with this
acquisition.

Goodwill will be amortized on a straight-line basis over 15 years. The core
deposit intangible will be amortized on a straight-line basis over 10
years. Fair value adjustments are estimates based on information available
on June 30, 1996 and will be accreted or amortized over the lives of the
respective assets.

(B) The Country Acquisition requires the payment of $11.445 million in cash for
100% of Country's outstanding stock. The Company will incur $11.445 million
in debt in connection with this acquisition.

The acquisition will be accounted for as follows:

(Dollars in thousands)
Total consideration........................................................... $11,445
Less: Equity.................................................................. 2,440
Debt paid by stockholders of Country..................................... 4,150
-------
$ 6,590
-------
Excess cost................................................................... $ 4,855
=======

The allocation of excess cost is as follows:

Fixed assets (estimate)....................................................... $ 150
Core deposit intangible (estimate)............................................ 800
Goodwill (estimate)........................................................... 4,274
Deferred tax liability........................................................ (369)
-------
---
$ 4,855
=======

11
13

UNIONBANCORP, INC.

NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
(UNAUDITED)

Total consideration paid to the Country stockholders may be increased if
Country experiences recoveries on certain loans in excess of book value
prior to the date of acquisition.

The principal stockholders of Country are required by the acquisition
agreement to purchase the following assets at book value:

(Dollars in thousands)
Fixed assets................................................................... $ 65
Loans.......................................................................... 1,246
------
$1,311
======

(D) Net proceeds from the Offering of $11.0 million are based on an assumed
sale by the Company of 1,100,000 shares of Common Stock at a price of
$11.50 per share, net of underwriting discounts, commissions and other
estimated offering expenses.

The Company will utilize the $11.0 million of net proceeds from the
Offering to reduce outstanding debt.

A portion of the Offering proceeds consists of the Company's ESOP purchase
of 87,200 shares of the Offering at a price of $11.50 per share that will
be funded through loan proceeds of $1.003 million.

(E) As adjusted to consider the effects of the Acquisitions and the Offering.

(F) Accretion of the fair value adjustment to the investment portfolio of
Prairie. Accretion of the fair market adjustment to the investment
portfolio recorded in connection with the Prairie Acquisition is estimated
to be approximately $300,000 each year ($150,000 at June 30, 1996).

(G) Decrease in interest income in connection with the sale of assets to
Country stockholders, using actual interest income recorded for the six
months ended June 30, 1996.

(H) Elimination of interest expense on Country's debt, using actual interest
expense recorded for the six months ended June 30, 1996.

(I) Increase in interest expense associated with the $16.68 million of debt
incurred in the Acquisitions, less the $11.0 million reduction of the
outstanding borrowings from the proceeds of the Offering, using an
effective rate of 8.25%. If the net proceeds of $11.0 million were not used
to reduce outstanding borrowings, additional interest expense of $454,000
would be incurred for the six months ended June 30, 1996.

(J) Additional depreciation on fair value adjustment of depreciable fixed
assets acquired with the Acquisitions.

(K) Net increase in occupancy expense for sale and lease of branch premises
sold to Country stockholders.

12
14

UNIONBANCORP, INC.

NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1996
(UNAUDITED)

(L) Amortization of goodwill and the core deposit intangibles recorded in
connection with the Acquisitions. Amortization of goodwill and core deposit
premium recorded in connection with the Acquisitions will be approximately
$690,000 each year ($345,000 at June 30, 1996).

(M) The income tax effect of the pro forma adjustments is calculated using an
effective tax rate of 38.8%.

(N) Pro forma weighted average number of common shares outstanding have been
adjusted to exclude Common Stock acquired by the Company's ESOP in
connection with this Offering.

13
15

UNIONBANCORP, INC.

NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(UNAUDITED)

(A) The consideration for the Prairie Acquisition consisted of:

(Dollars in thousands)
Cash.......................................................................... $ 5,235
Common Stock (710,576 shares)................................................. 7,710
Preferred Stock
Series A (2,762.24 shares).................................................. 500
Series B (857 shares)....................................................... 857
-------
Total consideration........................................................... $14,302
Less: Equity.................................................................. 11,841
-------
Excess cost................................................................... $ 2,461
=======
The allocation of excess cost is as follows:
Investment securities......................................................... $(2,253)
Fixed assets (estimate)....................................................... 121
Core deposit intangible (estimate)............................................ 900
Goodwill (estimate)........................................................... 3,215
Deferred tax asset............................................................ 478
-------
$ 2,461
=======

The Company incurred $5.235 million in debt in connection with this
acquisition.

The acquisition will be accounted for as follows:

(Dollars in thousands)
Total consideration........................................................... $11,445
Less: Equity.................................................................. 2,462
Debt paid by stockholders of Country..................................... 4,150
-------
$ 6,612
-------
Excess cost................................................................... $ 4,833
=======

The allocation of excess cost is as follows:

Fixed assets (estimate)....................................................... $ 150
Core deposit intangible (estimate)............................................ 800
Goodwill (estimate)........................................................... 4,252
Deferred tax liability........................................................ (369)
-------
$ 4,833
=======

14
16

UNIONBANCORP, INC.

NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
(UNAUDITED)

Total consideration paid to the Country stockholders may be increased if
Country experiences recoveries on certain loans in excess of book value
prior to the date of acquisition.

The principal stockholders of Country are required by the acquisition
agreement to purchase the following assets at book value:

(Dollars in thousands)
Fixed assets.................................................................... $ 65
Loans........................................................................... 509
----
$574
====

Goodwill will be amortized on a straight-line basis over 15 years. The core
deposit intangible will be amortized on a straight-line basis over 10
years. Fair value adjustments are estimates based on information available
on December 31, 1995 and will be amortized over the lives of the respective
assets.

The Company will utilize the $11.0 million of net proceeds from the
Offering to reduce outstanding debt.

A portion of the Offering proceeds consists of the Company's ESOP purchase
of 87,200 shares of the Offering at a price of $11.50 per share that will
be funded through loan proceeds of $1.003 million.

(E) As adjusted to consider the effects of the Acquisitions and the Offering.

(G) Decrease in interest income in connection with the sale of assets to
Country stockholders, using actual interest income recorded for the year
ended December 31, 1995.

(H) Elimination of interest expense on Country's debt, using actual interest
expense recorded for the year ended December 31, 1995.

(I) Increase in interest expense associated with the $16.68 million of debt
incurred in the Acquisitions, less the $11.0 million reduction of the
outstanding borrowings from the proceeds of the Offering, using an
effective rate of 8.25%. If the net proceeds of $11.0 million were not used
to reduce outstanding borrowings, additional interest expense of $908,000
would be incurred for the year ended December 31, 1995.

(J) Additional depreciation on fair value adjustment of depreciable fixed
assets required with the Acquisitions.

(K) Net increase in occupancy expense for sale and lease of branch premises
sold to Country stockholders.

15
17

UNIONBANCORP, INC.

NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1995
(UNAUDITED)

(M) The income tax effect of the pro forma adjustments is calculated using an
effective tax rate of 38.8%.

(N) Pro forma weighted average number of common shares outstanding have been
adjusted to exclude common shares acquired by the Company's ESOP in
connection with this Offering.

16
18

RISK FACTORS

In addition to other information contained in this Prospectus, the
following factors should be considered carefully in evaluating the Company, its
business and prospects before purchasing any of the shares of Common Stock
offered hereby. The order of the following is not intended to be indicative of
the relative importance of any described risk. Management believes the following
describes all material risks of an investment in the Common Stock.

POTENTIAL NEGATIVE IMPACT ON EARNINGS FROM INTEGRATION OF THE ACQUISITIONS

As a result of the Acquisitions, the Company's asset size has substantially
increased. The Company has not previously consummated an acquisition on the same
scale as the Acquisitions. The future prospects of the Company will depend, in
significant part, on a number of factors, including, without limitation, the
Company's ability to integrate the Acquisitions; its ability to compete
effectively in new market areas in the western, northwestern and southwestern
portions of Illinois; its success in retaining earning assets, including loans,
acquired in the Acquisitions; its ability to generate new earning assets; and
its ability to attract and retain qualified management and other appropriate
personnel. No assurance can be given with respect to the Company's ability to
accomplish any of the foregoing or that the Company will be able to achieve
results in the future similar to those achieved in the past or that the Company
will be able to manage effectively the growth resulting from the Acquisitions.
See "The Acquisitions."

In addition, as a result of the Acquisitions, the Company's management must
successfully integrate the operations of Prairie and Country with those of the
Company. The operational areas requiring significant integration include the
consolidation of data processing operations among all of the Bank Subsidiaries,
the combination of employee benefit plans, the creation of joint account and
lending products, the development of unified marketing plans and other related
issues. Accomplishment of these goals will require additional expenditures by
the Company that could negatively impact the Company's net income. Completion of
these tasks could divert management's attention from other important issues. The
Company may also incur additional unexpected costs in connection with
integration of the Acquisitions that could negatively impact the Company's net
income.

POTENTIAL CREDIT QUALITY ISSUES IN CONNECTION WITH THE ACQUISITIONS

In connection with the Acquisitions, the Company and its representatives
reviewed the loan portfolios of the Prairie Banks and Omni Bank. The Company's
examinations were made using criteria, analyses and collateral evaluations that
the Company has traditionally used in the review of its existing business.
Nonperforming assets (including nonaccrual loans 90 days or more past due) at
June 30, 1996 totaled approximately $850,000 at the Prairie Banks and $1,678,000
at Omni Bank. Nonperforming assets (including loans 90 days or more past due) at
December 31, 1995, totaled approximately $673,000 at the Prairie Banks and
$594,000 at Omni Bank. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Prairie Bancorp, Inc." and "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Country Bancshares, Inc."

At June 30, 1996, the Company's allowance for loan losses was 0.86% of
total loans, while on a pro forma basis assuming consummation of the
Acquisitions, the Company's allowance for loan losses would have been .89% at
June 30, 1996. At December 31, 1995, the Company's allowance for loan losses was
1.11% of total loans, while on a pro forma basis at December 31, 1995, the
Company's allowance for loan losses would have been 1.04%.

The Company has sought to improve the quality of Omni Bank's loan portfolio
by requiring the sale at book value of certain of Omni Bank's loans to the
principal stockholders of Country as a condition to the closing of the Country
Acquisition. Pursuant to the terms of the Country Acquisition, the principal
stockholders of Country will acquire from Omni Bank all obligations payable to
Omni Bank by certain borrowers whose loans have been identified by the Company
as being loans which bear more than an average risk of loss. See "The
Acquisitions -- Country Bancshares, Inc. -- Acquisition of Certain Property from
Omni Bank."

17
19

IMPACT OF INTEREST RATES AND ECONOMIC CONDITIONS

The results of operations for financial institutions, including the Union
Banks, the Prairie Banks and Omni Bank (collectively, the "Bank Subsidiaries"),
may be materially and adversely affected by changes in prevailing economic
conditions, including declines in real estate market values, rapid changes in
interest rates and the monetary and fiscal policies of the federal government.
See "Supervision and Regulation -- General" and "-- Recent Regulatory
Developments." The profitability of financial institutions such as the Bank
Subsidiaries is in part dependent on the spread between the interest rates
earned on investments and loans and the interest rates paid on deposits and
other interest-bearing liabilities. The net interest spread and margin of the
Bank Subsidiaries will be affected by general economic conditions and other
factors beyond the control of the Company that influence market interest rates.
While Prairie's investment portfolio has a relatively long duration and is
subject to the risk of the rising cost of interest-sensitive liabilities, the
Company has sought to limit possible losses from certain securities held for
investment by the Prairie Banks. The terms of the Prairie Acquisition Agreement
(as defined below) provide that, under certain circumstances, the conversion
value of the shares of the Company's newly authorized Series A Preferred Stock
(the "Series A Preferred Stock") issued at the closing of the Prairie
Acquisition to the two principal Prairie stockholders (the "Principal Prairie
Stockholders") will be adjusted to offset the amount of any future losses
incurred by the Company in connection with Prairie's consolidated investment
portfolio. See "The Acquisitions -- Prairie Bancorp, Inc. -- Consideration for
Prairie Common and Preferred Stock."

COMPETITION

The Company and the Bank Subsidiaries face strong competition for deposits,
loans and other financial services from numerous Illinois and out-of-state
banks, thrifts, credit unions and other financial institutions as well as other
entities which provide financial services. Some of the financial institutions
and financial services organizations with which the Bank Subsidiaries compete
are not subject to the same degree of regulation as are the Bank Subsidiaries.
In addition, some of these entities have greater capital resources than the
Company or the Bank Subsidiaries. See "Business -- Market Area" and "--
Competition." Additionally, federal legislation regarding interstate branching
and banking may increase competition in the future from larger out-of-state
banks. See "Supervision and Regulation -- Recent Regulatory Developments."

NO ASSURANCE OF DIVIDENDS

The Company will be dependent upon dividends paid by the Bank Subsidiaries
for funds to pay dividends on the Common Stock, if and when such dividends are
declared. No assurance can be given that future earnings of the Bank
Subsidiaries, and resulting dividends to the Company, will continue to be
sufficient to permit the legal payment of dividends to the Company's
stockholders at any time in the future. Moreover, holders of shares of the
Preferred Stock issued in connection with the Acquisitions will first be
entitled to receive dividends on the Preferred Stock before any dividends may be
paid on the Common Stock. In addition, the Company does not currently own 100%
of the Common Stock of certain of the Prairie Banks, thus the Company would not
receive the full amount of any dividends paid by the Prairie Banks in which
there are outstanding minority interests. See "The Acquisitions -- Prairie
Bancorp, Inc. -- General." For a more detailed discussion of the regulatory and
other limitations on the payment of cash dividends by the Company, see the
"Prairie Banks," "Supervision and Regulation -- The Company -- Dividends" and
"Description of Capital Stock -- Preferred Stock."

DEPENDENCE ON MANAGEMENT

The Company and the Union Banks are dependent upon the services of R. Scott
Grigsby, Chairman of the Board and President of the Company and Chairman of the
Board and Chief Executive Officer of UnionBank/Streator, Charles J. Grako,
Executive Vice President and Chief Financial Officer of the Company, Wayne L.
Bismark, Executive Vice President and Chief Credit Officer of the Company, and
other senior officers of the Company and the Union Banks. The loss of any of
these individuals could adversely affect the operations of the Company and the
Bank Subsidiaries. The Company has entered into employment agreements (which
include certain non-competition covenants) with Messrs. Grigsby, Grako, Bismark
and

18
20

certain other senior officers in an effort to assure the continued availability
of their services to the Company. See "Business -- Employees" and "Management --
Employment Agreements."

IMMEDIATE DILUTION

The purchasers of the shares of Common Stock offered hereby will experience
immediate dilution in the pro forma net tangible book value of their shares in
an approximate amount of $3.73 per share as compared to the per share price of
this Offering. In the event the Company issues additional Common Stock in the
future, including shares issued in connection with future acquisitions, the
exercise of outstanding stock options or upon conversion of the Series A
Preferred Stock, purchasers of Common Stock in this Offering may experience
further dilution. See "Dilution." The maximum dilution to purchasers of the
shares of Common Stock offered hereby, assuming conversion of the Series A
Preferred Stock and the exercise of all outstanding stock options, would be
$3.89.

LIMITATIONS ON CHANGE OF CONTROL

Section 203 of the Delaware General Corporation Law (the "DGCL") limits the
Company's ability to engage in certain business combinations with interested
stockholders. The Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), provides for a staggered Board of Directors
which classifies the Board of Directors into three classes, each of which is
elected for a three year term. The Board of Directors of the Company is also
further authorized to issue preferred stock in one or more additional series,
with such terms, conditions and preferences as it deems appropriate, without
stockholder action. Such shares could be issued in a manner which could render
more difficult or discourage an attempt to obtain control of the Company by
means of a tender offer, merger, proxy contest or otherwise. See "Description of
Capital Stock of the Company -- Preferred Stock."

In addition, federal law requires the approval of the Board of Governors of
the Federal Reserve System (the "FRB") prior to acquisition of "control" (as
defined in applicable federal statutes and regulations) of a bank holding
company. Furthermore, the Company's Board of Directors has recently adopted a
Stockholders' Rights Plan that entitles the Company's stockholders to purchase
additional shares of Common Stock at a rate that would be substantially less
than the market value of such Common Stock if any person acquires 15% or more of
the outstanding shares of Common Stock.

All of the foregoing may have the effect of delaying or preventing a change
in control of the Company which may prevent a holder of Common Stock from
realizing a premium as a result of a change in control of the Company. See
"Description of Capital Stock of the Company -- Certain Anti-Takeover
Considerations."

LIMITED TRADING HISTORY FOR COMMON STOCK

The Common Stock is currently quoted on the OTC Bulletin Board and has been
approved for quotation on the Nasdaq National Market upon the consummation of
the Offering. Prior to this Offering, however, there has been no regular and
liquid market for the Common Stock, and there can be no assurance that a regular
and liquid trading market will develop and continue after this Offering or that
the market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price has been determined through
negotiations between the Company and representatives of the Underwriter and may
not be indicative of the market price of the Common Stock following this
Offering. See "Market for Common Stock and Dividends."

SHARES ELIGIBLE FOR FUTURE SALE; CONCENTRATION OF OWNERSHIP

The Company will have approximately 3,951,403 shares of Common Stock
outstanding following this Offering (assuming 1,100,000 shares are issued in
this Offering and no exercise of options to purchase Common Stock granted under
the Company's 1993 Stock Option Plan, and further assuming that none of the
shares of Series A Preferred Stock issued in the Prairie Acquisition are
converted into Common Stock). The Company's management believes that 1,596,971
(40.4%) of these shares will be held by "affiliates" of the Company, including
110,000 of the shares offered for sale in this Offering which are reserved for
sale to such

19
21

affiliates. These 1,596,971 shares held by the Company's affiliates will be
"restricted securities" and may not be sold unless they are sold pursuant to an
exemption from registration, including an exemption contained in Rule 145 under
the Securities Act, or are registered under the Securities Act. Sales of
substantial amounts of Common Stock in the public market pursuant to
registration under the Securities Act, Rule 145 or otherwise, or even the
potential for such sales, could adversely affect the prevailing market prices
for the Common Stock and impair the Company's ability to raise capital through
the sale of its equity securities. See "Beneficial Ownership of Common Stock"
and "Shares Eligible for Future Sale."

After the consummation of this Offering, Dennis J. McDonnell and Wayne W.
Whalen, the Principal Prairie Stockholders, will be the Company's largest
stockholders, and will each beneficially hold approximately 9% of the shares of
Common Stock outstanding. Each of the Principal Prairie Stockholders has entered
into a "Standstill Agreement" whereby they have agreed not to take any actions
that would increase their respective percentage ownership above 12.5% of the
total number of issued and outstanding shares of Common Stock, excluding shares
obtainable or obtained through the conversion of Series A Preferred Stock or
actions approved by the Company's Board of Directors, for a four-year period
(the "Standstill Period") following the Prairie Acquisition. Under the
Standstill Agreement, each of the Principal Prairie Stockholders has granted a
limited proxy to R. Scott Grigsby, the President of the Company, to vote their
shares of Common Stock with respect to any election of directors of the Company
during the Standstill Period. As a result of this proxy, as well as the other
shares of Common Stock beneficially owned by Mr. Grigsby, he will have voting
power over approximately 19.4% of the Company's outstanding shares of Common
Stock after this Offering. Notwithstanding the Standstill Agreement, each of the
Principal Prairie Stockholders may nonetheless be able to exert influence on the
Company's future strategic direction with regard to, among other things, the
long-term independence of the Company. See "The Acquisitions -- Prairie Bancorp,
Inc. -- Restrictions Applicable to Certain Prairie Stockholders" and "Beneficial
Ownership of Common Stock."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,100,000 shares of
Common Stock offered hereby, after deducting underwriting discounts and
estimated offering expenses, are estimated to be approximately $11,000,000
($ if the Underwriter's over-allotment option is exercised in full).
Of such amount, the Company intends to use approximately $ of the net
proceeds to retire indebtedness incurred by the Company, and approximately
$ of the net proceeds to repay indebtedness assumed by the Company,
in each case in connection with the Acquisitions.

With respect to the indebtedness incurred in connection with the
Acquisitions, such indebtedness was obtained through advances from LaSalle
National Bank, Chicago, Illinois, in connection with a line of credit loan with
a maximum principal amount of $26,000,000 and a revolving credit loan in the
principal amount of $500,000. The term loan bears interest, at the Company's
option, at a rate of either: (i) the London Inter-Bank Offered Rate plus 125
basis points, (ii) the prime rate or (iii) a rate equal to 150 basis points in
excess of the then current rate on U.S. Treasury Bills with the same maturity.
The line of credit loan matures on August 2, 1997, and requires a principal
payment in the amount of $10,000,000 to be made on November 1, 1996. The
revolving credit loan bears interest at the LaSalle National Bank prime rate.
The Company's obligations under the loans are secured by a pledge to LaSalle
National Bank of all of the shares of capital stock of the Bank Subsidiaries
held by the Company. The retirement and repayment of such indebtedness will
allow the Company, upon consummation of the Acquisitions, to continue to meet
certain minimum capital requirements imposed by the FRB.

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CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as of June 30, 1996, and adjusted capitalization reflecting the
Acquisitions and the issuance and sale of the Common Stock offered by the
Company hereby (assuming no exercise of the Underwriter's over-allotment option)
and the resulting net proceeds of $11,000,000 after deduction of all estimated
expenses of the Offering. See "Use of Proceeds" and "The Acquisitions."

JUNE 30, 1996
------------------------------------------------------
AS ADJUSTED FOR THE
AS ADJUSTED ACQUISITIONS AND
ACTUAL FOR THE ACQUISITIONS THE OFFERING
------- -------------------- -------------------
(DOLLARS IN THOUSANDS)

LONG-TERM DEBT:
Federal Home Loan Bank Advances.................... $ -- $ 16,021 $16,021
Notes payable...................................... 4,391 25,021 15,024
------- ------- -------
$ 4,391 $ 41,042 $31,045
------- ------- -------
MINORITY INTEREST IN SUBSIDIARIES.................. -- 796 796
MANDATORY REDEEMABLE PREFERRED STOCK:
Series B Preferred Stock........................... -- 857 857
STOCKHOLDERS' EQUITY:
Series A Preferred Stock........................... -- 500(1) 500(1)
Common Stock, $1.00 par value; 10,000,000 shares
authorized; 2,400,000 issued and outstanding;
3,110,576 issued and outstanding, as adjusted for
the Acquisitions; 4,210,576 issued and
outstanding, as adjusted for the Offering........ 2,400 3,111(2) 4,211(2)
Surplus............................................ 1,074 8,073 17,973
Retained earnings.................................. 21,537 21,537 21,537
Deferred compensation related to employee stock
ownership plan................................... -- -- (1,003)
Unrealized (loss) on securities available for
sale............................................. (997) (997) (997)
Deferred compensation-stock option plans........... (41) (41) (41)
Less: treasury stock, at cost; 268,263 shares...... (521) (521) (521)
------- ------- -------
Total stockholders' equity......................... $23,452 $ 31,662 $41,659
------- ------- -------
Total capitalization............................... $27,843 $ 74,357 $74,357
======= ======= =======

- -------------------------
(1) Valuation of 2,762.24 shares of Series A Preferred Stock with $75 per share
cumulative dividends is based upon the fair market value of such preferred
stock as determined by an appraisal considering the marketability, liquidity
and convertibility features of such preferred stock.

(2) Excludes 9,090 shares of Common Stock issued in connection with the
acquisition of LaSalle Collections.

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DILUTION

None of the Company's directors or officers have purchased Common Stock
from the Company during the past five years, although certain of such officers
and directors have received grants of stock options during such time period.
However, in connection with the Prairie Acquisition the Company issued 710,576
shares of Common Stock. See "The Acquisitions -- Prairie Bancorp, Inc." The
following sets forth information as of June 30, 1996, after giving effect to the
Acquisitions and regarding the dilution to be realized by purchasers in this
Offering as compared to the persons receiving Common Stock in the Prairie
Acquisition.

The net tangible book value of the Company as of June 30, 1996, was
approximately $22,579,000, or $10.59 per share. "Net tangible book value" per
share represents stockholders' equity attributable to common stock less
intangible assets, divided by the number of outstanding shares excluding shares
held by the Company as treasury stock. The pro forma net tangible book value of
the Company as of June 30, 1996 after consideration of the effect of the
Acquisitions but excluding the effect of this Offering would have been
approximately $20,715,000, or $7.26 per share.

Dilution per share represents the difference between the amount per share
paid by purchasers of shares of Common Stock in this Offering and the as
adjusted pro forma net tangible book value per share of Common Stock immediately
after completion of this Offering. After giving effect to the sale of 1,100,000
shares of Common Stock to be sold by the Company in this Offering, including
deductions for underwriting discounts, commissions and the estimated offering
expenses, and after giving effect to the Acquisitions, pro forma net tangible
book value of the Company as of June 30, 1996, would have been approximately
$30,712,000 or $7.77 per share. This represents an immediate increase in pro
forma net tangible book value, after consideration of the effect of the
Acquisitions and this Offering, of $0.51 per share to existing stockholders and
an immediate dilution in pro forma net tangible book value of $3.73 per share to
new investors purchasing shares of Common Stock in this Offering, as illustrated
in the following table:

Initial public offering price per share.............................................. $11.50
Net tangible book value per share as of June 30, 1996................. $10.59
Decrease in net tangible book value per share attributable to the
Acquisitions....................................................... $(3.33)
Increase in pro forma net tangible book value per share attributable
to investors in this Offering...................................... $ 0.51
------
Pro forma net tangible book value per share after the Offering....................... $ 7.77
------
Dilution per share to new investors.................................................. $ 3.73
======

The following table summarizes on a pro forma basis, as of June 30, 1996,
assuming the conversion of all outstanding shares of Series A Preferred Stock
issued in connection with the Prairie Acquisition into Common Stock (at a
conversion rate based upon the book value per share of the Company as of June
30, 1996, and assuming no reduction in the conversion ratio), the difference
between the persons who received Common Stock in the Prairie Acquisition and the
purchasers of Common Stock in this Offering regarding the total consideration
paid and the average price per share paid (before deducting underwriting
discounts and commissions and estimated offering expenses):

SHARES TOTAL
PURCHASED CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------

Prairie stockholders(1)................. 848,939 43.6% $ 8,209,750 39.4% $ 9.67
Stockholders purchasing in this
Offering.............................. 1,100,000 56.4% $12,650,000 60.6% $ 11.50
--------- ------ ----------- ------ ------
Totals........................... 1,948,939 100.0% $20,859,750 100.0% $ 10.70
========= ====== =========== ====== ======

- -------------------------
(1) Does not include shares of Common Stock issued by the Company to acquire
LaSalle Collections.

As of June 30, 1996, there were options outstanding to purchase a total of
109,650 shares of Common Stock at a weighted average exercise price of $6.90 per
share under the Stock Option Plan. To the extent outstanding options are
exercised, there will be further dilution to new investors. If all outstanding
options

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were exercised, the pro forma net tangible book value per share immediately
after completion of this Offering would be $7.75. This represents an immediate
dilution in net tangible book value of $0.02 per share to purchasers of Common
Stock in this Offering. See "Management -- Stock Option Plan."

MARKET FOR COMMON STOCK AND DIVIDENDS

The Company's Common Stock has been quoted on the OTC Bulletin Board since
January 1996, and is expected to be approved for quotation on the Nasdaq
National Market under the symbol "UBCD" prior to consummation of this Offering.
Prior to this Offering, however, there has been no regular and liquid market for
the Common Stock, and there can be no assurance that a regular and liquid
trading market will develop or continue after this Offering or that the market
price will not decline below the initial public offering price. On June 30,
1996, the Company estimates that it had approximately 430 stockholders. The
Company currently serves as its own transfer agent and registrar, however, it is
expected that prior to the completion of this Offering, Harris Trust and Savings
Bank will become transfer agent and registrar for the Common Stock. As of
September 24, 1996, the last per share sale price for Common Stock quoted on the
OTC Bulletin Board was $12.00.

The table below indicates the high and low sales prices of the Common Stock
for transactions of which the Company is aware, and the dividends declared per
share for the Common Stock during the periods indicated, in each case adjusted
for the three-for-one stock split which took effect on May 20, 1996. Because the
Company is not aware of the price at which certain private transactions in the
Common Stock have occurred, the prices shown may not necessarily represent the
complete range of prices at which transactions in the Common Stock have occurred
during such periods. Such prices also are not necessarily indicative of the
price which may be obtained in a public offering or an active established
market.

STOCK SALES(1)
-------------- CASH
HIGH LOW DIVIDENDS(1)
----- ----- ------------

1994
First Quarter................................................... $6.75 $6.75 $0.026
Second Quarter.................................................. 6.75 6.75 0.030
Third Quarter................................................... 7.50 6.75 0.030
Fourth Quarter.................................................. 7.67 7.50 0.030
1995
First Quarter................................................... 7.67 7.67 0.033
Second Quarter.................................................. 8.83 8.33 0.033
Third Quarter................................................... 8.83 8.83 0.033
Fourth Quarter.................................................. 9.00 8.83 0.033
1996
First Quarter................................................... 11.33 10.67 0.033
Second Quarter.................................................. 12.00 10.67 0.033
Third Quarter (7/1/96-9/24/96).................................. 12.00 11.00 0.035

- -------------------------
(1) Restated to reflect the three-for-one stock split which took effect on May
20, 1996.

The holders of the Common Stock are entitled to receive dividends as
declared by the Board of Directors of the Company, which considers payment of
dividends quarterly. Upon the consummation of the Prairie Acquisition,
preferential dividends are required to be paid or accrued quarterly with respect
to the outstanding shares of Preferred Stock (as defined below). See
"Description of Capital Stock -- Preferred Stock." The ability of the Company to
pay dividends in the future will be primarily dependent upon its receipt of
dividends from the Bank Subsidiaries. In determining cash dividends, the Board
of Directors considers the earnings, capital requirements, debt and dividend
servicing requirements, financial ratio guidelines it has established, financial
condition of the Company and other relevant factors. The Bank Subsidiaries'
ability to pay dividends to the Company and the Company's ability to pay
dividends to its stockholders are also subject to certain

23
25

regulatory restrictions. See "Supervision and Regulation -- The Company --
Dividends" and "-- The Bank Subsidiaries -- Dividends."

The Company has paid regular cash dividends on the Common Stock since it
commenced operations in 1982. The Company currently expects to pay cash
dividends on the Common Stock after the Acquisitions at the Company's current
rate. There can be no assurance, however, that any such dividends will be paid
by the Company or that such dividends will not be reduced or eliminated in the
future. The timing and amount of dividends will depend upon the earnings,
capital requirements and financial condition of the Company and the Bank
Subsidiaries as well as the general economic conditions and other relevant
factors affecting the Company and the Bank Subsidiaries. See "Risk Factors -- No
Assurance of Dividends." The Company entered into a new loan agreement in
connection with the Acquisitions replacing the Company's prior loan agreement.
The new loan agreement contains no direct prohibitions against the payment by
the Company of dividends, but indirectly restricts such dividends through the
required maintenance of minimum capital ratios. In addition, the terms of the
Series A Preferred Stock, and the Company's newly authorized Series B Preferred
Stock issued to certain of Prairie's preferred stockholders (the "Series B
Preferred Stock," and collectively with the Series A Preferred Stock, the
"Preferred Stock"), prohibit the payment of dividends by the Company on the
Common Stock during any period for which dividends on the respective series of
Preferred Stock are in arrears. See "Description of Capital Stock -- Preferred
Stock."

THE ACQUISITIONS

PRAIRIE BANCORP, INC.

BUSINESS

Prairie was organized in 1989 as an Illinois corporation and its main
office is located in Princeton, Illinois. Prairie engages in no significant
activities other than owning and managing the six Prairie Banks. Three of the
Prairie Banks (the Manlius, Ladd and Tiskilwa Banks) are located in Bureau
County. Bureau County is adjacent to and west of LaSalle County, where the
Company is headquartered. The Manlius Bank also operates two branches in
Princeton, the county seat of Bureau County. The Tampico Bank is located in
Whiteside County, which is immediately northwest of Bureau County. The Hanover
Bank is located in Jo Daviess County in the northwest corner of Illinois. The
Ferris Bank is located in western Illinois approximately 25 miles west of
Macomb, Illinois, the headquarters of Omni Bank. See the map on page 2 of this
Prospectus.

At June 30, 1996, Prairie had total consolidated assets of approximately
$226.0 million, total consolidated deposits of approximately $187.8 million and
total consolidated stockholders' equity of approximately $11.7 million.

Each of the Prairie Banks is a community bank located in a predominantly
agricultural area. Each Prairie Bank offers interest and noninterest bearing
deposit accounts and makes consumer, commercial and agricultural loans. As of
June 30, 1996, the combined Prairie Banks' loan portfolios in aggregate book
value and as a percentage of the total consolidated loan portfolio consisted of
$41.0 million of real estate loans (55.5% of total loans), $25.9 million of
commercial loans (35.0% of total loans) and $7.0 million of consumer loans (9.5%
of total loans). As of June 30, 1996, the combined Prairie Banks' total
nonaccrual loans equaled $248,000, or 0.34% of total loans. The allowance for
possible loan losses was $784,000, or 316.1% of total nonaccrual loans and 1.06%
of the gross loan portfolio. Other real estate owned by the Prairie Banks had an
aggregate value at June 30, 1996, of $22,000. The combined Prairie Banks' net
income after taxes was $828,000 for 1995 and $497,000 for the six months ended
June 30, 1996. See the consolidated financial statements of Prairie included in
this Prospectus.

Prairie emphasizes operating autonomy at each of its subsidiary banks and a
conservative lending policy. The president of each of the Prairie Banks is an
experienced banker who resides in the vicinity of their banks' respective
communities. Prairie is managed by Robert L. Davidson, whose primary
responsibility is managing the investment portfolio of the Prairie Banks.

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26

ACQUISITION BY THE COMPANY

On January 22, 1996, the Company entered into an Agreement and Plan of
Merger (as subsequently amended, the "Prairie Acquisition Agreement") with
Prairie pursuant to which the Company agreed to acquire all of the issued and
outstanding shares of Prairie's common and preferred stock (the "Prairie Common
Stock" and "Prairie Preferred Stock," respectively). Prairie's stockholders
approved the Prairie Acquisition Agreement on February 29, 1996 and the
transaction was consummated on August 6, 1996. As a result of the Prairie
Acquisition, Prairie became a wholly-owned subsidiary of the Company.

As more fully set forth below and subject to certain future possible
adjustments, the total net value of the consideration in connection with the
Prairie Acquisition was $14,301,750, which was paid in a combination of cash and
securities of the Company. Prairie does not own 100% of the capital stock of
each of the Prairie Banks, although Prairie is in all cases the controlling
stockholder of such institutions. The percentage ownership of Prairie, as well
as additional information about each of the Prairie Banks, is set forth in the
following table. The Company intends in the future to acquire all of the
outstanding stock of the Prairie Banks held by minority stockholders and not
currently owned by Prairie, but no time frame for such further acquisitions has
been established at this time. The Company estimates that the total cost to
acquire such minority interests will be approximately $845,000.

PERCENTAGE TOTAL ASSETS
LOCATION OF BRANCH OWNERSHIP AS OF
NAME OF BANK MAIN OFFICE LOCATIONS OF PRAIRIE JUNE 30, 1996
- --------------------------------------------- ------------ ------------ ---------- -------------

Farmers State Bank of Ferris................. Carthage Ferris 100.0% $ 49,368,000
("Ferris Bank")
Hanover State Bank........................... Hanover Elizabeth 100.0% $ 25,626,000
("Hanover Bank")
Bank of Ladd................................. Ladd 80.0% $ 42,211,000
("Ladd Bank")
First National Bank of Manlius............... Manlius Princeton(2) 98.5% $ 64,618,000
("Manlius Bank")
Tampico National Bank........................ Tampico 99.4% $ 19,643,000
("Tampico Bank")
Tiskilwa State Bank.......................... Tiskilwa 95.0% $ 24,387,000
("Tiskilwa Bank")

CONSIDERATION FOR PRAIRIE COMMON STOCK AND PRAIRIE PREFERRED STOCK

At the closing of the Prairie Acquisition (the "Prairie Closing"),
stockholders of Prairie received the following consideration in exchange for
their shares of Prairie's capital stock: holders of Prairie Common Stock and
Prairie's Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock received a total of 710,576 shares (25% of the then outstanding
Common Stock) of Common Stock, 2,762.24 shares or 100% of the Company's Series A
Preferred Stock and $5,000,000 in cash and holders of Prairie Series A Preferred
Stock received a total of 857 shares or 100% of the Company's Series B Preferred
Stock and $235,000 in cash. The various forms and amounts of consideration for
the Prairie Acquisition were the result of arm's length negotiations between the
parties and reflect the Company's desired post-acquisition capital structure
following the Prairie Acquisition and certain tax and other financial
considerations of the parties, including the desire to provide the former
Prairie stockholders with a combination of fixed-return and participating
securities. The Company's Series A Preferred Stock is convertible into Common
Stock, subject to certain adjustments intended to offset the amount of losses
incurred by the Company upon the post-closing sale of certain securities in
Prairie's consolidated investment portfolio. See "Description of Capital Stock
of the Company -- Preferred Stock." If all of the shares of Series A Preferred
Stock were converted into shares of Common Stock on June 30, 1996, assuming no
post-closing adjustment for portfolio losses, the aggregate percentage of
outstanding shares of Common Stock which would be held by the former Prairie
stockholders after this Offering would be approximately 20.8%.

25
27

The Prairie Acquisition Agreement provides for an adjustment of the
aggregate conversion value of the shares of Series A Preferred Stock. Assuming
that all of Prairie's investment portfolio was held as available for sale
securities, as of June 30, 1996, the aggregate amount of unrealized losses in
Prairie's investment portfolio was $1.9 million. Pursuant to the Prairie
Acquisition Agreement, a portion of the securities in Prairie's consolidated
investment portfolio in the approximate face amount of $61.7 million were
designated as Part B Securities (the "Part B Securities"), with the remaining
portion in the approximate face amount of $72.9 million being designated as Part
A Securities (the "Part A Securities"). In general, the Prairie Acquisition
Agreement provides that any losses recognized by the Company upon the
post-closing sale of any of the Part B securities will have the effect of
reducing the conversion value of the Series A Preferred Stock held by the
Principal Prairie Stockholders and thus reduce the number of shares of Common
Stock into which such Series A Preferred Stock is convertible. See "Description
of Capital Stock of the Company -- Preferred Stock."

RESTRICTIONS APPLICABLE TO PRINCIPAL PRAIRIE STOCKHOLDERS

The shares of Common Stock exchanged in the Prairie Acquisition and the
shares of Common Stock which are issuable upon conversion of the Series A
Preferred Stock held by the Principal Prairie Stockholders are subject to the
terms and conditions of a Standstill Agreement between the Company and the
Principal Prairie Stockholders executed at the time of the Prairie Closing. The
Standstill Agreement provides that prior to the fourth anniversary of the
Prairie Closing, each of the Principal Prairie Stockholders may not, either
alone or with any affiliate, increase his holdings of Common Stock to 12.5% or
more of the then issued and outstanding shares of Common Stock. Notwithstanding
the foregoing, each of the Principal Prairie Stockholders is entitled to exceed
such 12.5% ownership limitation as a result of: (i) acquiring shares of Common
Stock upon conversion of shares of Series A Preferred Stock; (ii) receiving
additional shares of Common Stock pursuant to stock dividends or other offerings
made by the Company generally to all holders of Common Stock; or (iii) actions
approved by the Company's Board of Directors and affecting all holders of the
Common Stock generally.

The Standstill Agreement further provides that during the Standstill
Period, the Principal Prairie Stockholders will not make any offer to sell or
transfer any shares of Common Stock to an unrelated third party to the extent
such shares, when aggregated with all other shares of Common Stock transferred
by such individual, represent 5% or more of the then issued and outstanding
shares of Common Stock, without first providing the Company with the opportunity
to purchase such shares on the same terms and conditions offered by such third
party. During the Standstill Period, each of the Principal Prairie Stockholders
has granted a limited proxy to the President of the Company for all shares of
Common Stock held by each of the Principal Prairie Stockholders with respect to
any stockholder vote regarding elections to the Company's Board of Directors.
The proxy granted to the President of the Company will terminate on the earlier
of the expiration of the Standstill Period or at such time, if any, as any third
party or group unaffiliated with any of the Principal Prairie Stockholders
acquires 25% or more of the issued and outstanding Common Stock. If, during the
Standstill Period, the Company issues any shares of Common Stock at a per share
price that is less than the then current book value of the Common Stock, other
than issuances made in connection with: (a) the conversion of Series A Preferred
Stock; (b) the Company's employee benefit plans; or (c) stock dividends, splits
or other distributions made to the Company's stockholders generally, the
Standstill Agreement grants each Principal Prairie Stockholder the right to
purchase from the Company, on the same terms and conditions, the number of
additional shares of Common Stock necessary to permit each Principal Prairie
Stockholder to maintain the same percentage ownership held immediately prior to
such issuance.

REGISTRATION AGREEMENT

The Company also has entered into a Registration Agreement that grants to
the Principal Prairie Stockholders certain "piggyback" registration rights with
respect to the Common Stock owned by such stockholders. Pursuant to the
Registration Agreement, whenever the Company proposes to register any of its
securities under the Securities Act and the registration form to be used may be
used for the registration of Common Stock held by the Principal Prairie
Stockholders, the Company must give notice to such

26
28

stockholders and they may elect to include in such registration all or any part
of the shares of Common Stock then owned by them. Notwithstanding such election,
however, all or any portion of the shares of Common Stock elected by the Prairie
Principal Stockholders may subsequently be excluded from such registration
statement if the Company's underwriter determines that the number of securities
requested to be registered would exceed the number of securities that can be
sold in such registered offering.

COUNTRY BANCSHARES, INC.

BUSINESS

Country is a one-bank holding company headquartered in Macomb, Illinois.
Country engages in no significant activities other than owning and managing Omni
Bank. The directors of Country are the record and beneficial owners of
approximately 90% of the outstanding common stock of Country.

Country's only subsidiary, Omni Bank, was created by the merger on December
7, 1994, of three other banks. The First National Bank in Blandinsville,
Blandinsville, Illinois, merged into the Paloma Exchange Bank, Paloma, Illinois.
The Paloma Exchange Bank subsequently purchased the assets and assumed the
liabilities of Omni Bank, Hull, Illinois. The Paloma Exchange Bank then changed
its name to Omni Bank and relocated its main office from Paloma to Macomb,
Illinois.

Macomb, located in the west central part of Illinois in McDonough County,
serves as the county seat and the region's business, educational and
entertainment center by providing retail and manufacturing opportunities, as
well as health care, entertainment and cultural activities for the area's
residents. Macomb is the home of Western Illinois University which has
approximately 12,500 students. Omni Bank's five branches (Blandinsville, Camp
Point, East Hannibal, Hull and Paloma, Illinois) are located in predominantly
agricultural areas. Omni Bank has recently exercised an option to purchase a
parcel of real estate in Hannibal, Missouri, for possible future expansion for a
price of $500,000 payable over three years. The Company has not yet finalized
its plans for the development of this property.

At June 30, 1996, Country had total consolidated assets of approximately
$103.2 million, total consolidated deposits of approximately $90.8 million and
total consolidated stockholders' equity of approximately $2.4 million.

Omni Bank is a community bank whose business includes conventional consumer
and commercial products and services, including interest and noninterest bearing
depository accounts, commercial, industrial, consumer, real estate and
agricultural lending. At June 30, 1996, Omni Bank's loan portfolio in aggregate
book value and as a percentage of the total loan portfolio consisted of $39.2
million in real estate loans (58.3% of total loans), $22.4 million in commercial
and industrial loans (33.3% of total loans), and $5.0 million in consumer loans
(7.5% of total loans) and $600,000 in other loans (0.9% of total loans). At June
30, 1996, Omni Bank had total nonaccrual loans of $1.3 million, representing
1.96% of gross loans. The allowance for loan losses equaled $500,000, or 38.0%
of total nonaccrual loans, and 0.75% of total loans. Omni Bank reported net
income of $155,288 for the first six months of 1996 and net income of $208,598
for the year ended December 31, 1995. See the consolidated financial statements
of Country included in this Prospectus.

ACQUISITION BY THE COMPANY

On March 21, 1996, the Company entered into an Agreement and Plan of Merger
(the "Country Acquisition Agreement") with Country pursuant to which the Company
will acquire all of the issued and outstanding shares of Country's common and
preferred stock (the "Country Common Stock" and the "Country Preferred Stock,"
respectively). Country's stockholders approved the Country Acquisition Agreement
and the transactions contemplated thereunder on May 20, 1996. Following the
consummation of the Country Acquisition, Country will be a wholly-owned
subsidiary of the Company. The Company filed the necessary regulatory
applications requesting approval from the FRB and the Illinois Commissioner of
Banks and Real Estate (the "Illinois Commissioner"), on May 1, and May 16, 1996,
respectively, and has subsequently received all necessary approvals to
consummate the Country Acquisition. The consideration to be paid in connection
with the Country Acquisition is $11,445,000, which amount is subject to
adjustment

27
29

based upon the book value of certain of Country's loans at the closing of the
Country Acquisition (the "Country Closing").

CONSIDERATION FOR COUNTRY COMMON AND PREFERRED STOCK

The Country Acquisition Agreement provides that upon consummation of the
Country Acquisition, holders of Country Common Stock and Country Preferred Stock
will receive the following consideration in exchange for their shares of
Country's capital stock. Holders of Series 1 and Series 2 Class A Preferred
Stock of Country will each receive cash equal to the par value of such shares,
or $295 per share, plus the amount of any accrued but unpaid dividends for each
such share. Each holder of Country Common Stock will receive cash in an amount
as computed pursuant to a formula set forth in the Country Acquisition
Agreement. The formula provides that the holders of Country Common Stock will
receive an aggregate of $11,445,000 in cash less the amount paid to the holders
of Series 1 and Series 2 Class A Preferred Stock of Country and less the amount
necessary to satisfy in full all of the outstanding liabilities of Country
immediately prior to the Country Closing. In addition to the foregoing, the cash
price per share of Country Common Stock may be increased if, prior to the
Country Closing, Omni Bank experiences recoveries on certain of its loans in
excess of their current book values. Any such increase in the cash price per
share of Country Common Stock would be equal to the amount by which such
recovery, if any, exceeds the book value of such loans. The Company does not
expect any material increase in the aggregate purchase price as a result of such
recoveries.

NON-COMPETITION AGREEMENTS

At or prior to the Country Closing, non-competition agreements are to be
executed by Ivan and Betty Wharton, the President and the Chairman of Country,
respectively (the "Whartons"), which provide, among other things, that for three
years following the Country Closing neither of the Whartons will compete
directly or indirectly with Omni Bank by becoming an employee, officer, director
or consultant to any financial institution maintaining an office within a
five-mile radius of any of Omni Bank's offices. The Whartons will each receive
$5,000 as consideration for the execution of their respective non-competition
agreements.

ACQUISITION OF CERTAIN PROPERTY FROM OMNI BANK

As a condition to the Company's obligation to consummate the Country
Acquisition, the Whartons must acquire from Omni Bank all obligations payable to
Omni Bank by certain borrowers whose loans have been identified by the Company
as bearing more than an average risk of loss. The Whartons have agreed to
acquire any such loans from Omni Bank for cash at or prior to the Country
Closing at the respective book value of each such loan at the time of the
Country Closing. As a further condition to the Company's obligation to close the
Country Acquisition, the Whartons have also agreed to acquire for cash at their
respective book values all parcels of real estate and improvements owned by Omni
Bank in Paloma, Illinois, including Omni Bank's Paloma branch office and certain
other property located adjacent to this branch. Pursuant to the Country
Acquisition Agreement, Omni Bank will lease the Paloma branch office from the
Whartons over a ten-year term for an annual rent of approximately $15,800. Under
the lease agreement, Omni Bank also has the right to purchase the property at
any time during the term of the lease for a price equal to the then current
appraised fair market value of the property. Such terms were the result of arm's
length negotiations between the Company and the Whartons.

INDEMNIFICATION

The Whartons have each agreed to indemnify and hold the Company harmless
against any losses or damages incurred by the Company in connection with any of
the Omni Bank loans to be acquired by them or in connection with certain
contingent liabilities associated with the Paloma, Illinois property. This
indemnity will expire three years after the date of the Country Closing.

28
30

ANTICIPATED EFFECTS AND BENEFITS OF THE ACQUISITIONS

Management of the Company believes that the Acquisitions will provide a
cost-effective means for the Company to expand into new markets for financial
services in northwestern, western and southwestern Illinois. The Company's
management believes that within the next three years it can achieve revenue
enhancements, operating efficiencies, loan diversification and additional growth
opportunities as a result of the Acquisitions. There can be no assurance,
however, that the Company will be successful in accomplishing any or all of
these anticipated goals within such time frame or ever.

Revenue enhancements, primarily in the form of increased net interest
income, are anticipated from, among other things, expanding the Company's
commercial and retail banking services into new markets. Historically, the
Prairie Banks have maintained a low loan to deposit ratio and have concentrated
on attempting to increase earnings through management of their investment
portfolios. The Company believes that margin gains can be achieved by converting
lower yielding securities at the Prairie Banks into higher yielding loans
through increased marketing efforts. Following the consummation of the
Acquisitions, the Company intends to increase the volume of consumer and
commercial lending by Prairie and to expand the types of loan products offered
to include auto and student loans, loans secured by equipment, inventory and
accounts receivable, letters of credit, Small Business Administration ("SBA")
financing and minority business loans.

The Company also anticipates revising Omni Bank's rate structure and
repricing certain loans, deposits and services to reflect the gross margin
objectives of the Company. In addition, the Company expects to increase interest
and non-interest income by cross-selling products and services to the customers
of Omni Bank. Fee based income is expected to increase through the offering of
new services to customers of all of the newly acquired banks. The Company
intends to offer its corporate cash management services to customers through the
Prairie Banks and Omni Bank.

The Company expects that it will be able to increase significantly the
operating efficiencies at the Prairie Banks and Omni Bank. The Company intends
to consolidate all data processing services within UnionData Corp, Inc., the
Company's data processing subsidiary ("UnionData"). This consolidation should
also enable the Company to track closely the financial operations of each of its
branches and make additional operational changes on a timely basis. The Company
intends to consolidate certain other functions at the holding company level,
including human resources, loan review and audit and property management.

The Acquisitions will allow the Company to expand its market area into what
it believes are desirable banking locations. Most of the Prairie Banks are the
sole financial institution in their communities and many are located in county
seats. Omni Bank is based in a growing college community. Through the
Acquisitions, the Company will increase from two bank subsidiaries with eleven
locations in north central Illinois, to nine bank subsidiaries and twenty seven
locations in thirteen counties across northern, north central and western
Illinois. The resulting market area of the Company will extend from the far
western suburbs of the Chicago metropolitan area across central and northern
Illinois to the Mississippi River in western Illinois. This expansion will
increase the geographic diversity of the Company's loan portfolio, which is
expected to decrease the Company's overall lending risks.

The Acquisitions are expected to increase significantly the presence of the
Company within the region's banking industry. Because of the reputations of the
Company and its executive officers in the banking industry, the Company believes
that it will be an attractive alternative to future sellers of community banks
and thrifts. The Company believes that it can successfully manage these
community-based institutions to increase their profitability by expanding
cross-selling efforts and emphasizing those products and services offering the
highest return on investment.

29
31

SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents selected consolidated financial information
for the Company for each of the years in the five-year period ended December 31,
1995, and for the six months ended June 30, 1996 and 1995. This summary should
be read in conjunction with the Consolidated Financial Statements of the Company
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company." included
elsewhere herein. In the opinion of management of the Company, the data
presented for the six months ended June 30, 1996 and 1995, which is derived from
unaudited consolidated financial statements, reflects all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the financial position and results of operations for such periods. Results
for the six month period ended June 30, 1996, are not necessarily indicative of
results that may be expected for any other interim period or the entire year.

SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF INCOME DATA
Interest income............................. $ 11,278 $ 10,193 $ 21,368 $ 18,627 $ 18,604 $ 20,127 $ 19,437
Interest expense............................ 5,850 5,217 11,249 8,706 8,798 10,482 11,595
--------- --------- --------- --------- --------- --------- ---------
Net interest income....................... 5,428 4,976 10,119 9,921 9,806 9,645 7,842
Provision for loan losses................... 500 342 684 660 1,268 1,297 650
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision for
loan losses............................. 4,928 4,634 9,435 9,261 8,538 8,348 7,192
Noninterest income.......................... 1,324 1,187 2,570 2,283 2,512 1,893 1,580
Noninterest expense......................... 4,761 4,413 8,771 8,247 7,841 7,335 6,965
--------- --------- --------- --------- --------- --------- ---------
Net income before income taxes.............. 1,491 1,408 3,234 3,297 3,209 2,906 1,807
Provision for income taxes.................. 380 365 881 703 747 595 507
--------- --------- --------- --------- --------- --------- ---------
Net income................................ $ 1,111 $ 1,043 $ 2,353 $ 2,594 $ 2,462 $ 2,311 $ 1,300
========= ========= ========= ========= ========= ========= =========
PER SHARE DATA(1)
Net income.................................. $ 0.51 $ 0.49 $ 1.09 $ 1.22 $ 1.15 $ 1.08 $ 0.61
Cash dividends.............................. 0.07 0.07 0.13 0.12 0.09 0.07 0.07
Dividend payout ratio....................... 12.77% 13.61% 12.06% 9.57% 7.78% 6.13% 10.91%
Book value.................................. $ 11.00 $ 10.40 $ 11.01 $ 9.21 $ 8.92 $ 7.83 $ 6.82
Weighted average shares outstanding......... 2,169,012 2,131,737 2,148,897 2,132,712 2,132,760 2,132,760 2,136,195
Period end shares outstanding............... 2,131,737 2,131,737 2,131,737 2,131,737 2,132,760 2,132,760 2,132,760
BALANCE SHEET DATA
Investments and federal funds sold.......... $ 87,154 $ 89,376 $ 95,182 $ 86,460 $ 95,098 $ 83,057 $ 90,902
Total loans................................. 185,840 175,227 180,819 161,134 148,371 146,569 131,915
Allowance for loan losses................... 1,597 1,871 2,014 1,704 1,787 1,586 1,384
Total assets................................ 296,605 282,987 303,533 272,038 266,666 249,121 240,535
Total deposits.............................. 259,087 247,939 261,727 232,334 237,455 222,513 214,520
Stockholders' equity........................ 23,452 22,164 23,475 19,629 19,026 16,702 14,553
EARNINGS PERFORMANCE DATA
Return on average total assets(2)........... 0.75% 0.76% 0.83% 0.98% 0.97% 0.95% 0.60%
Return on average stockholders' equity(2)... 9.49 10.11 10.83 13.29 13.88 15.00 9.64
Net interest margin ratio................... 4.23 4.27 4.15 4.38 4.46 4.52 4.18
Efficiency ratio(3)......................... 64.95 68.18 68.35 66.17 65.81 64.96 72.64
ASSET QUALITY RATIOS
Nonperforming assets to total assets........ 0.64% 0.52% 0.95% 0.87% 1.64% 1.64% 2.04%
Nonperforming loans to total loans.......... 0.70 0.32 1.22 0.90 2.06 2.32 3.07
Net loan charge-offs to average loans(2).... 1.00 0.10 0.22 0.49 0.71 0.78 0.34
Allowance for loan losses to total loans.... 0.86 1.07 1.11 1.06 1.20 1.08 1.05
Allowance for loan losses to nonperforming
loans..................................... 122.75 337.55 90.93 117.44 58.61 46.56 34.18
CAPITAL RATIOS
Average equity to average assets............ 7.95% 7.62% 7.67% 7.38% 6.98% 6.34% 6.27%
Total capital to risk adjusted assets....... 12.54 12.07 12.35 12.28 10.97 10.23 8.72
Tier 1 leverage............................. 7.92 7.79 7.95 7.68 7.00 6.33 6.33

- -------------------------
(1) Restated to reflect the three-for-one stock split which took effect on May
20, 1996.
(2) Interim periods annualized.
(3) Calculated as noninterest expense less amortization of intangibles and
expenses related to other real estate owned divided by the sum of net
interest income before provision for loan losses and total noninterest
income excluding securities gains and losses.

30
32

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY

The following discussion provides additional information regarding the
operations and financial condition of the Company for the six months ended June
30, 1996 and 1995, and the three years ended December 31, 1995. This discussion
should be read in conjunction with "Selected Consolidated Financial Data," the
consolidated statements of financial condition of the Company and the
accompanying notes thereto included elsewhere in this Prospectus.

GENERAL

The Company derives substantially all of its revenues and income from the
operations of its banking subsidiaries, the Union Banks, which provide a full
range of commercial and consumer banking services to businesses and individuals,
primarily in LaSalle and contiguous counties in north central Illinois. As of
June 30, 1996, the Company had total assets of $296.6 million, net loans of
$184.2 million, total deposits of $259.0 million and total stockholders' equity
of $23.5 million. As a result of internal loan and deposit portfolio growth,
coupled with a relatively stable net interest margin, the Company reported net
income of $1,111,000 for the six months ended June 30, 1996, compared with net
income of $1,043,000 for the six months ended June 30, 1995.

RESULTS OF OPERATIONS

NET INCOME

Net income was $1,111,000 ($.51 per share) for the six months ended June
30, 1996, compared with net income of $1,043,000 ($.49 per share) for the six
months ended June 30, 1995, an increase of $68,000 or 6.5%. The increase in
earnings in 1996 compared with 1995 was primarily attributable to growth in the
Company's loan and deposit portfolios.

Net income was $2,353,000 for 1995 ($1.09 per share), compared with net
income of $2,594,000 for 1994 ($1.22 per share) and $2,462,000 for 1993 ($1.15
per share). The $241,000 (9.3%) decrease in earnings for 1995 compared to 1994
was primarily attributable to start-up costs related to the opening of two new
banking facilities during that year. The $132,000 (5.4%) increase in 1994 as
compared to 1993 resulted primarily from a $608,000 decrease in the provision
for loan losses which reflected improvement in the quality of the loan portfolio
as evidenced by a reduction in net charge-offs during the same period.

NET INCOME BEFORE INCOME TAXES

Net income before income taxes was $1,491,000 for the six months ended June
30, 1996, compared with $1,408,000 for the first six months of 1995, a 5.9%
increase. Net income before income taxes was $3,234,000 in 1995, a decrease of
$63,000 or 1.9% compared with $3,297,000 in 1994, which represented an increase
of $88,000, or 2.7%, compared with $3,209,000 in 1993. The decline in net income
before income taxes for 1995 compared to 1994 was primarily attributable to
start-up costs related to the opening of two new banking facilities during that
year.

NET INTEREST INCOME

Net interest income is the difference between income earned on
interest-earning assets and the interest expense incurred on interest-bearing
liabilities. The net yield on total interest-earning assets, also referred to as
interest rate margin or net interest margin, represents net interest income
divided by average interest-earning assets. The Company's principal
interest-earning assets are loans, investment securities and federal funds sold.

Net interest income was $5,428,000 for the first six months of 1996, an
increase of $452,000 or 9.1% compared with the first six months of 1995,
resulting principally from an increase in average interest-earning assets from
$251.6 million to $274.8 million, a significant portion of which was comprised
of loans. The increase in net interest income resulting from increased
interest-earning assets was partially offset in interest-bearing liabilities
from $221.4 million to $239.4 million. In addition, the Company experienced a
decrease in

31
33

its net interest margin from 4.27% at June 30, 1995, to 4.23% at June 30, 1996.
The decrease in net interest margin resulted principally from the cost of
interest-bearing liabilities increasing more than the yield on interest-earning
assets. The yield on interest-earning assets increased from 8.45% to 8.51%,
while the cost of interest-bearing liabilities increased from 4.75% to 4.91%
during such period.

Net interest income was $10,119,000 for 1995, an increase of $198,000 or
2.0% compared with net interest income of $9,921,000 for 1994, which represented
an increase of $115,000 or 1.2% compared with net interest income of $9,806,000
for 1993. The Company's average total interest-earning assets increased from
approximately $242.8 million for 1994 to $261.0 million for 1995, representing a
7.5% increase resulting principally from an increase in loans. The net interest
margin declined to 4.15% at December 31, 1995, from 4.38% at December 31, 1994.
Although interest rates on average earning assets increased to 8.46% in 1995
from 7.96% in 1994, rates on average interest bearing liabilities increased to
4.90% in 1995 from 4.08% in 1994. The increase in average earning assets
primarily resulted from average rate increases in the loan portfolio and
reflected an overall increase in market rates of interest. The most significant
variances comprising the increase in interest bearing liabilities were interest
rates on NOW Accounts and Money Market Accounts due to new tiered pricing
products introduced by the Company in 1995, as well as interest rates on time
deposits reflecting the increase in market rates of interest.

The following table sets forth for each category of interest-earning assets
and interest-bearing liabilities the average amounts outstanding, the interest
earned or paid on such amounts and the average rate paid for the six months
ended June 30, 1996 and 1995, and for the years ended December 31, 1995, 1994
and 1993. The table also sets forth the average rate earned on all
interest-earning assets, the average rate paid on all interest-bearing
liabilities and the net yield on average interest-earning assets for the same
period.

32
34

AVERAGE BALANCE SHEET
AND ANALYSIS OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)

FOR THE SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------
1996 1995
---------------------------- ----------------------------
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------- -------- ------- -------

ASSETS
INTEREST-EARNING ASSETS:
Interest earning deposits.................................. $ 30 $ 1 5.32% $ 22 $ 1 5.33%
Investment securities(1):
TAXABLE.................................................. 66,450 1,978 5.99 61,096 1,755 5.79
Non-taxable(2)........................................... 24,989 946 7.61 23,852 945 7.99
-------- ------- ----- -------- ------- ------
Total investment securities............................ 91,439 2,924 6.43 84,948 2,700 6.41
-------- ------- ----- -------- ------- ------
Federal funds sold......................................... 1,184 32 5.43 1,429 44 6.21
-------- ------- ----- -------- ------- ------
Loans:(3)(4)
Commercial and industrial................................ 58,078 2,791 9.66 54,024 2,659 9.93
Real estate mortgages.................................... 101,844 4,506 8.89 90,595 3,963 8.82
Installment and other.................................... 24,328 1,087 8.99 22,424 986 8.87
Fees on loans............................................ -- 288 -- -- 192 --
Less: Allowance for loan losses.......................... (2,113) -- -- (1,808) -- --
-------- ------- ----- -------- ------- ------
Net loans (tax equivalent)............................. 182,137 8,672 9.57 165,235 7,800 9.52
-------- ------- ----- -------- ------- ------
Total interest-earning assets............................ 274,790 11,629 8.51 251,634 10,545 8.45
-------- ------- ----- -------- ------- ------
NONEARNING ASSETS:
Cash and due from banks.................................... 10,725 10,064
Premises and equipment, net................................ 6,809 5,839
Other assets............................................... 5,700 5,521
-------- --------
Total nonearning assets.................................... 23,234 21,424
-------- --------
Total assets........................................... $298,024 $273,058
======== ========
LIABILITIES
INTEREST-BEARING DEPOSITS:
NOW accounts............................................... $ 30,649 $ 392 2.57 $ 28,547 $ 362 2.56
Money market accounts...................................... 22,263 355 3.20 19,132 264 2.78
Savings deposits........................................... 24,029 313 2.62 23,536 308 2.64
Time, $100,000 and over.................................... 14,016 407 5.84 12,639 341 5.44
Other time deposits........................................ 133,488 3,923 5.91 125,477 3,512 5.64
Federal funds purchased and repurchase agreements.......... 10,499 276 5.29 7,147 212 5.98
Notes payable.............................................. 4,416 184 8.38 4,873 218 9.02
-------- ------- ----- -------- ------- ------
Total interest-bearing liabilities....................... 239,360 5,850 4.91 221,351 5,217 4.75
-------- ------- ----- -------- ------- ------
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits............................... 32,380 29,121
Other liabilities.......................................... 2,605 1,789
-------- --------
Total noninterest-bearing liabilities.................... 34,985 30,910
-------- --------
Stockholders' equity....................................... 23,679 20,797
Total liabilities and stockholders' equity................. $298,024 $273,058
======== ========
Net interest income (tax equivalent)....................... $5,779 $5,328
======= =======
Net interest income (tax equivalent) to total earning
assets................................................... 4.23% 4.27%
Interest bearing liabilities to earning assets............. 87.11% 87.97%
-------- --------

FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------

1995 1994
---------------------------- ----------------------------
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------- -------- ------- -------

ASSETS
INTEREST-EARNING ASSETS:
Interest earning deposits.................................. $ 27 $ 2 5.85% $ -- $ -- --%
Investment securities(1):
TAXABLE.................................................. 62,808 3,636 5.79 68,946 3,937 5.71
Non-taxable(2)........................................... 24,463 1,919 7.84 22,818 1,869 8.19
-------- ------- ------ -------- ------- ------
Total investment securities............................ 87,271 5,555 6.37 91,764 5,806 6.33
-------- ------- ------ -------- ------- ------
Federal funds sold......................................... 2,577 156 6.05 629 38 6.04
-------- ------- ------ -------- ------- ------
Loans:(3)(4)
Commercial and industrial................................ 55,431 5,524 9.97 57,093 5,074 8.89
Real estate mortgages.................................... 94,050 8,380 8.91 78,262 6,522 8.33
Installment and other.................................... 23,523 2,103 8.94 16,831 1,552 9.22
Fees on loans............................................ -- 362 -- -- 339 --
Less: Allowance for loan losses.......................... (1,878) -- -- (1,731) -- --
-------- ------- ------ -------- ------- ------
Net loans (tax equivalent)............................. 171,126 16,369 9.57 150,455 13,487 8.96
-------- ------- ------ -------- ------- ------
Total interest-earning assets............................ 261,001 22,082 8.46 242,848 19,331 7.96
-------- ------- ------ -------- ------- ------
NONEARNING ASSETS:
Cash and due from banks.................................... 10,763 10,867
Premises and equipment, net................................ 6,042 5,282
Other assets............................................... 5,585 5,637
-------- --------
Total nonearning assets.................................... 22,390 21,786
-------- --------
Total assets........................................... $283,391 $264,634
======== ========
LIABILITIES
INTEREST-BEARING DEPOSITS:
NOW accounts............................................... $ 31,097 $ 843 2.71 $ 27,187 $ 627 2.31
Money market accounts...................................... 19,691 584 2.97 22,108 590 2.67
Savings deposits........................................... 23,146 611 2.64 26,288 723 2.75
Time, $100,000 and over.................................... 12,040 687 5.71 15,912 755 4.74
Other time deposits........................................ 129,147 7,534 5.84 112,094 5,398 4.82
Federal funds purchased and repurchase agreements.......... 9,825 567 5.77 4,574 242 5.29
Notes payable.............................................. 4,696 423 9.00 5,135 371 7.22
-------- ------- ------ -------- ------- ------
Total interest-bearing liabilities....................... 229,642 11,249 4.90 213,298 8,706 4.08
-------- ------- ------ -------- ------- ------
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits............................... 29,950 29,622
Other liabilities.......................................... 2,071 2,194
-------- --------
Total noninterest-bearing liabilities.................... 32,021 31,816
-------- --------
Stockholders' equity....................................... 21,728 19,520
Total liabilities and stockholders' equity................. $283,391 $264,634
======== ========
Net interest income (tax equivalent)....................... $10,833 $10,625
======= =======
Net interest income (tax equivalent) to total earning
assets................................................... 4.15% 4.38%
Interest bearing liabilities to earning assets............. 87.99% 87.83%
-------- --------

1993
----------------------------
INTEREST
AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE
-------- ------- -------
ASSETS
INTEREST-EARNING ASSETS:
Interest earning deposits.................................. $ 54 $ 2 3.57%
Investment securities(1):
TAXABLE.................................................. 63,134 4,024 6.37
Non-taxable(2)........................................... 17,236 1,540 8.94
-------- ------- -----
Total investment securities............................ 80,370 5,564 6.92
-------- ------- -----
Federal funds sold......................................... 4,667 140 3.00
-------- ------- -----
Loans:(3)(4)
Commercial and industrial................................ 56,965 5,056 8.88
Real estate mortgages.................................... 76,124 6,394 8.40
Installment and other.................................... 17,366 1,799 10.36
Fees on loans............................................ -- 258 --
Less: Allowance for loan losses.......................... (1,794) -- --
-------- ------- -----
Net loans (tax equivalent)............................. 148,661 13,507 9.09
-------- ------- -----
Total interest-earning assets............................ 233,752 19,213 8.22
-------- ------- -----
NONEARNING ASSETS:
Cash and due from banks.................................... 10,322
Premises and equipment, net................................ 4,572
Other assets............................................... 5,502
--------
Total nonearning assets.................................... 20,396
--------
Total assets........................................... $254,148
========
LIABILITIES
INTEREST-BEARING DEPOSITS:
NOW accounts............................................... $ 26,786 $ 628 2.34
Money market accounts...................................... 22,562 648 2.87
Savings deposits........................................... 26,103 807 3.09
Time, $100,000 and over.................................... 17,190 830 4.83
Other time deposits........................................ 108,159 5,483 5.07
Federal funds purchased and repurchase agreements.......... 2,015 62 3.08
Notes payable.............................................. 5,528 340 6.15
-------- ------- -----
Total interest-bearing liabilities....................... 208,343 8,798 4.22
-------- ------- -----
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing deposits............................... 26,026
Other liabilities.......................................... 2,047
--------
Total noninterest-bearing liabilities.................... 28.073
--------
Stockholders' equity....................................... 17,732
Total liabilities and stockholders' equity................. $254,148
========
Net interest income (tax equivalent)....................... $10,415
=======
Net interest income (tax equivalent) to total earning
assets................................................... 4.46%
Interest bearing liabilities to earning assets............. 89.13%
--------

- -------------------------
(1) Average balance and average rate on securities classified as available for
sale is based on historical amortized cost balances.
(2) Interest income and average rate on non-taxable securities are reflected on
a tax equivalent basis based upon a statutory Federal income tax rate of
34%.
(3) Nonaccrual loans are included in the average balances.
(4) Overdraft loans are excluded in the average balances.

33
35

The Company's net interest income is affected by changes in the amount and
mix of interest-earning assets and interest-bearing liabilities, referred to as
a "volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds referred to as a "rate change." The following table reflects the
changes in net interest income stemming from changes in interest rates and from
asset and liability volume, including mix. The change in interest attributable
to both rate and volume has been allocated to the changes in the rate and the
volume on a pro rata basis.

RATE/VOLUME ANALYSIS OF
NET INTEREST INCOME
(DOLLARS IN THOUSANDS)

SIX MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, 1996 ---------------------------------------------------
COMPARED TO 1995 1995 COMPARED TO 1994 1994 COMPARED TO 1993
----------------------- ------------------------ ----------------------
CHANGE DUE TO CHANGE DUE TO CHANGE DUE TO
----------------------- ------------------------ ----------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
------ ----- ------ ------ ------ ------ ------ ----- -----

INTEREST INCOME:
Interest earning deposits.......... $ -- $ -- $ -- $ -- $ 2 $ 2 $ (1) $ (1) $ (2)
Investment securities:
Taxable............................ 160 63 223 (354) 53 (301) (9) (78) (87)
Tax-exempt......................... 45 (44) 1 131 (81) 50 466 (137) 329
Federal funds sold................. (7) (5) (12) 118 -- 118 (178) 76 (102)
Loans.............................. 829 43 872 1,936 946 2,882 -- (20) (20)
------ ----- ------ ------ ------ ------ ----- ----- -----
Total interest income.............. $1,027 $ 57 $1,084 $1,831 $ 920 $2,751 $ 278 (160) $ 118
------ ----- ------ ------ ------ ------ ----- ----- -----
INTEREST EXPENSE:
NOW accounts....................... 28 2 30 97 119 216 9 (10) (1)
Money market accounts.............. 47 44 91 (68) 62 (6) (13) (45) (58)
Savings deposits................... 7 (2) 5 (84) (28) (112) 6 (90) (84)
Time, $100,000 and over............ 39 27 66 (203) 135 (68) (61) (14) (75)
Other time......................... 240 171 411 894 1,242 2,136 196 (281) (85)
Federal funds purchased and
repurchase agreements............ 91 (27) 64 301 24 325 114 66 180
Notes payable...................... (20) (14) (34) (34) 86 52 (26) 57 31
----- ----- ------ ------ ------ ------ ----- ----- -----
Total interest expense............. $ 432 $ 201 $ 633 $ 903 $1,640 $2,543 $ 225 $(317) $ (92)
----- ----- ------ ------ ------ ------ ----- ----- -----
NET INTEREST MARGIN................ $ 595 $(144) $ 451 $ 928 $ (720) $ 208 $ 53 157 $ 210
===== ===== ====== ====== ====== ====== ===== ===== =====

PROVISION FOR LOAN LOSSES

The amount of the provision for loan losses is based on monthly evaluations
of the loan portfolio, with particular attention directed toward nonperforming
and other potential problem loans. During these evaluations, consideration is
also given to such factors as management's evaluation of specific loans, the
level and composition of nonperforming loans, historical loss experience,
results of examinations by regulatory agencies, an internal asset review
process, the market value of collateral, the strength and availability of
guaranties, concentrations of credits and other judgmental factors.

The Company recorded a $500,000 provision for loan losses during the six
months ended June 30, 1996, compared with $342,000 during the first six months
of 1995. Although the Company's ratio of net charge-offs to average loans
remained unchanged for these periods, the Company made additional provisions to
the allowance to compensate for growth in the loan portfolio and to maintain the
allowance for loan losses at what management believes to be an adequate level.

The 1995 provision for loan losses was $684,000 compared with $660,000 in
1994 and $1,268,000 in 1993. The 3.6% increase in the 1995 provision for loan
losses when compared with 1994 was primarily a result of a $19,685,000, or 12.2%
increase in loans outstanding which was partially offset by a $369,000 or 49.7%
decrease in net charge-offs. The 47.9% decrease from 1993 to 1994 was primarily
a result of a $324,000, or 30.37% decrease in net charge-offs.

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36

NONINTEREST INCOME

The following table sets forth the various categories of noninterest income
for the six months ended June 30, 1996 and 1995, and for the years ended
December 31, 1995, 1994 and 1993.

NONINTEREST INCOME
(DOLLARS IN THOUSANDS)

SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
---------------- --------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------

Service charges..................................... $ 488 $ 458 $ 952 $ 895 $ 822
Merchant fee income................................. 237 184 418 357 343
Trust income........................................ 183 150 330 301 200
Gain on sale of loans............................... 142 45 288 130 574
Securities gains, net............................... 13 61 98 118 185
Other noninterest income............................ 261 289 484 482 388
------ ------ ------ ------ ------
Total noninterest income....................... $1,324 $1,187 $2,570 $2,283 $2,512
====== ====== ====== ====== ======

Noninterest income is generated primarily from fees associated with
noninterest and interest-bearing accounts. Noninterest income for the first six
months of 1996 was $1,324,000, an increase of $137,000 or 11.5% compared with
noninterest income of $1,187,000 for the first six months of 1995. Noninterest
income was $2,570,000 for 1995, an increase of $287,000 or 12.6% compared with
noninterest income of $2,283,000 for 1994, which represented a decrease of
$229,000 or 9.1% from $2,512,000 in 1993. The growth of the Union Banks during
1996 increased the number and balance of noninterest and interest-bearing
accounts, resulting in increased noninterest income. Specifically, service
charges increased on demand deposit accounts, the largest component of
noninterest bearing deposit accounts, and charges grew for items such as
insufficient funds and overdrafts primarily on transactional deposit products
such as demand, NOW and Money Market accounts. The increase in service charge
income to $952,000 for the year ended December 31, 1995, from $895,000 and
$822,000 for the years ended December 31, 1994, and 1993, respectively, was
related to increases in deposit account balances and increases in the service
charge schedule during those periods. Merchant fee income is derived from the
Company's credit card operations, comprised primarily of merchant fees (56% of
total merchant fees), interchange fees (18% of total merchant fees) and annual
fees (11% of total merchant fees). Total merchant fee income has continued to
increase as the Company adds new merchants to its customer list and as credit
card activity has grown. Other noninterest income is primarily derived from
fee-based banking services such as loan servicing fees, and sales of travelers
checks and money orders.

The Company, through its affiliates, provides trust services to its
customers by acting as executor, administrator, trustee, agent and in various
other fiduciary capacities for client accounts. Total assets under management at
June 30, 1996, were approximately $80 million. Trust income, which is
predominately comprised of fees assessed based on the market value of managed
client portfolios, increased by $29,000 during 1995, which followed a $101,000
increase in 1994.

A significant contribution to the Company's noninterest income was also
made by its residential real estate mortgage and origination, sales and
servicing operations. In addition, during 1995 the Company implemented a program
in connection with the SBA which guarantees repayment on portions of loans if a
borrower defaults. Revenues from both of these operations are a substantial
component of noninterest income and include commissions and fees for third party
loan servicing, origination and other fees received at closing and realized
gains on the sale of loans into the secondary market.

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37

NONINTEREST EXPENSE

The following table shows the Company's noninterest expense for the periods
indicated:

NONINTEREST EXPENSE
(DOLLARS IN THOUSANDS)

SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
---------------- --------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------

Salaries and employee benefits...................... $2,544 $2,174 $4,451 $3,868 $3,613
Occupancy expense, net.............................. 384 336 665 574 550
Furniture and equipment expenses.................... 331 274 584 560 576
FDIC deposit assessment............................. 3 259 271 526 502
Other noninterest expense........................... 1,499 1,370 2,800 2,719 2,600
------ ------ ------ ------ ------
Total noninterest expense......................... $4,761 $4,413 $8,771 $8,247 $7,841
====== ====== ====== ====== ======

Noninterest expense was $4,761,000 for the first six months of 1996, an
increase of $348,000 or 7.9% compared with noninterest expense of $4,413,000 for
the first six months of 1995. The growth of UnionBank/Streator resulted in
additional personnel, occupancy and office expenses, due primarily to the
opening of new banking facilities in each of Plano and Peru, Illinois, in May
and October, 1995, respectively.

Noninterest expense was $8,771,000 for 1995, an increase of $524,000 or
6.4% compared with noninterest expense of $8,247,000 for 1994, which represented
an increase of $406,000 or 5.2% compared with noninterest expense of $7,841,000
for 1993. The increase in noninterest expense for 1995 from 1994 was
attributable to a 15.1%, or $583,000, increase in salaries and employee benefits
and a 10.1%, or $115,000, increase in occupancy and equipment expenses, due
primarily to the opening of two banking facilities during 1995.

Deposits held by the Union Banks are insured by the Bank Insurance Fund
("BIF") of the Federal Deposit Insurance Corporation ("FDIC"), and as
FDIC-insured institutions, the Union Banks are required to pay deposit insurance
premium assessments to the FDIC. The amount an institution pays for FDIC deposit
insurance coverage is determined in accordance with a risk-based assessment
system under which each insured depository institution is placed into one of
nine categories and assessed insurance premiums based upon its level of capital
and the results of supervisory evaluations. The FDIC has issued refunds to the
best-rated institutions for assessments which exceeded the recapitalization
requirements of the BIF. The Union Banks received a total refund from the FDIC
of approximately $148,000. In addition, recent changes in the deposit insurance
assessment rate are expected to significantly reduce the cost of deposit
insurance for the Union Banks. See "Regulation and Supervision -- The Bank
Subsidiaries -- Deposit Insurance".

INCOME TAXES

During 1993, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes." The principal effect
of SFAS No. 109 is to provide a tax benefit for cumulative book loss reserves in
excess of tax reserves. SFAS No. 109 provides that deferred tax assets may be
reduced by a valuation allowance if it is more likely than not that some portion
or all of the deferred tax asset will not be realized. In accordance with the
provisions of SFAS No. 109, the Company elected not to restate prior years and
has determined that the cumulative effect of implementation was not significant.
The Company and its subsidiaries filed a consolidated tax return for 1995.

The Company has recorded income tax expense of $381,000 on income before
taxes of $1,492,000 for the six months ended June 30, 1996, an effective tax
rate of 25.5%, as compared with income tax expense of $365,000 on income before
taxes of $1,408,000 for the six months ended June 30, 1995, an effective tax
rate of 25.9%. The Company recorded income tax expense of $882,000, $703,000 and
$747,000 for the years ended December 31, 1995, 1994 and 1993, respectively, and
effective tax rates were 27.2%, 21.3% and 23.3%, respectively, for such periods.
The Company's effective tax rate is lower than statutory rates because the

36
38

Company derives a significant amount of interest income from municipal
securities, which are exempt from federal tax.

INTEREST RATE SENSITIVITY MANAGEMENT

The operating income and net income of the Union Banks depend, to a
substantial extent, on "rate differentials," i.e., the differences between the
income the Union Banks receive from loans, securities and other earning assets,
and the interest expense they pay to obtain deposits and other liabilities.
These rates are highly sensitive to many factors which are beyond the control of
the Union Banks, including general economic conditions and the policies of
various governmental and regulatory authorities. See "Risk Factors -- Impact of
Interest Rates and Economic Conditions."

The objective of monitoring and managing the interest rate risk position of
the balance sheet is to contribute to earnings and to minimize fluctuations in
net interest income. The potential for earnings to be affected by changes in
interest rates is inherent in a financial institution. Interest rate sensitivity
is the relationship between changes in market interest rates and changes in net
interest income due to the repricing characteristics of assets and liabilities.
An asset sensitive position in a given period will result in more assets being
subject to repricing; therefore, as interest rates rise, such a position will
have a positive effect on net interest income. Conversely, in a liability
sensitive position, where liabilities reprice more quickly than assets in a
given period, a rise in interest rates will have an adverse effect on net
interest income.

One method of analyzing interest rate risk is to evaluate the balance of
the Company's interest rate sensitivity position. A mix of assets and
liabilities that are roughly equal in volume, term and repricing represents a
matched interest rate sensitivity position. Any excess of assets or liabilities
in a particular period

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39

results in an interest rate sensitivity gap. The following table presents the
interest rate sensitivity for the Company's interest-earning assets and
interest-bearing liabilities at June 30, 1996:

INTEREST RATE-SENSITIVE ASSETS AND LIABILITIES

(DOLLARS IN THOUSANDS)

JUNE 30, 1996
----------------------------------------------------------------------------
3 MONTHS 3 MONTHS TO 6 MONTHS TO 1 YEAR TO
OR LESS 6 MONTHS 1 YEAR 5 YEARS OVER 5 YRS. TOTAL
-------- ----------- ----------- --------- ----------- --------

INTEREST-EARNING ASSETS
Investment securities.......... $ 8,260 $ 4,911 $ 3,383 $ 33,034 $ 37,341 $ 86,929
Loans.......................... 104,239 5,718 17,327 41,233 17,323 185,840
-------- ------- -------- -------- -------- --------
Total interest-earning
assets............... $112,499 $ 10,629 $ 20,710 $ 74,267 $ 54,664 $272,769
======== ======= ======== ======== ======== ========
INTEREST-BEARING LIABILITIES
NOW accounts................... $ 30,091 $ -- $ -- $ -- $ -- $ 30,091
Money market accounts.......... 22,140 -- -- -- -- 22,140
Savings........................ 24,238 -- -- -- -- 24,238
Time, $100,000 and over........ 6,185 5,362 6,605 6,927 -- 25,079
Other time..................... 16,657 18,428 44,590 43,350 -- 123,025
-------- ------- -------- -------- -------- --------
Total interest-bearing
deposits............. 99,311 23,790 51,195 50,277 -- 224,573
Federal funds and repurchase
agreements.................. 6,544 -- 1,000 -- -- 7,544
Notes payable.................. 4,391 -- -- -- -- 4,391
-------- ------- -------- -------- -------- --------
Total interest-bearing
liabilities.......... $110,246 $ 23,790 $ 52,195 $ 50,277 $ -- $236,508
======== ======= ======== ======== ======== ========
Period interest sensitivity
gap......................... $ 2,253 $ (13,161) $ (31,485) $ 23,990 $ 54,664 $ 36,261
Cumulative interest
sensitivity................. $ 2,253 $ (10,908) $ (42,393) $ (18,403) $ 36,261 $ 36,261
Cumulative gap as a percent of
total assets................ .76% (3.68)% (14.29)% (6.20)% 12.22% 12.22%
Cumulative interest-sensitive
assets as a percent of
cumulative
interest-sensitive
liabilities................. 102.04% 91.86% 77.24% 92.22% 115.33% 115.33%

The cumulative rate-sensitive gap position at one year was a
liability-sensitive position of $42.4 million, or 14.3%, which indicates that
the Company is currently in a liability-sensitive interest rate-sensitive
position. In addition, the Company also utilizes a dynamic gap asset-liability
model that takes into account projected future balances or the difference
between interest sensitive assets and interest sensitive liabilities at specific
future time periods. The cumulative dynamic rate-sensitive gap position at one
year, projected as of June 30, 1997, was an asset sensitive position of $4.1
million or 1%. Accordingly, the Company believes it will not experience a
significant impact in the short term from changes in interest rates.

The Company undertakes this interest rate-sensitivity analysis to monitor
the potential risk to future earnings from the impact of possible future changes
in interest rates on currently existing net assets or net liability positions.
However, this type of analysis is as of a point-in-time, when in fact the
Company's interest rate sensitivity can quickly change as market conditions,
customer needs and management strategies change. Thus, interest rate changes do
not affect all categories of assets and liabilities equally or at the same time.
Pursuant to its investment policy, the Company does not purchase derivative
financial instruments.

The preceding table does not necessarily indicate the impact of general
interest rate movements on the Company's net interest income because the
repricing of certain assets and liabilities is discretionary and is subject to
competitive and other pressures. As of June 30, 1996, the Union Banks held
approximately $5.6 million in mortgage-backed securities. Although the
mortgage-backed securities have various stated maturities, it is not uncommon
for mortgage-backed securities to prepay outstanding principal prior to stated

38
40

maturities. As a result, assets and liabilities indicated as repricing within
the same period may, in fact, reprice at different times and at different rate
levels.

ANALYSIS OF FINANCIAL CONDITION

LOANS AND ASSET QUALITY

The Company's loans are diversified by borrower and industry group. Loan
growth has occurred every year over the past five years and can be attributed to
acquisitions, increased loan demand and the addition of new loan products. The
following table describes the composition of loans by major categories
outstanding at June 30, 1996 and at December 31, 1995, 1994, 1993, 1992 and
1991.

LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)

AGGREGATE PRINCIPAL AMOUNT
--------------------------------------------------------------------
DECEMBER 31,
JUNE 30, --------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------

Commercial and industrial
loans......................... $ 41,465 $ 38,298 $ 36,802 $ 37,129 $ 36,087 $ 32,098
Agricultural loans.............. 14,251 17,079 14,391 14,702 14,121 11,955
Real estate:
Commercial mortgages.......... 46,542 44,393 36,727 32,744 30,783 31,236
Construction loans............ 5,924 7,437 5,047 3,018 3,150 1,381
Agricultural loans............ 9,339 10,229 12,169 12,606 11,689 8,464
1-4 family mortgages.......... 41,226 36,637 33,623 27,505 28,076 24,760
Installment loans............. 24,682 24,072 19,765 18,262 20,906 20,801
Other loans................... 2,414 2,681 2,641 2,511 2,043 1,665
-------- -------- -------- -------- -------- --------
Gross loans..................... 185,843 180,826 161,165 148,477 146,855 132,360
Unearned discount............... (3) (7) (31) (106) (286) (445)
-------- -------- -------- -------- -------- --------
Total loans..................... 184,840 180,819 161,134 148,371 146,569 131,915
Allowance for loan losses....... (1,597) (2,014) (1,704) (1,787) (1,586) (1,384)
-------- -------- -------- -------- -------- --------
Loans, net...................... $184,243 $178,805 $159,430 $146,584 $144,983 $130,531
======== ======== ======== ======== ======== ========

PERCENTAGE OF TOTAL LOAN PORTFOLIO
--------

Commercial and industrial
loans......................... 22.31% 21.18% 22.84% 25.01% 24.57% 24.25%
Agricultural loans.............. 7.67 9.45 8.93 9.90 9.62 9.03
Real estate:
Commercial mortgages.......... 25.04 24.55 22.79 22.05 20.96 23.60
Construction loans............ 3.19 4.11 3.13 2.03 2.14 1.04
Agricultural loans............ 5.03 5.66 7.55 8.49 7.96 6.39
1-4 family mortgages.......... 22.18 20.26 20.86 18.53 19.12 18.71
Installment loans............. 13.28 13.31 12.26 12.30 14.24 15.72
Other Loans................... 1.30 1.48 1.64 1.69 1.39 1.26
-------- -------- -------- -------- -------- --------
Gross Loans..................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
======== ======== ======== ======== ======== ========

As of June 30, 1996 and December 31, 1995, commitments of the Union Banks
under standby letters of credit and unused lines of credit totaled approximately
$45,834,000 and $43,797,000, respectively.

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41

Stated loan maturities (including variable rate loans reset to market
interest rates) of the total loan portfolio, net of unearned income, as of June
30, 1996 and December 31, 1995 were as follows:

STATED LOAN MATURITIES(1)
(DOLLARS IN THOUSANDS)

WITHIN 1 YEAR AFTER
1 YEAR TO 5 YEARS 5 YEARS TOTAL
------- ---------- ------- --------

JUNE 30, 1996
Commercial.......................................... $30,169 $ 15,678 $ 8,855 $ 54,702
Real Estate......................................... 12,752 37,216 53,884 103,852
Installment......................................... 8,270 18,388 628 27,286
------- ------- ------- --------
Total.......................................... $51,191 $ 71,282 $63,367 $185,840
======= ======= ======= ========
DECEMBER 31, 1995
Commercial.......................................... $27,440 $ 16,576 $ 9,871 $ 53,887
Real Estate......................................... 14,254 37,628 48,116 99,998
Installment......................................... 7,670 17,827 1,437 26,934
------- ------- ------- --------
Total.......................................... $49,364 $ 72,031 $59,424 $180,819
======= ======= ======= ========

- -------------------------
(1) Maturities based upon contractual maturity dates.

Rate sensitivities of the total loan portfolio, net of unearned income, as
of June 30, 1996 and December 31, 1995 were as follows:

LOAN REPRICING
(DOLLARS IN THOUSANDS)

WITHIN 1 YEAR AFTER
1 YEAR TO 5 YEARS 5 YEARS TOTAL
------- ---------- ------- --------

JUNE 30, 1996
Fixed Rate.......................................... $30,562 $ 45,861 $ 8,900 $ 85,323
Variable Rate....................................... 64,886 31,734 2,875 99,495
Nonaccrual.......................................... 1,022 -- -- 1,022
------- ------- ------- --------
Total.......................................... $96,470 $ 77,595 $11,775 $185,840
======= ======= ======= ========
DECEMBER 31, 1995
Fixed Rate.......................................... $30,630 $ 46,083 $ 7,505 $ 84,218
Variable Rate....................................... 64,303 28,763 2,408 95,474
Nonaccrual.......................................... 1,127 -- -- 1,127
------- ------- ------- --------
Total.......................................... $96,060 $ 74,846 $ 9,913 $180,819
======= ======= ======= ========

The maturities presented above are based upon contractual maturities. Many
of these loans are made on a short-term basis with the possibility of renewal at
time of maturity. All loans, however, are reviewed on a continuous basis for
creditworthiness.

NONPERFORMING ASSETS

The Company's financial statements are prepared on the accrual basis of
accounting, including the recognition of interest income on its loan portfolio,
unless a loan is placed on nonaccrual status. Loans are placed on a nonaccrual
status when there are serious doubts regarding the collectibility of all
principal and interest due under the terms of the loan. Amounts received on
nonaccrual loans generally are applied first to principal and then to interest
after all principal has been collected. It is the policy of the Union Banks not
to

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42

renegotiate the terms of a loan because of a delinquent status. Rather, a loan
is generally transferred to nonaccrual status if it is not in the process of
collection and is delinquent in payment of either principal or interest beyond
90 days. Loans which are 90 days delinquent but are well secured and in the
process of collection are not included in nonperforming assets.

Other nonperforming assets consist of real estate acquired through loan
foreclosures or other workout situations and other assets acquired through
repossessions. The following table summarizes nonperforming assets by category
as of June 30, 1996, and as of December 31, 1995, 1994, 1993, 1992 and 1991:

NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)

DECEMBER 31,
JUNE 30, ----------------------------------------------
1996 1995 1994 1993 1992 1991
-------- ------ ------ ------ ------ ------

Nonaccrual loans............................ $1,022 $1,127 $ 891 $1,671 $2,148 $3,712
Loans 90 days past due and still accruing
interest.................................. 279 1,088 560 1,378 1,258 337
----- ----- ----- ----- ----- -----
Total nonperforming loans............ 1,301 2,215 1,451 3,049 3,406 4,049
Other real estate owned..................... 346 441 672 1,096 664 857
Other nonperforming assets(1)............... 240 240 240 240... -- --
----- ----- ----- ----- ----- -----
Total nonperforming assets........... $1,887 $2,896 $2,363 $4,385 $4,070 $4,906
===== ===== ===== ===== ===== =====
Nonperforming loans to total loans.......... 0.70% 1.22% 0.90% 2.06% 2.32% 3.07%
Nonperforming assets to total loans......... 1.02 1.60 1.47 2.96 2.77 3.71
Nonperforming assets to total assets........ 0.64 0.95 0.87 1.64 1.64 2.04

- -------------------------
(1) Represents a single municipal security in default status.

The classification of a loan as nonaccrual does not necessarily indicate
that the principal is uncollectible, in whole or in part. A determination as to
collectibility is made by the Union Banks on a case-by-case basis. The Union
Banks consider both the adequacy of the collateral and the other resources of
the borrower in determining the steps to be taken to collect nonaccrual loans.
The final determination as to the steps taken is made based upon the specific
facts of each situation. Alternatives that are typically considered to collect
nonaccrual loans are foreclosure, collection under guarantees, loan
restructuring or judicial collection actions.

Each of the Company's loans is assigned a rating based upon an internally
developed grading system. A separate credit administration department also
reviews grade assignments on an ongoing basis. Management continuously monitors
nonperforming, impaired and past due loans to prevent further deterioration of
these loans. Management is not aware of any material loans classified for
regulatory purposes as loss, doubtful, substandard, or special mention, that
have been excluded from classification under nonperforming assets or impaired
loans. Management further believes that credits classified as nonperforming
assets or impaired loans include any material loans as to which any doubts exist
as to their collectibility in accordance with the contractual terms of the loan
agreement.

On January 1, 1995, the Company adopted guidelines for impaired loans
required by SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by Statement No. 118, "Accounting by Creditors for Impairment of a Loan
- -- Income Recognition and Disclosures." The adoption of SFAS 114 did not
significantly impact the comparability of the allowance related tables of the
Company included in this Prospectus.

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43

The following table sets forth a summary of other real estate owned and
other collateral acquired as of June 30, 1996:

OTHER REAL ESTATE OWNED

JUNE 30, 1996
---------------------------
NUMBER OF NET BOOK
DESCRIPTION PARCELS CARRYING VALUE
------------------------------------------------------- --------- --------------

Developed property..................................... 1 $188,000
Vacant land or unsold lots............................. 2 158,000

---- --------
Total real estate................................. 3 $346,000
==== ========

ALLOWANCE FOR LOAN LOSSES

In originating loans, the Company recognizes that credit losses will be
experienced and the risk of loss will vary with, among other things, general
economic conditions, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a collateralized loan,
the quality of the collateral for such loan. The allowance for loan losses
represents the Company's estimate of the allowance necessary to provide for
losses incurred in the loan portfolio. In making this determination, the Company
analyzes the ultimate collectibility of the loans in its portfolio,
incorporating feedback provided by internal loan staff and provided by
examinations performed by regulatory agencies. The Company makes an ongoing
evaluation as to the adequacy of the allowance for loan losses. To establish the
appropriate level of the allowance, all loans (including nonperforming loans),
commitments to extend credit and standby letters of credit are reviewed and
classified as to potential loss exposure. Specific allowances are then
established for those loans, commitments to extend credit or standby letters of
credit with identified loss exposure, and an additional allowance is maintained
based upon the size, quality and concentration characteristics of the remaining
loan portfolio using both historical quantitative trends and the Company's
evaluation of qualitative factors including future economic and industry
outlooks. The determination by the Company of the appropriate level of its
allowance for loan losses was $1,597,000 at June 30, 1996.

The allowance for loan losses is based on estimates and ultimate losses
will vary from current estimates. These estimates are reviewed monthly and as
adjustments, either positive or negative, become necessary a corresponding
increase or decrease is made in the provision for loan losses. The following
table presents a detailed analysis of the Company's allowance for loan losses
for the six months ended June 30, 1996, and for the years ended December 31,
1995, 1994, 1993, 1992 and 1991.

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44

ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)

SIX MONTHS
ENDED YEAR ENDED DECEMBER 31,
JUNE 30, ----------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- -------- -------- -------- -------- --------

Beginning balance...................... $ 2,014 $ 1,704 $ 1,787 $ 1,586 $ 1,384 $ 886
-------- -------- -------- -------- -------- --------
Charge-offs:
Commercial and industrial loans........ 726 114 413 577 381 278
Real estate mortgages.................. 70 173 371 445 613 54
Installment and other loans............ 142 250 240 257 307 202
-------- -------- -------- -------- -------- --------
Total charge-offs...................... 938 537 1,024 1,279 1,301 534
-------- -------- -------- -------- -------- --------
Recoveries:
Commercial and industrial loans........ 5 70 142 144 95 21
Real estate mortgages.................. -- 56 83 2 39 62
Installment and other loans............ 16 37 56 66 72 56
-------- -------- -------- -------- -------- --------
Total recoveries....................... 21 163 281 212 206 139
-------- -------- -------- -------- -------- --------
Net charge-offs........................ 917 374 743 1,067 1,095 395
-------- -------- -------- -------- -------- --------
Provision for loan losses.............. 500 684 660 1,268 1,297 650
-------- -------- -------- -------- -------- --------
Allowance associated with the
acquisition of Ottawa National
Bank................................. -- -- -- -- -- 243
-------- -------- -------- -------- -------- --------
Ending balance......................... $ 1,597 $ 2,014 $ 1,704 $ 1,787 $ 1,586 $ 1,384
======== ======== ======== ======== ======== ========
Period end total loans, net of unearned
interest............................. $185,840 $180,819 $161,134 $148,371 $146,569 $131,915
======== ======== ======== ======== ======== ========
Average loans.......................... $184,242 $173,004 $152,186 $150,455 $140,945 $116,577
======== ======== ======== ======== ======== ========
Ratio of net charge-offs to average
loans................................ 1.00% 0.22% 0.49% 0.71% 0.78% 0.34%
Ratio of provision for loan losses to
average loans........................ 0.54 0.40 0.43 0.84 0.92 0.56
Ratio of allowance for loan losses to
ending total loans................... 0.86 1.11 1.06 1.20 1.08 1.05
Ratio of allowance for loan losses to
total nonperforming loans............ 122.75 90.93 117.44 58.61 46.56 34.18
Ratio of allowance for loan losses to
total nonperforming assets(1)........ 96.96 75.83 80.26 43.11 38.97 28.21
Ratio of allowance at end of period to
average loans........................ 0.87 1.16 1.12 1.19 1.13 1.19

- -------------------------
(1) Excludes a single municipal security in default status in the amount of
$240,000 for the six months ended June 30, 1996, and the years ended
December 31, 1995, 1994 and 1993.

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45

The following table sets forth an allocation of the allowance for loan
losses among categories as of June 30, 1996, and December 31, 1995, 1994, 1993,
1992 and 1991. The Company believes that any allocation of the allowance for
loan losses into categories lends an appearance of precision which does not
exist. The allowance is utilized as a single unallocated allowance available for
all loans. The following allocation table should not be interpreted as an
indication of the specific amounts or the relative proportion of future charges
to the allowance.

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)

DECEMBER 31,
-------------------------------------------------------------------------------------
JUNE 30,
1996 1995 1994 1993 1992
------------------- ------------------- ------------------- ------------------- -------------------
LOAN LOAN LOAN LOAN LOAN
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO GROSS TO GROSS TO GROSS TO GROSS TO GROSS
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------ ----------

Commercial and
industrial loans.... $ 358 28.75% $ 800 29.43% $ 327 31.89% $ 336 35.03% $ 320 35.22%
Real estate........... 374 56.52 388 55.59 325 53.74 288 50.97 239 49.43
Installment and other
loans............... 233 13.33 235 13.36 194 12.63 173 12.24 191 13.83
Unallocated........... 632 1.40 591 1.62 858 1.74 990 1.76 836 1.53
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total............. $1,597 100.00% $2,014 100.00% $1,704 100.00% $1,787 100.00% $1,586 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======

DECEMBER 31,
-------------------
1991
-------------------
LOAN
CATEGORY
TO GROSS
AMOUNT LOANS
------ ----------

Commercial and
industrial loans.... $ 293 35.20%
Real estate........... 104 49.13
Installment and other
loans............... 154 14.18
Unallocated........... 833 1.49
------ ------
Total............. $1,384 100.00%
====== ======

INVESTMENT ACTIVITIES

The Company's investment portfolio, which represented 31.9% of the
Company's earning asset base as of June 30, 1996, is managed to minimize
interest rate risk, maintain sufficient liquidity and maximize return.
Investment securities which are classified as held-to-maturity are purchased
with the intent and ability of the Company to hold them to maturity. Securities
classified as held-to-maturity are carried at historical cost. The Company's
financial planning anticipates income streams based on normal maturity and
reinvestment. Investment securities classified as available-for-sale are
purchased with the intent to provide liquidity and to increase returns. The
securities classified as available-for-sale are carried at fair value. The
Company does not have any securities classified as trading.

Securities held-to-maturity, carried at amortized cost, were $28,926,000 at
June 30, 1996, compared to $29,026,000 at December 31, 1995, and $28,667,000 at
December 31, 1994. The change in the unrealized position was due to interest
rate movements during the periods. There was an unrealized loss on securities
held-to-maturity of $184,000 at June 30, 1996, compared with an unrealized gain
of $160,000 at December 31, 1995 and an unrealized loss of $1,500,000 at
December 31, 1994.

Securities available-for-sale, carried at fair value, were $58,003,000 at
June 30, 1996, compared with $63,891,000 at December 31, 1995, and $56,593,000
at December 31, 1994.

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46

The following tables describe the composition of investments by major
category and maturity as of June 30, 1996 and as of December 31, 1995, 1994 and
1993:

INVESTMENT PORTFOLIO
(DOLLARS IN THOUSANDS)

DECEMBER 31,
--------------------------------------------------------------------
JUNE 30,
1996 1995 1994 1993
-------------------- -------------------- -------------------- --------------------
% OF % OF % OF % OF
AMOUNT PORTFOLIO AMOUNT PORTFOLIO AMOUNT PORTFOLIO AMOUNT PORTFOLIO
------- --------- ------- --------- ------- --------- ------- ---------

HELD TO MATURITY
U.S. Treasury
securities........... $ 100 0.12% $ 117 0.13% $ -- -- $26,120 30.73%
U.S. government
agencies............. 2,000 2.30 2,000 2.15 3,000 3.52 21,232 24.98
U.S. government agency
mortgage backed
securities........... -- -- -- -- -- -- 7,036 8.28
States and political
subdivisions......... 26,584 30.58 26,660 28.69 25,402 29.79 23,576 27.74
Collateralized mortgage
obligations.......... 2 0.00 9 0.01 25 0.03 72 0.08
Other securities....... 240 0.28 240 0.26 240 0.28 6,962 8.19
-------- ------ -------- ------ -------- ------ -------- -------
Total............. $28,926 33.28% $29,026 31.24% $28,667 33.62% $84,998 100.00%
======== ====== ======== ====== ======== ====== ======== =======

AVAILABLE FOR SALE
U.S. Treasury
securities........... $13,831 15.91% $18,279 19.67% $24,416 28.64% $ -- --%
U.S. government
agencies............. 38,141 43.88 36,987 39.81 19,672 23.07 -- --
U.S. government agency
mortgage backed
securities........... 5,550 6.38 6,084 6.55 8,232 9.66 -- --
States and political
subdivisions......... 408 0.47 913 0.98 885 1.04 -- --
Collateralized mortgage
obligations.......... 74 0.08 106 0.11 165 0.19 -- --
Other securities....... -- -- 1,522 1.64 3,223 3.78 -- --
-------- ------ -------- ------ -------- ------ -------- -------
Total............. $58,004 66.72% $63,891 68.76% $56,593 66.38% $ -- --%
======== ====== ======== ====== ======== ====== ======== =======

Prior to January 1, 1994, all debt securities were carried at amortized
cost. Effective January 1, 1994, the Company adopted SFAS No. 115, and
classified investments as held-to-maturity or available-for-sale.

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47

The following tables set forth the maturities and yields of investment
securities as of June 30, 1996 and as of December 31, 1995:

INVESTMENT PORTFOLIO
MATURITY REPRICING SCHEDULE
(DOLLARS IN THOUSANDS)
JUNE 30, 1996

MATURING OR REPRICING
-------------------------------------------------------------------
AFTER 1 BUT AFTER 5 BUT
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS AFTER 10 YEARS
-------------- --------------- --------------- -------------- TOTAL
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
------ ----- ------- ----- ------- ----- ------ ----- ---------

HELD TO MATURITY
U.S. Treasury
securities............ $ 100 5.45% $ -- --% $ -- --% $ -- --% $ 100
U.S. government
agencies.............. -- -- 1,000 4.52 1,000 3.23 -- -- 2,000
States and political
subdivisions(1)....... 2,407 8.62 13,659 7.23 8,034 7.34 2,484 8.28 26,584
Collateralized mortgage
obligations........... -- -- -- -- 2 9.14 -- -- 2
Other securities........ -- -- -- -- 240 -- -- -- 240
------ ------- ------ ------ -------
Total.............. $2,507 $14,659 $9,276 $2,484 $28,926
====== ======= ====== ====== =======

AVAILABLE-FOR-SALE
U.S. Treasury
securities............ $7,023 4.60% $6,807 5.29% $ -- --% $ -- --% $13,830
U.S. government
agencies.............. 495 6.12 7,881 5.46 29,765 6.63 -- -- 38,141
U.S. government agency
mortgage backed
securities............ 293 6.70 3,417 5.72 412 7.30 1,428 6.31 5,550
States and political
subdivisions(1)....... -- -- 193 6.00 215 9.00 -- -- 408
Collateralized mortgage
obligations........... -- -- 74 5.70 -- -- -- -- 74
------ ------- ------- ------ -------
Total.............. $7,811 $18,372 $30,392 $1,428 $58,003
====== ======= ======= ====== =======

- -------------------------
(1) Rates on obligations of States and political subdivisions have been adjusted
to tax equivalent yields using a 34% income tax rate.

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48

INVESTMENT PORTFOLIO
MATURITY REPRICING SCHEDULE
(DOLLARS IN THOUSANDS)
DECEMBER 31, 1995

MATURING OR REPRICING
-------------------------------------------------------------------------------------
AFTER 1 BUT AFTER 5 BUT
WITHIN WITHIN WITHIN AFTER
1 YEAR 5 YEARS 10 YEARS 10 YEARS
--------------- ---------------- ---------------- --------------- TOTAL
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
------ ----- ------- ----- ------- ----- ------ ----- -------

HELD-TO-MATURITY
U.S. Treasury securities........... $ 117 5.44% $ -- --% $ -- --% $ -- --% $ 117
U.S. government agencies........... -- -- 1,000 3.42 1,000 3.39 -- -- 2,000
States and political
subdivisions(1).................. 1,665 8.76 14,512 7.32 7,416 7.36 3,067 8.16 26,660
Collateralized mortgage
obligations...................... -- -- 9 10.01 -- -- -- -- 9
Other securities................... -- -- -- -- 240 -- -- -- 240
------- -------- -------- ------- --------
Total(1)....................... $1,782 $15,521 $ 8,656 $3,067 $29,026
======= ======== ======== ======= ========

AFTER 1 BUT AFTER 5 BUT
WITHIN WITHIN WITHIN AFTER
1 YEAR 5 YEARS 10 YEARS 10 YEARS
--------------- ---------------- ---------------- --------------- TOTAL
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
------ ----- ------- ----- ------- ----- ------ ----- -------

AVAILABLE-FOR-SALE
U.S. Treasury securities........... $8,283 4.41% $ 9,488 5.21% $ 508 5.61% $ -- --% $18,279
U.S. government agencies........... -- -- 12,672 5.68 24,315 6.75 -- -- 36,987
U.S. government agency mortgage
backed securities................ -- -- 3,958 5.51 521 7.50 1,605 6.27 6,084
States and political
subdivisions(1).................. 500 6.60 195 6.00 218 9.00 -- -- 913
Collateralized mortgage
obligations...................... -- -- 106 5.85 -- -- -- -- 106
Other securities................... -- -- 1,522 6.08 -- -- -- -- 1,522
------- -------- -------- ------- --------
Total(1)....................... $8,783 $27,941 $25,562 $1,605 $63,891
======= ======== ======== ======= ========

- -------------------------
(1) Rates on obligations of States and political subdivisions have been adjusted
to tax equivalent yields using a 34% income tax rate.

DEPOSIT ACTIVITIES

Deposits are attracted through the offering of a broad variety of deposit
instruments, including checking accounts, money market accounts, regular savings
accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more), and retirement savings plans. The Company's
average balance of total deposits was $256,825,000 for the six months ended June
30, 1996, representing an increase of $11,754,000 or 4.8% compared with the
average balance of total deposits for the year ended December 31, 1995. The
Company's average balance of total deposits was $245,071,000 for the year ended
December 31, 1995, an increase of $11,860,000 or 5.06% compared with the average
balance of total deposits outstanding for 1994 of $233,211,000, which
represented an increase of $6,385,000 or 2.8% compared with the average balance
of total deposits outstanding for 1993 of $226,826,000. The increases in
deposits were due to internally generated growth.

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49

The following table sets forth certain information regarding the Union
Banks' average deposits as of June 30, 1996 and December 31, 1995, 1994 and
1993.

AVERAGE DEPOSITS
(DOLLARS IN THOUSANDS)

FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------
FOR THE SIX MONTHS ENDED
JUNE 30, 1996 1995 1994
------------------------------------ ------------------------------------ ---------------------
AVERAGE PERCENT OF AVERAGE RATE AVERAGE PERCENT OF AVERAGE RATE AVERAGE PERCENT OF
AMOUNT TOTAL PAID AMOUNT TOTAL PAID AMOUNT TOTAL
-------- ---------- ------------ -------- ---------- ------------ -------- ----------

Noninterest-bearing
demand deposits........ $ 32,380 12.61% --% $ 29,950 12.22% --% $ 29,622 12.70%
Savings accounts......... 24,029 9.36 2.62 23,146 9.45 2.64 26,288 11.27
Interest-bearing demand
deposits............... 52,912 20.60 2.84 50,788 20.72 2.81 49,295 21.14
Time, less than
$100,000............... 133,488 51.98 5.91 129,147 52.70 5.84 112,094 48.07
Time, $100,000 or more... 14,016 5.45 5.84 12,040 4.91 5.71 15,912 6.82
-------- ------ ---- -------- ------ ---- -------- ------
Total deposits....... $256,825 100.00% 4.24% $245,071 100.00% 4.19% $233,211 100.00%
======== ====== ==== ======== ====== ==== ======== ======

FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1993
------------------------------------
AVERAGE RATE AVERAGE PERCENT OF AVERAGE RATE
PAID AMOUNT TOTAL PAID
------------ -------- ---------- ------------

Noninterest-bearing
demand deposits........ --% $ 26,026 11.47% --%
Savings accounts......... 2.75 26,103 11.51 3.09
Interest-bearing demand
deposits............... 2.47 49,348 21.76 2.59
Time, less than
$100,000............... 4.82 108,159 47.68 5.07
Time, $100,000 or more... 4.74 17,190 7.58 4.83
---- -------- ------ ----
Total deposits....... 3.47% $226,826 100.00% 3.70%
==== ======== ====== ====

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50

As of June 30, 1996, non-brokered time deposits over $100,000 represented
9.7% of total deposits, compared with 9.0% of total deposits as of December 31,
1995, and 9.4% as of December 31, 1994. The Union Banks do not have and do not
solicit brokered deposits.

The following table sets forth the remaining maturities for time deposits
of $100,000 or more at June 30, 1996 and at December 31, 1995:

TIME DEPOSITS OF $100,000 OR MORE
(DOLLARS IN THOUSANDS)

JUNE 30, DECEMBER 31,
MATURITY RANGE 1996 1995
- ------------------------------------------------------------------ ------------ ------------

Three months or less.............................................. $ 6,185 $ 6,024
Over three months through six months.............................. 5,362 3,128
Over six months through twelve months............................. 6,605 5,013
Over twelve months................................................ 6,927 9,487
------- -------
$ 25,079 $ 23,652
======= =======

RETURN ON EQUITY AND ASSETS

The following are various ratios for the Company for the six months ended
June 30, 1996 and the years ended December 31, 1995, 1994, and 1993.

RETURN ON EQUITY AND ASSETS

FOR THE FOR THE YEARS ENDED DECEMBER
SIX MONTHS 31,
ENDED -----------------------------
JUNE 30, 1996 1995 1994 1993
------------- ----- ----- -----

Return on average assets......................... 0.75% 0.83% 0.98% 0.97%
Return on average equity......................... 9.49 10.83 13.29 13.88
Average equity to average assets................. 7.95 7.67 7.38 6.98
Dividend payout rates............................ 12.77 12.06 9.57 7.78

LIQUIDITY

The Company manages its liquidity position with the objective of
maintaining sufficient funds to respond to the needs of depositors and borrowers
and to take advantage of earnings enhancement opportunities. In addition to the
normal inflow of funds from core-deposit growth, together with repayments and
maturities of loans and investments, the Company utilizes other short-term
funding sources such as securities sold under agreements to repurchase,
overnight funds purchased from correspondent banks and the acceptance of short-
term deposits from public entities.

The Company monitors and manages its liquidity position on several bases,
which vary depending upon the time period. As the time period is expanded, other
data is factored in, including estimated loan funding requirements, estimated
loan payoffs, investment portfolio maturities or calls, and anticipated
depository buildups or runoffs.

The Company classifies the majority of its investment securities as
available-for-sale, thereby maintaining significant liquidity. The Company's
liquidity position is further enhanced by structuring the maturity of its loan
portfolio interest payments as monthly, and also by the significant
representation of retail credit and residential mortgage loans in the Company's
loan portfolio, resulting in a steady stream of pre-payments. In managing its
investment portfolio, the Company provides for staggered maturities so that cash
flows are provided as such investments mature.

The Company's cash flows are composed of three classifications: cash flows
from operating activities, cash flows from investing activities, and cash flows
from financing activities. Net cash provided by operating

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51

activities was $3.6 million for the six months ended June 30, 1996, $3.6 million
for the year ended December 31, 1995 and $4.9 million for the year ended
December 31, 1994. Net cash used in investing activities, consisting primarily
of loan and investment funding, was $1.6 million for the six months ended June
30, 1996, and $27.6 million and $9.6 million for the years ended December 31,
1995 and 1994, respectively. Net cash used in financing activities for the six
months ended June 30, 1996 was $6.8 million and was directly related to the
decrease in deposits and securities sold under agreements to repurchase. Net
cash provided by financing activities, consisting primarily of growth in
deposits and securities sold under agreements to repurchase, was $26.8 million
and $4.4 million for the periods ended December 31, 1995 and 1994, respectively.

The Union Banks' investment securities portfolios, including federal funds
sold, and its cash and due from bank deposit balances serve as the primary
sources of liquidity for the Company. At June 30, 1996, 10.6% of the Union
Banks' interest-bearing liabilities were in the form of time deposits of
$100,000 and over. Substantially all of such large deposits were obtained from
the Union Banks' market areas and none of such deposits are brokered deposits.
Management believes these deposits to be a stable source of funds. However, if a
large number of these time deposits matured at approximately the same time and
were not renewed, the Union Banks' liquidity could be adversely affected.
Currently, the maturities of the Union Banks' large time deposits are spread
throughout the year, with 24.7% maturing in the third quarter of 1996, 21.4%
maturing in the fourth quarter of 1996, 26.3% maturing in the first and second
quarter of 1997, and the remaining 27.6% maturing thereafter. The Union Banks
monitor those maturities in an effort to minimize any adverse effect on
liquidity.

The Company's short term bank borrowings at June 30, 1996 consisted of
notes payable in the principal amount of $4,391,250 payable to the Company's
principal correspondent bank. The Company incurred this debt in the acquisition
of Ottawa National Bank. The notes are renewable annually, require quarterly
interest payments and are collateralized by the Company's stock in the Union
Banks.

The Company's principal source of funds for repayment of the indebtedness
is dividends from the Union Banks. At June 30, 1996 approximately $3,800,000 was
available for dividends without regulatory approval. See "Regulation and
Supervision -- The Bank Subsidiaries -- Dividends."

CAPITAL RESOURCES

The Union Banks are expected to meet a minimum risk-based capital to
risk-weighted assets ratio of 8%, of which at least one-half (or 4%) must be in
the form of Tier 1 (core) capital. The remaining one-half (or 4%) may be in the
form of Tier 1 (core) or Tier 2 (supplementary) capital. The amount of loan loss
allowance that may be included in capital is limited to 1.25% of risk-weighted
assets. The ratio of Tier 1 (core) and the combined amount of Tier 1 (core) and
Tier 2 (supplementary) capital to risk-weighted assets for the Union Banks were
11.74% and 12.54%, respectively, at June 30, 1996, and 11.34% and 12.35%,
respectively, at December 31, 1995. The Union Banks are currently, and expect to
continue to be, in compliance with these guidelines. See "Regulation and
Supervision -- Capital Adequacy Guidelines."

The Board of Governors of the FRB has announced a policy known as the
"source of strength doctrine" that requires a bank holding company to serve as a
source of financial and managerial strength for its subsidiary banks. The FRB
has interpreted this requirement to require that a bank holding company, such as
the Company, stand ready to use available resources to provide adequate capital
funds to its subsidiary banks during periods of financial stress or adversity.
The FRB has stated that it would generally view a failure to assist a troubled
or failing subsidiary bank in these circumstances as an unsound or unsafe
banking practice or a violation of the FRB's Regulation Y or both, justifying a
cease and desist order or other enforcement action, particularly if appropriate
resources are available to the bank holding company on a reasonable basis.

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52

The following table sets forth an analysis of the Company's capital ratios:

RISK-BASED CAPITAL RATIOS
(DOLLARS IN THOUSANDS)

DECEMBER 31, MINIMUM WELL-
JUNE 30, ----------------------------------- CAPITAL CAPITALIZED
1996 1995 1994 1993 RATIOS RATIOS
--------- --------- --------- --------- ------- -----------

Tier 1 risk-based capital..... $ 23,617 $ 22,530 $ 30,322 $ 17,801
Tier 2 risk-based capital..... 1,597 2,014 1,704 1,787
Total capital................. 25,214 24,544 22,026 19,588
Risk-weighted assets.......... 201,133 198,731 179,307 178,613
Capital ratios:
Tier 1 risk-based capital... 11.74% 11.34% 11.33% 9.97% 4.00% 6.00%
Tier 2 risk-based capital... 12.54 12.35 12.28 10.97 8.00 10.00
Leverage Ratio.............. 7.92 7.95 7.68 7.00 3.00 5.00

ACCOUNTING MATTERS

In May 1993, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 114 "Accounting by Creditors of Impairment of a Loan" as amended by SFAS No.
118 "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures." Together, these standards require that when a loan is impaired, a
creditor must measure impairment based upon the present value of expected future
cash flows discounted at the loan's effective interest rate, the fair value of
the collateral if the loan is collateral dependent or the loan's observable
market price. A loan is considered impaired when based upon current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement. These standards
also require certain disclosures regarding impaired loans. The Company adopted
these standards effective January 1, 1995. The adoption of these accounting
standards did not have a material effect on the Company's consolidated financial
position or results of operations because the Company's recognition and
measurement policies regarding nonperforming loans were materially consistent
with these accounting standards.

In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This
Statement requires that long-lived assets and certain identifiable intangibles
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Measurement of an impairment loss for such long-lived assets and
identifiable intangibles is to be based upon the fair value of the asset. This
Statement is effective for fiscal years beginning after December 15, 1995.

The FASB has issued SFAS No. 122 "Accounting for Mortgage Servicing Rights"
which became effective for years beginning after December 15, 1995. This
Statement amends FASB Statement No. 65 "Accounting for Certain Mortgage Banking
Activities" to require that an entity recognize as separate assets the rights to
service mortgage loans for others, however those rights are acquired. An entity
that acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans (without mortgage servicing
rights) based upon their relative fair values. If it is not practicable to
estimate the fair values separately, the entire cost of purchasing or
originating the loans should be allocated to the mortgage loans (without the
mortgage servicing rights) and no cost should be allocated to the mortgage
servicing rights. This Statement also requires that an entity assess its
capitalized mortgage servicing rights for impairment based upon the fair value
of those rights.

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement defines a fair value based method of accounting
for an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using

51
53

the intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to continue to use
the method of accounting specified in Opinion No. 25 must make pro forma
disclosures of net income and, if presented, earnings per share, as if the fair
value method of accounting defined in SFAS No. 123 had been applied. This
Statement is effective for fiscal years beginning after December 15, 1995.

IMPACT OF INFLATION, CHANGING PRICES AND MONETARY POLICIES

The financial statements and related financial data concerning the Company
presented in this Prospectus have been prepared in accordance with generally
accepted accounting principles which require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary effect of inflation on the operations of the Company is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant effect on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Interest rates are highly
sensitive to many factors which are beyond the control of the Company, including
the influence of domestic and foreign economic conditions and the monetary and
fiscal policies of the United States government and federal agencies,
particularly the FRB. See "Risk Factors -- Impact of Interest Rates and Economic
Conditions."

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54

BUSINESS

THE COMPANY

The Company is a multi-bank holding company with its corporate headquarters
located in Ottawa, Illinois, which is approximately 85 miles southwest of
Chicago. As of June 30, 1996, the Company had consolidated assets of
approximately $296.6 million. The Company will have 27 banking locations with
consolidated assets of approximately $633.3 million following consummation of
the Acquisitions, which have been or will be completed prior to the closing of
this Offering.

The Company was incorporated in Delaware in 1981. The Company's principal
executive offices are located at 122 West Madison Street, Ottawa, Illinois
61350, and its telephone number is (815) 434-3900.

THE SUBSIDIARIES

Prior to the Acquisitions, the Company operated through its two
wholly-owned subsidiary banks, UnionBank/Streator, which has its main office
located in Streator, Illinois, and UnionBank/Sandwich, which has its main office
located in Sandwich, Illinois. UnionBank/Streator has nine locations in the
Illinois communities of Ottawa, Streator, Triumph and Peru, while
UnionBank/Sandwich has two locations, one each in Sandwich and Plano, Illinois.

Management of the Company believes that the new branches in Plano and Peru,
Illinois, offer excellent opportunities for the Company to expand its retail and
commercial customer base. The Company's marketing focus at the two new branches
has been to promote mortgages and home equity lines of credit with additional
emphasis being placed on cross selling to customers the full line of the
Company's other financial products and services. In addition, employees at both
of these branches have adopted a proactive business development strategy which,
when coupled with the Company's commercial loan, deposit and other services,
offer opportunities to develop long term relationships with existing and new
commercial customers. At June 30, 1996, the Plano and Peru branches had grown to
approximately $2,731,000 and $1,973,000 in total assets, respectively.

The Union Banks' full-service banking business includes customary consumer
and commercial products and services, including the following: demand, savings,
time deposit, individual retirement and Keogh accounts; commercial, industrial,
consumer and real estate lending; safe deposit operations; trust services; and
an extensive variety of additional services tailored to meet the needs of
individual customers, such as the acquisition of U.S. Treasury notes and bonds,
the sale of traveler's checks, money orders, cashier's checks and foreign
currency, direct deposit, discount brokerage and other special services.
Commercial and consumer loans are made to corporations, partnerships and
individuals, primarily on a secured basis. Commercial lending focuses on
business, capital, construction, inventory and real estate. Direct and indirect
installment loans are made to consumers and commercial customers and mortgage
loans are originated and serviced.

In connection with the Prairie Acquisition, the Company acquired six
additional bank subsidiaries with a total of ten banking offices located in
portions of north central, northwestern and western Illinois. The Country
Acquisition will result in the addition of another six new banking offices in
western Illinois.

The Company also has three non-bank subsidiaries: UnionData which provides
data processing services to the Union Banks and third parties; Union Corporation
("Union Corporation"), which primarily serves as an owner and lessor of banking
offices to the Union Banks; and LaSalle Collections, a recently acquired
collection agency which serves the greater LaSalle County area.

MARKET AREA

Prior to the Acquisitions, the Company served the banking needs of LaSalle
and contiguous counties located in north central Illinois (LaSalle and portions
of Livingston, Grundy, Bureau, Kendall, DeKalb and Kane Counties) through the
Union Banks. The Company has an 11% share of aggregate deposits in its primary
market of LaSalle County, based upon deposit data as of June 30, 1995. The
Company also has more outstanding loans in LaSalle County than any other
financial institution in this area. The Company has

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55

recently expanded its lending and deposit gathering activities from north
central Illinois into certain of the counties surrounding the Chicago
metropolitan area, including Kane and Kendall Counties.

The Company's banking market in north central Illinois is primarily
agricultural, although in the past few years there have been a number of new
businesses and manufacturing facilities that have moved to the area and
commenced operations. Moreover, agricultural lending has played a much smaller
role within the areas located closer to the metropolitan Chicago area. In
response to these changes, the Company has increased its consumer, commercial
and real estate lending in these areas.

The Acquisitions increase the Company's market share within north central
Illinois (primarily in LaSalle and Bureau Counties) and expand the Company's
presence into northwestern Illinois (Jo Daviess and Whiteside Counties) and
western and southwestern Illinois (Hancock, McDonough, Adams and Pike Counties).
The resulting market area of the Company will extend from the western suburbs of
the Chicago metropolitan area across central and northern Illinois to the
Mississippi River and the western border of Illinois.

ACQUISITION AND EXPANSION STRATEGY

The Company seeks to diversify both its market area and asset base while
increasing profitability through acquisitions and expansion. One of the
Company's primary goals is to expand through the acquisition of established
financial service organizations, primarily commercial banks or thrifts, to the
extent suitable candidates can be identified and acceptable business terms
negotiated.

Over the past several years, the Company has built an experienced
management team and a sales-driven employee work force that is implementing a
business plan that contemplates a significant expansion of the Company's market
areas and substantial growth in its asset size. Consistent with the Company's
plan, the Company acquired Prairie and has entered into an agreement to acquire
Country. The Acquisitions will increase the total assets of the Company from
approximately $296.6 million to $633.3 million, an increase of 114%. The
Acquisitions are expected to increase the presence of the Company within the
region's banking community. Because of the business reputations of the Company
and its executive officers in the banking industry, the Company believes that it
represents a very attractive acquiror to the owners of other community banks and
thrifts who decide to sell their institutions. The Company believes that it can
successfully manage these community-based institutions to increase their
profitability by expanding cross-selling efforts and placing a greater emphasis
on those products and services offering the highest return on investment.

The Company's current acquisition strategy is focused on traditional
community banks or thrifts located within its expanded market area as a result
of the Acquisitions. A large number of such financial institutions are located
within this geographic area. It is possible that, as a result of consolidation
within the banking industry generally, the Company may in the future also look
beyond these geographic areas for acquisition opportunities. In addition to
price and terms, other factors considered by the Company in determining the
desirability of an acquisition candidate include the financial condition,
earnings potential, quality of management, market area and competitive
environment.

The Company will also consider establishing branches, loan production
offices or other business facilities as a means of expanding its presence in
current or new market areas. In addition, the Company may expand into other
lines of business closely related to banking if it believes these lines could be
profitable without undue risk to the Company. The Company is not, however,
actively involved in any negotiations or discussions regarding any such
acquisitions, the opening of any new branches or entering into any new lines of
business at this time. There can be no assurance that any further acquisitions
will be made or that any branches or other offices will be established.

OPERATING STRATEGY

Corporate policy, strategy and goals are established by the Board of
Directors of the Company. Operational and administrative policies for the Union
Banks are also established by the Company. Within this

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framework, the Union Banks focus on providing personalized services and quality
products to their customers to meet the needs of the communities in which they
operate.

Recognizing the substantial changes and growth opportunities in its market
area, beginning in 1993, the Company redirected its existing resources and
personnel to create an aggressive sales environment within the organization. In
addition to promotions from within the organization, the Company hired
experienced senior bank executives who were familiar with its market area, with
an emphasis on the commercial lending area. The Company's senior management
group has been carefully built after taking into account each individual's
specific abilities and expertise. The Company believes that the combination of
these talents in one organization provides an encouraging outlook for the
Company's future continued growth.

Each of the Union Banks operates as a traditional community bank with
conveniently located facilities and a professional, highly motivated staff that
focuses on long-term relationships with customers and providing them with
individualized quality service. As part of its community banking approach, the
Company encourages officers of the Union Banks to actively participate in
community organizations. In addition, within credit and rate of return
parameters, the Company attempts to ensure that each of the Union Banks meets
the credit needs of its respective communities and invests in local municipal
securities. The Company attempts to attract and retain customers by building
relationships as opposed to focusing solely on specific transactions. The
Company continually monitors its own performance and levels of customer
satisfaction through one-on-one conversations, customer surveys and focus
groups.

The Company uses a variety of marketing strategies to attract and retain
customers, the most important of which is its officer/director call program.
Officers and directors of the Union Banks regularly call on customers and
potential customers to maintain and develop deposit and other special service
relationships, including payroll, discount brokerage, cash management, lock box
and trust services. The importance of this program is highlighted by the fact
that the completion by directors of customer calls can be a significant factor
in the award of director stock options.

The Company has invested substantial time, effort and expense in training
its employees to deliver value to customers by explaining to them how the
Company's products and services can meet the customer's financial needs. This
has led to significant gains in cross-selling the Company's products and
services to its existing customer base. The Company is also evaluating its
employee compensation structure so that the best performing employees can be
compensated commensurate with their contributions to the organization. These
efforts serve to emphasize the Company's shift to a sales culture, with skills,
compensation and environment all supporting that culture.

The Company conducts all of its own data processing for the Union Banks
through its wholly-owned subsidiary, UnionData. The Company believes that
retaining control of its data processing in conjunction with implementing its
acquisition strategy will lead to decreased marginal operating costs, more
effective service to its customers and increased efficiencies. To provide a high
level of customer service and to manage effectively its growth, acquisition and
operating strategies, the Company also focuses on continued improvement of its
internal operating systems. UnionData continuously evaluates technological
innovation that can be used to improve customer service levels, increase sales
effectiveness and enhance staff productivity.

The Company's automated platform system installed in 1995 increases
operating efficiencies which allow customer service representatives to more
easily cross-sell additional products to customers. The Company's UB-24
automated teller machines (ATMs) have helped the Company expand its market area,
enhance customer service and utilize staff more effectively. The Company is also
currently upgrading all of its current banking locations with new teller
terminals to further support the Company's commitment to quality service and
increased efficiencies.

PRODUCTS AND SERVICES

GENERAL

The Union Banks provide a range of commercial and retail lending services
to corporations, partnerships and individuals, including, but not limited to,
commercial business loans, commercial and residential real

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estate construction and mortgage loans, loan participations, consumer loans,
revolving lines of credit and letters of credit. The Union Banks make direct and
indirect installment loans to consumers and commercial customers, and originate
and service residential mortgages and handle the secondary marketing of those
mortgages.

The Union Banks aggressively market their services to qualified lending
customers in both the commercial and consumer sectors. The Union Banks'
commercial lending officers actively solicit the business of new companies
entering their respective markets as well as long-standing members of these
communities. Through personalized, professional service and competitive pricing,
the Union Banks have been successful in attracting new commercial lending
customers. At the same time, the Union Banks actively advertise their consumer
loan products and continually attempt to make their lending officers more
accessible. Through convenient locations and regular advertising, the Union
Banks have been successful in capitalizing on the moderate growth in loan demand
in its market area, particularly with respect to residential mortgages, home
equity loans and installment loans.

COMMERCIAL, REAL ESTATE AND AGRICULTURAL LOANS

The Union Banks aggressively seek new commercial, real estate and
agricultural loans in their respective market areas and much of the increase in
these loans in recent years can be attributed to the successful solicitation of
new business. The Union Banks' areas of emphasis include, but are not limited
to, loans to wholesalers, manufacturers, building contractors, agri-businesses,
farmers, developers, business services companies and retailers. The Union Banks
provide a wide range of commercial business loans, including lines of credit for
working capital purposes and term loans for the acquisition of equipment and
other purposes. Collateral for these loans generally includes accounts
receivable, inventory, equipment and real estate. Loans may be made on an
unsecured basis when warranted by the overall financial condition of the
borrower. Terms of commercial business loans generally range from one to five
years. The majority of the Union Banks' commercial business loans either have
floating interest rates or reprice within one year. In most cases, the Union
Banks have collateralized these loans and/or taken personal guarantees to help
assure repayment.

The Company has also generated loans which are guaranteed by the SBA.
Management believes that making such loans helps the local communities in which
the Union Banks operate by adding jobs and increasing the tax base, and also
provides the Company with a source of income and solid future lending
relationships as SBA-backed businesses grow and prosper. During 1995,
UnionBank/Streator made 37 SBA loans totalling approximately $4.0 million. The
Company intends to expand the number of these loans in the future.

Agricultural loans, many of which are secured by crops, machinery and real
estate, are made to finance capital improvements and farm operations as well as
acquisitions of livestock and machinery. These loans are expected to be repaid
from cash flows or from proceeds from the sale of selected assets of the
borrowers. The Company's consolidated loan portfolio includes a concentration of
loans to agricultural and agricultural-related industries. These loans totalled
approximately $12.7 million, or 6.8% of total loans, as of June 30, 1996. Credit
losses arising from lending transactions with agricultural entities are similar
to the Union Banks' credit loss experience on their loan portfolios as a whole.
The Union Banks' agricultural lending officers attempt to work closely with
their agricultural customers, including companies and individual farmers, and to
assist them in the preparation of budgets and cash flow projections for the
ensuing crop year. These budgets and cash flow projections are monitored closely
during the year and reviewed with customers on a regular basis.

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.
Specific risks associated with commercial loans are the quality of the
borrower's management and the impact of national and regional economic factors.
In this regard, the ability of a borrower's management to properly evaluate
changes in the supply and demand characteristics affecting its respective
markets for products and services, and to effectively respond to such changes,
are significant factors in the creditworthiness of a commercial borrower.
Nevertheless, certain general economic factors beyond the borrower's control,
such as interest, inflation and employment rates, as well as other factors
affecting a borrower's customers, suppliers and employees, also have a
significant impact on a

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borrower's ability to repay loans. Specific risks associated with real estate
loans include risks arising from concentrations of specific types of loans in a
loan type such as commercial or agricultural and fluctuating land values. In
this regard, a concentration of loans in any one property group may result in a
loan portfolio without an adequate level of diversification. Also, because the
underlying property is typically held by the lender as collateral in real estate
loans, changes to the value of such property may have a negative influence on
the value of such collateral. With respect to agricultural loans, the primary
risks are weather and, like commercial loans, quality of borrower's management.

The Company's strategy with respect to addressing and managing these types
of risks, whether loan demand is weak or strong, is for the Union Banks to
follow conservative loan policies and underwriting practices, which include: (i)
granting loans on a sound and collectible basis; (ii) investing funds properly
for the benefit of stockholders and the protection of depositors; (iii) serving
the legitimate needs of the community and the Union Banks' 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 and an officers' loan committee; (vi) developing and maintaining
adequate diversification of the loan portfolio as a whole and of the loans
within each loan category; and (vii) ensuring that each loan is properly
documented and, if appropriate, secured or guaranteed by governmental agencies
and that insurance coverage is adequate, especially with respect to certain
agricultural loans because of the risk of poor weather.

During recent years, the Company has undertaken several initiatives to
improve asset quality. The Company's Board of Directors reviews, on a monthly
basis, a report of all criticized assets and requests for new loans over
$10,000. Requests for new loans over $500,000 are approved by a directors' loan
committee. Loan review personnel and commercial lenders interact each month with
the Boards of Directors of the Union Banks. Management has attempted to identify
problem loans at an early stage and to aggressively seek a resolution of these
situations. Management believes that this policy has contributed to the
Company's below average level of problem loans compared to its industry peer
group. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Nonperforming Loans and Assets."

The Company intends to centralize the lending policies of the Prairie Banks
and Omni Bank as part of the process of integrating the operations of these
banks into that of the Union Banks following the Acquisitions. As a result, it
is anticipated that the lending policies and risk management procedures
currently being utilized at the Union Banks will also be applied to the lending
operations of the Prairie Banks and Omni Bank.

CONSUMER LENDING

The Union Banks provide a wide variety of consumer loans including motor
vehicle, home improvement, home equity, student loans, signature loans and small
personal credit lines. One of the areas of concentration is direct and indirect
automobile financing in the Company's market area. The Union Banks have been
able to compete effectively in this market segment by providing quick
turn-around service to local automobile dealers. Due to the expanded growth and
development along the Illinois and Fox Rivers, the Union Banks have also
recently begun to work with area boat dealerships on financing arrangements.

The indirect automobile financing loans generally carry a slightly higher
risk than direct loans because they are originated through auto dealers to
individuals who may not have other banking relationships with the Union Banks;
however, the same underwriting criteria are applied to indirect auto loans as
are applied to other consumer loans. More specifically, lending officers are
assigned various levels of loan approval authority based upon their respective
levels of experience and expertise. In addition, loan approval is also subject
to the Company's formal loan policy as established by each Union Bank's board of
directors. Although the risk of non-payment for any reason exists with respect
to all loans, consumer loans carry additional risk related to the potential
unemployment of borrowers.

The Union Banks have been operating as a principal in the MasterCard and
Visa credit card programs since 1988. The Union Banks' primary strategy in this
area has been to solicit credit card business from their existing customer base.
The Company's credit card division has aggressively sought to acquire merchant

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processing business as well as credit card receivables. The Company currently
has outstanding over 3,700 cards and is processing card receipts for 340
merchants. The merchant account relationships have increased from 175 in 1994 to
340 accounts due to an aggressive sales program with an emphasis on
cross-selling of the Company's existing commercial customer base.

The Company inaugurated a debit card program in 1994, and was the first
organization in its general market area to introduce this service to its
customers. While acceptance of debit cards in the market has developed slowly,
card usage has been steadily increasing. The Company currently has in excess of
1,500 debit cards issued in its market area. The Company has focused on
cross-selling this product to its existing customer base and on new accounts
that are opened. The Company's emphasis has been to serve customers in its
market area, and it has chosen not to randomly solicit accounts nationally. This
product is showing greater acceptance as the benefits and features are
understood by the customer base.

Management believes that the use of credit and debit cards will provide
opportunities for growth and leadership in its new markets. The Company's
defaults on consumer loans and credit card receivables were, in the aggregate,
$130,000 for the period from January 1, 1996 through June 30, 1996. Credit Card
receivables have remained constant since the introduction of the Debit Card
program. The Company's delinquency rates on its credit cards have been between
2.66% and 4.1% since 1994, which is below the reported MasterCard national
average of 3.75% to 4.8%.

MORTGAGE BANKING

The Company's mortgage portfolio is currently in excess of $70,000,000 with
over 1,400 customers. The Company utilizes Federal Home Loan Mortgage
Corporation and Federal National Mortgage Association programs and several other
government and private sources to satisfy its customers' residential lending
needs. In 1995, the real estate division computerized all of its operations,
allowing outside sales representatives to complete applications from the
customer's home or office. This technological innovation has allowed the
Company's three outside sales representatives to cover a wider market area in
seeking new real estate lending business. The Company believes that its mortgage
product is a core piece of its overall customer relationship. To solidify this
relationship, the Company uses state of the art mortgage servicing software to
be directly responsive to the many needs of its customer base.

INVESTMENT MANAGEMENT AND TRUST SERVICES

The Company's Investment Management and Trust Division, which is operated
through UnionBank/Streator, increased its assets under management during 1995 by
over 50% to a total of $55.7 million. Because of the importance of this growing
segment of its business, the Company has embarked on a strategic initiative to
better position itself to deliver quality financial services to its customers.
To emphasize its commitment, the Company recently added "Investment Management"
to the name of its Trust Department. Management believes that the new name more
accurately reflects the services desired by and offered to the Company's
customer base and the future direction of the Company's trust and fiduciary
activities.

The Company has enhanced its ability to serve its trust customers by
upgrading to a state of the art trust accounting system. The Investment
Management and Trust Services Department can provide on-line, real time
information regarding its customers' accounts. All of this Division's employees
have a personal computer available at their work areas through which customer
account information is immediately accessible. The Company also maintains over
90% (all that are depository eligible) of its assets with a third party
custodian. The Company has found that such custodial functions can be more
economically and efficiently handled by an outside provider. Management believes
that this allows the Company to devote more time to providing personalized
service to its customers.

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Management's focus in the trust area is to build financial relationships
within the community bank environment. The Company expects that the future needs
of its customers may fall within broadly defined areas such as investment, tax
planning, estate management, retirement/financial planning, fiduciary
responsibilities and farm management. The Company intends to position the
Investment Management and Trust Services Department to meet these future needs
and to continue to expand this line of business.

DATA PROCESSING AND DATA MANAGEMENT

Cash management services provided by the Company continue to enhance the
value of relationships with corporate customer accounts. The Company's corporate
cash management services allow business customers to use office computers to
gain immediate access to their accounts and to monitor their finances in an
efficient and convenient manner.

UnionData is also aggressively marketing a new automated payment option
called Direct Payment which is an efficient, electronic payment alternative to
paper checks. With Direct Payment, a customer authorizes a company to
electronically collect a preauthorized amount from the customer's checking
account to pay a bill or make a donation. UnionData has also marketed a direct
deposit program as a convenient and safe way to receive social security, salary
and dividend payments and other similar income items. The Company believes that
UnionData is a leader in operating products technology within its market area.
In 1995, UnionData was awarded a contract with the LaSalle County Circuit Clerk
to electronically process child support payments. Utilizing this technology has
reduced the Circuit Clerk's operating costs while providing a new revenue source
for UnionData.

COLLECTION ACTIVITIES

LaSalle Collections, which was recently acquired by the Company, is a
collection agency whose principal market area has been in Ottawa, Illinois, and
surrounding communities. The aggregate consideration paid by the Company for
LaSalle Collections was $177,000, which was paid in the form of $77,000 in cash
and 9,090 shares of Common Stock. Prior to its acquisition by the Company,
LaSalle Collections served the Union Banks and other local businesses and
financial institutions in the consumer collections area. The former sole
stockholder of LaSalle Collections was not affiliated with the Company, Prairie
or Country prior to this acquisition. The Company intends to expand the market
area of LaSalle Collections and to utilize its services with respect to the
collection needs of the other Bank Subsidiaries, thereby increasing the
operating revenues generated by LaSalle Collections and reducing the net
expenses associated with consumer credit collections.

COMPETITION

The Company's market area is highly competitive. Within the three Illinois
counties served by the Company's banking offices prior to the Acquisitions, 34
other commercial banks, 8 savings and loan associations and 25 credit unions
currently operate offices. In addition, many other financial institutions based
in surrounding communities and in Chicago, Illinois, actively compete for
customers within the Company's market area. The Company also faces competition
from finance companies, insurance companies, mortgage companies, securities
brokerage firms, money market funds, loan production offices and other providers
of financial services. See "Risk Factors -- Competition."

The Company competes for loans principally through the range and quality of
the services it provides and through competitive interest rates and loan fees.
The Company believes that its long-standing presence in the communities its
serves and personal service philosophy enhance its ability to compete favorably
in attracting and retaining individual and business customers. The Company
actively solicits deposit-related customers and competes for deposits by
offering customers personal attention, professional service and competitive
interest rates.

EMPLOYEES

At June 30, 1996, the Company employed 160 full-time equivalent employees.
The Company places high priority on staff development which involves extensive
training, including customer service training. New

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employees are selected on the basis of both technical skills and customer
service capabilities. None of the Company's employees are covered by a
collective bargaining agreement with the Company. The Company offers a variety
of employee benefits and management considers its employee relations to be
excellent.

PROPERTIES

At June 30, 1996, the Company operated eleven banking offices in the
Illinois cities of Ottawa, Streator, Sandwich, Triumph, Peru and Plano. The
principal offices of the Company, UnionBank/Streator and UnionBank/Sandwich are
located in Ottawa, Streator and Sandwich, Illinois, respectively. All of the
Company's offices are owned by one of the Union Banks or by Union Corporation,
and are not subject to any mortgage or material encumbrance. The Company
believes that its current facilities are adequate for its existing business. As
a result of the Acquisitions, the Company will increase the number of its
banking offices to a total of 27.

LEGAL PROCEEDINGS

Neither the Company nor any of its subsidiaries, including the Bank
Subsidiaries, are involved in any pending legal proceedings other than routine
legal proceedings occurring in the normal course of business, which, in the
opinion of management, in the aggregate, are not material to the Company's
consolidated financial condition.

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MANAGEMENT

The following table sets forth certain information concerning the Company's
directors and executive officers.

NAME AGE POSITION WITH THE COMPANY
- ----------------------------------- --- ---------------------------------------------------

R. Scott Grigsby................... 44 Chairman of the Board, President, Chief Executive
Officer and Director
Richard J. Berry................... 44 Director
Walter E. Breipohl................. 43 Director
L. Paul Broadus.................... 61 Director
John Michael Daw................... 49 Director and Senior Agricultural Representative
Jimmie D. Lansford................. 56 Director and Senior Vice President, Organizational
Development and Planning
Lawrence J. McGrogan............... 58 Director
C. Robert Myers.................... 77 Director
I. J. Reinhardt, Jr................ 58 Director
H. Dean Reynolds................... 67 Director
John A. Trainor.................... 66 Director
Scott C. Sullivan.................. 44 Proposed Director
Robert J. Doty..................... 69 Proposed Director
Wayne L. Bismark................... 52 Executive Vice President
Charles J. Grako................... 42 Executive Vice President and Chief Financial
Officer
Robert B. Pennington............... 43 President, UnionBank/Sandwich
Everett J. Solon................... 43 President, UnionBank/Streator

The Company has a classified board of directors currently comprised of
eleven members, with directors serving staggered three-year terms. One class is
elected at each annual meeting of the Company's stockholders. The terms of
Messrs. Broadus, Daw, Lansford and Reinhardt as Class II directors expire in
1997; the terms of Messrs. Grigsby, Myers and Reynolds as Class III directors
expire in 1998; and the terms of Messrs. Berry, Breipohl, McGrogan and Trainor
as Class I directors expire in 1999. There are no family relationships among any
of the directors or executive officers of the Company or its subsidiaries.
Pursuant to the terms of the Prairie Acquisition Agreement, the Company has
agreed to add Messrs. Doty and Sullivan to its Board of Directors.

Each of the Company's directors is paid a fee of $100 for each board
meeting attended and $100 for each committee meeting attended. Each of the
Company's directors also receives an annual grant of options to purchase shares
of Common Stock under the Company's Stock Option Plan. Such grants are generally
made with an exercise price equal to 75% of the most recently appraised per
share fair market value of the Common Stock on the date of grant and become
exercisable in equal portions over five years. During the fiscal year ended
December 31, 1995, each director was granted options to purchase between 1,800
and 2,550 shares of Common Stock at a price of $6.25 per share. Beginning in
1997, the Stock Option Plan provides for annual formula grants to each of the
Company's directors of options to purchase up to 3,000 shares of Common Stock
with an exercise price of 75% of the then current market price of the Common
Stock on the date of the grant. See "Management -- Executive Compensation --
Stock Option Plan."

DIRECTORS

R. Scott Grigsby is the Chairman of the Board, President and Chief
Executive Officer of the Company and the Chairman and Chief Executive Officer of
UnionBank/Streator. Mr. Grigsby also serves as Chairman of the Board of
UnionBank/Sandwich and Union Corporation, as well as a director of UnionData.
Mr. Grigsby has been with the Company since its formation in 1982. He has spent
all of his career in the financial services industry. Mr. Grigsby is a past
president of the Illinois Bankers Association and is currently involved
extensively with the American Bankers Association. He has been active in local
and regional economic development projects.

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He currently serves as a member of the Board of Directors of St. Mary's
Hospital, Streator, Illinois and as a Trustee of the Illinois Valley Community
College, LaSalle, Illinois.

Richard J. Berry is a principal and serves as the managing attorney for the
law firm of Myers, Daugherity, Berry & O'Conor, Ltd., with offices in both
Ottawa and Streator, Illinois. His practice is concentrated in the areas of
banking and financial institutions and civil litigation. Mr. Berry is a member
of the LaSalle County, American and Illinois Bar Associations, and of the
American Academy of Healthcare Attorneys. Mr. Berry was a charter member of the
Committee on Bank Counsel of the Illinois Bankers Association and served as
Chairman of that committee in 1988. He is a frequent lecturer and speaker at
various banking seminars and schools. He was granted special recognition in 1995
by the Illinois Bankers Association for his efforts on behalf of the banking
industry in negotiating and drafting of the Grain Code, a comprehensive revision
of Illinois laws relating to grain dealers and grain warehouses. Mr. Berry is
active in numerous civic and community affairs, including serving as a director
of the Streator Area Chamber of Commerce and Streator YMCA. He presently serves
on the board of directors of the New Hope Center and Streator Unlimited in
Streator, Illinois. Mr. Berry has served as a director of the Company since
1985. He also serves on the Board of Directors and is counsel to
UnionBank/Streator and UnionData. He previously served as a director of
UnionBank/Sandwich.

Walter E. Breipohl is the co-owner of Kaszynski/Breipohl Realtors, a real
estate brokerage and development company located in Ottawa and Peru, Illinois.
Mr. Breipohl's firm performs work throughout the state of Illinois. He is a
founding and charter member of the Illinois Commercial Association of Realtors,
a member of the Illinois Association of Realtors and the National Association of
Realtors. Mr. Breipohl has worked in economic development extensively in the
Ottawa, Illinois, area as a director of the Northern Illinois Development
Corporation, Chairman of the Ottawa Area Industrial Development Corporation and
the Greater Ottawa Area Chamber of Commerce. He is presently serving as a
director of the Heritage Corridor Convention and Visitors Bureau and the
Community Hospital of Ottawa, Illinois. Mr. Breipohl has served as a member of
the Boards of Directors of UnionBank/Streator and the Company since 1993.

L. Paul Broadus founded Broadus Oil Corporation, a wholesale and retail oil
company located in Streator, Illinois, in 1963, and he continues to serve as its
president. He is a member of the Illinois Petroleum Marketers Association and
the Illinois Association of Convenience Stores. He is a past recipient of the
Cephas Williams Award for long term service and investment leadership to the
city of Streator, Illinois. Mr. Broadus joined the board of directors of
UnionBank/Streator in 1985 and the Company's Board of Directors in 1986. He also
serves as a director of UnionData.

John Michael Daw recently joined the Company as its Senior Agricultural
Representative after serving 27 years as President of Farmers Grain Service in
Grand Ridge, Illinois. He is a member of both the state and federal Grain and
Feed Associations. He is the past secretary of the Grand Ridge Zoning Commission
and a current director of the Grand Ridge Zoning Board. He also serves as a
director of the LaSalle County Health Department. Mr. Daw's primary
responsibility with the Company will be supervising the farm land management
operations of the Investment Management and Trust Services Department. Mr. Daw
has served as a member of the Boards of Directors of UnionBank/Streator and the
Company since 1990 and 1991, respectively. Mr. Daw also serves as a director of
UnionData.

Jimmie D. Lansford recently joined the Company as Senior Vice President
after three decades of employment in the healthcare industry. For the last nine
years, Mr. Lansford served as Chief Executive Officer of St. Mary's Hospital
located in Streator, Illinois, which is a member of the Hospital Sisters Health
System, a thirteen hospital group serving Illinois and Wisconsin. Mr. Lansford
has been active as a member of the committee to bring a National Veterans
Cemetery to Joliet, Illinois, a life member of the VFW, American Legion, Marine
Corp League and AmVets. He has been a past member of both regional, state and
national healthcare associations. Having worked many years in a multi-hospital
organization, management expects Mr. Lansford to make significant use of the
planning and communication skills he brings with him from his former employment.
Mr. Lansford has served on the Boards of Directors of the Company and
UnionBank/Streator since 1988.

Lawrence J. McGrogan is the Chief Executive Officer of Handy Foods, Inc., a
four grocery chain based in Ottawa, Illinois. Mr. McGrogan has 33 years of
retail grocery experience and has lived in Ottawa, Illinois his

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entire life. He has served on the Boards of Directors of the Company and
UnionBank/Streator since 1987. Mr. McGrogan is the past chairman of the Ottawa
Area Chamber of Commerce and Ottawa YMCA. He is a past recipient of the Leo
Parkerson Award for Outstanding Community Service in Ottawa, Illinois.

C. Robert Myers is the retired Chief Executive Officer of Peabody Myers
Corporation. Peabody-Myers is a worldwide manufacturing company specializing in
agricultural and municipal pollution control and cleaning equipment with sales
in excess of $30,000,000 in 1989. Since his retirement from active business in
1982, Mr. Myers has been involved in various civic and community activities. He
is a past recipient of the Cephas Williams Award for long term service and
investment leadership to the city of Streator, Illinois. He has been a member of
many state, national and international manufacturing associations. He joined the
Board of Directors of UnionBank/Streator in 1978 and served as its Chairman from
1987 to 1994. He has served as a director of the Company since its formation in
1981.

I. J. Reinhardt, Jr. is a director and General Manager of St. Louis
Beverage Company, Ottawa, Illinois, a wholesale beverage distribution company.
After graduation from St. Louis University, Mr. Reinhardt spent two years in
Nepal working with the Peace Corps. He has been a member of the Associated Beer
Distributors of Illinois for 20 years and currently serves as its president. He
joined the Board of Directors of UnionBank/Streator and the Company in 1990 and
1991, respectively. He also serves as a director of UnionData.

H. Dean Reynolds is the former owner and manager of Reynolds-West &
Associates, an insurance agency located in Streator, Illinois. Mr. Reynolds
operated the agency for 37 years. He has been active in civic and community
activities for many years, including serving as president of the Streator
Chamber of Commerce. He is a past recipient of the Cephas Williams Award for
long term service and investment leadership to the city of Streator, Illinois.
He has served on the board of the Illinois Chamber of Commerce and held
leadership positions in various state and national insurance associations. Mr.
Reynolds joined the Board of Directors of UnionBank/Streator and the Company in
1971 and 1981, respectively.

John A. Trainor is the president and owner of Trainor Grain and Supply Co.,
a grain elevator and agricultural supply business located in Forrest, Illinois.
Mr. Trainor has been involved in all aspects of the agriculture industry since
1954. He has served on the board of both the state and federal Grain and Feed
Associations as well as serving as the State Association President. He has
represented the United States on numerous trips to foreign countries to assist
in their agricultural development. He has consulted with the United States
Department of Agriculture on various matters for many years. Mr. Trainor joined
the Board of Directors of UnionBank/Streator and the Company in 1985.

OFFICERS

Wayne L. Bismark is the Executive Vice President and Chief Credit Officer
of the Company. Mr. Bismark joined the Company in 1994. Prior to joining the
Company, Mr. Bismark had been employed since 1983 in the Financial Institutions
Division of the LaSalle National Bank in Chicago, Illinois. He is responsible
for the overall performance of the Company's lending activities. Mr. Bismark has
worked in the banking industry for almost 25 years, with extensive experience in
lending and product sales at both the wholesale and retail levels. Mr. Bismark
serves as a director of a local social service agency and is active in many
civic organizations. He is also active in regional economic development
associations and professional banking organizations.

Charles J. Grako has been the Executive Vice President and Chief Financial
Officer of the Company since 1990. He also serves as Secretary of the Company
and UnionBank/Streator, and as a director of UnionBank/Sandwich. Mr. Grako is a
Certified Public Accountant and has spent the majority of his career in the
banking industry. He first joined the Company as Controller in 1986.

Robert B. Pennington is the President of UnionBank/Sandwich, a position he
has held since 1981. Mr. Pennington has spent over 20 years in the financial
services industry after beginning his career as a supervisor in the consumer
loan business with Household Finance Company. Mr. Pennington currently serves as
a director of UnionBank/Sandwich. He has been active in community and civic
activities, including serving

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as President of the Sandwich Chamber of Commerce and as a member of various
economic development committees. He was a charter member and the first president
of the Sandwich Jaycees and the Sandwich Kiwanis Club.

Everett J. Solon is the President of UnionBank/Streator. Mr. Solon has been
with the Company for 14 years during which time much of his work has focused on
agricultural lending, farm management and marketing. He became president of
UnionBank/Streator in 1994. Mr. Solon has been active in community activities,
especially in the field of education. He has served for many years as a director
of the Streator Township High School District. He has also worked as a director
and instructor for the Illinois Bankers Association School of Banking. He has
served on the Board of Directors of UnionBank/Streator since 1994.

PROPOSED DIRECTORS

Robert J. Doty is the retired President and Chief Executive Officer of the
First National Bank, Manlius, Illinois. He has over 36 years of experience in
the banking industry. Prior to the Prairie Acquisition, Mr. Doty had served as
Chairman of the Board of Directors of Prairie since 1989.

Scott C. Sullivan is a partner of the law firm of Williams & McCarthy,
Rockford, Illinois. Mr. Sullivan has been a practicing attorney since 1979. He
is a member of several national, state and regional bar associations. Prior to
the Prairie Acquisition, he had served as a director of Prairie since 1995, and
he currently serves as a director of two of the Prairie Banks. Mr. Sullivan is
active in numerous civil and community activities in the Rockford area.

EXECUTIVE COMPENSATION

CASH COMPENSATION

The table below shows the compensation earned during the last three fiscal
years by the Company's President and the other executive officers of the Company
(including those who are employed by the Company's subsidiaries) whose cash
compensation exceeded $100,000 during the fiscal year ended December 31, 1995:

SUMMARY COMPENSATION TABLE

LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION (g)
(a) --------------------- SECURITIES (i)
NAME AND UNDERLYING ALL OTHER
PRINCIPAL POSITION (b) (c) (d) OPTIONS/SAR COMPENSATION
WITH THE COMPANY YEAR SALARY($) BONUS($) (#)(1) ($)(2)
- ------------------------------------------ ---- --------- -------- ------------ ------------

R. Scott Grigsby,......................... 1995 $ 142,000 $12,800 3,036 $ 21,832
Chairman of the Board, 1994 127,952 23,725 6,900 24,855
President and Chief Executive Officer 1993 119,800 24,250 -- 22,231
Charles J. Grako,......................... 1995 $ 94,500 $ 7,676 1,080 $ 14,929
Executive Vice President 1994 71,459 9,000 2,700 13,810
and Chief Financial Officer 1993 60,000 11,900 -- 11,665
Wayne L. Bismark,......................... 1995 $ 94,500 $ 7,675 1,080 $ 12,895
Executive Vice President 1994 75,000 7,500 -- --
and Chief Credit Officer 1993 75,000 8,900 -- --

- -------------------------
(1) Options vest at a rate of 20% per year on or about each anniversary of the
date of grant.

(2) Amounts shown represent the dollar value of allocations to each officer
under the Company's ESOP for Messrs. Grigsby and Grako. Such amounts also
include annual payments of $2,901 and $2,034 for premiums for split dollar
life insurance policies for Messrs. Grigsby and Grako, respectively.

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STOCK OPTION INFORMATION

The following table sets forth certain information concerning the number
and value of stock options granted in the last fiscal year to the individuals
named above in the Summary Compensation Table:

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS

POTENTIAL REALIZABLE VALUE
(c) AT ASSUMED ANNUAL RATES OF
% OF TOTAL STOCK PRICE APPRECIATION
OPTIONS (d) FOR OPTION TERM
(a) (b) GRANTED TO EXERCISE ----------------------------
NAME AND OPTIONS EMPLOYEES OR BASE (e)
PRINCIPAL POSITION GRANTED IN FISCAL PRICE EXPIRATION (f) (g) (h)
WITH THE COMPANY (#)(1) YEAR ($/SH) DATE 5%($) 10%($) 0%($)
- ------------------------------- ------- ---------- -------- ---------- ------- ------- ------

R. Scott Grigsby............... 1,536 5.1% $ 8.33 1/15/05 $ 8,046 $20,391 $ -0-
Chairman of the Board, 1,500 5.0% 6.25 1/15/05 10,978 23,033 3,120
President and Chief Executive
Officer
Charles J. Grako............... 1,080 3.6% $ 8.33 1/15/05 $ 5,658 $14,338 $ -0-
Executive Vice President and
Chief Financial Officer
Wayne L. Bismark............... 1,080 3.6% $ 8.33 1/15/05 $ 5,658 $14,338 $ -0-
Executive Vice President and
Chief Credit Officer

- -------------------------
(1) Options vest at a rate of 20% per year on or about each anniversary of the
date of grant.

STOCK OPTION PLAN

INTRODUCTION

The Board of Directors of the Company has adopted a stock incentive plan
known as the UnionBancorp, Inc. 1993 Stock Option Plan (the "Stock Option
Plan"). The Stock Option Plan is intended to promote equity ownership of the
Company by directors of the Company and selected officers and employees of the
Company and its subsidiaries, to increase their proprietary interest in the
success of the Company and to encourage them to remain in the employ of the
Company. The Stock Option Plan was approved by the Company's stockholders on
April 12, 1993, and an amendment to the Stock Option Plan was approved on July
19, 1996.

ADMINISTRATION

The Stock Option Plan is administered by the UnionBancorp, Inc. 1993 Stock
Option Plan Administrative Committee which is comprised of at least two
non-employee directors appointed by the Company's Board of Directors (the "Stock
Option Committee"). The Stock Option Committee has the authority, subject to
approval by the Board of Directors, to select the employees to whom awards may
be granted, to determine the terms of each award and, subject to approval of the
Company's Board of Directors, to interpret the provisions of the Stock Option
Plan and to make all other determinations that it may deem necessary or
advisable for the administration of the Stock Option Plan. The Stock Option Plan
is intended to be administered so as to comply with the provisions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").

The Stock Option Plan provides for the grant of "incentive stock options,"
as defined under Section 422(b) of the Internal Revenue Code of 1986, as
amended, options that do not so qualify (referred to as "nonstatutory options")
and stock appreciation rights ("SARs"), as determined in each individual case by
the Stock Option Committee. The Board of Directors has reserved 600,000 shares
of Common Stock for issuance

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under the Stock Option Plan. In general, if any award (including an award
granted to a non-employee director) granted under the Stock Option Plan expires,
terminates, is forfeited or is cancelled for any reason, the shares of Common
Stock allocable to such award may again be made subject to an award granted
under the Stock Option Plan.

AWARDS

Directors and key policy-making employees of the Company and its
subsidiaries are eligible to receive grants under the Stock Option Plan.
Directors may be granted nonstatutory options and employees may be granted
incentive and nonstatutory options. Awards may be granted subject to a vesting
requirement and in any event will become fully vested upon a merger or change of
control of the Company. The exercise price of incentive stock options granted
under the Stock Option Plan must at least equal the fair market value of the
Common Stock subject to the option on the date the option is granted. The
exercise price of nonstatutory options and SARs are determined by the Stock
Option Committee. The Stock Option Plan provides for an annual formula grant for
each director. The formula used to determine the exact grant to be made to each
director is based upon a series of factors that may be weighted differently each
year depending upon the issues then facing the Company, but in no event will the
formula grant exceed 3,000 shares per year. The Stock Option Plan provides that
option grants to directors will have an exercise price of 75% of the then
current market price of Common Stock on the date of the grant.

An incentive stock option granted under the Stock Option Plan to an
employee owning more than 10% of the total combined voting power of all classes
of capital stock of the Company is subject to the further restriction that such
option must have an exercise price of at least 110% of the fair market value of
the shares of Common Stock issuable upon exercise of the option (determined as
of the date the option is granted) and may not have an exercise term of more
than five years. Incentive stock options are also subject to the further
restriction that the aggregate fair market value (determined as of the date of
grant) of Common Stock as to which any such incentive stock option first becomes
exercisable in any calendar year is limited to $100,000. To the extent options
covering more than $100,000 worth of Common Stock become exercisable in any one
calendar year, the excess will be nonstatutory options. For purposes of
determining which, if any, options have been granted in excess of the $100,000
limit, options will be considered to become exercisable in the order granted.

Each director and key employee eligible to participate in the Stock Option
Plan is notified by the Stock Option Committee. To receive an award under the
Stock Option Plan, an award agreement must be executed which specifies the type
of award to be granted, the number of shares of Common Stock (if any) to which
the award relates, the terms and conditions of the award and the date granted.
In the case of an award of options, the award agreement also specifies the price
at which the shares of Common Stock subject to the option may be purchased, the
date(s) on which the option becomes exercisable and whether the option is an
incentive stock option or a nonstatutory option.

The full exercise price for all shares of Common Stock purchased upon the
exercise of options granted under the Stock Option Plan must be paid in any one
or a combination of cash, personal check, personal note, award surrender or
Common Stock owned at the time of exercise. Incentive stock options granted to
employees under the Stock Option Plan may remain outstanding and exercisable for
ten years from the date of grant or until the expiration of three months (or
such greater period, up to one year, as the Stock Option Committee may determine
if employment is terminated due to disability) from the date on which the person
to whom they were granted ceases to be employed by the Company. Nonstatutory
options and SARs granted under the Stock Option Plan remain outstanding and
exercisable for such period as the Stock Option Committee may determine.

Awards of options to purchase an aggregate of 109,650 shares of Common
Stock have been made by the Stock Option Committee pursuant to the Stock Option
Plan as of this date of this Prospectus.

INCOME TAX

No taxable income is recognized by the option holder for income tax
purposes at the time of the grant or exercise of an incentive stock option, nor
is there any income tax deduction available to the Company as a

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result of such a grant or exercise. Any gain or loss recognized by an option
holder on the later disposition of shares of Common Stock acquired pursuant to
the exercise of an incentive stock option generally will be treated as capital
gain or loss if such disposition does not occur prior to one year after the date
of exercise of the option, or two years after the date the option was granted.

As in the case of incentive stock options, the grant of nonstatutory stock
options or SARs will not result in taxable income for income tax purposes to the
recipient of the awards, nor will the Company be entitled to an income tax
deduction. Upon the exercise of nonstatutory stock options or SARs, the award
holder will generally recognize ordinary income for income tax purposes equal to
the difference between the exercise price and the fair market value of the
shares of Common Stock acquired or deemed acquired on the date of exercise, and
the Company will be entitled to an income tax deduction in the amount of the
ordinary income recognized by the option holder. In general, any gain or loss
realized by the option holder on the subsequent disposition of such shares will
be a capital gain or loss.

AMENDMENT AND TERMINATION

The Stock Option Plan expires ten years after its adoption, unless sooner
terminated by the Board of Directors. The Board of Directors has authority to
amend the Stock Option Plan in such manner as it deems advisable, except that
the Board of Directors is not permitted without stockholder approval to amend
the plan in a manner which would prevent the grant of incentive stock options or
increase the number of shares of Common Stock available. The Stock Option Plan
provides for appropriate adjustment, as determined by the Stock Option
Committee, in the number and kind of shares and the number, kind and per share
exercise price of shares subject to unexercised options, in the event of any
change in the outstanding shares of Common Stock by reason of a stock split,
stock dividend, combination or reclassification of shares, recapitalization,
merger or similar event.

EMPLOYMENT AGREEMENTS

The Company and certain of its subsidiaries have entered into three-year
employment agreements with Messrs. Grigsby, Bismark, Grako and Solon, and
two-year agreements with Messrs. Daw and Lansford. Unless earlier terminated by
the Company (or the subsidiary, if applicable) or the respective employee, the
employment term under each agreement extends for an additional year on each
anniversary of the agreement. Each agreement specifies a minimum annual salary
for the initial year of the agreement and provides for an automatic minimum four
percent annual increase for each subsequent year. Each agreement also provides
that the respective employee is entitled to participate in any executive bonus
plan and other incentive compensation or benefit plan established by the Company
or the applicable subsidiary.

Each agreement is terminable by the employee upon thirty days' prior
written notice and automatically terminates upon the death or disability of the
employee. The Company may terminate each agreement at any time for "cause"
without incurring any additional obligations. Each agreement provides severance
benefits in the event the employee is terminated without cause or
"constructively discharged," as defined in each agreement. The severance
benefits are equal to the salary and benefits the terminated employee would have
received through the end of the normal term of the agreement. If any of the
employment agreements is terminated in connection with a "change in control," as
defined in each agreement, the employee is entitled to receive severance
compensation equal to three times his annual salary and other compensation at
the rates then in effect at the time of termination. The terminated employee in
such case will also be entitled to continuation of participation in other
benefit plans for the remaining term of his agreement. If a change of control
had occurred on June 30, 1996, based upon 1996 salary and 1995 bonus
information, the amount payable with respect to salary and bonus would have been
approximately as follows: Mr. Grigsby, $485,700; Mr. Bismark, $320,700; Mr.
Grako, $320,703; Mr. Daw, $144,000; Mr. Lansford, $240,000; and Mr. Solon,
$260,000. In addition, each officer would be entitled to receive other benefits
for such periods. The employment agreements also require the Company to provide
each employee with indemnification insurance and indemnification for any
expenses arising out of each person's employment with the Company or the
applicable subsidiary.

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BENEFICIAL OWNERSHIP OF COMMON STOCK

The following table sets forth information as of September 10, 1996,
concerning the Common Stock beneficially owned by: (i) each person expected by
the Company to beneficially own more than 5% of the outstanding Common Stock
following this Offering; (ii) each of the Company's current and proposed
directors, and those executive officers of the Company named in the Summary
Compensation Table; and (iii) all such directors, proposed directors and
executive officers of the Company as a group. The Company's only class of voting
securities is the Common Stock, except, however, under certain circumstances the
outstanding shares of Preferred Stock may also be entitled to vote on certain
matters.

EXPECTED
PERCENT OF CLASS NUMBER OF SHARES PERCENT OF CLASS
NUMBER OF PRIOR TO AFTER THIS OFFERING AFTER
NAME OF BENEFICIAL OWNER SHARES(1)(2) THIS OFFERING (1)(2) THIS OFFERING
- ------------------------------------- ------------ ---------------- ------------------- ----------------

5% STOCKHOLDERS
UnionBank/Streator, as Trustee for
the UnionBancorp, Inc. Employee Stock
Ownership Plan ("ESOP")(3)........... 450,918 14.4% 538,118 13.6%
201 East Main Street
Streator, Illinois 61364
Dennis J. McDonnell(4)............... 355,288 12.5 355,288 9.0
One Parkview Plaza
Oakbrook Terrace, Illinois 60181
Wayne W. Whalen(4)................... 355,288 12.5 355,288 9.0
333 W. Wacker Drive, Suite 2100
Chicago, Illinois 60606
DIRECTORS
Richard J. Berry(5).................. 25,023 0.9 30,023 0.8
Walter E. Breipohl................... 9,684 0.3 11,184 0.3
L. Paul Broadus...................... 17,019 0.6 18,019 0.5
John Michael Daw..................... 15,960 0.6 17,960 0.5
R. Scott Grigsby(6).................. 771,479 27.0 772,479 19.4
Jimmie D. Lansford................... 12,384 0.4 14,384 0.4
Lawrence J. McGrogan(7).............. 20,508 0.7 22,008 0.6
C. Robert Myers(8)................... 35,520 1.3 35,520 0.9
I. J. Reinhardt, Jr(9)............... 11,370 0.4 13,370 0.3
H. Dean Reynolds(10)................. 24,870 0.9 25,870 0.7
John A. Trainor(11).................. 18,984 0.7 20,484 0.5
PROPOSED DIRECTORS
Robert Doty(12)...................... -- -- -- --
Scott Sullivan(12)................... -- -- -- --
NAMED EXECUTIVE OFFICERS
Charles J. Grako..................... 21,049 0.7 22,049 0.6
Wayne L. Bismark..................... 4,716 0.2 6,016 0.2
All directors, proposed directors and
executive officers as a group (17
persons)(13)....................... 1,036,053 36.1% 1,058,853 26.7%

- -------------------------
(1) The information contained in this column is based upon information
furnished to the Company by the persons named above and the members of the
designated group and reflects the three-for-one stock split in the form of
a stock dividend which took effect on May 20, 1996. Amounts reported
include shares held directly as well as shares which are held in retirement
accounts and shares held by certain members of the named individuals'
families or held by trusts of which the named individual is a trustee or
substantial beneficiary, with respect to which shares the respective
individual may be deemed to have sole or shared voting and/or investment
power. The nature of beneficial ownership for shares shown in this column
is

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sole voting and investment power, except as set forth in the footnotes
below. Inclusion of shares shall not constitute an admission of beneficial
ownership or voting and investment power over included shares.

(2) Includes an aggregate of 32,400 shares held by the Filly Street Trust, an
Illinois general partnership (the "Partnership"), the partnership interests
of which are wholly owned by certain of the Company's directors and
officers. Voting and investment power over these shares is shared by
Messrs. Berry, Broadus, Breipohl, Grigsby, Daw, Lansford, McGrogan and
Trainor who, based upon the current holdings of the partners of the
Partnership, each indirectly own 3,564 of such shares. Mr. Grako also has
an interest in the partnership amounting to indirect ownership of 340 of
such shares. The balance of the interests in such shares are held by an
individual who is not a director or officer of the Company. The information
also includes shares presently obtainable through the exercise of options
to purchase shares of common stock granted under the Company's Stock Option
Plan as follows: Mr. Berry -- 1,020 shares; Mr. Breipohl -- 1,020 shares;
Mr. Broadus -- 870 shares; Mr. Daw -- 1,020 shares; Mr. Grigsby -- 3,367
shares; Mr. Lansford -- 1,020 shares; Mr. McGrogan -- 1,020 shares; Mr.
Myers -- 1,020 shares; Mr. Reinhardt -- 870 shares; Mr. Reynolds -- 870
shares; Mr. Trainor -- 1,020 shares; Mr. Grako -- 1,296 shares; and Mr.
Bismark -- 216 shares. Option holders have the sole power to exercise their
respective options and would also be entitled to exercise sole voting and
investment power over the shares issued upon the exercise of such options.

(3) Includes 442,467 shares held by the ESOP but which are allocated to
particular participants' accounts, over which shares the trustee of the
ESOP has shared voting and no investment power.

(4) Messrs. McDonnell and Whalen have sole investment power over such shares.
Pursuant to the terms of the Standstill Agreement executed by the Company
and these individuals, the President of the Company has a limited proxy
with respect to such shares until August 6, 2000.

(5) Includes 13,800 shares held jointly by Mr. Berry and his spouse, 3,000
shares held individually by Mr. Berry's spouse and 3,639 shares held in
trusts for which Mr. Berry is a co-trustee, over all of which shares Mr.
Berry has shared voting and investment power.

(6) Includes 710,576 shares over which Mr. Grigsby, as President of the
Company, is entitled to exercise a limited proxy pursuant to the Standstill
Agreement between the Company and the Principal Prairie Stockholders. Also
includes 17,853 shares held by Mr. Grigsby jointly with his spouse, over
which shares Mr. Grigsby has shared voting and investment power, 105 shares
held solely by Mr. Grigsby's spouse, over which shares Mr. Grigsby has no
voting or investment power, and 32,412 shares allocated to Mr. Grigsby
under the Company's ESOP.

(7) Includes 11,040 shares held by Mr. McGrogan jointly with his spouse, over
which shares Mr. McGrogan has shared voting and investment power, and also
includes 1,884 shares owned solely by his spouse, over which shares Mr.
McGrogan has no voting or investment power.

(8) Includes 17,250 shares held solely by Mr. Myers' spouse, over which shares
Mr. Myers has no voting or investment power.

(9) Includes 4,500 shares held by Mr. Reinhardt jointly with his spouse and
3,000 shares held in a retirement account, over all of which shares Mr.
Reinhardt has shared voting and investment power.

(10) Includes 1,200 shares held by the mother of Mr. Reynolds, over which shares
Mr. Reynolds has shared voting and investment power.

(11) Includes 1,200 shares held solely by Mr. Trainor's spouse, over which
shares Mr. Trainor has no voting or investment power.

(12) Messrs. Doty and Sullivan will become directors of the Company pursuant to
the terms of the Prairie Acquisition.

(13) Includes 710,576 shares over which Mr. Grigsby, as President of the
Company, is entitled to exercise a limited proxy pursuant to the Standstill
Agreement between the Company and the Principal Prairie Stockholders.

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The directors, executive officers and affiliates of the Company have
indicated their intention to purchase in the aggregate, approximately 110,000
shares or 10% (8.7% if the Underwriter's over-allotment option is exercised in
full) of the Common Stock to be offered in this Offering. The largest total
number of shares expected to be purchased by any single director, executive
officer or affiliate in this Offering is approximately 5,000 shares or 0.5%
(0.4% if the Underwriter's over-allotment option is exercised in full), which
shares are expected to be purchased by R. Scott Grigsby, the Company's President
and Chief Executive Officer. If 110,000 shares of Common Stock to be offered in
this Offering are in fact purchased by the directors, executive officers and
affiliates of the Company as a group, they will then own a combined total of
approximately 1,596,971 shares, or 40.4% of the Common Stock outstanding after
this Offering (38.8% if the proposed Underwriter's over-allotment option is
exercised in full). The number of shares and percentages owned as discussed
above include certain shares owned by spouses and children, as custodian or
trustee, and pursuant to options exercisable within 60 days.

SUPERVISION AND REGULATION

GENERAL

The growth and earnings performance of the Company and the Bank
Subsidiaries can be affected not only by management decisions and general
economic conditions, but also by the policies of various governmental regulatory
authorities including, but not limited to, the FRB, the Office of the
Comptroller of the Currency (the "OCC"), the FDIC, the Illinois Commissioner,
the Internal Revenue Service and state taxing authorities and the Securities and
Exchange Commission (the "SEC"). Financial institutions and their holding
companies are extensively regulated under federal and state law. The effect of
such statutes, regulations and policies can be significant, and cannot be
predicted with a high degree of certainty.

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

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

RECENT REGULATORY DEVELOPMENTS

On August 8, 1995, the FDIC amended its regulations to change the range of
deposit insurance assessments charged to members of the BIF from the
then-prevailing range of .23% to .31% of deposits, to a range of .04% to .31% of
deposits. On November 14, 1995, the FDIC further reduced the deposit insurance
assessments for BIF-member institutions, such that the range of BIF assessments
is currently between 0% and .27% of deposits. BIF-member institutions which
qualify for the 0% assessment category will, however, still have to pay the
$1,000 minimum semi-annual assessment required by federal statute. The Bank
Subsidiaries are all members of the BIF.

Various proposals have been introduced in Congress that, if adopted, would,
among other things, ultimately require federal thrift institutions to convert to
state or national banks and merge the BIF and the Savings Association Insurance
Fund (the "SAIF"), which insures the accounts of savings associations, into a
single deposit insurance fund administered by the FDIC. Such proposals would
also require the BIF and the SAIF to share, on a pro rata basis according to the
amount of deposits insured by each fund, the cost of repaying the obligations
issued in the late 1980's to recapitalize the Federal Savings and Loan Insurance
Corporation, the SAIF's predecessor insurance fund. At this time, it is not
possible to predict whether, or in

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what form, any such legislation will be adopted or the impact such legislation
would have on the Company or the Bank Subsidiaries.

THE COMPANY

GENERAL

The Company, as the sole stockholder of the Union Banks; Prairie, as the
sole or controlling stockholder of each of the Prairie Banks; and Country, as
the sole stockholder of Omni Bank, are each bank holding companies. As bank
holding companies, each of the Company, Prairie and Country are registered with,
and subject to regulation by, the FRB under the BHCA. Under FRB policy, a bank
holding company is expected to act as a source of financial strength to its bank
subsidiaries and to commit resources to support its bank subsidiaries in
circumstances where the holding company might not do so absent such policy.
Under the BHCA, a bank holding company is subject to periodic examination by the
FRB and is required to file periodic reports of its operations and such
additional information as the FRB may require.

The Company, Prairie and Country are also subject to the requirements of
the Illinois Bank Holding Company Act.

INVESTMENTS AND ACTIVITIES

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

Prior to September 29, 1995, the BHCA prohibited the FRB from approving any
direct or indirect acquisition by a bank holding company of more than 5% of the
voting shares, or of all or substantially all of the assets, of a bank located
outside of the state in which the operations of the bank holding company's
banking subsidiaries were principally located unless the laws of the state in
which the bank to be acquired is located specifically authorized such an
acquisition. Pursuant to amendments to the BHCA which took effect September 29,
1995, a bank holding company may now acquire banks located in any state of the
United States without regard to geographic restrictions or reciprocity
requirements imposed by state law, subject to certain conditions, including
limitations on the aggregate amount of deposits that may be held by the
acquiring bank holding company and all of its insured depository institution
affiliates.

The BHCA also prohibits, with certain exceptions noted below, a bank
holding company 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, except that bank
holding companies may engage in, and may own shares of companies engaged in,
certain businesses found by the FRB to be "so closely related to banking . . .
as to be a proper incident thereto." Under current regulations of the FRB, such
banking-related businesses include the operation of a thrift, sales and consumer
finance, equipment leasing, the operation of a computer service bureau,
including software development, and mortgage banking and brokerage.

CAPITAL REQUIREMENTS

The FRB uses capital adequacy guidelines in its examination and regulation
of bank holding companies. If capital falls below minimum guideline levels, a
bank holding company, among other things, may be denied approval to acquire or
establish additional banks or non-bank businesses. Such ratios do not apply to a
bank holding company with less than $150 million of consolidated assets, such as
Country.

The FRB's capital guidelines establish the following minimum regulatory
capital requirements for bank holding companies: a risk-based requirement
expressed as a percentage of total risk-weighted assets, and a leverage
requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, of which at least one-half must be Tier 1

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capital (which consists principally of stockholders' equity). The leverage
requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%
for the most highly rated companies, with minimum requirements of 4% to 5% for
all others.

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

As of June 30, 1996, the Company and Prairie each had regulatory capital in
excess of the FRB's minimum requirements, as set forth below.

LEVERAGE RISK-BASED
RATIO RATIO
-------- ----------

Company.................................................... 7.92% 12.54%
Prairie.................................................... 5.11% 14.76%

DIVIDENDS

The FRB has issued a policy statement on the payment of cash dividends by
bank holding companies. In the policy statement, the FRB expressed its view that
a bank holding company experiencing earnings weakness should not pay cash
dividends exceeding its net income or which could only be funded through methods
which would weaken the bank holding company's financial health, such as
borrowing. Additionally, the FRB possesses enforcement powers over bank holding
companies and their non-bank subsidiaries to prevent or remedy actions that
represent unsafe or unsound practices or violations of applicable statutes and
regulations. Among these powers is the ability to proscribe the payment of
dividends by banks and bank holding companies.

In addition to the restrictions on dividends imposed by the FRB, the DGCL
only permits the Company to pay dividends out of its surplus, or if the Company
has no such surplus, out of its net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year. Under the Illinois
Business Corporation Act, as amended, an Illinois corporation such as Prairie or
Country is prohibited from paying dividends if, after giving effect to the
dividend, the corporation would be insolvent or the net assets of the
corporation would be less than zero or less than the maximum amount then payable
to stockholders of the corporation who would have preferential distribution
rights if the corporation were liquidated.

THE BANK SUBSIDIARIES

GENERAL

Each of the Ferris Bank, the Hanover Bank, the Ladd Bank, the Tiskilwa Bank
and Omni Bank (collectively the "State Banks") is an Illinois-chartered bank,
the deposit accounts of which are insured by the BIF. As BIF-insured and
Illinois-chartered banks, the State Banks are subject to the examination,
supervision, reporting and enforcement requirements of the FDIC, as
administrator of the BIF, and the Illinois Commissioner, as the chartering
authority for Illinois banks.

The Union Banks are Illinois-chartered banks, the deposit accounts of which
are insured by the BIF, and are also members of the Federal Reserve System. As
Illinois-chartered and FDIC-insured member banks, the Union Banks are subject to
the examination, supervision, reporting and enforcement requirements of the
Illinois Commissioner, as the chartering authority for Illinois banks, the FRB,
as the primary federal regulator of its member banks, and the FDIC, as
administrator of the BIF.

The Manlius Bank and Tampico Bank (collectively the "National Banks") are
national banks, chartered by the OCC under the National Bank Act. The deposit
accounts of the National Banks are insured by the BIF, and each of the National
Banks is a member of the Federal Reserve System. As BIF-insured national

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banks, the National Banks are subject to the examination, supervision, reporting
and enforcement requirements of the OCC, as the chartering authority for
national banks, and the FDIC, as administrator of the BIF.

DEPOSIT INSURANCE

As FDIC-insured institutions, the Bank Subsidiaries are required to pay
deposit insurance premium assessments to the FDIC. The amount an institution
pays for FDIC deposit insurance coverage is determined in accordance with a
risk-based assessment system under which each insured depository institution is
placed into one of nine categories and assessed insurance premiums based upon
its level of capital and the results of supervisory evaluations. Institutions
classified as well-capitalized (as defined by the FDIC) and considered healthy
are assessed at the lowest rate while institutions that are less than adequately
capitalized (as defined by the FDIC) and considered of substantial supervisory
concern are assessed at the highest rate. For the semi-annual assessment period
ended December 31, 1995, BIF assessments for all insured institutions ranged
from 0.04% to 0.31% of deposits. Since January 1, 1996, semi-annual BIF
assessments have ranged from a minimum of $1,000 to 0.27% of deposits. Risk
classification of all insured institutions is made by the FDIC for each
semi-annual assessment period.

The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order or any condition imposed in writing by, or included in a
written agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of insurance
if the institution has no tangible capital. Management of the Company is not
aware of any activity or condition that could result in termination of the
deposit insurance of any Bank Subsidiaries.

CAPITAL REQUIREMENTS

Under federal regulations, the Bank Subsidiaries are subject to the
following minimum capital standards: a leverage requirement consisting of a
minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated
banks with minimum requirements of 4% to 5% for all others, and a risk-based
capital requirement consisting of a minimum ratio of total capital to total
risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital.

The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances or
risk profiles of individual institutions. For example, federal regulations
provide that additional capital may be required to take adequate account of the
risks posed by concentrations of credit and nontraditional activities, interest
rate risk and the institution's ability to manage such risks.

None of the Bank Subsidiaries has been required by its primary federal
regulator to increase its capital to an amount in excess of the minimum
regulatory requirement. As of June 30, 1996, each of the Bank Subsidiaries
exceeded its minimum regulatory capital requirements, as set forth below:

LEVERAGE RISK-BASED
RATIO RATIO
-------- ----------

UnionBank/Streator...................................... 9.17% 14.37%
UnionBank/Sandwich...................................... 7.06% 11.60%
Ferris Bank............................................. 6.81% 17.39%
Hanover Bank............................................ 8.43% 20.66%
Ladd Bank............................................... 7.57% 14.65%
Manlius Bank............................................ 7.09% 15.75%
Tampico Bank............................................ 6.96% 17.48%
Tiskilwa Bank........................................... 7.43% 15.46%
Omni Bank............................................... 6.59% 11.09%

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Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending upon the capital category to which an institution
is assigned, the regulators' corrective powers include: requiring the submission
of a capital restoration plan; placing limits on asset growth and restrictions
on activities; requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; restricting transactions
with affiliates; restricting the interest rate the institution may pay on
deposits; ordering a new election of directors of the institution; requiring
that senior executive officers or directors be dismissed; prohibiting the
institution from accepting deposits from correspondent banks; requiring the
institution to divest certain subsidiaries; prohibiting the payment of principal
or interest on subordinated debt; and ultimately, appointing a receiver for the
institution.

Additionally, institutions insured by the FDIC may be liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with the default of commonly controlled FDIC insured depository institutions or
any assistance provided by the FDIC to commonly controlled FDIC insured
depository institutions in danger of default.

DIVIDENDS

Under the Illinois Banking Act, Illinois-chartered banks may not pay,
without prior regulatory approval, dividends in excess of their adjusted
profits. Federal law also imposes limitations on the amount of dividends that a
state member bank, such as one of the Union Banks, or a national bank, such as
one of the National Banks, may pay without prior regulatory approval. Generally,
the amount is limited to the current year's net earnings of the bank plus the
adjusted retained earnings for the two preceding years.

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. As described above, the
Company, Prairie, Country and the Bank Subsidiaries each exceeded its minimum
capital requirements under applicable guidelines as of June 30, 1996. As of such
date, approximately $6.78 million was available to be paid as dividends by the
Bank Subsidiaries.

INSIDER TRANSACTIONS

The Bank Subsidiaries are subject to certain restrictions imposed by the
Federal Reserve Act on any extensions of credit to the Company, Prairie, Country
and their subsidiaries, on investments in the stock or other securities of the
Company, Prairie, Country and their subsidiaries and the acceptance of the stock
or other securities of the Company, Prairie, Country and their subsidiaries as
collateral for loans. Certain limitations and reporting requirements are also
placed on extensions of credit by the Bank Subsidiaries to their respective
directors and officers, to directors and officers of the Company, Prairie,
Country and their subsidiaries, to principal stockholders of the Company,
Prairie and Country, and to "related interests" of such directors, officers and
principal stockholders. In addition, such legislation and regulations may affect
the terms upon which any person becoming a director or officer of the Company,
Prairie, Country or one of their subsidiaries or a principal stockholder of the
Company may obtain credit from banks with which one of the Bank Subsidiaries
maintains a correspondent relationship.

SAFETY AND SOUNDNESS STANDARDS

The federal banking regulators have promulgated guidelines establishing
operational and managerial standards to promote the safety and soundness of
federally insured depository institutions. The guidelines establish standards
for internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, asset quality and earnings. In general, the
guidelines prescribe the goals to be achieved in each area and each institution
is responsible for establishing its own procedures to achieve those goals. If an
institution fails to comply with any of the standards set forth in the
guidelines, the institution's primary federal regulator may require the
institution to submit a plan for achieving and maintaining compliance. The
preamble to the guidelines states

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that the agencies expect to require a compliance plan from an institution where
the failure to meet one or more of the standards is of such severity that it
could threaten the safe and sound operation of the institution. Failure to
submit an acceptable compliance plan, or failure to adhere to a compliance plan
that has been accepted by the appropriate regulator, constitutes grounds for
further enforcement action.

BRANCHING AUTHORITY

Illinois-chartered banks, such as the Union Banks and the State Banks, have
the authority under Illinois law to establish branches anywhere in the state of
Illinois, subject to receipt of all required regulatory approvals. Federal law
grants the same branching authority to the National Banks. Effective June 1,
1997 (or earlier if expressly authorized by applicable state law), the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act") allows banks to establish interstate branch networks through
acquisitions of other banks, subject to certain conditions, including certain
limitations on the aggregate amount of deposits that may be held by the
surviving bank and all of its insured depository institution affiliates. The
establishment of de novo interstate branches or the acquisition of individual
branches of a bank in another state (rather than the acquisition of an
out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only if
specifically authorized by state law. The legislation allows individual states
to "opt-out" of certain provisions of the Riegle-Neal Act by enacting
appropriate legislation prior to June 1, 1997. Illinois has enacted legislation
permitting interstate bank mergers beginning on June 1, 1997.

STATE BANK ACTIVITIES

Under federal law, as implemented by final regulations adopted by the FDIC,
FDIC insured state banks are prohibited, subject to certain exceptions, from
making or retaining equity investments of a type, or in an amount, that are not
permissible for a national bank. Federal law, as implemented by FDIC
regulations, also prohibits FDIC insured state banks and their subsidiaries,
subject to certain exceptions, from engaging as principal in any activity that
is not permitted for a national bank or its subsidiary, respectively, unless the
bank meets, and continues to meet, its minimum regulatory capital requirements
and the FDIC determines the activity would not pose a significant risk to the
deposit insurance fund of which the bank is a member. Impermissible investments
and activities must be divested or discontinued within certain time frames set
by the FDIC. These restrictions have not had, and are not currently expected to
have, a material impact on the operations of the Bank Subsidiaries.

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DESCRIPTION OF CAPITAL STOCK OF THE COMPANY

GENERAL

The authorized capital stock of the Company presently consists of
10,000,000 shares of Common Stock, par value $1.00 per share, and 200,000 shares
of Preferred Stock, no par value.

COMMON STOCK

As of June 30, 1996, the Company had issued and outstanding 2,131,737
shares of Common Stock. All outstanding shares of Common Stock are, and the
shares offered hereby will be, fully paid and nonassessable. The holders of
Common Stock are entitled to one vote for each share held of record on all
matters to be voted upon by stockholders and may not cumulate votes for the
election of directors. Thus, the owners of a majority of the shares of Common
Stock outstanding may elect all of the directors up for election in any given
year, if they choose to do so, and the owners of the balance of such shares
would not be able to elect any directors. Subject to certain preferences
applicable to the shares of Preferred Stock to be issued in connection with the
Prairie Acquisition, each share of outstanding Common Stock is entitled to
participate equally in any distribution of net assets made to the stockholders
in liquidation, dissolution or winding up of the Company and is entitled to
participate equally in dividends as and when declared by the Company's Board of
Directors. There are no redemption, sinking fund, conversion or preemptive
rights with respect to the shares of Common Stock. All shares of Common Stock
have equal rights and preferences. Each share of Common Stock has associated
with it one preferred stock purchase right to purchase approximately
one-thousandth of a share of the Company's Series C Junior Participating
Preferred Stock (the "Series C Preferred Stock"). See "-- Certain Anti-Takeover
Considerations -- Stockholders' Rights Plan." The Company currently acts as the
transfer agent and registrar for the Common Stock.

PREFERRED STOCK

The Company's Certificate of Incorporation authorizes its Board of
Directors to fix or alter the rights, preferences, privileges and restrictions
of any wholly unissued series of Preferred Stock, including the dividend rights,
original issue price, conversion rights, voting rights, terms of redemption,
liquidation preferences and sinking fund terms thereof, and the number of shares
constituting any such series and the designation thereof and to increase or
decrease the number of shares of such series subsequent to the issuance of
shares of such series (but not below the number of shares then outstanding).
Pursuant to this authority, the Board of Directors has established and
authorized the issuance of 2,762.24 shares of Series A Preferred Stock and 857
shares of Series B Preferred Stock in connection with the Prairie Acquisition.
See "The Acquisitions -- Prairie Bancorp, Inc." The Board of Directors has also
established and authorized the issuance of 4,500 shares of Series C Preferred
Stock. See "-- Certain Anti-Takeover Considerations -- Stockholders' Rights
Plan." As of August 30, 1996, the Company had 2,762.24 and 857 issued and
outstanding shares of Series A Preferred Stock and Series B Preferred Stock,
respectively.

Because the terms of the Preferred Stock can be fixed by the Board of
Directors without stockholder action, the Preferred Stock could be issued with
terms calculated to defeat a proposed takeover of the Company or to make the
removal of management more difficult. The Board of Directors, without
stockholder approval, could issue Preferred Stock with dividend, voting and
conversion rights which could adversely affect the rights of the holders of
Common Stock. See "Risk Factors -- Limitations on Change of Control."

The following statements with respect to the Preferred Stock are subject to
the detailed provisions of the Certificate of Incorporation, the Certificate of
Designations and Preferences for the Series A Preferred Stock (the "Series A
Preferred Certificate of Designations") and the Certificate of Designations and
Preferences for the Series B Preferred Stock (the "Series B Preferred
Certificate of Designations"), each as filed with the Delaware Secretary of
State, and the bylaws of the Company (the "Bylaws"). These statements do not
purport to be complete and are subject to and qualified in their entirety by
reference to the terms of the Certificate of Incorporation, the Series A
Preferred Certificate of Designations, the Series B Preferred Certificate of
Designations and the Bylaws, copies of each of which are available from the
Company upon request.

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DIVIDENDS

Preferential cumulative cash dividends are payable on the Series A
Preferred Stock quarterly at an annual rate of $75.00 per share. Preferential
cumulative cash dividends are payable on the Series B Preferred Stock quarterly
at an annual rate of $60.00 per share. No dividends, other than those payable
solely in the form of Common Stock, may be paid during any fiscal year of the
Company with respect to shares of Common Stock or any other security issued by
the Company (other than with respect to the Series A Preferred Stock or the
Series B Preferred Stock) until dividends in the total annual amounts of $75.00
per share and $60.00 per share, respectively, are paid on the outstanding shares
of Series A Preferred Stock and the Series B Preferred Stock. Dividends accrue
on each share of Preferred Stock from the date of issuance and from day to day
thereafter, whether or not earned or declared. Dividends on the Preferred Stock
are cumulative, so that if such dividends are not fully paid when due, any
deficiency for any prior year and the amount owed in the current year must be
fully paid before any dividend or other distribution may be paid on or set apart
for the shares of Common Stock.

RIGHTS TO CONVERSION

Pursuant to the Prairie Acquisition Agreement, the Aggregate Conversion
Value (as defined below) of the shares of Series A Preferred Stock issued to the
Principal Prairie Stockholders will depend upon the aggregate, after-tax loss,
if any, incurred by the Company upon the sale of the Part B Securities. See "The
Acquisitions -- Consideration for Prairie Common Stock and Prairie Preferred
Stock." This after-tax loss, if any, is computed by subtracting the aggregate
net sale proceeds realized upon a sale by the Company of the Part B Securities
from their aggregate book value and applying an effective tax rate to such sale
of 38.8% (the "Securities Loss"). The shares of Series A Preferred Stock are
convertible into the number of shares of Common Stock that results from
multiplying $1,000 by the number of shares of Series A Preferred Stock (the
"Aggregate Conversion Value"), subtracting from this product such after-tax loss
and dividing this result by the conversion price (1.075 times the Common Stock
per share book value). Therefore, a reduction of the Aggregate Conversion Value
will reduce the number of shares of Common Stock issuable upon the conversion of
the Series A Preferred Stock.

The Company must sell the Part B Securities no later than the fourth
anniversary of the Prairie Closing, but may sell them earlier if at any time the
anticipated Securities Loss, based upon a valuation of the Part B Securities, is
greater than the aggregate stated value ($1,000 per share), plus accrued but
unpaid dividends, of the shares of Series A Preferred Stock issued to the
Principal Prairie Stockholders at the Prairie Closing, after taking into account
tax effects of a sale of such securities. If the Securities Loss is greater than
such amount, the Company must sell the Part B Securities as soon as is
reasonably practicable. In either of these cases, the Principal Prairie
Stockholders will have no liability for the Securities Loss beyond the Aggregate
Conversion Value of the Series A Preferred Stock.

The Company may also request permission from the Principal Prairie
Stockholders for other sales of all or part of the Part B Securities. If the
Principal Prairie Stockholders consent to such sale, the after-tax loss or gain
will be aggregated with all other losses and gains upon the sale of the final
portion of the Part A Securities to determine if there will be a reduction in
the Aggregate Conversion Value. If permission for the sale of any Part B
Securities is refused, the Principal Prairie Stockholders will incur special
additional obligations with respect to those securities for which permission to
sell was refused (the "Subject Securities"). Upon the sale of all the Part B
Securities, the Company will aggregate all after-tax gains and losses (other
than those resulting from sales of Subject Securities). The aggregate amount is
then added to the aggregate after-tax gain or loss upon the sale of Subject
Securities. If the result is a net after-tax loss that is in excess of the
Aggregate Conversion Value, the Principal Prairie Stockholders have agreed to
pay to the Company in cash the amount of any such after-tax loss to the extent
of the net after-tax loss on the sales of Subject Securities. See "The
Acquisitions -- Prairie Bancorp, Inc. -- Consideration for Prairie Common Stock
and Prairie Preferred Stock."

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RIGHTS TO REDEMPTION

The Series A Preferred Stock is not redeemable for cash. Each original
holder of Series B Preferred Stock (or upon such holder's deaths, their
respective executors or personal representatives) will have the option,
exercisable at their sole discretion, to sell, and the Company will be obligated
to redeem, such holder's shares of Series B Preferred Stock upon the earlier to
occur of the death of the respective original holder of Series B Preferred Stock
or ten years after the original issuance date of the Series B Preferred Stock.
The per share price payable by the Company for such shares of Series B Preferred
Stock will be equal to $1,000 per share, plus any accrued but unpaid dividends.
Notwithstanding the foregoing, the Company will not be obligated to redeem for
cash any shares of Series B Preferred Stock if such redemption would cause it to
be in violation of any statute, rule, or regulation or agreement to which it is
a party relating to minimum capital requirements, provided that the Company is
required to use its best efforts promptly to remedy any such violation and shall
promptly complete the redemption of such shares after such violation has been
cured.

LIQUIDATION RIGHTS

On dissolution, winding up or liquidation of the Company, voluntary or
otherwise, holders of Preferred Stock will be entitled to receive, out of the
assets of the Company available for distribution to stockholders, the amount of
$1,000 per share, plus any accrued but unpaid dividends, before any payment or
distribution may be made on shares of Common Stock or any other securities
issued by the Company which rank junior to the Preferred Stock. If the assets of
the Company available for distribution to the holders of shares of Preferred
Stock upon any dissolution, liquidation or winding up of the Company are
insufficient to pay in full all amounts to which such holders are entitled, then
all of the assets of the Company to be distributed will be distributed ratably
to the holders of Preferred Stock.

VOTING RIGHTS

Holders of shares of Series A Preferred Stock are not entitled to vote
except: (i) as required by law; (ii) to approve the authorization or issuance of
any shares of any class or series of stock which ranks senior or on a parity
with the Series A Preferred Stock in respect of dividends and distributions upon
the dissolution, liquidation or winding up of the Company; (iii) during any
period of time when two dividend payments on shares of Series A Preferred Stock
have accrued but have not been paid; (iv) upon conversion of the shares of
Series A Preferred Stock into shares of Common Stock; or (v) if the holders of
Common Stock vote on a proposal to merge or otherwise enter into a transaction
with a third party pursuant to which the Company is not the surviving entity.
Holders of shares of Series B Preferred Stock are not entitled to vote except as
required by law. If holders of Preferred Stock are entitled to vote on any
matter as described above, they will be entitled to receive notice of any
stockholders' meeting at which such matter will be considered and will be
entitled to vote as a class.

CERTAIN ANTI-TAKEOVER CONSIDERATIONS

GENERAL

The Certificate of Incorporation contains certain provisions that may be
perceived as having an "anti-takeover" effect. The purpose of these provisions
is to encourage any party seeking to acquire control of the Company to negotiate
the transaction, in advance, with the Company's Board of Directors and to
present any proposed transaction approved by the Company's Board of Directors to
all of the Company's stockholders. These provisions may also have the effect of
discouraging takeovers, including takeovers that a majority of the stockholders
of the Company may deem to be desirable and in which the stockholders may
receive a substantial premium over market value in payment for their shares. In
addition, the provisions may make it more difficult or time-consuming for the
stockholders to change the management of the Company, even if a majority of the
stockholders believe that such a change would be beneficial. The Company is not
currently aware of any existing take-over attempts of the Company, and does not
anticipate adopting further anti-takeover measures in the foreseeable future.

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CLASSIFICATION OF THE BOARD OF DIRECTORS

The Company's Board of Directors is divided into three classes with each
director serving a staggered three-year term. With a staggered board of
directors, at least two annual meetings are required to effect a change in the
composition of a majority of the board of directors. Without a staggered board
of directors, a person or entity which acquired a simple majority of Common
Stock would have the power to change the composition of the board of directors
at a single annual meeting.

NUMBER OF DIRECTORS, FILLING OF BOARD OF DIRECTORS' VACANCIES AND REMOVAL OF
DIRECTORS

The Certificate of Incorporation provides that the number of directors of
the Company will be fifteen, or such other number as is determined from time to
time by the affirmative vote of at least 70% of all shares of the Company
entitled to vote in the election of directors, or of at least two-thirds of the
directors of the Company. Under the DGCL and the Certificate of Incorporation, a
majority of the Board of Directors, though less than a quorum, or the sole
remaining director, may fill vacancies on the Board of Directors or newly
created directorships resulting from any increase in the authorized number of
directors. Under the DGCL and the Certificate of Incorporation, a director
serving on a staggered board may only be removed for cause. Neither the DGCL nor
the Company's Certificate of Incorporation define "cause." The circumstances
under which directors may be removed are therefore judicially determined and
would generally be expected to include fraud, criminal conduct or gross abuse of
office amounting to a breach of fiduciary duty to the Company.

The provisions relating to the fixing of the number of directors, the
filling of vacancies on the board and the removal of directors are intended to
prevent a substantial stockholder from circumventing the purposes of a staggered
board by increasing the number of directors on the board or removing incumbent
directors without cause and then filling the newly created directorships or
vacancies with such stockholder's own nominees. Such provisions may, however,
make it more difficult to remove a director in the event of dissatisfaction with
the director's performance.

STOCKHOLDER ACTION

The Certificate of Incorporation provides that stockholder action may be
taken only at an annual or special meeting of stockholders and not by written
consent without a meeting. This prohibition could be used to delay the taking of
any action requiring stockholder approval which is not approved by the Board of
Directors, whether or not a majority of the stockholders believes such action
may be desirable. Under such circumstances, stockholders may be required to wait
until the next annual meeting of stockholders to take action which does not have
the support of a majority of the entire Board of Directors.

TRANSACTIONS WITH INTERESTED STOCKHOLDERS

The Certificate of Incorporation provides that the Company is to be
governed by Section 203 of the DGCL ("Section 203"). Section 203 restricts
certain forms of business combinations by Delaware corporations with an
"Interested Stockholder" for a period of three years from the date that such a
person became an "Interested Stockholder" unless: (i) prior to such date, the
corporation's board of directors approved either the business combination or the
transaction which resulted in the stockholder becoming an "Interested
Stockholder;" (ii) upon consummation of the transaction, the Interested
Stockholder owns at least 85% of the voting stock of the corporation (excluding
shares held by persons who are directors and also officers and under certain
types of employee stock plans); or (iii) on or subsequent to such date, the
business combination is approved by the corporation's board of directors and
authorized at an annual or special meeting of the stockholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock, other than
stock owned by the "Interested Stockholder." An "Interested Stockholder" is
defined as any individual, corporation, partnership, unincorporated association
or other entity which: (x) owns 15% or more of the outstanding voting stock of
the corporation; (y) is an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three-year period immediately prior to

79
81

the date on which it is sought to be determined whether such person is an
Interested Stockholder; or (z) is an affiliate or associate of such a person.

AMENDMENT TO THE CERTIFICATE OF INCORPORATION

Article XI of the Certificate of Incorporation also provides that any
amendment, alteration, change or repeal of Articles VI or X of the Certificate
of Incorporation, which pertain to the authority of the Board of Directors and
the number, election, classification, filling of vacancies and removal of
directors, respectively, as well as any amendment to Article XI itself, may
occur only by the affirmative vote of not less than 70% of all shares of stock
of the Company then entitled to vote in the election of directors or a majority
of such shares if the action is approved by two-thirds of all directors. Article
XI requires similar approval for the adoption of any agreement regarding the
merger or consolidation of the Company with or into any other corporation, the
authorization of any sale, lease or exchange of all or substantially all of the
Company's assets or the authorization of the dissolution of the Company.

LIMITATION OF DIRECTORS' LIABILITY

As permitted by the provisions of the DGCL, the Certificate of
Incorporation eliminates in certain circumstances the monetary liability of
directors of the Company to the Company or its stockholders for a breach of
their fiduciary duty as directors. These provisions do not eliminate or limit
the liability of a director for: (i) a breach of the director's duty of loyalty
to the Company or its stockholders; (ii) acts or omissions by a director not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) liability arising under Section 174 of the DGCL (relating to the
declaration of dividends and purchase or redemption of shares in violation of
the DGCL); or (iv) any transaction from which the director derived an improper
personal benefit. In addition, these provisions do not limit the rights of the
Company or its stockholders, in appropriate circumstances, to seek equitable
remedies such as injunctive or other forms of non-monetary relief.

INDEMNIFICATION

As permitted by Section 145 of the DGCL, the Certificate of Incorporation
requires the Company to indemnify all persons who it may indemnify pursuant
thereto. Under such provisions, any director, officer, employee or agent who, in
his or her capacity as such, is made or threatened to be made a party to any
suit or proceeding, must be indemnified if such director, officer, employee or
agent acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to the best interests of the Company. The DGCL further provides
that such indemnification is not exclusive of any other rights to which such
individuals may be entitled under the Certificate of Incorporation, any
agreement, insurance policies, vote of stockholders or disinterested directors
or otherwise.

STOCKHOLDERS' RIGHTS PLAN

The Company has adopted a Stockholders' Rights Plan pursuant to which the
Company declared on July 17, 1996, a dividend distribution of one right for each
share of Common Stock then or subsequently outstanding (the "Rights"). Under the
plan, until such time as a "triggering event" occurs, each Right entitles the
holder thereof to purchase from the Company one one-thousandth of a share of a
newly authorized Series C Preferred Stock at a purchase price of $50, subject to
adjustment for stock splits, recapitalizations and other similar transactions.
Each Right is transferrable only together with its underlying share of Common
Stock. The Rights will be triggered as a result of any person (other than a
specifically permitted person) becoming the beneficial holder of 15% or more of
the then outstanding shares of Common Stock. Upon such occurrence, each Right,
other than rights held by the person or affiliated group whose holdings exceeded
such threshold, will permit the holder thereof to purchase that number of shares
of Common Stock having a market value equal to $100. The Rights will also be
triggered if the Company is acquired in a merger or other business combination
(in which any shares of the Common Stock are converted into or exchanged for
other securities or assets), or if more than 50% of the assets or earning power
of the Company and its subsidiaries (taken as a whole) are sold or transferred
in one or a series of related transactions. In such event, each Right, other
than

80
82

Rights held by the person or affiliated group whose holdings exceeded the 15%
threshold, will entitle its holder to purchase that number of shares of common
stock of the acquiring company having a market value at the time of such
transaction equal to $100. Following the occurrence of any triggering event,
each Right becomes separated from its underlying share of Common Stock and may
thereafter be separately transferred. Under the plan, at any time prior to ten
days following the occurrence of any triggering event the Board of Directors may
cause the Company to redeem the Rights in whole, but not in part, at a price of
$0.01 per Right, subject to adjustment. The Board may also extend the period
during which the Rights may be redeemed.

SHARES ELIGIBLE FOR FUTURE SALE

Upon the completion of this Offering, the Company will have 3,951,403
shares of Common Stock outstanding (4,116,403 shares if the Underwriter's
over-allotment option is exercised in full). Of these shares, the 1,100,000
shares of Common Stock sold in this Offering (1,265,000 shares if the
Underwriter's over-allotment option is exercised in full) will be freely
tradeable by persons other than affiliates of the Company, without restriction
under the Securities Act. Of the remaining 2,842,314 shares of Common Stock, the
710,576 shares of Common Stock issued in connection with the Prairie Acquisition
and the approximately 886,395 shares of Common Stock held by other affiliates of
the Company will be "restricted" securities within the meaning of Rule 144 under
the Securities Act and may not be sold in the absence of registration under the
Securities Act unless an exemption from registration is available, including the
exemptions contained in Rule 144. Commencing 90 days after the date of this
Prospectus, the shares beneficially owned by persons who are affiliates of the
Company would be eligible for public sale pursuant to Rule 144, subject to the
volume restrictions discussed below. However, the directors and executive
officers of the Company and owners of 5% or more of Common Stock have agreed not
to sell, contract to sell or otherwise dispose of any shares of Common Stock for
a period of 180 days after the date of this Prospectus without the prior written
consent of the Underwriter. Additionally, the Company has a right of first
refusal with respect to the transfer by the Principal Prairie Stockholders of
more than 5% of the Company's shares to a single purchaser. See "The Acquisition
- -- Prairie Bancorp, Inc. -- Restrictions Applicable to Principal Prairie
Stockholders."

In general, Rule 144 as currently in effect provides that a person (or
persons whose shares are aggregated), including an affiliate of the Company, who
has beneficially owned his or her shares for at least two years (including the
prior holding period of any prior owner other than an affiliate) is entitled to
sell within any three-month period that number of shares which does not exceed
the greater of 1% of the outstanding shares of the Common Stock or the average
weekly trading volume during the four calendar weeks preceding each such sale.
Sales under Rule 144 also are subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not or has not
been deemed an "affiliate" of the Company for at least three months, and who has
beneficially owned shares for at least three years (including the holding period
of any prior owner other than an affiliate) would be entitled to sell such
shares under Rule 144 without regard to the limitations discussed above.

Prior to this Offering, there has been no regular and liquid market for the
Common Stock. Sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices.

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement between
the Company and the Underwriter, the Underwriter has agreed to purchase from the
Company, and the Company has agreed to sell to the Underwriter, 1,100,000 shares
of Common Stock.

The Underwriting Agreement provides that the obligations of the Underwriter
thereunder are subject to the satisfaction of certain conditions precedent. The
Underwriter is committed to purchase and pay for all 1,100,000 shares of Common
Stock if any are purchased. The Company has been advised that the Underwriter
proposes to offer the shares of Common Stock directly to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain securities dealers at such price less a concession

81
83

not in excess of $. per share, and that the Underwriter and such dealers may
allow to other dealers including any underwriter, a discount not in excess of
$. per share. After commencement of this Offering, the offering price and
concession and discounts may be changed by the Underwriter. The Company has
agreed to pay the Underwriter an expense allowance not to exceed 1.5% of the
aggregate offering price.

The Underwriter has informed the Company that it does not expect sales to
any accounts over which it exercises discretionary authority to exceed 10% of
the total number of shares of Common Stock offered hereby.

At the request of the Company, the Underwriter has reserved up to
approximately 110,000 shares (the "Reserved Shares") of Common Stock for sale to
directors, executive officers and affiliates of the Company who have expressed
an interest in purchasing shares of Common Stock in this Offering. The Reserved
Shares will be sold to such directors, executive officers and affiliates through
brokerage accounts opened specifically for such purpose through the Underwriter.
The price for such Reserved Shares will be the initial public offering price.
The number of shares available to the general public will be reduced to the
extent such persons purchase the Reserved Shares. Any Reserved Shares that are
not so purchased by such persons at the initial closing of this Offering will be
sold by the Underwriter to the general public on the same terms as the other
shares of Common Stock offered hereby.

The Underwriter has obtained an option from the Company exercisable for a
period of 30 days following the offering date, under which the Underwriter may
purchase up to 15% of the total number of shares of Common Stock offered at the
same price per share which the Company will receive for the shares offered
herein. The Underwriter may exercise such option only once to cover
over-allotments.

The Company and its executive officers and directors, as well as the
Company's 5% stockholders, have agreed not to offer, sell, contract or otherwise
dispose of any Common Stock for at least 180 days after this Offering, without
the written consent of the Underwriter.

Prior to this Offering, there has been a limited market for the Common
Stock. The initial public offering price was determined by negotiation among the
Company and the Underwriter. The factors considered in determining the initial
public offering price include the history of and prospects for the business in
which the Company operates, past and present operations, revenues and earnings
of the Company and the trend of such earnings, the prospects for such earnings,
the general condition of the securities markets at the time of the offering and
the demand for similar securities of reasonably comparable companies.

The Company and the Underwriter have agreed to indemnify, or to contribute
to payments made by, each other against certain civil liabilities, including
certain civil liabilities under the Securities Act.

The Underwriter has from time to time performed various investment banking
and other services for the Company for which customary compensation has been
received. The Underwriter has rendered financial advisory and investment banking
services in connection with the Prairie Acquisition. The Company has agreed to
pay the Underwriter a fee of $150,000 for providing such services.

LEGAL OPINIONS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Barack, Ferrazzano, Kirschbaum & Perlman, Chicago,
Illinois. Certain legal matters will be passed upon for the Underwriter by
Sidley & Austin, Chicago, Illinois.

EXPERTS

The consolidated financial statements of the Company and its subsidiaries
and Prairie and its subsidiaries as of December 31, 1995 and 1994, and for each
of the years in the three-year period ended December 31, 1995, as well as the
consolidated financial statements of Country and its subsidiary as of December
31, 1995 and 1994 and each of the years in the two-year period ended December
31, 1995, have been included herein in reliance upon the report of McGladrey &
Pullen, LLP, independent certified public accountants, and upon the authority of
said firm as experts in accounting and auditing.

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84

ADDITIONAL INFORMATION

The Company has filed with the SEC a registration statement on Form S-1
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act with respect to the Common
Stock being offered pursuant to this Prospectus. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. For further information with respect to the Company and the Common Stock
offered hereby, reference is made to the Registration Statement, including the
exhibits thereto. Statements contained in this Prospectus concerning the
provisions of such documents are necessarily summaries of such documents and
each such statement is qualified in its entirety by reference to the copy of the
applicable document filed with the SEC.

Following the commencement of this Offering, the Company will be subject to
the informational requirements of the Exchange Act and in accordance therewith
will file reports, proxy and information statements and other information with
the SEC. Such reports, proxy statements and other information concerning the
Company can be inspected and copied at the public reference facilities of the
SEC at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as the
SEC's Regional Offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 and 75 Park Place, Room 1400, New York, New York 10007. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the
Company is required to file electronic versions of these documents with the SEC
through the SEC's Electronic Data Gathering, Analysis and Retrieval (EDGAR)
system. The SEC maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC.

83
85

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL INFORMATION

UNIONBANCORP, INC.
PRAIRIE BANCORP, INC.
COUNTRY BANCSHARES, INC.

PAGE
-----

UNIONBANCORP, INC.
Consolidated Balance Sheets (Unaudited) at June 30, 1996 and December 31, 1995.... F-2
Consolidated Statements of Income (Unaudited) for the Six Months Ended June 30,
1996 and 1995.................................................................. F-3
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June
30, 1996 and 1995.............................................................. F-4
Notes to Unaudited Consolidated Financial Statements.............................. F-5
Independent Auditor's Report...................................................... F-10
Consolidated Balance Sheets at December 31, 1995 and 1994......................... F-11
Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and
1993........................................................................... F-12
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1995, 1994 and 1993............................................................ F-13
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994
and 1993....................................................................... F-14
Notes to Consolidated Financial Statements........................................ F-15
PRAIRIE BANCORP, INC.
Selected Consolidated Financial Data.............................................. F-32
Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... F-33
Consolidated Balance Sheets (Unaudited) at June 30, 1996 and December 31, 1995.... F-54
Consolidated Statements of Income (Unaudited) for the Six Months Ended June 30,
1996 and 1995.................................................................. F-55
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June
30, 1996 and 1995.............................................................. F-56
Notes to Unaudited Consolidated Financial Statements.............................. F-57
Independent Auditor's Report...................................................... F-61
Consolidated Balance Sheets at December 31, 1995 and 1994......................... F-62
Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and
1993........................................................................... F-63
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1995, 1994 and 1993............................................................ F-64
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994
and 1993....................................................................... F-65
Notes to Consolidated Financial Statements........................................ F-66
COUNTRY BANCSHARES, INC.
Selected Consolidated Financial Data.............................................. F-80
Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... F-81
Consolidated Balance Sheets (Unaudited) at June 30, 1996 and December 31, 1995.... F-100
Consolidated Statements of Income (Unaudited) for the Six Months Ended June 30,
1996 and 1995.................................................................. F-101
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June
30, 1996 and 1995.............................................................. F-102
Notes to Unaudited Consolidated Financial Statements.............................. F-103
Independent Auditor's Report...................................................... F-106
Consolidated Balance Sheets at December 31, 1995 and 1994......................... F-107
Consolidated Statements of Income for the Years Ended December 31, 1995 and
1994........................................................................... F-108
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1995 and 1994.................................................................. F-109
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 and
1994........................................................................... F-110
Notes to Consolidated Financial Statements........................................ F-111

F-1
86

UNIONBANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995

JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)

ASSETS
Cash and due from banks.......................................... $ 11,403,209 $ 16,166,689
Federal funds sold............................................... 225,000 2,265,000
Securities held to maturity (fair value $28,742,172 in 1996;
$29,186,580 in 1995)........................................... 28,925,982 29,026,216
Securities available for sale.................................... 58,003,129 63,890,813
Loans (net of allowance for loan losses of $1,596,965 in 1996 and
$2,013,996 in 1995)............................................ 184,243,005 178,805,012
Premises and equipment, net...................................... 6,829,352 6,570,710
Intangible assets................................................ 894,581 943,126
Deferred income taxes............................................ 748,866 --
Accrued interest and other assets................................ 5,331,888 5,865,773
------------ ------------
Total assets................................................ $296,605,012 $303,533,339
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand......................................................... $ 34,514,560 $ 35,688,034
Savings and NOW................................................ 76,469,008 80,871,775
Other time..................................................... 123,025,044 121,515,122
Time deposits of $100,000 or more.............................. 25,078,691 23,652,388
------------ ------------
Total deposits.............................................. 259,087,303 261,727,319
Securities sold under agreements to repurchase................... 7,544,134 11,505,134
Short-term borrowings............................................ 4,391,250 4,346,250
Deferred income taxes............................................ -- 9,587
Accrued interest and other liabilities........................... 2,130,430 2,470,057
------------ ------------
Total liabilities........................................... 273,153,117 280,058,347
------------ ------------
Stockholders' Equity
Common stock, $1 par value; 10,000,000 shares authorized;
2,400,000 issued and outstanding............................ 2,400,000 2,400,000
Surplus........................................................ 1,074,272 1,074,272
Retained earnings.............................................. 21,537,352 20,567,981
Unrealized gain (loss) on securities available for sale........ (997,242) 1,918
Deferred compensation -- stock option plans.................... (41,290) (47,982)
------------ ------------
23,973,092 23,996,189
Less treasury stock, at cost; 268,263 shares................... 521,197 521,197
------------ ------------
Total stockholders' equity.................................. 23,451,895 23,474,992
------------ ------------
Total liabilities and stockholders' equity.................. $296,605,012 $303,533,339
============ ============

See Accompanying Notes to Unaudited Consolidated Financial Statements.

F-2
87

UNIONBANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1995

SIX MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
----------- -----------
(UNAUDITED)

Interest income:
Loans and fees on loans.......................................... $ 8,642,619 $ 7,768,780
Securities:
U.S. Treasury securities...................................... 401,451 588,300
U.S. Government agencies and corporations..................... 1,474,920 985,996
States and political subdivisions............................. 676,382 692,687
Mortgage-backed securities.................................... 2,785 5,820
Corporate bonds............................................... 8,694 68,898
Other securities.............................................. 38,014 37,513
Federal funds sold............................................... 33,333 44,515
----------- -----------
Total interest income.................................... 11,278,198 10,192,509
----------- -----------
Interest expense:
Deposits......................................................... 5,389,555 4,786,937
Securities sold under agreements to repurchase................... 275,865 211,607
Short-term borrowings............................................ 184,475 217,965
----------- -----------
Total interest expense................................... 5,849,895 5,216,509
----------- -----------
Net interest income...................................... 5,428,303 4,976,000
Provision for loan losses.......................................... 500,000 342,000
----------- -----------
Net interest income after provision for loan losses...... 4,928,303 4,634,000
----------- -----------
Noninterest income:
Service charges.................................................. 488,147 457,593
Merchant fee income.............................................. 236,795 184,451
Trust income..................................................... 183,498 150,000
Gain on sale of loans............................................ 142,321 44,692
Securities gains, net............................................ 12,998 61,038
Other noninterest income......................................... 260,599 288,827
----------- -----------
1,324,358 1,186,601
----------- -----------
Noninterest expenses:
Salaries and employee benefits................................... 2,543,724 2,173,690
Occupancy expense, net........................................... 383,945 335,768
Furniture and equipment expenses................................. 331,290 273,703
FDIC deposit assessment.......................................... 2,501 259,080
Other noninterest expense........................................ 1,499,392 1,370,421
----------- -----------
4,760,852 4,412,662
----------- -----------
Income before income taxes............................... 1,491,809 1,407,939
Income taxes....................................................... 380,523 365,403
----------- -----------
Net income............................................... $ 1,111,286 $ 1,042,536
=========== ===========
Earnings per share of common stock....................... $ 0.51 $ 0.49
=========== ===========
Weighted average number of shares outstanding............ 2,169,012 2,131,737
=========== ===========

See Accompanying Notes to Unaudited Consolidated Financial Statements.

F-3
88

UNIONBANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995

SIX MONTHS ENDED
JUNE 30,
----------------------------
1996 1995
------------ ------------
(UNAUDITED)

Cash Flows from Operating Activities
Net income..................................................... $ 1,111,286 $ 1,042,536
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................ 297,215 238,534
Amortization of intangibles................................. 48,545 96,144
Amortization of deferred compensation -- stock options...... 6,692 --
Provision for loan losses................................... 500,000 342,000
Provision for deferred income taxes......................... (125,000) (301,307)
(Gain) on sales of securities............................... (12,998) (61,038)
(Gain) on sales of loans.................................... (142,321) (44,692)
(Gain) on sale of equipment................................. (1,500) --
Amortization of bond premiums, net.......................... 238,833 236,514
(Gain) on sale of real estate acquired in settlement of
loans..................................................... (2,524) (41,089)
Proceeds from sales of loans................................ 4,474,525 3,053,791
Origination of loans for resale............................. (4,332,204) (3,009,099)
Change in assets and liabilities:
Decrease in accrued interest and other assets............. 1,853,331 921,596
Increase (decrease) in accrued interest and other
liabilities............................................ (339,627) 1,162,000
------------ ------------
Net cash provided by operating activities.............. 3,574,253 3,635,890
------------ ------------
Cash Flows from Investing Activities
Investment securities:
Held to maturity:
Proceeds from calls and maturities........................ 782,285 1,125,713
Purchases................................................. (875,525) (2,494,534)
Available for sale:
Proceeds from sales....................................... 11,820,096 10,209,448
Proceeds from calls and maturities........................ 2,750,000 1,269,763
Purchases................................................. (11,584,987) (11,329,088)
Net decrease in federal funds sold............................. 2,040,000 300,000
Net (increase) in loans........................................ (6,080,314) (13,969,692)
Purchase of premises and equipment............................. (556,057) (1,053,523)
Proceeds from sale of real estate acquired in settlement of
loans....................................................... 153,000 499,000
Proceeds from sale of equipment................................ 1,700 --
------------ ------------
Net cash (used in) investing activities................ (1,549,802) (15,442,913)
------------ ------------
Cash Flows from Financing Activities
Net (decrease) in demand deposits, NOW accounts and savings
accounts.................................................... (5,576,241) (2,014,661)
Net increase in time deposits.................................. 2,936,225 17,620,096
Net (decrease) in securities sold under agreements to
repurchase.................................................. (3,961,000) (7,008,924)
Payments on short-term borrowings.............................. (45,000) (598,459)
Dividends paid................................................. (141,915) (141,916)
------------ ------------
Net cash provided by financing activities.............. (6,787,931) 7,856,136
------------ ------------
Net (decrease) in cash and due from banks.............. (4,763,480) (3,950,887)
Cash and due from banks:
Beginning...................................................... 16,166,689 12,997,888
------------ ------------
End............................................................ $ 11,403,209 $ 9,047,001
============ ============

See Accompanying Notes to Unaudited Consolidated Financial Statements.

F-4
89

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The financial information of UnionBancorp, Inc. and subsidiaries included
herein is unaudited; however, such information reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
The results of the interim period ended June 30, 1996 are not necessarily
indicative of the results expected for the year ending December 31, 1996.

NOTE 2. SECURITIES

Amortized costs and fair values of securities are summarized as follows:

HELD TO MATURITY

JUNE 30, 1996
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------

U.S. Treasury.................................. $ 99,610 $ -- $ -- $ 99,610
U.S. Government agencies and corporations...... 2,000,000 -- 280,000 1,720,000
States and political subdivisions.............. 26,584,564 376,412 271,240 26,689,736
Mortgage backed securities..................... 1,808 -- -- 1,808
Corporate bonds................................ 240,000 -- 8,982 231,018
----------- -------- -------- -----------
$28,925,982 $ 376,412 $ 560,222 $28,742,172
=========== ======== ======== ===========

DECEMBER 31, 1995
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------

U.S. Treasury.................................. $ 117,307 $ -- $ -- $ 117,307
U.S. Government agencies and corporations...... 2,000,000 -- 120,855 1,879,145
States and political subdivisions.............. 26,660,119 496,019 214,800 26,941,338
Mortgage backed securities..................... 8,790 -- -- 8,790
Corporate bonds................................ 240,000 -- -- 240,000
----------- -------- -------- -----------
$29,026,216 $ 496,019 $ 335,655 $29,186,580
=========== ======== ======== ===========

F-5
90

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

AVAILABLE FOR SALE

JUNE 30, 1996
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- -------- ---------- -----------

U.S. Treasury................................. $13,972,631 $ -- $ 142,839 $13,829,792
U.S. Government agencies and corporations..... 39,483,790 3,065 1,345,695 38,141,160
States and political subdivisions............. 393,973 14,852 1,153 407,672
Mortgage backed securities.................... 5,682,968 12,717 145,135 5,550,550
Collateralized mortgage obligations........... 74,246 -- 291 73,955
Other......................................... 25,000 -- 25,000 --
----------- ------- ---------- ----------
$59,632,608 $30,634 $1,660,113 $58,003,129
=========== ======= ========== ==========

DECEMBER 31, 1995
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- -------- ---------- -----------

U.S. Treasury................................. $18,329,568 $ 24,352 $ 75,165 $18,278,755
U.S. Government agencies and corporations..... 36,908,777 303,127 225,033 36,986,871
States and political subdivisions............. 893,372 19,780 -- 913,152
Mortgage backed securities.................... 6,218,441 30,314 58,920 6,189,835
Corporate bonds............................... 1,512,522 9,678 -- 1,522,200
Other......................................... 25,000 -- 25,000 --
----------- -------- -------- ----------
$63,887,680 $387,251 $384,118 $63,890,813
=========== ======== ======== ==========

The amortized cost and fair value of securities classified as held to
maturity and available for sale at June 30, 1996 and December 31, 1995, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

HELD TO MATURITY

JUNE 30, 1996 DECEMBER 31, 1995
-------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- -----------

Due in one year or less................... $ 2,506,693 $ 2,527,164 $ 1,781,958 $ 1,910,134
Due after one year through five years..... 14,658,598 14,579,020 15,521,431 15,522,016
Due after five years through ten years.... 9,276,608 9,091,067 8,655,643 8,583,561
Due after ten years....................... 2,484,083 2,544,921 3,067,184 3,170,869
----------- ----------- ----------- -----------
$28,925,982 $28,742,172 $29,026,216 $29,186,580
=========== =========== =========== ===========

F-6
91

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

AVAILABLE FOR SALE

JUNE 30, 1996 DECEMBER 31, 1995
-------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- -----------

Due in one year or less................... $ 7,541,292 $ 7,518,400 $ 8,825,478 $ 8,782,725
Due after one year through five years..... 15,429,302 14,954,121 24,168,022 23,983,759
Due after five years through ten years.... 30,979,046 29,980,058 24,782,767 25,040,870
Due after ten years....................... -- -- -- --
Mortgage backed securities................ 5,682,968 5,550,550 6,111,413 6,083,459
----------- ----------- ----------- -----------
$59,632,608 $58,003,129 $63,887,680 $63,890,813
=========== =========== =========== ===========

Securities with carrying values of approximately $41,079,000 and
$50,338,000 at June 30, 1996 and December 31, 1995, respectively, were pledged
to secure public deposits, to secure securities sold under agreements to
repurchase and for other purposes as required or permitted by law.

NOTE 3. LOANS

The major classifications of loans follow:

JUNE 30, DECEMBER 31,
1996 1995
------------ ------------

Commercial........................................ $ 53,431,532 $ 53,225,736
Real estate....................................... 105,024,022 100,505,607
Installment....................................... 24,776,731 24,166,864
Other............................................. 2,611,100 2,928,008
------------ ------------
185,843,385 180,826,215
------------ ------------
Deduct:
Unearned interest............................... 3,415 7,207
Allowance for loan losses....................... 1,596,965 2,013,996
------------ ------------
1,600,380 2,021,203
------------ ------------
$184,243,005 $178,805,012
============ ============

NOTE 4. ALLOWANCE FOR LOAN LOSSES

An analysis of activity in the allowance for loan losses follows:

SIX MONTHS ENDED
JUNE 30,
------------------------
1996 1995
---------- ----------

Balance, January 1.................................... $2,013,996 $1,704,281
Provision for loan losses........................... 500,000 342,000
Recoveries.......................................... 20,839 92,153
Loans charged off................................... (937,870) (267,873)
---------- ----------
Balance, end of period................................ $1,596,965 $1,870,561
========== ==========

NOTE 5. SHORT TERM BORROWINGS

Short term borrowings include a note payable to a third party lender and
securities sold under agreements to repurchase.

F-7
92

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Average and maximum balances and rates on notes payable and securities sold
under agreements to repurchase were as follows:

SIX MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
----------- -----------

Maximum month end balance.......................................... $16,168,000 $13,349,000
Average month end balance.......................................... 13,708,333 10,758,000
Weighted average interest rate for the period...................... 6.06% 6.76%
Weighted average interest rate at end of period.................... 6.33% 7.04%

NOTE 6. CONTINGENT LIABILITIES

At June 30, 1996 and December 31, 1995, loan commitments, including standby
letters of credit, were as follows:

RANGE OF RATES
VARIABLE RATE FIXED RATE TOTAL ON FIXED RATE
COMMITMENTS COMMITMENTS COMMITMENTS COMMITMENTS
------------- ----------- ----------- --------------

June 30, 1996.......................... $ 40,118,000 $5,716,000 $45,834,000 6.25% - 11.25%
December 31, 1995...................... $ 40,686,000 $3,111,000 $43,797,000 6.25% - 11.25%

NOTE 7. STOCK SPLIT

On May 20, 1996, the Company effected a three-for-one stock split in the
form of a stock dividend. All references in the accompanying financial
statements to number of shares and per share amounts have been retroactively
restated to reflect the stock split.

NOTE 8. NEW ACCOUNTING RULES AND REGULATIONS

During March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" (Statement No. 121). Statement No. 121
generally requires long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the entity should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(discounted and without interest charges) is less than the carrying amount of
the asset, an impairment is recognized. The Company adopted Statement No. 121
effective January 1, 1996. Management believes that the adoption of Statement
No. 121 will not have a material effect on the Company's financial statements.

In May 1995, the Financial Accounting Standards Board issued Statement No.
122, "Accounting for Mortgage Servicing Rights" (Statement No. 122). Statement
No. 122 requires the Union Banks to recognize as separate assets rights to
service mortgage loans for others, however those servicing rights are acquired.
If the Union Banks acquire mortgage servicing rights through either the purchase
or origination of mortgage loans and sell or securitize those loans with
servicing rights retained, the Union Banks should allocate the total cost of the
mortgage loans to mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values. The mortgage servicing
rights should be amortized in proportion to and over the period of estimated net
servicing income. The Union Banks' servicing portfolio will be stratified by
loan type and interest rate to determine the fair value of the servicing rights
using the present value of estimated expected future cash flows assuming a
market discount rate and certain forecasted prepayment rates based on industry
experience. The Union Banks adopted Statement No. 122 effective January 1, 1996.
Management

F-8
93

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

believes that the adoption of Statement No. 122 will not have a material effect
on the financial statements of the Union Banks.

In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock Based Compensation" (Statement No. 123).
Statement No. 123 establishes a fair value based method of accounting for stock
options and other equity instruments. Statement No. 123 permits the continued
use of the intrinsic value method included in Accounting Principle Board Opinion
25, "Accounting for Stock Issued to Employees" (APB 25), but regardless of the
method used to account for the compensation cost associated with stock option or
similar plans, it requires employers to disclose information required by
Statement No. 123. The Company plans to continue to measure compensation cost
using APB 25; therefore, the adoption of Statement No. 123 will not have any
impact on the Company's financial condition or results of operations.

NOTE 9. SUBSEQUENT EVENTS

On July 17, 1996, the Company's Board of Directors established the
following class of preferred stock:

Series C: 4,500 shares authorized, terms to be subsequently fixed by
the Board of Directors without further stockholder approval.

On August 5, 1996, the Company's Board of Directors established the
following classes of preferred stock:

Series A: 2,762.24 shares authorized of $1,000 par value, non-voting,
preferential cumulative dividends at 7.5%, convertible into common shares
of the Company based upon 1.075 times the then current common stock per
share book value, net of losses on certain securities acquired by the
Company as part of acquisition of Prairie Bancorp, Inc.

Series B: 1,092 shares authorized of $1,000 par value, non-voting,
preferential cumulative dividends at 6.0%, mandatory redeemable upon the
earlier to occur of the death of the respective holder of the preferred
stock or ten years after the original issuance.

F-9
94

INDEPENDENT AUDITOR'S REPORT

To the Stockholders and Board of Directors
UnionBancorp, Inc.
Ottawa, Illinois

We have audited the accompanying consolidated balance sheets of
UnionBancorp, Inc. and Subsidiaries as of December 31, 1995 and 1994, 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, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 referred to above
present fairly, in all material respects, the financial position of
UnionBancorp, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.

As described in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for investment securities in 1994.

McGLADREY & PULLEN, LLP

Champaign, Illinois
January 17, 1996 (except for Note 15 for
which the date is May 20, 1996)

F-10
95

UNIONBANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

1995 1994
------------ ------------

ASSETS
Cash and due from banks.......................................... $ 16,166,689 $ 12,997,888
Federal funds sold............................................... 2,265,000 1,200,000
Securities held to maturity (fair value $29,186,580 in 1995;
$27,167,255 in 1994)........................................... 29,026,216 28,667,104
Securities available for sale.................................... 63,890,813 56,592,941
Loans (net of allowance for loan losses of $2,013,996 in 1995 and
$1,704,281 in 1994)............................................ 178,805,012 159,429,967
Premises and equipment........................................... 6,570,710 5,687,817
Intangible assets................................................ 943,126 1,063,274
Deferred income taxes............................................ -- 967,396
Accrued interest and other assets................................ 5,865,773 5,431,645
------------ ------------
Total assets................................................ $303,533,339 $272,038,032
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand......................................................... $ 35,688,034 $ 32,216,560
Savings and NOW................................................ 80,871,775 72,687,101
Other time..................................................... 121,515,122 105,489,487
Time deposits of $100,000 or more.............................. 23,652,388 21,940,417
------------ ------------
Total deposits.............................................. 261,727,319 232,333,565
Securities sold under agreements to repurchase................... 11,505,134 13,118,187
Short-term borrowings............................................ 4,346,250 5,026,250
Deferred income taxes............................................ 9,587 --
Accrued interest and other liabilities........................... 2,470,057 1,931,433
------------ ------------
Total liabilities........................................... 280,058,347 252,409,435
------------ ------------
Commitments, Contingencies and Credit Risk
Stockholders' Equity
Common stock, $1 par value; 10,000,000 shares authorized;
2,400,000 issued and outstanding............................ 2,400,000 2,400,000
Surplus........................................................ 1,074,272 1,007,352
Retained earnings.............................................. 20,567,981 18,498,987
Unrealized gain (loss) on securities available for sale........ 1,918 (1,756,545)
Deferred compensation -- stock option plans.................... (47,982) --
------------ ------------
23,996,189 20,149,794
Less treasury stock, at cost; 268,263 shares................... 521,197 521,197
------------ ------------
Total stockholders' equity.................................. 23,474,992 19,628,597
------------ ------------
Total liabilities and stockholders' equity.................. $303,533,339 $272,038,032
============ ============

See Accompanying Notes to Consolidated Financial Statements.

F-11
96

UNIONBANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
----------- ----------- -----------

Interest income:
Loans and fees on loans............................. $16,321,505 $13,418,765 $13,420,804
Securities:
U.S. Treasury securities......................... 1,062,279 1,571,375 1,474,998
U.S. Government agencies and corporations........ 2,202,236 1,796,107 1,795,948
States and political subdivisions................ 1,404,076 1,396,783 1,240,966
Mortgage backed securities....................... 9,526 9,986 14,121
Corporate bonds.................................. 114,983 346,326 458,559
Other securities................................. 97,052 49,967 58,144
Federal funds sold.................................. 156,350 38,128 140,328
----------- ----------- -----------
Total interest income....................... 21,368,007 18,627,437 18,603,868
----------- ----------- -----------
Interest expense:
Deposits............................................ 10,257,286 8,093,166 8,363,475
Securities sold under agreements to repurchase...... 522,469 233,742 61,545
Short-term borrowings............................... 468,852 379,317 373,005
----------- ----------- -----------
Total interest expense...................... 11,248,607 8,706,225 8,798,025
----------- ----------- -----------
Net interest income......................... 10,119,400 9,921,212 9,805,843
Provision for loan losses............................. 684,000 660,000 1,268,000
----------- ----------- -----------
Net interest income after provision for loan
losses.................................... 9,435,400 9,261,212 8,537,843
----------- ----------- -----------
Noninterest income:
Service charges..................................... 952,378 894,740 822,345
Merchant fee income................................. 417,856 357,051 342,464
Trust income........................................ 330,130 300,837 200,306
Gain on sale of loans............................... 287,562 130,163 573,773
Securities gains, net............................... 97,940 117,618 185,369
Other noninterest income............................ 483,939 482,387 387,668
----------- ----------- -----------
2,569,805 2,282,796 2,511,925
----------- ----------- -----------
Noninterest expenses:
Salaries and employee benefits...................... 4,450,725 3,867,621 3,612,832
Occupancy expense, net.............................. 664,874 573,757 549,945
Furniture and equipment expenses.................... 583,837 560,169 576,224
FDIC deposit assessment............................. 270,966 525,956 502,322
Other noninterest expense........................... 2,800,357 2,719,955 2,599,379
----------- ----------- -----------
8,770,759 8,247,458 7,840,702
----------- ----------- -----------
Income before income taxes.................. 3,234,446 3,296,550 3,209,066
Income taxes.......................................... 881,620 703,025 747,399
----------- ----------- -----------
Net income.................................. $ 2,352,826 $ 2,593,525 $ 2,461,667
=========== =========== ===========
Earnings per share of common stock.......... $ 1.09 $ 1.22 $ 1.15
=========== =========== ===========
Weighted average number of shares
outstanding............................... 2,148,897 2,132,712 2,132,760
=========== =========== ===========

See Accompanying Notes to Consolidated Financial Statements.

F-12
97

UNIONBANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

UNREALIZED UNREALIZED
GAIN (LOSS) LOSS ON DEFERRED
ON SECURITIES MARKETABLE COMPENSATION
COMMON RETAINED AVAILABLE FOR EQUITY STOCK OPTION TREASURY
STOCK SURPLUS EARNINGS SALE SECURITIES PLANS STOCK TOTAL
---------- ---------- ----------- ------------- ---------- ------------ --------- -----------

Balance, December 31,
1992............... $2,400,000 $ 996,488 $13,883,330 $ -- $(53,007) $ -- $(524,490) $16,702,321
Net income......... -- -- 2,461,667 -- -- -- -- 2,461,667
Cash dividends,
$.09 per
share............ -- -- (191,414) -- -- -- -- (191,414)
Realized loss
included in net
income........... -- -- -- -- 50,968 -- -- 50,968
Change in
unrealized loss
on marketable
equity
securities....... -- -- -- -- 2,039 -- -- 2,039
---------- ---------- ----------- ----------- -------- -------- --------- -----------
Balance, December 31,
1993............... 2,400,000 996,488 16,153,583 -- -- -- (524,490) 19,025,581
Effect of adoption
of change in
method of
accounting for
securities....... -- -- -- 831,467 -- -- -- 831,467
Net income......... -- -- 2,593,525 -- -- -- -- 2,593,525
Cash dividends,
$.12 per share... -- -- (248,121) -- -- -- -- (248,121)
Issuance of 1,977
shares of
treasury stock... -- 10,864 -- -- -- -- 4,293 15,157
Redemption of 3,000
shares of
qualifying
directors'
stock............ -- -- -- -- -- -- (1,000) (1,000)
Change in
unrealized loss
on securities
available
for sale......... -- -- -- (2,588,012) -- -- -- (2,588,012)
---------- ---------- ----------- ----------- -------- -------- --------- -----------
Balance, December 31,
1994............... 2,400,000 1,007,352 18,498,987 (1,756,545) -- -- (521,197) 19,628,597
Net income......... -- -- 2,352,826 -- -- -- -- 2,352,826
Cash dividends,
$.13 per share... -- -- (283,832) -- -- -- -- (283,832)
Issuance of
Nonqualifying
stock options.... -- 66,920 -- -- -- (66,920) -- --
Amortization of
unearned
compensation on
Nonqualifying
stock options.... -- -- -- -- -- 18,938 -- 18,938
Change in
unrealized gain
(loss) on
securities
available for
sale............. -- -- -- 1,758,463 -- -- -- 1,758,463
---------- ---------- ----------- ----------- -------- -------- --------- -----------
Balance, December 31,
1995............... $2,400,000 $1,074,272 $20,567,981 $ 1,918 $ -- $(47,982) $(521,197) $23,474,992
========== ========== =========== =========== ======== ======== ========= ===========

See Accompanying Notes to Consolidated Financial Statements.

F-13
98

UNIONBANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

1995 1994 1993
------------ ------------ ------------

Cash Flows from Operating Activities
Net income................................................................. $ 2,352,826 $ 2,593,525 $ 2,461,667
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation............................................................. 525,689 528,722 530,628
Amortization of intangibles.............................................. 120,148 162,191 141,170
Amortization of deferred compensation -- stock options................... 18,938 -- --
Provision for loan losses................................................ 684,000 660,000 1,268,000
Provision for deferred income taxes...................................... (137,860) (31,733) (208,841)
(Gain) on sales of securities............................................ (97,940) (117,618) (236,337)
Loss on sale of marketable equity securities, net........................ -- -- 50,968
(Gain) on sales of loans................................................. (287,562) (130,163) (573,773)
(Gain) on sale of equipment.............................................. (36,736) (2,145) --
Amortization of bond premiums, net....................................... 448,276 639,575 500,233
(Gain) loss on sale of real estate acquired in settlement of loans....... (32,577) 65,396 37,800
Proceeds from sales of loans............................................. 14,898,876 9,288,783 30,059,472
Origination of loans for resale.......................................... (14,672,518) (9,158,620) (29,485,699)
Change in assets and liabilities:
(Increase) decrease in accrued interest and other assets............... (666,548) 11,606 (461,645)
Increase (decrease) in accrued interest and other liabilities.......... 538,624 346,240 (489,646)
------------ ------------ ------------
Net cash provided by operating activities............................ 3,655,636 4,855,759 3,593,997
------------ ------------ ------------
Cash Flows from Investing Activities
Investment securities:
Held to maturity:
Proceeds from calls and maturities..................................... 3,858,289 1,279,344 12,198,225
Purchases.............................................................. (4,300,502) (6,197,199) (38,747,790)
Available for sale:
Proceeds from sales.................................................... 17,318,490 21,561,650 --
Proceeds from maturities............................................... 6,230,000 6,620,607 --
Purchases.............................................................. (28,240,291) (27,357,269) --
Proceeds from sales of investment securities............................... -- -- 21,051,185
Proceeds from sales of marketable equity securities........................ -- -- 896,027
Net (increase) decrease in federal funds sold.............................. (1,065,000) 8,900,000 (7,600,000)
Net (increase) in loans.................................................... (20,532,531) (14,024,454) (3,811,923)
Purchase of premises and equipment......................................... (1,430,773) (1,200,591) (1,425,190)
Proceeds from sale of real estate acquired in settlement of loans.......... 799,687 727,290 623,340
Proceeds from sale of equipment............................................ 58,927 40,630 --
------------ ------------ ------------
Net cash (used in) investing activities.............................. (27,303,704) (9,649,992) (16,816,126)
------------ ------------ ------------
Cash Flows from Financing Activities
Net increase (decrease) in demand deposits, NOW accounts and savings
accounts................................................................. 11,656,148 (6,853,365) 10,691,779
Net increase in time deposits.............................................. 17,737,606 1,732,124 4,249,936
Net increase (decrease) in securities sold under agreements to
repurchase............................................................... (1,613,053) 9,976,139 1,497,708
Payments on short-term borrowings.......................................... (680,000) (253,750) (520,000)
Dividends paid............................................................. (283,832) (248,121) (191,414)
Proceeds from issuance of treasury stock................................... -- 14,157 --
------------ ------------ ------------
Net cash provided by financing activities............................ 26,816,869 4,367,184 15,728,009
------------ ------------ ------------
Net increase (decrease) in cash and due from banks................... 3,168,801 (427,049) 2,505,880
Cash and due from banks:
Beginning of year.......................................................... 12,997,888 13,424,937 10,919,057
------------ ------------ ------------
End of year................................................................ $ 16,166,689 $ 12,997,888 $ 13,424,937
============ ============ ============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest -- depositors................................................... $ 9,977,772 $ 7,912,371 $ 8,585,723
============ ============ ============
-- repurchase agreements........................................ $ 371,155 $ 170,773 $ 59,604
============ ============ ============
-- short-term borrowings........................................ $ 576,273 $ 356,620 $ 324,315
============ ============ ============
Income taxes............................................................. $ 993,757 $ 832,862 $ 482,695
============ ============ ============
Supplemental Schedule of Noncash Investing and Financing Activities
Transfer of loans to real estate acquired in settlement of loans........... $ 534,690 $ 518,934 $ 942,517
============ ============ ============
Change in unrealized gain (loss) on securities available for sale.......... $ 2,873,306 $ (2,870,173) $ --
============ ============ ============
Increase (decrease) in deferred taxes attributable to the unrealized gain
(loss) on securities available for sale.................................. $ (1,114,843) $ 1,113,628 $ --
============ ============ ============
Decrease in unrealized loss on marketable equity securities................ -- -- $ 2,039
============ ============ ============
Issuance of nonqualifying stock options.................................... 66,920 -- --
============ ============ ============

See Accompanying Notes to Consolidated Financial Statements.

F-14
99

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES

The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and reporting practices prescribed for
the banking industry.

The significant accounting and reporting policies for UnionBancorp, Inc.
and its subsidiaries (the "Company") follow:

Nature of Business

The Company is a two bank holding company with two nonbank subsidiaries.
The Company provides a full range of banking services to individual and
corporate customers in the North Central Illinois area. The Company is subject
to competition from other financial institutions and nonfinancial institutions
providing financial products. Additionally, the Company and its bank
subsidiaries are subject to regulations of certain regulatory agencies and
undergo periodic examinations by those regulatory agencies.

Basis of consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, UnionBank, UnionBank/Sandwich (collectively,
the "Union Banks"), UnionData Corp., Inc. and Union Corporation. All material
intercompany accounts and transactions have been eliminated in consolidation.

Basis of accounting

In preparing the consolidated financial statements, Company management is
required to make estimates and assumptions which significantly affect the
amounts reported in the consolidated financial statements. Significant estimates
which are particularly susceptible to change in a short period of time include
the determination of the allowance for loan losses and valuation of real estate
and other properties acquired in connection with foreclosures or in satisfaction
of amounts due from borrowers on loans. Actual results could differ from those
estimates.

Assets held in an agency or fiduciary capacity, other than trust cash on
deposit with the Union Banks, are not assets of the Union Banks and,
accordingly, are not included in the accompanying consolidated financial
statements.

Securities held to maturity

Securities classified as held to maturity are those debt securities the
Company has both the intent and ability to hold to maturity regardless of
changes in market conditions, liquidity needs or changes in general economic
conditions. These securities are carried at cost adjusted for amortization of
premium and accretion of discount, computed using the interest method over their
contractual lives.

Securities available for sale

Securities classified as available for sale are those debt securities that
the Company intends to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as available
for sale would be based on various factors, including significant movements in
interest rates, changes in the maturity mix of the Company's assets and
liabilities, liquidity needs, regulatory capital considerations, and other
similar factors. Securities available for sale are carried at fair value. The
difference between fair value and cost, adjusted for amortization of premium and
accretion of discounts, results in an unrealized gain or loss. Unrealized gains
or losses are reported as increases or decreases in stockholders' equity, net of
the related

F-15
100

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

deferred tax effect. Gains or losses from the sale of securities are determined
using the specific identification method.

Loans

Loans are stated at the principal amount outstanding, net of unearned
interest and the allowance for loan losses.

Unearned interest on certain installment loans is credited to income over
the term of the loan using the interest method. For all other loans, interest is
credited to income as earned using the simple interest method applied to the
daily balances of the principal outstanding.

The Company's policy is to discontinue the accrual of interest income on
any loan when, in the opinion of management, there is reasonable doubt as to the
timely collectibility of interest or principal. Interest income on these loans
is recognized to the extent interest payments are received and the principal is
considered fully collectible.

Installment, residential real estate and commercial loans less than
$100,000 are considered as small balance homogeneous loan pools for purpose of
impairment. All other loans are specifically evaluated for impairment.

The Company considers a loan impaired when it is probable that all amounts
of principal and interest due, according to contractual terms of the loan
agreement, will not be collected.

For collateralized impaired loans, loan balances in excess of net
realizable value are deemed impaired. In the determination of the valuation, the
major risk classifications such as historical charge-offs over the last three
calendar years for each category of loans, local economic trends, the source of
loans and concentrations of credit in specific industries, if any, are
considered.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb losses on existing loans that may become uncollectible, based on
evaluation of the collectibility of loans and prior loss experience. The
evaluation also takes into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may affect the borrowers'
ability to pay. While management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary if there are
significant changes in economic conditions. In addition, regulatory agencies, as
an integral part of their examination process, periodically review the Union
Banks' allowances for loan losses, and may require additions to the allowance
based on their judgment about information available to them at the time of their
examinations.

On January 1, 1995, the Company adopted Financial Accounting Standards
Board Statement No. 114 (Statement No. 114), "Accounting by Creditors for the
Impairment of a Loan," as amended by Statement No. 118, which requires loans to
be considered impaired when, based on current information and events, it is
probable that the bank will not be able to collect all amounts due. The portion
of the allowance for loan losses applicable to impaired loans has been computed
based on the present value of the estimated future cash flows of interest and
principal discounted at the loan's effective interest rate or on the fair value
of the collateral for collateral dependent loans. The entire change in present
value of expected cash flows of impaired loans or of collateral value is
reported as bad debt expense in the same manner in which impairment initially
was recognized or as a reduction in the amount of bad debt expense that
otherwise would be reported.

F-16
101

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Premises and equipment

Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the accelerated and straight-line methods over the
estimated useful lives of the assets.

Intangible assets

The excess of the purchase price over the fair value of identifiable
tangible and intangible assets acquired is amortized using the straight-line
method over fifteen years.

Deferred income taxes

Deferred taxes are provided on a liability method. Deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.

Per share data

Earnings per share are calculated on the weighted average number of shares
outstanding, including common stock equivalents, outstanding during the year.
Shares held by the employee stock ownership plan are considered to be
outstanding shares regardless of whether they are allocated to participants or
held as unallocated shares.

Statements of cash flows

For purposes of reporting cash flows, cash and due from banks includes cash
on hand and amounts due from banks (including cash items in process of
clearing).

Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of

The FASB has issued Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (Statement No.
121) which becomes effective for years beginning after December 15, 1995.
Statement No. 121 generally requires long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, the entity
should estimate the future cash flows expected to result from the use of the
asset and its eventual disposition. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment is recognized. Management believes that adoption of
this Statement will not have a material effect on Union's financial statements.

Accounting for Mortgage Servicing Rights

F-17
102

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

based on their relative fair values. The mortgage servicing rights should be
amortized in proportion to and over the period of estimated net servicing
income.

Statement No. 122 is effective for years beginning after December 15, 1995.
The Company believes the adoption of Statement No. 122 will not have a material
impact on its consolidated financial statements.

Accounting for Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" (Statement No. 123).
Statement No. 123 establishes a fair value based method of accounting for stock
options and other equity instruments.

Statement No. 123 permits the continued use of the intrinsic value method
included in Accounting Principle Board Opinion 25, "Accounting for Stock Issued
to Employees", but regardless of the method used to account for the compensation
cost associated with stock option or similar plans, it requires employers to
disclose information required by Statement No. 123.

Statement No. 123 is effective for fiscal years beginning after December
15, 1995. The Company believes the adoption of Statement No. 123 will not have a
material impact on its consolidated financial statements.

NOTE 2. CASH AND DUE FROM BANKS

The Union Banks are required to maintain legal reserves composed of funds
on deposit with the Federal Reserve Bank and cash on hand. The required balances
as of December 31, 1995 and 1994, were $1,973,000 and $1,816,000, respectively.

NOTE 3. SECURITIES

The Company adopted Financial Accounting Standards Board Statement No. 115
(Statement No. 115), "Accounting for Certain Investments in Debt and Equity
Securities" as of January 1, 1994. The effect of adopting Statement No. 115 on
the accompanying balance sheet as of January 1, 1994 was an increase in
stockholders' equity of $831,467, net of the related income tax effect of
$527,138, to recognize the net unrealized gain in securities available for sale
at that date.

F-18
103

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Amortized costs and fair values of securities are summarized as follows:

HELD TO MATURITY

DECEMBER 31, 1995
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- -------- ---------- -----------

U.S. Treasury................................. $ 117,307 $ -- $ -- $ 117,307
U.S. Government agencies and corporations..... 2,000,000 -- 120,855 1,879,145
States and political subdivisions............. 26,660,119 496,019 214,800 26,941,338
Mortgage backed securities.................... 8,790 -- -- 8,790
Corporate bonds............................... 240,000 -- -- 240,000
----------- -------- -------- -----------
$29,026,216 $496,019 $335,655 $29,186,580
=========== ======== ======== ===========

DECEMBER 31, 1994
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- -------- ---------- -----------

U.S. Government agencies and corporations..... $ 3,000,000 $ -- $ 343,290 $ 2,656,710
States and political subdivisions............. 25,401,667 95,862 1,252,421 24,245,108
Mortgage backed securities.................... 25,437 -- -- 25,437
Corporate bonds............................... 240,000 -- -- 240,000
----------- ------- ---------- -----------
$28,667,104 $95,862 $1,595,711 $27,167,255
=========== ======= ========== ===========

F-19
104

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

AVAILABLE FOR SALE

DECEMBER 31, 1995
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- -------- ---------- -----------

U.S. Treasury................................. $18,329,568 $ 24,352 $ 75,165 $18,278,755
U.S. Government agencies and corporations..... 36,908,777 303,127 225,033 36,986,871
Mortgage backed securities.................... 6,218,441 30,314 58,920 6,189,835
States and political subdivisions............. 893,372 19,780 -- 913,152
Corporate bonds............................... 1,512,522 9,678 -- 1,522,200
Other......................................... 25,000 -- 25,000 --
----------- -------- -------- -----------
$63,887,680 $387,251 $384,118 $63,890,813
=========== ======== ======== ===========

DECEMBER 31, 1994
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- -------- ---------- -----------

U.S. Treasury................................. $25,607,492 $ -- $1,191,856 $24,415,636
U.S. Government agencies and corporations..... 20,945,060 1,087 1,274,353 19,671,794
Mortgage backed securities.................... 8,713,702 86,992 403,438 8,397,256
States and political subdivisions............. 893,152 -- 7,937 885,215
Corporate bonds............................... 3,278,708 -- 55,668 3,223,040
Other......................................... 25,000 -- 25,000 --
----------- ------- ---------- -----------
$59,463,114 $88,079 $2,958,252 $56,592,941
=========== ======= ========== ===========

The amortized cost and fair value of securities classified as held to
maturity and available for sale at December 31, 1995, by contractual maturity,
are shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.

DECEMBER 31, 1995
--------------------------------------------------------
HELD TO MATURITY AVAILABLE FOR SALE
-------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- -----------

Due in one year or less................... $ 1,781,958 $ 1,910,134 $ 8,825,478 $ 8,782,725
Due after one year through five years..... 15,521,431 15,522,016 24,168,022 23,983,759
Due after five years through ten years.... 8,655,643 8,583,561 24,782,767 25,040,870
Due after ten years....................... 3,067,184 3,170,869 -- --
Mortgage backed securities................ -- -- 6,111,413 6,083,459
----------- ----------- ----------- -----------
$29,026,216 $29,186,580 $63,887,680 $63,890,813
=========== =========== =========== ===========

Securities with carrying values of approximately $50,338,000 and
$37,064,000 at December 31, 1995 and 1994, respectively, were pledged to secure
public deposits, to secure securities sold under agreements to repurchase and
for other purposes as required or permitted by law.

F-20
105

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Realized gains and losses from securities available for sale during 1995
and 1994 and investment securities during 1993 follow:

YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- --------- --------

Securities:
Gross gains................................................ $171,882 $ 228,672 $315,712
Gross losses............................................... (73,942) (111,054) (79,375)
-------- --------- --------
Net gain.............................................. 97,940 117,618 236,337
Marketable equity securities:
Gross gains................................................ -- -- --
Gross losses............................................... -- -- (50,968)
-------- --------- --------
Net gain.............................................. -- -- $(50,968)
-------- --------- --------
$ 97,940 $ 117,618 $185,369
======== ========= ========

NOTE 4. LOANS

The major classifications of loans follow:

DECEMBER 31,
----------------------------
1995 1994
------------ ------------

Commercial....................................................... $ 53,225,736 $ 51,401,761
Real estate...................................................... 100,505,607 86,625,493
Installment...................................................... 24,166,864 20,350,626
Other............................................................ 2,928,008 2,787,697
------------ ------------
180,826,215 161,165,577
------------ ------------
Deduct:
Unearned interest.............................................. 7,207 31,329
Allowance for loan losses...................................... 2,013,996 1,704,281
------------ ------------
2,021,203 1,735,610
------------ ------------
$178,805,012 $159,429,967
============ ============

The Company's opinion as to the ultimate collectibility of these loans is
subject to estimates regarding future cash flows from operations and the value
of property, real and personal, pledged as collateral. These estimates are
affected by changing economic conditions and the economic prospects of
borrowers.

The following table presents data on impaired loans at December 31, 1995:

Impaired loans for which an allowance has been provided........................... $733,294
Impaired loans for which no allowance has been provided........................... --
--------
Total loans determined to be impaired............................................. $733,294
========
Allowance for loan loss for impaired loans included in the allowance for loan
losses.......................................................................... $500,000
========
Average recorded investment in impaired loans..................................... $422,539
========
Interest income recognized from impaired loans.................................... $ --
========
Cash basis interest income recognized from impaired loans......................... $ --
========

F-21
106

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Loans on which the accrual of interest had been discontinued or reduced
amounted to $1,060,750 and $1,683,402, at December 31, 1994 and 1993,
respectively, which had the effect of reducing interest income approximately
$167,000 and $231,000, for the years ended December 31, 1994 and 1993,
respectively.

The Company and its subsidiaries conduct most of their business activities,
including granting agribusiness, commercial, residential and installment loans
with customers in the Illinois counties of LaSalle, Livingston, Grundy, Bureau,
Kendall, DeKalb and Kane. The loan portfolio includes a concentration of loans
to agricultural and agricultural-related industries amounting to approximately
$27,308,000 and $26,560,000 as of December 31, 1995 and 1994, respectively.
Generally those loans are collateralized by assets of those entities. The loans
are expected to be repaid from cash flows or from proceeds from the sale of
selected assets of the borrowers. Credit losses arising from lending
transactions with agricultural entities compare favorably with the Company's
credit loss experience on the loan portfolio as a whole.

In the normal course of business, loans are made to employees, executive
officers, directors and principal stockholders of the Company and its
subsidiaries and to parties which the Company or its directors, executive
officers and stockholders have the ability to significantly influence its
management or operations (related parties). In the opinion of management, the
terms of these loans, including interest rates and collateral, are similar to
those prevailing for comparable transactions with other customers and do not
involve more than a normal risk of collectibility. Changes in such loans during
the year ended December 31, 1995:

Balance at the beginning of year................................. $ 8,178,000
New loans, extensions and modifications.......................... 8,936,000
Repayments....................................................... (5,776,000)
-----------
Balance at end of year........................................... $11,338,000
===========

Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these loans were
$47,777,424, $46,546,355, and $43,062,391 at December 31, 1995, 1994 and 1993,
respectively.

During 1995, 1994 and 1993, the Company sold residential mortgages with
balances of approximately $13,122,711, $9,158,620 and $29,485,699, respectively,
to the Federal Home Loan Mortgage Corporation. Gains of $137,456, $130,163 and
$573,773, respectively, were realized on those sales. In addition, during 1995,
the Company sold mortgage loans with balances of approximately $103,030 to the
Illinois Housing Development Authority for a gain of $2,435 and commercial loans
with balances of approximately $1,446,777 to the Small Business Administration
for a gain of $86,467. The Company also realized a gain of $61,204 on the sale
of its entire portfolio of student loans during 1995.

NOTE 5. ALLOWANCE FOR LOAN LOSSES

An analysis of activity in the allowance for loan losses follows:

YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
---------- ----------- -----------

Balance at beginning of year........................... $1,704,281 $ 1,786,953 $ 1,586,416
Provision for loan losses............................ 684,000 660,000 1,268,000
Recoveries........................................... 162,580 281,334 211,566
Loans charged off.................................... (536,865) (1,024,006) (1,279,029)
---------- ----------- -----------
Balance at end of year................................. $2,013,996 $ 1,704,281 $ 1,786,953
========== =========== ===========

F-22
107

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6. PREMISES AND EQUIPMENT

Premises and equipment consisted of:

DECEMBER 31,
--------------------------
1995 1994
----------- -----------

Land................................................ $ 746,699 $ 733,447
Buildings........................................... 6,022,219 5,858,466
Furniture and equipment............................. 5,586,126 4,464,933
----------- -----------
12,355,044 11,056,846
Less accumulated depreciation....................... 5,784,334 5,369,029
----------- -----------
$ 6,570,710 $ 5,687,817
=========== ===========

NOTE 7. DEPOSITS

A maturity distribution of time certificates of deposit in denominations of
$100,000 or more was as follows:

DECEMBER 31,
--------------------------
1995 1994
----------- -----------

3 months or less.................................... $ 6,024,323 $10,204,186
Over 3 months through 6 months...................... 3,127,908 2,646,656
Over 6 months through 12 months..................... 5,012,932 4,873,892
Over 12 months...................................... 9,487,225 4,215,683
----------- -----------
$23,652,388 $21,940,417
=========== ===========

NOTE 8. SHORT-TERM BORROWINGS

Short-term borrowings included a note payable to a third party lender and
securities sold under agreements to repurchase. Average and maximum balances and
rates on aggregate short-term borrowings outstanding were as follows:

YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
----------- ----------- ----------

Maximum month-end balance................ $20,007,000 $18,213,000 $8,990,000
Average month-end balance................ 13,944,000 10,644,000 7,417,000
Weighted average interest rate for the
year................................... 7.38% 5.47% 4.57%
Weighted average interest rate at year
end.................................... 7.33% 6.69% 4.51%

The note payable for $4,321,250 contains certain covenants which limit the
amounts of dividends paid, the purchase of other banks and/or businesses, the
purchase of investments not in the ordinary course of business, the changes in
capital structure and the guarantees of other liabilities and obligations. In
addition, the Company must maintain certain financial ratios. The Company was in
compliance with all covenants for the year ended December 31, 1995.

F-23
108

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9. INCOME TAXES

Income taxes consisted of:

YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
--------- -------- ---------

Federal:
Current................................................... $ 879,002 $684,038 $ 918,169
Deferred.................................................. (133,850) (30,796) (192,350)
--------- -------- ---------
745,152 653,242 725,819
--------- -------- ---------
State:
Current................................................... 140,478 50,720 38,071
Deferred.................................................. (4,010) (937) (16,491)
--------- -------- ---------
136,468 49,783 21,580
--------- -------- ---------
$ 881,620 $703,025 $ 747,399
========= ======== =========

The Company's income tax expense differed from the statutory federal rate
of 34% as follows:

YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------

Expected income taxes.................................... $1,099,712 $1,120,827 $1,091,082
Income tax effect of:
Interest earned on tax free investments and loans (471,483) (464,804) (402,382)
Nondeductible interest expense incurred to carry
tax-free investments and loans...................... 62,775 48,746 39,993
Tax-exempt dividends................................... (396) (8,854) (13,799)
Nondeductible amortization............................. 23,060 23,060 23,060
State income taxes, net of federal tax benefit......... 90,069 32,857 14,243
Other.................................................. 77,883 (48,807) (4,798)
----------- ----------- -----------
$ 881,620 $ 703,025 $ 747,399
=========== =========== ===========

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

DECEMBER 31,
-----------------------
1995 1994
--------- ----------

Deferred tax liability............................................... $(482,768) $ (467,261)
Deferred tax asset................................................... 473,181 1,434,657
------- ----------
Net deferred tax asset (liability)................................... $ (9,587) $ 967,396
======= ==========

F-24
109

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of principal temporary differences are shown in the
following table:

DECEMBER 31,
-----------------------
1995 1994
--------- ----------

Allowance for loan losses.............................. $ 446,966 $ 331,033
Deferred compensation.................................. 26,215 11,898
Premises and equipment basis........................... (311,720) (243,713)
Core deposits.......................................... (151,778) (180,237)
Securities available for sale.......................... (1,215) 1,113,628
Leases................................................. (4,037) (12,783)
Other.................................................. (14,018) (52,430)
------- ----------
$ (9,587) $ 967,396
======= ==========

NOTE 10. EMPLOYEE STOCK OWNERSHIP PLAN

The Company's Employees' Stock Ownership Plan (the "ESOP") covers all
full-time employees who have completed six months of service and have attained
the minimum age of twenty and one-half years. Vesting in the ESOP is based on
years of continuous service. A participant is 100 percent vested after seven
years of credited service.

The ESOP operates as a leveraged employee stock ownership plan. The ESOP
owns 450,945 shares of the Company's common stock. These shares are held in
trust and are allocated to participant's accounts in the ESOP as the related
loan obligation is repaid. At December 31, 1995, 416,232 shares were allocated
to ESOP participants. Principal and interest on the loan are required to be paid
in quarterly installments through April 1996. The loan, with an outstanding
balance of $46,875, bears interest at 88% of prime, with an effective rate of
7.48% as of December 31, 1995.

Company contributions, when aggregated with the ESOP's dividend and
interest earnings, are, at a minimum, equal to the amount required by the ESOP
to pay the principal and interest on the loan, plus the sum required to purchase
allocated shares from terminated participants. The Company expenses all cash
contributions made to the ESOP. Contributions were $236,959, $250,576 and
$244,020 for the years ended December 31, 1995, 1994 and 1993, respectively.

NOTE 11. STOCK OPTION PLAN

In April 1993, the Company adopted the 1993 Stock Option Plan (the "Option
Plan"). Under the Option Plan, non-qualified options, incentive stock options,
and/or stock appreciation rights may be granted to employees and outside
directors of the Company and its subsidiaries to purchase the Company's common
stock at an exercise price to be determined by the Option Plan's administrative
committee. Pursuant to the Option Plan, 600,000 shares of the Company's unissued
common stock have been reserved and are available for issuance upon the exercise
of options and rights granted under the Option Plan.

A summary of the activity in the Option Plan follows:

GRANTED VESTED FORFEITED EXERCISABLE OUTSTANDING EXERCISE PRICE
------- ------ --------- ----------- ----------- --------------

December 31, 1993................... -- -- -- -- --
December 31, 1994................... 38,100 7,620 -- 7,620 38,100 $5.04 - $6.75
December 31, 1995................... 30,300 -- -- -- 30,300 $6.75 - $8.33
------ ----- ----- ------
Total............................... 68,400 7,620 -- 7,620 68,400
====== ===== == ===== ======

F-25
110

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company recognizes compensation expense on non-qualified stock options
over the stated vesting period for the difference between fair value and the
exercise price of the options granted. The Company recognized compensation
expense of $18,938 during 1995 related to non-qualified stock options.

NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial Accounting Standards Board Statement No. 107, "Disclosures about
Fair Value of Financial Instruments" (Statement No. 107), requires disclosure of
fair value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. Statement No.
107 excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.

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

Cash and due from banks

The carrying amounts reported in the balance sheet for cash and due from
banks approximate their fair values.

Federal funds sold

The stated carrying amounts of federal funds sold approximate their fair
values.

Securities

Fair values for securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments. The carrying amount of accrued
interest receivable approximates its fair value.

Loans

For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. The fair values
for fixed-rate loans are estimated using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
with similar credit quality. The carrying amount of accrued interest receivable
approximates its fair value.

Off-balance-sheet instruments

Fair values for the Company's off-balance-sheet instruments are based on
fees currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing. The
fair value of these items is not material.

Deposit liabilities

F-26
111

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 time deposits. The carrying amount of accrued interest
payable approximates its fair value.

Short-term borrowings

The stated carrying amounts of borrowings under agreements to repurchase,
and other short-term borrowings approximate their fair values.

The estimated fair values of the Company's financial instruments were as
follows:

DECEMBER 31,
------------------------------------------------------------
1995 1994
---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------------ ------------ ------------ ------------

Financial Assets:
Cash and due from banks.............. $ 16,166,689 $ 16,166,689 $ 12,997,888 $ 12,997,888
Federal funds sold................... 2,265,000 2,265,000 1,200,000 1,200,000
Securities........................... 92,917,029 93,077,393 85,260,045 83,760,196
Loans................................ 178,805,012 178,927,747 159,429,967 159,290,869
Financial Liabilities:
Deposits............................. 261,727,319 262,490,548 232,333,565 232,040,448
Short-term borrowings................ 15,851,384 15,851,384 18,144,437 18,144,437

In addition, other assets and liabilities of the Company that are not
defined as financial instruments are not included in the above disclosures, such
as property and equipment. Also, nonfinancial instruments typically not
recognized in financial statements nevertheless may have value but are not
included in the above disclosures. These include, among other items, the
estimated earnings power of core deposit accounts, the earnings potential of
loan servicing rights, the earnings potential of the trust operations, the
trained work force, customer goodwill and similar items.

NOTE 13. COMMITMENTS, CONTINGENCIES AND CREDIT RISK

In the normal course of business, there are outstanding various contingent
liabilities such as claims and legal action, which are not reflected in the
consolidated financial statements. In the opinion of management, no material
losses are anticipated as a result of these actions or claims.

The Union Banks are parties to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of their
customers. These financial instruments include commitments to extend credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the balance sheet.
The contractual amounts of those instruments reflect the extent of involvement
in particular classes of financial instruments.

The Company's exposure to credit loss, in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit and
standby letters of credit written, is represented by the contractual amount of
those instruments. The Union Banks use the same credit policies in making

F-27
112

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

commitments and conditional obligations as they do for on-balance-sheet
instruments. Financial instruments whose contract amounts represent credit risk
at December 31, 1995 follow:

VARIABLE RANGE OF RATES
RATE FIXED RATE TOTAL ON FIXED RATE
COMMITMENTS COMMITMENTS COMMITMENTS COMMITMENTS
----------- ----------- ----------- ---------------

Commitments to extend credit and standby
letters of credit..................... $40,686,000 $3,111,000 $43,797,000 6.25%-11.25%

Commitments to extend credit and standby letters of credit were $33,286,000
at December 31, 1994, substantially all of which were variable rate commitments.

The Company has employment agreements with its executive officers and
certain other management personnel. These agreements generally continue until
terminated by the executive or the Company and provide for continued salary and
benefits to the executive under certain circumstances. The agreements provide
the employees with additional rights after a change of control of the Company
occurs.

The Company does not engage in the use of interest rate swaps, or futures,
forwards or option contracts.

NOTE 14. CONDENSED FINANCIAL INFORMATION -- PARENT COMPANY ONLY

The primary source of funds for the Company is dividends from its
subsidiaries. Certain regulatory requirements restrict the amount of dividends
that may be paid by the Union Banks to the Company. At December 31, 1995,
approximately $4,500,000 of dividends were allowable from the Union Banks to the
Company without prior regulatory approval. As a practical matter, dividend
payments are restricted to maintain prudent capital levels.

F-28
113

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Condensed financial information for UnionBancorp, Inc. follows:

BALANCE SHEETS (PARENT COMPANY ONLY)

DECEMBER 31,
--------------------------
1995 1994
----------- -----------

ASSETS
Cash and due from banks............................................ $ 34 $ 6,065
Investment in subsidiaries......................................... 27,558,293 24,079,645
Premises and equipment............................................. 152,060 118,775
Intangible assets.................................................. 75,799 99,877
Other assets....................................................... 76,324 514,062
----------- -----------
$27,862,510 $24,818,424
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings.............................................. $ 4,346,250 $ 5,026,250
Deferred income taxes.............................................. 11,985 --
Other liabilities.................................................. 29,283 163,577
----------- -----------
4,387,518 5,189,827
----------- -----------
Stockholders' Equity
Common stock, $1 par value; 10,000,000 shares authorized;
2,400,000 issued and outstanding.............................. 2,400,000 2,400,000
Surplus.......................................................... 1,074,272 1,007,352
Retained earnings................................................ 20,567,981 18,498,987
Unrealized gain (loss) on securities available for sale.......... 1,918 (1,756,545)
Deferred compensation -- stock option plans...................... (47,982) --
----------- -----------
23,996,189 20,149,794
Less treasury stock, at cost; 268,263 shares..................... 521,197 521,197
----------- -----------
23,474,992 19,628,597
----------- -----------
$27,862,510 $24,818,424
=========== ===========

F-29
114

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INCOME STATEMENTS (PARENT COMPANY ONLY)

YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------

Dividends from subsidiaries.............................. $1,532,126 $1,149,052 $1,010,176
Management fees and other................................ 981,309 652,384 659,715
---------- ---------- ----------
Total income........................................... 2,513,435 1,801,436 1,669,891
---------- ---------- ----------
Interest expense......................................... 422,462 371,299 339,998
Other expenses........................................... 1,275,215 883,090 691,630
---------- ---------- ----------
Total expenses......................................... 1,697,677 1,254,389 1,031,628
---------- ---------- ----------
Income before income tax benefit and equity in
undistributed earnings of subsidiaries......... 815,758 547,047 638,263
Income tax benefit....................................... (216,883) (251,040) (214,853)
---------- ---------- ----------
Income before equity in undistributed earnings of
subsidiaries................................... 1,032,641 798,087 853,116
Equity in undistributed earnings of subsidiaries......... 1,320,185 1,795,438 1,608,551
---------- ---------- ----------
Net income........................................ $2,352,826 $2,593,525 $2,461,667
========== ========== ==========

F-30
115

UNIONBANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)

YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------

Cash Flows from Operating Activities
Net income.......................................... $ 2,352,826 $ 2,593,525 $ 2,461,667
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation..................................... 17,494 9,656 2,150
Undistributed earnings of subsidiaries........... (1,320,185) (1,795,438) (1,608,551)
Amortization of intangible....................... 24,078 24,078 24,077
Amortization of deferred compensation -- stock
options........................................ 18,938 -- --
Provision for deferred income taxes.............. 11,985 -- --
Change in assets and liabilities:
Decrease in other assets....................... 437,738 224,186 2,804
Increase (decrease) in other liabilities....... (134,294) 30,748 (146,770)
----------- ----------- -----------
Net cash provided by operating activities... 1,408,580 1,086,755 735,377
----------- ----------- -----------
Cash Flows from Investing Activities
Investment in subsidiary............................ (400,000) (500,000) --
Purchases of premises and equipment................. (50,779) (123,456) (4,359)
----------- ----------- -----------
Net cash (used in) financing activities..... (450,779) (623,456) (4,359)
----------- ----------- -----------
Cash Flows from Financing Activities
Payments on short-term borrowings................... (680,000) (253,750) (520,000)
Dividends paid...................................... (283,832) (248,121) (191,414)
Proceeds from issuance of treasury stock............ -- 14,157 --
----------- ----------- -----------
Net cash (used in) financing activities..... (963,832) (487,714) (711,414)
----------- ----------- -----------
Net increase (decrease) in cash and due from
banks..................................... (6,031) (24,415) 19,604
Cash and due from banks:
Beginning of year................................... 6,065 30,480 10,876
----------- ----------- -----------
End of year......................................... $ 34 $ 6,065 $ 30,480
=========== =========== ===========
Supplemental Schedule of Noncash Investing
and Financing Activities
Change in unrealized gain (loss) on securities
available for sale............................... $ 1,758,463 $(1,756,545) $ --
Issuance of nonqualifying stock options............. 66,920 -- --

NOTE 15. SUBSEQUENT EVENTS

F-31
116

PRAIRIE BANCORP, INC.

SELECTED CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial data of Prairie Bancorp, Inc.
should be read in conjunction with the Consolidated Financial Statements of
Prairie Bancorp, Inc. and the Notes thereto appearing elsewhere in this
Prospectus and the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Prairie Bancorp,
Inc." The selected historical consolidated financial data as of and for the
three years in the period ended December 31, 1995 are derived from Prairie's
Consolidated Financial Statements which have been audited by independent public
accountants. The selected historical consolidated financial data as of and for
the years ended December 31, 1992 and 1991 and the six months ended June 30,
1996 and June 30, 1995 is unaudited.

SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

INCOME STATEMENT DATA:
Interest income................................ $ 7,527 $ 7,477 $ 15,123 $ 13,251 $ 10,466 $ 9,818 $ 7,291
Interest expense............................... 4,792 5,127 10,327 8,582 6,300 5,973 4,649
-------- -------- -------- -------- -------- -------- -------
Net interest income.......................... 2,735 2,350 4,796 4,669 4,166 3,845 2,642
Provision for loan losses...................... 20 (22) (31) 10 (100) 252 47
-------- -------- -------- -------- -------- -------- -------
Net interest income after provision for loan
losses..................................... $ 2,715 $ 2,372 $ 4,827 $ 4,659 $ 4,266 $ 3,593 $ 2,595
Noninterest income............................. 256 683 993 1,097 1,440 1,133 411
Noninterest expense............................ 2,217 2,374 4,622 4,648 4,011 3,588 2,245
Minority interest.............................. 42 44 95 95 113 80 90
Net income before income taxes................. 712 637 1,103 1,013 1,582 1,058 671
Income taxes................................... 215 156 275 227 271 172 217
-------- -------- -------- -------- -------- -------- -------
Net income..................................... $ 497 $ 481 $ 828 $ 786 $ 1,311 $ 886 $ 454
======== ======== ======== ======== ======== ======== =======
Preferred stock dividends...................... 309 229 484 344 66 65 --
Net income applicable to common stock.......... 188 252 344 442 1,245 821 454
COMMON SHARE DATA:
Net income..................................... $ 188 $ 252 $ 344 $ 442 $ 1,245 $ 821 $ 454
Book value..................................... 5,620 5,214 5,749 4,376 4,480 3,075 1,954
Weighted average common shares outstanding..... 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Period end shares outstanding.................. 1,000 1,000 1,000 1,000 1,000 1,000 1,000
BALANCE SHEET DATA:
Total assets................................... $226,032 $225,470 $224,974 $228,188 $178,798 $140,667 $86,593
Loans, net..................................... 73,050 65,243 66,392 60,080 53,023 49,369 33,462
Allowance for loan losses...................... 784 750 741 715 781 963 499
Total deposits................................. 187,840 172,464 183,296 180,910 143,167 125,754 76,592
Stockholders' equity........................... 11,712 11,306 11,841 8,968 5,572 4,167 1,954
Preferred stock portion of stockholders'
equity....................................... 6,092 6,092 6,092 4,592 1,092 1,092 --
Common stock portion of stockholders' equity... 5,620 5,214 5,749 4,376 4,480 3,075 1,954
PERFORMANCE DATA:
Return on average total assets(1).............. 0.44% 0.43% 0.37% 0.36% 0.89% 0.74% 0.53%
Return on average stockholders' equity(1)...... 8.44 9.10 7.96 10.81 26.92 28.94 28.79
Net interest margin............................ 2.64 2.23 2.29 2.34 3.30 3.96 3.73
Loans to deposits.............................. 38.89 37.83 36.22 33.21 37.04 39.26 43.69
Efficiency ratio(2)............................ 73.85 64.49 71.83 71.23 55.03 59.68 69.34
ASSET QUALITY RATIOS:
Nonperforming assets to total assets........... 0.38% 0.69% 0.30% 0.21% 0.27% 0.39% 0.39%
Nonperforming loans to total loans............. 1.11 2.35 1.00 0.75 0.75 0.93 1.01
Net loan charge-offs to average loans(1)....... (0.03) (0.09) (0.09) 0.13 0.16 0.32 (0.08)
Allowance for loan losses to total loans....... 1.06 1.14 1.10 1.18 1.45 1.91 1.47
Allowance for loan losses to nonperforming
loans........................................ 95.96 48.26 110.10 155.77 192.36 205.33 145.91
CAPITAL RATIOS:
Tier I risk-based capital...................... 13.82% 14.51% 14.52% 12.29% 8.82% 7.15% 5.17%
Total risk-based capital....................... 14.76 15.48 15.46 13.25 10.07 8.77 6.49
Leverage....................................... 5.11 4.97 5.05 4.28 3.04 2.94 2.24

- -------------------------
(1) All interim periods have been annualized.

(2) Calculated as noninterest expense less amortization of intangibles and
expenses related to other real estate owned divided by the sum of net
interest income before provision for loan losses and total noninterest
income excluding securities gains and losses.

F-32
117

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF PRAIRIE BANCORP, INC.

The following discussion provides additional information regarding the
operations and financial condition of Prairie Bancorp, Inc. ("Prairie") for the
six months ended June 30, 1996 and 1995 and the three years ended December 31,
1995. The discussion should be read in conjunction with the consolidated
statements of financial condition as of December 31, 1995 and 1994 and the
results of operations for the three years ended December 31, 1995 and for the
six months ended June 30, 1996 and 1995 and accompanying notes included
elsewhere in the prospectus.

GENERAL

Prairie derives substantially all of its revenues and income from the
operations of its subsidiaries, the Prairie Banks, which provide a full range of
commercial and consumer banking services to businesses and individuals,
primarily in central and western Illinois. As of June 30, 1996, Prairie had
total assets of $226.0 million, net loans of $73.0 million, total deposits of
$187.8 million and total stockholders' equity of $11.7 million. Prairie's
reported net income grew to $497,000 for the six months ended June 30, 1996 from
net income of $481,000 for the six months ended June 30, 1995 as a result of
internal loan and deposit portfolio growth generating higher net interest income
partially offset by a decrease in securities gains in 1996 compared to 1995.

RESULTS OF OPERATIONS

Net Income

Net income of Prairie was $497,000 ($188 per common share) for the six
months ended June 30, 1996, compared with net income of $481,000 ($252 per
common share) for the six months ended June 30, 1995, an increase of $16,000 or
3.3%. Net income per common share in 1996 decreased due to additional dividends
paid on preferred stock issued during 1995. Factors contributing to the increase
in net income in 1996 compared with 1995 include the higher percentage of loans
to total assets and replacement of other borrowings with lower cost deposits.

Net income was $828,000 for 1995 ($344 per common share), compared with net
income of $786,000 for 1994 ($442 per common share) and $1,311,000 for 1993
($1,245 per common share). Net income per common share in 1995 decreased due to
additional dividends paid on preferred stock issued during 1995. The increase in
net income for 1995 from 1994 was due primarily to an increase in net interest
income after provision for loan losses of $168,000. The decrease in net income
from 1993 to 1994 was attributable to an increase in net interest income after
provision for loan losses of $393,000 coupled with an increase in noninterest
expense of $637,000 partially attributable to the opening of new branches and a
decrease in securities gains of $361,000.

Net Income before Income Taxes

Net income before income taxes was $712,000 for the six months ended June
30, 1996, compared with $637,000 for the first six months of 1995, an 11.8%
increase.

Net income before income taxes was $1,103,000 in 1995 compared with
$1,013,000 in 1994 and $1,582,000 in 1993.

Net Interest Income

Net interest income is the difference between income earned on
interest-earning assets and the interest expense incurred on interest-bearing
liabilities. The net yield on total interest-earning assets, also referred to as
interest rate margin or net interest margin, represents net interest income
divided by average interest-earning assets. Prairie's principal interest-earning
assets are loans, investment securities and federal funds sold.

F-33
118

Net interest income was $2,735,000 for the first six months of 1996, an
increase of $385,000 or 16.38% compared with the first six months of 1995,
resulting principally from an increase in loans. In addition, Prairie
experienced an increase in the net interest spread from 1.9% to 2.28% for the
six months ended June 30, 1995 and 1996, respectively. The foregoing increase
resulted principally from the fact that the yield on interest-earning assets
increased and the cost of the interest-bearing liabilities decreased slightly.
The yield on interest-earning assets increased from 6.93% to 7.10%, while the
cost of interest-bearing liabilities decreased from 5.03% to 4.82% for the six
months ended June 30, 1995 and 1996, respectively.

Net interest income was $4,796,000 for 1995, an increase of $127,000 or
2.72% compared with net interest income of $4,669,000 for 1994, which
represented an increase of $503,000 or 12.07% compared with net interest income
of $4,166,000 for 1993. Prairie's average total interest-earning assets
increased from approximately $208 million for 1994 to $217 million for 1995,
representing a 4.56% increase resulting principally from an increase in loans.
The net interest margin of 2.29% for 1995 decreased from 2.34% for 1994.

The following table sets forth for each category of interest-earning assets
and interest-bearing liabilities the average amounts outstanding, the interest
earned or paid on such amounts and the average rate paid for the six months
ended June 30, 1996 and 1995 and for the three years ended December 31, 1995,
1994 and 1993. The table also sets forth the average rate earned on all
interest-earning assets, the average rate paid on all interest-bearing
liabilities, and the net yield on average interest-earning assets for the same
period.

F-34
119

AVERAGE BALANCE SHEET
AND ANALYSIS OF NET INTEREST INCOME

FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------------------
1996 1995
----------------------------------- -----------------------------------
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------------ ---------- ------- ------------ ---------- -------

ASSETS
Interest-earning assets:
Interest-bearing deposits.... $ 484,000 $ 12,000 4.96% $ 371,000 $ 10,000 5.39%
Federal funds sold........... 2,088,000 50,000 4.79 623,000 20,000 6.42
U.S. Treasury and agency
securities(1)............. 7,079,000 178,000 5.03 7,106,000 173,000 4.87
States and political
subdivisions(1)(2)........ 6,471,000 294,000 9.09 6,718,000 289,000 8.60
Mortgage-backed(1)........... 126,875,000 3,916,000 6.17 138,984,000 4,287,000 6.17
Other(1)..................... 1,384,000 44,000 6.36 1,869,000 64,000 6.85
Loans(3)(4).................. 70,483,000 3,136,000 8.90 62,474,000 2,720,000 8.71
------------ ---------- ---- ------------ ---------- ----
Total interest
earning assets..... $214,864,000 $7,630,000 7.10% $218,145,000 $7,563,000 6.93%
------------ ---------- ------------ ----------
Less: Allowance for loan
losses....................... 763,000 742,000
Cash and due from banks........ 5,728,000 3,318,000
Premises and equipment......... 3,256,000 3,245,000
Other assets................... 2,418,000 1,909,000
------------ ------------
Total assets......... $225,503,000 $225,875,000
============ ============
LIABILITIES
Interest-earning liabilities:
Interest-bearing
demand deposits........... $ 20,846,000 $ 279,000 2.68% $ 17,757,000 $ 244,000 2.75%
Savings deposits............. 48,580,000 886,000 3.65 52,783,000 1,078,000 4.08
Time deposits................ 103,445,000 2,783,000 5.38 97,009,000 2,628,000 5.42
------------ ---------- ---- ------------ ---------- ----
Total
interest-bearing
deposits........... $172,871,000 $3,948,000 4.57 $167,549,000 $3,950,000 4.72
------------ ---------- ---- ------------ ---------- ----
Short-term borrowings........ 7,463,000 264,000 7.07 6,108,000 203,000 6.65
Federal Home Loan Bank
advances and notes
payable................... 18,307,000 580,000 6.34 30,346,000 974,000 6.42
------------ ---------- ---- ------------ ---------- ----
Total
interest-bearing
liabilities........ $198,641,000 $4,792,000 4.82% $204,003,000 $5,127,000 5.03%
------------ ---------- ------------ ----------
Noninterest-bearing
deposits.................. 12,698,000 9,913,000
Other liabilities............ 2,388,000 1,387,000
------------ ------------
Total liabilities.... 213,727,000 215,303,000
Stockholders' equity........... 11,776,000 10,572,000
------------ ------------
Total liabilities and
equity............. $225,503,000 $225,875,000
============ ============
Net interest income............ $2,838,000 $2,436,000
========== ==========
Net interest spread............ 2.28% 1.90%
==== ====
Net interest margin............ 2.64% 2.23%
==== ====

- -------------------------
(1) Average balance and average rate on securities classified as available for
sale is based on historical amortized cost balances.

(2) Interest income and yield on nontaxable securities are reflected on a tax
equivalent basis based upon a statutory Federal income tax rate of 34%.

(3) Loans on nonaccrual status have been included in the computation of average
balances.

(4) The interest income on loans includes loan fees. Loan fees were $18,000 and
$16,000 for the six months ended June 30, 1996 and 1995, respectively.

F-35
120

AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME

YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 1994
-------------------------------------- ---------------------------
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/
BALANCE EXPENSE RATE BALANCE EXPENSE
------------ ----------- ------- ------------ -----------

ASSETS
Interest-earning assets:
Interest-bearing deposits....................... $ 228,000 $ 16,000 7.02% $ 463,000 $ 22,000
Federal funds sold.............................. 1,443,000 96,000 6.65 934,000 41,000
U.S. Treasury and agency securities(1).......... 6,894,000 335,000 4.86 10,190,000 516,000
States and political subdivisions(1)(2)......... 6,136,000 545,000 8.88 7,574,000 656,000
Mortgage-backed securities(1)................... 135,875,000 8,357,000 6.15 128,395,000 7,070,000
Other(1)........................................ 1,849,000 126,000 6.81 2,717,000 128,000
Loans(3)(4)..................................... 64,662,000 5,819,000 9.00 57,339,000 5,003,000
------------ ----------- ---- ------------ -----------
Total interest-earning assets(1).............. $217,087,000 $15,294,000 7.05% $207,612,000 $13,436,000
------------ ----------- ------------ -----------
Less: Allowance for loan losses................... 727,000 768,000
Cash and due from banks........................... 3,845,000 3,575,000
Premises and equipment............................ 3,419,000 3,097,000
Other assets...................................... 2,203,000 2,042,000
------------ ------------
Total assets.................................. $225,827,000 $215,558,000
============ ============
LIABILITIES
Interest-bearing liabilities:
Interest-bearing demand deposits................ $ 19,402,000 $ 559,000 2.88% $ 18,656,000 $ 528,000
Savings deposits................................ 50,630,000 1,996,000 3.94 61,449,000 2,460,000
Time deposits................................... 99,974,000 5,494,000 5.50 78,356,000 3,677,000
------------ ----------- ---- ------------ -----------
Total interest-bearing liabilities............ $170,006,000 $ 8,049,000 4.73 $158,461,000 $ 6,665,000
------------ ----------- ---- ------------ -----------
Short-term borrowings........................... 7,523,000 510,000 6.78 6,404,000 386,000
Federal Home Loan Bank advances and notes
payable....................................... 24,367,000 1,768,000 7.26 31,017,000 1,531,000
------------ ----------- ---- ------------ -----------
Total interest-bearing liabilities............ $201,896,000 $10,327,000 5.12 $195,882,000 $ 8,582,000
------------ ----------- ------------ -----------
Noninterest-bearing deposits...................... 11,994,000 11,038,000
Other liabilities................................. 1,532,000 1,368,000
------------ ------------
Total liabilities............................. 215,422,000 208,288,000
Stockholders' equity.............................. 10,405,000 7,270,000
------------ ------------
Total liabilities and equity.................. $225,827,000 $215,558,000
============ ============
Net interest income............................... $ 4,967,000 $ 4,854,000
=========== ===========
Net interest spread............................... 1.93
====
Net interest margin............................... 2.29%
====

1994 1993
------- --------------------------------------
INTEREST
AVERAGE AVERAGE INCOME/ AVERAGE
RATE BALANCE EXPENSE RATE
------- ------------ ----------- -------

ASSETS
Interest-earning assets:
Interest-bearing deposits....................... 4.75% $ 495,000 $ 19,000 3.84%
Federal funds sold.............................. 4.39 1,531,000 49,000 3.20
U.S. Treasury and agency securities(1).......... 5.06 6,427,000 493,000 7.67
States and political subdivisions(1)(2)......... 8.66 11,756,000 1,388,000 11.81
Mortgage-backed securities(1)................... 5.51 66,465,000 4,100,000 6.17
Other(1)........................................ 4.71 1,778,000 91,000 5.12
Loans(3)(4)..................................... 8.73 52,134,000 4,804,000 9.21
---- ------------ ----------- -----
Total interest-earning assets(1).............. 6.47% $140,586,000 $10,944,000 7.78%
------------ -----------
Less: Allowance for loan losses................... 888,000
Cash and due from banks........................... 3,865,000
Premises and equipment............................ 2,075,000
Other assets...................................... 1,859,000
------------
Total assets.................................. $147,497,000
============
LIABILITIES
Interest-bearing liabilities:
Interest-bearing demand deposits................ 2.83% $ 17,735,000 $ 554,000 3.12%
Savings deposits................................ 4.00 39,488,000 1,638,000 4.15
Time deposits................................... 4.69 61,019,000 3,140,000 5.15
---- ------------ ----------- -----
Total interest-bearing liabilities............ 4.21 $118,242,000 $ 5,332,000 4.51
---- ------------ ----------- -----
Short-term borrowings........................... 6.03 3,395,000 258,000 7.60
Federal Home Loan Bank advances and notes
payable....................................... 4.94 13,286,000 710,000 5.34
---- ------------ ----------- -----
Total interest-bearing liabilities............ 4.38 $134,923,000 $63,000,000 4.67
------------ -----------
Noninterest-bearing deposits...................... 6,346,000
Other liabilities................................. 1,358,000
------------
Total liabilities............................. 142,627,000
Stockholders' equity.............................. 4,870,000
------------
Total liabilities and equity.................. $147,497,000
============
Net interest income............................... $ 4,644,000
===========
Net interest spread............................... 2.09 3.12
==== =====
Net interest margin............................... 2.34% 3.30%
==== =====

- -------------------------
(1) Average balance and average rate on securities classified as available for
sale is based on historical amortized cost balances.

(2) Interest income and yield on nontaxable securities are reflected on a tax
equivalent basis based upon a statutory Federal income tax rate of 34%.

(3) Loans on nonaccrual status have been included in the computation of average
balances.

(4) The interest income on loans includes loan fees. Loan fees were $30,000,
$21,000, and $22,000 for the years ended December 31, 1995, 1994 and 1993.

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121
Prairie's net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities, referred to as a
"volume change". It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds referred to as a "rate change". The following table reflects the
changes in net interest income stemming from changes in interest rates and from
asset and liability volume, including mix. The change in interest attributable
to both rate and volume has been allocated to the changes in the rate and the
volume on a pro rata basis.

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

SIX MONTHS ENDED JUNE 30, 1996
COMPARED WITH SIX MONTHS ENDED YEARS ENDED DECEMBER 31, 1995 YEARS ENDED DECEMBER 31, 1994
JUNE 30, 1995 COMPARED WITH DECEMBER 31, 1994 COMPARED WITH DECEMBER 31, 1993
--------------------------------- ----------------------------------- -------------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
--------------------------------- ----------------------------------- -------------------------------------
VOLUME(1) RATE NET VOLUME(1) RATE NET VOLUME(1) RATE NET
--------- --------- --------- --------- ---------- ---------- ---------- ----------- ----------

Interest Income:
Loans.......... $ 355,000 $ 61,000 $ 416,000 $ 655,000 $ 161,000 $ 816,000 $ 463,000 $ (264,000) $ 199,000
Interest-earning
deposits..... 5,000 (3,000) 2,000 (14,000) 8,000 (6,000) (1,000) 4,000 3,000
Federal funds
sold......... 45,000 (15,000) 30,000 28,000 27,000 55,000 (23,000) 15,000 (8,000)
U.S. Treasury
and agency
securities... (1,000) 6,000 5,000 (161,000) (20,000) (181,000) 227,000 (204,000) 23,000
State and
political
subdivisions. (23,000) 28,000 5,000 (128,000) 17,000 (111,000) (419,000) (313,000) (732,000)
Mortgage backed
securities... (375,000) 4,000 (371,000) 428,000 859,000 1,287,000 3,452,000 (482,000) 2,970,000
Other interest-
earning
assets....... (16,000) (4,000) (20,000) (49,000) 47,000 (2,000) 45,000 (8,000) 37,000
--------- --------- --------- --------- ---------- ---------- ---------- ----------- ----------
Total interest
income......... $ (10,000) $ 77,000 $ 67,000 $ 759,000 $1,099,000 $1,858,000 $3,744,000 $(1,252,000) $2,492,000
--------- --------- --------- --------- ---------- ---------- ---------- ----------- ----------
Interest
Expense:
Interest-bearing
deposits..... $ 248,000 $(250,000) $ (2,000) $ 508,000 $ 876,000 $1,384,000 $1,712,000 $ (379,000) $1,333,000
Short-term
borrowings... 47,000 14,000 61,000 72,000 52,000 124,000 190,000 (62,000) 128,000
Federal Home
Loan Bank
advances and
notes
payable...... (382,000) (12,000) (394,000) (377,000) 614,000 237,000 879,000 (58,000) 821,000
--------- --------- --------- --------- ---------- ---------- ---------- ----------- ----------
Total interest
expense........ $ (87,000) $(248,000) $(335,000) $ 203,000 $1,542,000 $1,745,000 $2,781,000 $ (499,000) $2,282,000
--------- --------- --------- --------- ---------- ---------- ---------- ----------- ----------
Net interest
margin......... $ 77,000 $ 325,000 $ 402,000 $ 556,000 $ (443,000) $ 113,000 $ 963,000 $ (753,000) $ 210,000
========= ========= ========= ========= ========== ========== ========== =========== ==========

- -------------------------
(1) Nonaccrual loans are included in the average volumes used in calculating
this table.

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122

Provision for Loan Losses

The amount of the provision for loan losses is based on periodic (not less
than quarterly) evaluations of the loan portfolio, with particular attention
directed toward nonperforming and other potential problem loans. During these
evaluations, consideration is given to such factors as management's evaluation
of specific loans, the level and composition of nonperforming loans, historical
loss experience, results of examinations by regulatory agencies, an internal
asset review process, the market value of collateral, the strength and
availability of guaranties, concentrations of credits, and other judgmental
factors.

Prairie recorded a $20,000 provision for loan losses during the six months
ended June 30, 1996 compared with a $22,000 negative provision during the first
six months of 1995. As Prairie's ratio of net charge-offs to average loans
remained unchanged for these periods, Prairie provided amounts to compensate for
growth in the loan portfolio in order to maintain the allowance for loan losses
at an adequate level.

During 1995, recoveries exceeded charge-offs by $57,000 which resulted in a
negative provision for loan losses in the amount of $31,000. A negative
provision has the effect of reducing the allowance for loan losses. The $10,000
provision for loan losses recorded during 1994 was significantly increased from
the negative $100,000 provision recorded in 1993 and was due primarily to an
increase in loans of 12.61%.

Noninterest Income

The following table sets forth the various categories of noninterest income
for the six months ended June 30, 1996 and 1995 and for the years ended December
31, 1995, 1994 and 1993.

SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
-------------------- ------------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- ---------- ----------

Noninterest income
Service charges and fees............. $205,000 $166,000 $346,000 $ 317,000 $ 300,000
Securities gains, net................ -- 406,000 402,000 505,000 866,000
Other................................ 51,000 111,000 245,000 275,000 274,000
-------- -------- -------- ---------- ----------
Total noninterest income.......... $256,000 $683,000 $993,000 $1,097,000 $1,440,000
======== ======== ======== ========== ==========

Noninterest income is generated primarily from fees associated with
noninterest and interest-bearing accounts as well as securities gains.
Noninterest income for the first six months of 1996 was $256,000, a decrease of
$427,000 or 62.52% compared with noninterest income of $683,000 for the first
six months of 1995. The decrease in noninterest income is the result of a
decrease of $406,000 in securities gains during the first six months of 1996
compared with the first six months of 1995. Excluding security gains,
noninterest income would have shown a slight increase during this period.

Noninterest income was $993,000 for 1995, a decrease of $104,000 or 9.48%
compared with noninterest income of $1,097,000 for 1994, which represented a
decrease of $343,000 or 23.82% from 1993. While service charges remained fairly
constant from 1993 to 1995, securities gains decreased $103,000 or 20.40% from
1994 to 1995 and $361,000 or 41.69% from 1993 to 1994. Management elected to
reposition the composition of its portfolio in 1993 to reduce fixed-rate
exposure of assets and for tax-related reasons. Gains in 1994 and 1995 were from
securities classified as available for sale and were due to interest rate
movements.

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123

Noninterest Expense

The following table sets forth the various categories of noninterest
expense for the six months ended June 30, 1996 and 1995 and for the years ended
December 31, 1995, 1994 and 1993.

SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------ --------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------

Salaries, wages and employee
benefits......................... $1,206,000 $1,190,000 $2,424,000 $2,190,000 $1,827,000
Occupancy and equipment............ 351,000 329,000 702,000 669,000 500,000
Other:
Professional fees................ 36,000 35,000 91,000 82,000 142,000
Office supplies.................. 69,000 60,000 137,000 152,000 158,000
Travel and entertainment......... 14,000 13,000 49,000 47,000 42,000
Telephone........................ 36,000 32,000 61,000 60,000 51,000
Advertising...................... 34,000 38,000 126,000 144,000 96,000
Postage.......................... 58,000 57,000 105,000 89,000 96,000
Amortization of intangibles...... 8,000 11,000 58,000 35,000 53,000
Dues and subscriptions........... 9,000 10,000 33,000 37,000 35,000
Insurance........................ 12,000 13,000 59,000 66,000 58,000
Credit cards..................... 6,000 4,000 9,000 12,000 10,000
Bank service charge.............. 44,000 49,000 97,000 100,000 112,000
FDIC assessment.................. 17,000 100,000 157,000 367,000 297,000
Other............................ 317,000 433,000 514,000 598,000 534,000
---------- ---------- ---------- ---------- ----------
Total other expenses.......... 660,000 855,000 1,496,000 1,789,000 1,684,000
---------- ---------- ---------- ---------- ----------
Total noninterest expense..... $2,217,000 $2,374,000 $4,622,000 $4,648,000 $4,011,000
========== ========== ========== ========== ==========

Noninterest expense was $2,217,000 for the first six months of 1996, a
decrease of $157,000 or 6.61% compared with noninterest expense of $2,374,000
for the first six months of 1995. An $83,000 decrease in FDIC assessments and
general expense controls were the primary reasons for the decline.

Deposits held by the Prairie Banks are insured by the Bank Insurance Fund
("BIF") of the Federal Deposit Insurance Corporation ("FDIC"), and as
FDIC-insured institutions, the Prairie Banks are required to pay deposit
insurance premium assessments to the FDIC. The amount an institution pays for
FDIC deposit insurance coverage is determined in accordance with a risk-based
assessment system under which each insured depository institution is placed into
one of nine categories and assessed insurance premiums based upon its level of
capital and the results of supervisory evaluations. The FDIC has issued refunds
to the best-rated institutions for assessment which exceeded the
recapitalization requirements of the BIF. The Prairie Banks received a total
refund from the FDIC of approximately $136,000. The change in the deposit
insurance assessment rate is expected to significantly reduce the cost of
deposit insurance for the Prairie Banks. See "Regulation and Supervision -- The
Bank Subsidiaries -- Deposit Insurance".

Noninterest expense was $4,622,000 for 1995, a decrease of $26,000 or .56%
compared with noninterest expense of $4,648,000 for 1994, which represented an
increase of $637,000 or 15.88% compared with noninterest expense of $4,011,000
for 1993. The decrease in noninterest expense from 1994 to 1995 was due
primarily to a decrease in FDIC insurance of $210,000 and management's emphasis
on expense control. Salaries, wages and benefits increased $234,000 for the same
period, offsetting some of the reduction in other expenses. Noninterest expense
increased from 1993 to 1994 primarily as a result of a 19.87% increase in
salaries and benefits, a 33.80% increase in occupancy and equipment expense, and
a 23.57% increase in FDIC insurance. All such increases were due to deposit
growth, both from new branches opened and aggressive marketing efforts.

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Income Taxes

During 1993, Prairie adopted Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes". The principal effect of SFAS
No. 109 is to allow a tax benefit for cumulative book loss reserves in excess of
tax reserves. SFAS No. 109 provides that deferred tax assets may be reduced by a
valuation allowance if, based on the weight of available experience, it is more
likely than not that some portion or all of the deferred tax asset will not be
realized. In accordance with the provisions of SFAS No. 109, Prairie elected not
to restate prior years and has determined that the cumulative effect of
implementation was not significant. Prairie and the Prairie Banks filed a
consolidated tax return for 1995.

Prairie has recorded income tax expense of $215,000 on income before taxes
of $712,000 for the six months ended June 30, 1996, an effective tax rate of
30.2%, as compared with income tax expense of $156,000 on income before taxes of
$637,000 for the six months ended June 30, 1995, an effective tax rate of 24.5%.
Prairie recorded income tax expense of $275,000, $227,000 and $271,000 on income
before taxes of $1,103,000, $1,013,000 and $1,582,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. Effective tax rates were 24.9%,
22.4% and 17.1% for such periods. Prairie's effective tax rates varied from the
statutory tax rate primarily due to interest income on municipal investments,
which is exempt from federal income tax.

Interest Rate Sensitivity Management

The operating income and net income of the Prairie Banks depend, to a
substantial extent, on "rate differentials", i.e., the differences between the
income the Prairie Banks receive from loans, securities and other earning
assets, and the interest expense they pay to obtain deposits and other
liabilities. These rates are highly sensitive to many factors which are beyond
the control of the Prairie Banks, including general economic conditions and the
policies of various governmental and regulatory authorities. See "Investment
Considerations -- Impact of Interest Rates and Economic Conditions."

The objective of monitoring and managing the interest rate risk position of
the balance sheet is to contribute to earnings and to minimize the adverse
changes in net interest income. The potential for earnings to be affected by
changes in interest rates is inherent in a financial institution. Interest rate
sensitivity is the relationship between changes in market interest rates and
changes in net interest income due to the repricing characteristics of assets
and liabilities. An asset sensitive position in a given period will result in
more assets being subject to repricing; therefore, as interest rates rise, such
a position will have a positive effect on net interest income. Conversely, in a
liability sensitive position, where liabilities reprice more quickly than assets
in a given period, a rise in interest rates will have an adverse effect on net
interest income.

One way to analyze interest rate risk is to evaluate the balance of
Prairie's interest rate sensitivity position. A mix of assets and liabilities
that are roughly equal in volume and term and repricing represents a matched
interest rate sensitivity position. Any excess of assets or liabilities in a
particular period results in an

F-40
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interest rate sensitivity gap. The following table presents the interest rate
sensitivity for Prairie's interest-earning assets and interest-bearing
liabilities at June 30, 1996:

INTEREST-RATE SENSITIVE ASSETS AND LIABILITIES

3 MONTHS 3 MONTHS TO 6 MONTHS 1 YEAR TO
OR LESS 6 MONTHS TO 1 YEAR 5 YEARS OVER 5 YEARS TOTAL
------------- ------------- ------------- ------------- ------------ ------------

JUNE 30, 1996
Interest-earning assets:
Interest-earning
deposits................ $ 2,871,000 $ -- $ -- $ -- $ -- $ 2,871,000
Federal funds sold........ 2,131,000 -- -- -- -- 2,131,000
Investment securities..... 1,728,000 -- 1,013,000 5,580,000 128,970,000 137,291,000
Loans..................... 9,648,000 6,200,000 21,782,000 30,318,000 4,886,000 72,834,000
------------- ------------- ------------- ------------- ------------ ------------
Interest-earning assets.... $ 16,378,000 $ 6,200,000 $ 22,795,000 $ 35,898,000 $133,856,000 $215,127,000
------------- ------------- ------------- ------------- ------------ ------------
Interest-bearing
liabilities:
Interest-bearing demand
deposits................ $ 21,519,000 $ -- $ -- $ -- $ -- $ 21,519,000
Savings deposits.......... 46,662,000 -- -- -- -- 46,662,000
Time deposits............. 40,918,000 20,189,000 22,352,000 20,756,000 3,066,000 107,281,000
Repurchase agreements and
federal funds
purchased............... 4,468,000 220,000 763,000 2,451,000 568,000 8,470,000
Federal Home Loan Bank
advances and notes
payable................... 6,500,000 500,000 566,000 6,410,000 1,695,000 15,671,000
------------- ------------- ------------- ------------- ------------ ------------
Interest-bearing
liabilities............... $ 120,067,000 $ 20,909,000 $ 23,681,000 $ 29,617,000 $ 5,329,000 $199,603,000
------------- ------------- ------------- ------------- ------------ ------------
Period interest sensitivity
gap....................... $(103,689,000) $ (14,709,000) $ (886,000) $ 6,281,000 $128,527,000 $ 15,524,000
============= ============= ============= ============= ============ ============
Cumulative interest
sensitivity gap........... $(103,689,000) $(118,398,000) $(119,284,000) $(113,003,000) $ 15,524,000 $ 15,524,000
============= ============= ============= ============= ============ ============
Cumulative gap as a percent
of assets................. (45.87)% (52.38)% (52.77)% (50.00)% 6.87%
============= ============= ============= ============= ============
Cumulative
interest-sensitive assets
as a percent of cumulative
interest-sensitive
liabilities............... 13.64% 16.02% 27.56% 41.83% 107.78%
============= ============= ============= ============= ============

The cumulative rate-sensitive gap position at one year was a
liability-sensitive position of $119.3 million, or negative 52.77%, which
indicates that Prairie was in a mismatched interest rate-sensitive position at
June 30, 1996. In connection with the Prairie Acquisition, the Company took
certain measures in an effort to minimize interest-rate risk associated with
Prairie's investment portfolio. See "Description of Capital Stock of the Company
- -- Preferred Stock -- Rights to Conversion."

Prairie undertakes this interest rate-sensitivity analysis to monitor the
potential risk to future earnings from the impact of possible future changes in
interest rates on currently existing net assets or net liability positions.
However, this type of analysis is as of a point-in-time, when in fact Prairie's
interest rate sensitivity can quickly change as market conditions, customer
needs and management strategies change. Thus, interest rate changes do not
affect all categories of assets and liabilities equally or at the same time.
Prairie is not involved in the purchase of derivative financial instruments or
structured notes.

The preceding table does not necessarily indicate the impact of general
interest rate movements on Prairie's net interest income because the repricing
of certain assets and liabilities is discretionary and is subject to competitive
and other pressures. Currently, the Prairie Banks are holding approximately $122
million in mortgage-backed securities. Although the mortgage-backed securities
have a stated maturity greater than five years, it is not uncommon for
mortgage-backed securities to prepay outstanding principal prior to stated
maturities. As a result, assets and liabilities indicated as repricing within
the same period may, in fact, reprice at different times and at different rate
levels.

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ANALYSIS OF FINANCIAL CONDITION

Loans and Asset Quality

Prairie's loans are diversified by borrower and industry group. Loan growth
has occurred every year over the past five years and can be attributed to
acquisitions, increased loan demand and the addition of new lending products.
The following table describes the composition of loans by major categories
outstanding at June 30, 1996 and at December 31, 1995, 1994, 1993, 1992 and
1991.

LOAN PORTFOLIO ANALYSIS

DECEMBER 31,
JUNE 30, -------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- -----------

AGGREGATE PRINCIPAL AMOUNT
Loan:
Commercial................. $25,885,000 $21,327,000 $20,625,000 $21,729,000 $19,594,000 $14,367,000
Real estate................ 40,972,000 37,652,000 33,422,000 27,153,000 25,093,000 15,487,000
Installment................ 7,014,000 8,218,000 6,889,000 5,228,000 6,125,000 4,435,000
----------- ----------- ----------- ----------- ----------- -----------
Gross loans............ 73,871,000 67,197,000 60,936,000 54,110,000 50,812,000 34,289,000
Less: Allowance for loan
losses................... 784,000 741,000 715,000 781,000 963,000 499,000
Unearned interest..... 37,000 64,000 141,000 306,000 480,000 328,000
----------- ----------- ----------- ----------- ----------- -----------
Loans, net............. $73,050,000 $66,392,000 $60,080,000 $53,023,000 $49,369,000 $33,462,000
=========== =========== =========== =========== =========== ===========
PERCENTAGE OF TOTAL LOAN PORTFOLIO
Loans:
Commercial................. 35.04% 31.74% 33.85% 40.16% 38.56% 41.90%
Real estate................ 55.46 56.03 54.85 50.18 49.38 45.17
Installment................ 9.50 12.23 11.30 9.66 12.06 12.93
----------- ----------- ----------- ----------- ----------- -----------
Gross loans............ 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%
=========== =========== =========== =========== =========== ===========

As of June 30, 1996 and December 31, 1995, commitments of the Prairie Banks
under standby letters of credit and unused lines of credit totaled approximately
$4,712,000 and $4,673,000, respectively.

The loan portfolio includes a concentration of loans to agricultural and
agricultural-related industries amounting to approximately $15,009,000, or
approximately 20.32% of gross loans, as of June 30, 1996.

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127

Stated loan maturities (including floating rate loans reset to market
interest rates) of the total loan portfolio, net of unearned income, as of June
30, 1996 and December 31, 1995 were:

STATED LOAN MATURITIES

WITHIN ONE YEAR TO AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
----------- ----------- ---------- -----------

JUNE 30, 1996
Stated Loan Maturities/Floating Rates
Reset:
Commercial............................... $18,773,000 $ 6,219,000 $ 893,000 $25,885,000
Real estate.............................. 18,915,000 18,568,000 3,489,000 40,972,000
Installment loans........................ 2,767,000 4,068,000 142,000 6,977,000
----------- ----------- ---------- -----------
Total............................ $40,455,000 $28,855,000 $4,524,000 $73,834,000
=========== =========== ========== ===========

WITHIN ONE YEAR TO AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
----------- ----------- ---------- -----------

DECEMBER 31, 1995
Stated Loan Maturities/Floating Rates
Reset:
Commercial............................... $15,149,000 $ 5,763,000 $ 415,000 $21,327,000
Real estate.............................. 12,263,000 23,976,000 1,413,000 37,652,000
Installment loans........................ 3,379,000 4,131,000 644,000 8,154,000
----------- ----------- ---------- -----------
Total............................ $30,791,000 $33,870,000 $2,472,000 $67,133,000
=========== =========== ========== ===========

Rate sensitivities of the total loan portfolio, net of unearned income, as
of June 30, 1996 and December 31, 1995 were as follows:

LOAN REPRICING

WITHIN ONE YEAR TO AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
----------- ----------- ---------- -----------

JUNE 30, 1996
Fixed rate................................. $31,289,000 $24,194,000 $4,212,000 $59,695,000
Variable rate.............................. 7,093,000 6,124,000 674,000 13,891,000
Nonaccrual................................. 248,000 -- -- 248,000
----------- ----------- ---------- -----------
Total............................ $38,630,000 $30,318,000 $4,886,000 $73,834,000
=========== =========== ========== ===========

WITHIN ONE YEAR TO AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
----------- ----------- ---------- -----------

DECEMBER 31, 1995
Fixed rate................................. $21,474,000 $31,743,000 $1,961,000 $55,178,000
Variable rate.............................. 6,356,000 5,249,000 -- 11,605,000
Nonaccrual................................. 350,000 -- -- 350,000
----------- ----------- ---------- -----------
Total............................ $28,180,000 $36,992,000 $1,961,000 $67,133,000
=========== =========== ========== ===========

Nonperforming Assets

Prairie's financial statements are prepared on the accrual basis of
accounting, including the recognition of interest income on its loan portfolio,
unless a loan is placed on a nonaccrual basis. Loans are placed on a

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128

nonaccrual basis when there are serious doubts regarding the collectibility of
all principal and interest due under the terms of the loan. Amounts received on
nonaccrual loans generally are applied first to principal and then to interest
after all principal has been collected. It is the policy of the Prairie Banks
not to renegotiate the terms of a loan because of a delinquent status. Rather, a
loan is generally transferred to nonaccrual status if it is not in the process
of collection and is delinquent in payment of either principal or interest
beyond 90 days.

Other nonperforming assets consist of real estate acquired through loan
foreclosures or other workout situations and other assets acquired through
repossessions. The following table summarizes nonperforming assets by category
as of June 30, 1996 and as of December 31, 1995, 1994, 1993, 1992 and 1991:

NONPERFORMING ASSETS

DECEMBER 31,
JUNE 30, --------------------------------------------------------
1996 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- --------

Nonaccrual loans................. $248,000 $350,000 $228,000 $301,000 $378,000 $265,000
Loans 90 days past due and still
accruing interest.............. 569,000 323,000 231,000 105,000 91,000 77,000
-------- -------- -------- -------- -------- --------
Total nonperforming loans........ 817,000 673,000 459,000 406,000 469,000 342,000
Other real estate owned and other
assets......................... 33,000 -- 18,000 69,000 82,000 --
-------- -------- -------- -------- -------- --------
Total nonperforming assets....... $850,000 $673,000 $477,000 $475,000 $551,000 $342,000
======== ======== ======== ======== ======== ========
Nonperforming assets to total
assets......................... 0.38% 0.30% 0.21% 0.27% 0.39% 0.39%
Nonperforming loans to total
loans.......................... 1.11 1.00 0.75 0.75 0.93 1.01
Nonperforming assets to total
loans.......................... 1.15 1.00 0.78 0.88 1.09 1.01

The classification of a loan on nonaccrual status does not necessarily
indicate that the principal is uncollectible, in whole or in part. A
determination as to collectibility is made by Prairie Banks on a case-by-case
basis. Prairie Banks consider both the adequacy of the collateral and the other
resources of the borrower in determining the steps to be taken to collect
nonaccrual loans. The final determination as to these steps is made on a
case-by-case basis. Alternatives that are typically considered to collect
nonaccrual loans are foreclosure, collecting on guarantees, restructuring the
loan or collection lawsuits.

On January 1, 1995, Prairie adopted guidelines for impaired loans required
by Financial Accounting Standards Board Statement No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by Statement No. 118,
"Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures." The adoption of FAS 114 did not significantly impact the
comparability of the allowance related tables of Prairie included in this
Prospectus.

The following table sets forth a summary of other real estate owned and
other collateral acquired as of June 30, 1996:

OTHER REAL ESTATE OWNED & OTHER COLLATERAL ACQUIRED

NUMBER OF
PARCELS/ NET BOOK
DESCRIPTION AUTOS CARRYING VALUE
------------------------------------------------------- --------- --------------

Developed property..................................... 1 $ 22,000
Repossessed automobiles................................ 1 11,000
----- -------
2 $ 33,000
===== =======

Allowance for Loan Losses

In originating loans, management of Prairie recognizes that credit losses
will be experienced and the risk of loss will vary with, among other things,
general economic conditions, the type of loan being made, the

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129

creditworthiness of the borrower over the term of the loan and, in the case of a
collateralized loan, the quality of the collateral for such loan. The allowance
for loan losses represents Prairie's estimate of the allowance necessary to
provide for losses incurred in the loan portfolio. In making this determination,
Prairie analyzes the ultimate collectibility of Prairie's loan portfolio,
incorporating feedback provided by internal loan staff and provided by
examinations performed by regulatory agencies. Prairie makes an ongoing
evaluation as to the adequacy of the allowance for loan losses. To establish the
appropriate level of the allowance, all loans (including nonperforming loans),
commitments to extend credit and standby letters of credit are reviewed and
classified as to potential loss exposure. Specific allowances are then
established for those loans, commitments to extend credit or standby letters of
credit with identified loss exposure and an additional allowance is maintained
based upon the size, quality and concentration characteristics of the remaining
loan portfolio using both historical quantitative trends and Prairie's
evaluation of qualitative factors including future economic and industry
outlooks. The determination by Prairie of the appropriate level of the allowance
amount was $784,000 at June 30, 1996.

The allowance for loan losses is based on estimates, and ultimate losses
will vary from current estimates. These estimates are reviewed monthly and as
adjustments, either positive or negative, become necessary they are reported in
earnings in the periods in which they become known. The following table presents
a detailed analysis of Prairie's allowance for loan losses for the six months
ended June 30, 1996 and for the years ended December 31, 1995, 1994, 1993, 1992
and 1991:

ALLOWANCE FOR LOAN LOSSES

DECEMBER 31,
JUNE 30, -------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- -----------

Beginning balance.............. $ 741,000 $ 715,000 $ 781,000 $ 963,000 $ 499,000 $ 424,000
----------- ----------- ----------- ----------- ----------- -----------
Charge-offs:
Commercial................... 23,000 53,000 96,000 60,000 102,000 12,000
Real estate.................. 32,000 -- 4,000 28,000 100,000 5,000
Installment loans............ 47,000 34,000 53,000 65,000 49,000 22,000
----------- ----------- ----------- ----------- ----------- -----------
Total charge-offs.............. 102,000 87,000 153,000 153,000 251,000 39,000
----------- ----------- ----------- ----------- ----------- -----------
Recoveries:
Commercial................... 97,000 125,000 66,000 32,000 18,000 52,000
Real estate.................. 20,000 -- 3,000 24,000 53,000 --
Installment loans............ 8,000 19,000 8,000 15,000 26,000 15,000
----------- ----------- ----------- ----------- ----------- -----------
Total recoveries............... 125,000 144,000 77,000 71,000 97,000 67,000
----------- ----------- ----------- ----------- ----------- -----------
Net charge-offs................ (23,000) (57,000) 76,000 82,000 154,000 (28,000)
Bank acquisition............... -- -- -- -- 366,000 --
Provision for loan losses...... 20,000 (31,000) 10,000 (100,000) 252,000 47,000
----------- ----------- ----------- ----------- ----------- -----------
Ending balance................. $ 784,000 $ 741,000 $ 715,000 $ 781,000 $ 963,000 $ 499,000
=========== =========== =========== =========== =========== ===========
Period end total loans, net of
unearned interest............ $73,834,000 $67,133,000 $60,795,000 $53,804,000 $50,332,000 $33,961,000
=========== =========== =========== =========== =========== ===========
Average loans.................. $70,483,000 $64,662,000 $57,339,000 $52,134,000 $47,887,000 $33,850,000
=========== =========== =========== =========== =========== ===========
Ratio of net charge-offs to
average loans................ (0.03)% (0.09)% 0.13% 0.16% 0.32% (0.08)%
=========== =========== =========== =========== =========== ===========
Ratio of provision for loan
losses to average loans...... 0.03 (0.05) 0.02 (0.19) 0.53 0.14
=========== =========== =========== =========== =========== ===========
Ratio of allowance for loan
losses to ending total
loans........................ 1.06 1.10 1.18 1.45 1.91 1.47
=========== =========== =========== =========== =========== ===========
Ratio of allowance for loan
losses to total nonperforming
loans........................ 95.96 110.10 155.77 192.36 205.33 145.91
=========== =========== =========== =========== =========== ===========
Ratio of allowance for loan
losses to total nonperforming
assets....................... 92.24 110.10 149.90 164.42 174.77 145.91
=========== =========== =========== =========== =========== ===========

F-45
130

The following table sets forth an allocation of the allowance for loan
losses among categories as of June 30, 1996 and December 31, 1995, 1994, 1993,
1992 and 1991. Management of Prairie believes that any allocation of the
allowance for loan losses into categories lends an appearance of precision which
does not exist. The allowance is utilized as a single unallocated allowance
available for all loans. The following allocation table should not be
interpreted as an indication of the specific amounts or the relative proportion
of future charges to the allowance and has been derived by applying a general
allowance to the portfolio as a whole, in addition to specific allowance amounts
for internally classified loans. In retrospect, the specific allocation in any
particular category may prove excessive or inadequate and consequently may be
reallocated in the future to reflect the then current condition. Accordingly,
the entire allowance is available to absorb losses in any category.

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
--------------------- --------------------- --------------------- --------------------- ---------------------
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN LOANS IN LOANS IN
EACH EACH EACH EACH EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- ---------- -------- ---------- -------- ---------- -------- ---------- -------- ----------

Commercial... $296,000 35.04% $223,000 31.74% $243,000 33.85% $286,000 40.16% $257,000 38.56%
Real
estate...... 374,000 55.46 399,000 56.03 368,000 54.85 373,000 50.18 567,000 49.38
Installment
loans....... 114,000 9.50 119,000 12.23 104,000 11.30 122,000 9.66 139,000 12.06
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total....... $784,000 100.00% $741,000 100.00% $715,000 100.00% $781,000 100.00% $963,000 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======

DECEMBER 31, 1991
---------------------
PERCENT OF
LOANS IN
EACH
CATEGORY
TO TOTAL
AMOUNT LOANS
-------- ----------

Commercial... $191,000 41.90%
Real
estate...... 206,000 45.17
Installment
loans....... 102,000 12.93
-------- ------
Total....... $499,000 100.00%
======== ======

Investment Activities

The investment portfolio, which was 64.62% of Prairie's earning asset base
as of June 30, 1996, was being managed to maximize return as well as maintain
sufficient liquidity. Investment securities which are classified as
held-to-maturity are purchased with the intent and ability of Prairie to hold
them to maturity. Securities classified as held-to-maturity are carried at
historical cost. Prairie's financial planning anticipates income streams based
on normal maturity and reinvestment. Investment securities classified as
available-for-sale are purchased with the intent to provide liquidity and to
increase returns. The securities classified as available-for-sale are carried at
fair value. Prairie does not have any securities classified as trading.

Securities held-to-maturity, carried at amortized cost, amounted to $97.8
million at June 30, 1996, compared with $103.8 million at December 31, 1995 and
$135.1 million at December 31, 1994. The net unrealized loss on securities
held-to-maturity was $2.5 million at June 30, 1996 compared with unrealized
losses of $2.2 million at December 31, 1995 and $8.4 million at December 31,
1994. The changes in unrealized loss were attributable to both a decline in
amounts held-to-maturity and interest rate movements during 1995.

Securities available-for-sale, carried at fair value, were $39.5 million at
June 30, 1996, compared to $42.5 million at December 31, 1995 and $20.6 million
at December 31, 1994. On December 31, 1995, based on management's reassessment
of their previous designations of securities, giving consideration to liquidity
needs, interest rate risk and other factors, securities with an amortized cost
of $20.9 million and an unrealized gain of $452,000 were transferred from
held-to-maturity to available-for-sale. The transfer was allowed pursuant to a
FASB Special Report, "A Guide to Implementation of Statement No. 115 on
Accounting for Certain Investments in Debt and Equity Securities".

Prior to January 1, 1994, all debt securities were carried at amortized
cost. Effective January 1, 1994, Prairie adopted SFAS No. 115, and classified
investments as held-to-maturity or available-for-sale.

F-46
131

The following tables describe the composition of investments by major
category and maturity:

INVESTMENT PORTFOLIO

HELD TO MATURITY

DECEMBER 31,
JUNE 30, --------------------------------------------
1996 1995 1994 1993(1)
----------- ------------ ------------ ------------

U.S. Treasury.......................... $ -- $ -- $ -- $ 2,642,000
U.S. Government agencies............... -- -- -- 6,049,000
States and political subdivisions...... 377,000 514,000 747,000 12,282,000
Mortgage-backed securities............. 37,351,000 42,009,000 71,515,000 52,537,000
Collateralized mortgage obligations.... 60,104,000 61,303,000 62,883,000 39,704,000
Other.................................. -- -- -- 1,743,000
------------ ------------- ------------- -------------
Total................................ $97,832,000 $103,826,000 $135,145,000 $114,957,000
============ ============= ============= =============

AVAILABLE FOR SALE

DECEMBER 31,
JUNE 30, --------------------------------------------
1996 1995 1994 1993
----------- ------------ ------------ ------------

U.S. Treasury.......................... $ 1,973,000 $ 1,028,000 $ 1,005,000 $ --
U.S. Government agencies............... 5,582,000 5,574,000 5,602,000 --
Mortgage-backed securities............. 22,911,000 26,604,000 4,755,000 --
States and political subdivisions...... 6,137,000 5,914,000 7,280,000 --
Collateralized mortgage obligations.... 1,609,000 1,859,000 -- --
Other.................................. 7,000 1,520,000 1,949,000 --
------------ ------------- ------------- -------------
Total................................ $39,459,000 $ 42,499,000 $ 20,591,000 $ --
============ ============= ============= =============

- -------------------------
(1) Prairie adopted Financial Accounting Standards Board (FASB) Statement No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
effective January 1, 1994 and classified securities as held to maturity or
available for sale. For purposes of this table, securities as of December
31, 1993 are classified as held to maturity.

INVESTMENT PORTFOLIO MATURITY/REPRICING SCHEDULE

JUNE 30, 1996

MATURING OR REPRICING
-------------------------------------------------------------------------------------
AFTER 1 YEAR BUT AFTER 5 YEARS BUT
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS AFTER 10 YEARS
------------------ ------------------ ------------------ -------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
---------- ----- ---------- ----- ---------- ----- ----------- -----

HELD-TO-MATURITY
Mortgage-backed
securities............ $ -- -- $ -- -- $ -- -- $37,619,000 6.09%
States and political
subdivisions(1)....... 50,000 9.34% 168,000 9.57% 159,000 9.36% -- --
Collateralized mortgage
obligations........... -- -- -- -- -- -- 59,836,000 5.21
----------- ----------- ----------- ------------
Total............ $ 50,000 $ 168,000 $ 159,000 $97,455,000
=========== =========== =========== ============
AVAILABLE-FOR-SALE
U.S. Treasury........... $1,013,000 5.74 $ -- -- $ -- -- $ -- --
U.S. Government
agencies.............. 1,678,000 4.75 3,905,000 4.72 -- -- -- --
Mortgage-backed
securities............ -- -- -- -- -- -- 28,497,000 6.18
States and political
subdivisions(1)....... -- -- 1,507,000 8.69 2,859,000 8.98 -- --
----------- ----------- ----------- ------------
Total............ $2,691,000 $5,412,000 $2,859,000 $28,497,000
=========== =========== =========== ============

- -------------------------
(1) Rates on obligations of states and political subdivisions have been adjusted
to tax equivalent yields using a 34% income tax rate.

F-47
132

INVESTMENT PORTFOLIO MATURITY/REPRICING SCHEDULE

DECEMBER 31, 1995

MATURING OR REPRICING
------------------------------------------------------------------------------------------
AFTER 1 YEAR BUT AFTER 5 YEARS BUT
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS AFTER 10 YEARS
------------------- ------------------- ------------------- ---------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
---------- ----- ---------- ----- ---------- ----- ------------ -----

HELD-TO-MATURITY
Mortgage-backed
securities.............. $ -- -- $ -- -- $ 290,000 9.05% $ 41,719,000 6.16 %
States and political
subdivisions(1)......... 130,000 9.46 % 198,000 9.38 % 186,000 10.94 -- --
Collateralized mortgage
obligations............. 6,000 6.38 -- -- 1,225,000 5.74 60,072,000 5.74
---------- ---------- ---------- ------------
Total................. $ 136,000 $ 198,000 $1,701,000 $101,791,000
========== ========== ========== ============
AVAILABLE-FOR-SALE
U.S. Treasury............. $ -- -- $1,028,000 4.96 $ -- -- $ -- --
U.S. Government
agencies................ 1,664,000 4.57 3,910,000 5.03 -- -- -- --
Mortgage-backed
securities.............. -- -- -- -- -- -- 26,604,000 6.35
States and political
subdivisions(1)......... -- -- 153,000 7.87 1,406,000 9.28 4,355,000 9.58
Collateralized mortgage
obligations............. -- -- -- -- -- -- 1,859,000 7.94
Other..................... -- -- -- -- -- -- 1,520,000 6.76
---------- ---------- ---------- ------------
Total $1,664,000 $5,091,000 $1,406,000 $ 34,338,000
========== ========== ========== ============

- -------------------------
(1) Rates on obligations of states and political subdivisions have been adjusted
to tax equivalent yields using a 34% income tax rate.

Deposit Activities

Deposits are attracted through the offering of a broad variety of deposit
instruments, including checking accounts, money market accounts, regular savings
accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more), and retirement savings plans. Prairie's
average balance of total deposits was $185,569,000 for the six months ended June
30, 1996, representing an increase of $3,569,000 or 1.96% compared with the
average balance of total deposits for the year ended December 31, 1995.
Prairie's average balance of total deposits was $182,000,000 for the year ended
1995, an increase of $12,501,000 or 7.38% compared with the average balance of
total deposits outstanding for 1994 of $169,499,000, an increase of $44,911,000
or 36.05% compared with the average balance of total deposits outstanding for
1993 of $124,588,000. The increases in deposits were due to pricing strategies
designed to attract new deposits and the opening of new branches.

F-48
133

The following table sets forth certain information regarding Prairie Banks'
average deposits as of June 30, 1996 and December 31, 1995, 1994 and 1993.

AVERAGE DEPOSITS

JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------ ------------------------------ ------------------------------
AVERAGE PERCENT AVERAGE AVERAGE PERCENT AVERAGE AVERAGE PERCENT AVERAGE
AMOUNT TOTAL RATE AMOUNT TOTAL RATE AMOUNT TOTAL RATE
------------ ------- ------- ------------ ------- ------- ------------ ------- -------

Non-interest bearing demand
deposits................. $ 12,698,000 6.8% -- $ 11,994,000 6.6% -- $ 11,038,000 6.5% --
Interest-bearing demand
deposits................. 20,846,000 11.2 2.68% 19,402,000 10.7 2.88% 18,656,000 11.0 2.83%
Savings deposits........... 48,580,000 26.2 3.65 50,630,000 27.8 3.94 61,449,000 36.3 4.00
Time deposits.............. 103,445,000 55.8 5.38 99,974,000 54.9 5.50 78,356,000 46.2 4.69
------------ ----- ---- ------------ ----- ---- ------------ ----- ----
$185,569,000 100.0% 4.30% $182,000,000 100.0% 4.42% $169,499,000 100.0% 3.93%
============ ===== ==== ============ ===== ==== ============ ===== ====

DECEMBER 31, 1993
------------------------------
AVERAGE PERCENT AVERAGE
AMOUNT TOTAL RATE
------------ ------- -------

Non-interest bearing demand
deposits................. $ 6,346,000 5.1% --
Interest-bearing demand
deposits................. 17,735,000 14.2 3.12%
Savings deposits........... 39,488,000 31.7 4.15
Time deposits.............. 61,019,000 49.0 5.15
------------ ----- ----
$124,588,000 100.0% 4.28%
============ ===== ====

F-49
134

As of June 30, 1996, non-brokered time deposits over $100,000 represented
14.07% of total deposits, compared with 15.92% of total deposits as of December
31, 1995 and 10.97% as of December 31, 1994. The Prairie Banks do not have and
do not solicit brokered deposits.

The following table sets forth the remaining maturities for time deposits
of $100,000 or more at June 30, 1996 and at December 31, 1995:

TIME DEPOSITS OF $100,000 OR MORE

MATURITY RANGE

JUNE 30, DECEMBER 31,
1996 1995
----------- ------------

Three months or less............................................... $12,543,000 $ 15,871,000
Three through six months........................................... 8,629,000 3,754,000
Six through twelve months.......................................... 2,047,000 5,346,000
Over twelve months................................................. 3,203,000 4,211,000
----------- ------------
Total......................................................... $26,422,000 $ 29,182,000
=========== ============

Return on Equity and Assets

The following are various ratios for Prairie for the six months ended June
30, 1996 and the years ended December 31, 1995, 1994 and 1993.

RETURN ON EQUITY AND ASSETS

FOR THE
SIX MONTHS FOR THE YEARS ENDED
ENDED DECEMBER 31,
JUNE 30, -----------------------
1996 1995 1994 1993
---------- ----- ----- -----

Return on average assets.................................... 0.44% 0.37% 0.36% 0.89%
Return on average equity.................................... 8.44 7.96 10.81 26.92
Average equity to average assets............................ 5.22 4.61 3.37 3.30
Dividend payout rates....................................... 62.17 58.45 43.77 5.03

Liquidity

Liquidity measures the ability of Prairie to meet maturing obligations and
its existing commitments, to withstand fluctuations in deposit levels, to fund
its operations and to provide for customers' credit needs. The liquidity of
Prairie principally depends on cash flows from operating activities, investment
in and maturity of assets, changes in balances of deposits and borrowings, and
its ability to borrow funds.

The Prairie Banks' investment securities portfolios, including federal
funds sold, and their cash and due from bank deposit balances serve as the
primary sources of liquidity for Prairie. At June 30, 1996, 13.24% of Prairie
Banks' interest-bearing liabilities were in the form of time deposits of
$100,000 and over. Substantially all of such large deposits were obtained from
the Prairie Banks' market areas and none of such deposits were brokered
deposits. Management believes these deposits to be a stable source of funds.
However, if a large number of these time deposits matured at approximately the
same time and were not renewed, the Prairie Banks' liquidity could be adversely
affected. Currently, the maturities of the Prairie Banks' large time deposits
are spread throughout the year, with 47% maturing in the third quarter of 1996,
33% maturing in the fourth quarter of 1996, 8% maturing in the first and second
quarter of 1997, and the remaining 12% maturing thereafter. The Prairie Banks
monitor those maturities in an effort to minimize any adverse effect on
liquidity.

At June 30, 1996, approximately 80% of the Prairie Banks' large time
deposits mature during the second half of 1996. Management believes it has the
ability to retain a significant portion of these deposits in their current form.
However, in the event of short-term liquidity needs, the Prairie Banks may
purchase federal

F-50
135

funds from correspondent banks. This source would be used from time to time on a
limited basis. The Prairie Banks may borrow from the Federal Reserve Bank, but
have not previously done so. The Prairie Banks may also borrow additional funds
from the Federal Home Loan Bank of Chicago for short or long-term purposes, and
may also utilize securities classified as available for sale and cash flows from
loan payments to meet short-term liquidity needs.

Prairie raised $1,500,000 during 1995, $3,500,000 during 1994, and
$1,092,000 during 1992 through the issuance of Preferred Stock for acquisition
of additional shares of subsidiary banks and debt service.

Prairie's short-term bank borrowings at June 30, 1996 consisted of a note
in the principal amount of $3,950,000 payable to Prairie's principal
correspondent bank. Prairie incurred this debt in the acquisition of the
subsidiary banks. The note was repaid concurrently with the closing of the
Prairie Acquisition.

Prairie's principal source of funds for repayment of the indebtedness is
dividends from the Prairie Banks. At June 30, 1996, approximately $1,900,000 was
available for dividends without regulatory approval. See "Regulation and
Supervision".

Capital Resources

Prairie's stockholders' equity at June 30, 1996 was $11.71 million compared
with $11.84 million at December 31, 1995. The decrease in equity was the result
of a decline in the net unrealized gain on securities available for sale,
partially offset by net income for the period. Prairie had consolidated net
income of $497,000 for the six months ended June 30, 1996.

The Prairie Banks are expected to meet a minimum risk-based capital to
risk-weighted assets ratio of 8%, of which at least one-half (or 4%) must be in
the form of Tier 1 (core) capital. The remaining one-half (or 4%) may be in the
form of Tier 1 (core) or Tier 2 (supplementary) capital. The amount of loan loss
allowance that may be included in capital is limited to 1.25% of risk-weighted
assets. The ratio of Tier 1 (core) and the combined amount of Tier 1 (core) and
Tier 2 (supplementary) capital to risk-weighted assets for the Prairie Banks
were 13.82% and 14.76% respectively, at June 30, 1996, and 14.52% and 15.46%,
respectively, at December 31, 1995. The Prairie Banks are currently, and expect
to continue to be, in compliance with these guidelines. See "Regulation and
Supervision -- Capital Adequacy Guidelines".

The Board of Governors of the Federal Reserve System has announced a policy
sometimes known as the "source of strength doctrine" that requires a bank
holding company to serve as a source of financial and managerial strength to its
subsidiary banks. The FRB has interpreted this requirement to require that a
bank holding company, such as Prairie, stand ready to use available resources to
provide adequate capital funds to its subsidiary banks during periods of
financial stress or adversity. The FRB has stated that it would generally view a
failure to assist a troubled or failing subsidiary bank in these circumstances
as an unsound or unsafe banking practice or a violation of Regulation Y or both,
justifying a cease and desist order or other enforcement action, particularly if
appropriate resources are available to the bank holding company on a reasonable
basis.

F-51
136

The following table sets forth an analysis of Prairie Banks' capital
ratios:

RISK-BASED CAPITAL RATIOS

DECEMBER 31, MINIMUM WELL-
JUNE 30, ----------------------------------------- CAPITAL CAPITALIZED
1996 1995 1994 1993 RATIOS RATIOS
----------- ----------- ----------- ----------- ------- -----------

Tier I risk-based
capital............... $11,546,000 $11,358,000 $ 9,115,000 $ 5,438,000
Tier II risk-based
capital............... 784,000 741,000 715,000 771,000
Total capital........... 12,330,000 12,099,000 9,830,000 6,209,000
Risk-weighted assets.... 83,541,000 78,238,000 74,192,000 61,668,000
Capital ratios:
Tier I risk-based
capital............ 13.82% 14.52% 12.29% 8.82% 4.00% 6.00%
Tier II risk-based
capital............ 14.76 15.46 13.25 10.07 8.00 10.00
Leverage ratio........ 5.11 5.05 4.28 3.04 3.00 5.00

ACCOUNTING MATTERS

In May 1993, the Financial Accounting Standards Board issued SFAS No. 114
"Accounting by Creditors of Impairment of a Loan" as amended by SFAS No. 118
"Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures". Together, these statements require that when a loan is impaired, a
creditor shall measure impairment based on the present value of expected future
cash flows discounted at the loan's effective interest rate, the fair value of
the collateral if the loan is collateral dependent or the loan's observable
market price. A loan is considered impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement. The new statements
also require certain disclosures regarding impaired loans. Prairie adopted these
statements effective January 1, 1995. The adoption of these accounting
statements did not have a material effect on Prairie's consolidated financial
position or results of operations since Prairie's recognition and measurement
policies regarding nonperforming loans are materially consistent with the
accounting statements.

In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". This Statement requires that long-lived assets and
certain identifiable intangibles held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of the asset. This Statement
is effective for fiscal years beginning after December 15, 1995.

The Financial Accounting Standards Board has issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights" which became effective for years
beginning after December 15, 1995. This Statement amends FASB Statement No. 65,
"Accounting for Certain Mortgage Banking Activities" to require that an entity
recognize as separate assets rights to service mortgage loans for others however
those rights are acquired. An entity that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and sells or
securitizes those loans with servicing rights retained should allocate the total
cost of the mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values. If
it is not practicable to estimate the fair values separately, the entire cost of
purchasing or originating the loans should be allocated to the mortgage loans
(without the mortgage servicing rights) and no cost should be allocated to the
mortgage servicing rights. This Statement also requires that an entity assess
its capitalized mortgage servicing rights for impairment based on the fair value
of those rights.

F-52
137

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". This Statement defines a fair
value based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the intrinsic value
based method of accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees". Entities electing to continue to use the method of
accounting specified in Opinion 25 must make pro forma disclosures of net income
and, if presented, earnings per share, as if the fair value method of accounting
defined in this Statement had been applied. This Statement is effective for
fiscal years beginning after December 15, 1995.

IMPACT OF INFLATION, CHANGING PRICES AND MONETARY POLICIES

The financial statements and related financial data concerning Prairie
presented in this Prospectus have been prepared in accordance with generally
accepted accounting principles which require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary effect of inflation on the operations of Prairie is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant effect on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Interest rates are highly
sensitive to many factors which are beyond the control of the Prairie Banks,
including the influence of domestic and foreign economic conditions and the
monetary and fiscal policies of the United States government and federal
agencies, particularly the FRB. See "Investment Considerations -- Impact of
Interest Rates and Economic Conditions".

F-53
138

PRAIRIE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995

DECEMBER 31,
1995
JUNE 30, ------------
1996
------------
(UNAUDITED)

ASSETS
Cash and due from banks.......................................... $ 7,967,000 $ 4,458,000
Federal funds sold............................................... 2,131,000 2,045,000
Securities held to maturity (fair value $95,285,000 in 1996 and
$101,623,000 in 1995).......................................... 97,832,000 103,826,000
Securities available for sale.................................... 39,459,000 42,499,000
Loans (net of allowance for loan losses of $784,000 in 1996 and
$741,000 in 1995).............................................. 73,050,000 66,392,000
Premises and equipment........................................... 3,184,000 3,327,000
Accrued interest and other assets................................ 2,409,000 2,427,000
------------ ------------
Total assets.............................................. $226,032,000 $224,974,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Noninterest bearing......................................... $ 12,378,000 $ 13,017,000
Interest bearing............................................ 175,462,000 170,279,000
------------ ------------
Total deposits............................................ 187,840,000 183,296,000
Federal funds purchased.......................................... 1,980,000 275,000
Repurchase agreements............................................ 6,490,000 6,181,000
Federal Home Loan Bank advances.................................. 11,721,000 16,993,000
Notes payable.................................................... 3,950,000 3,950,000
Accrued interest and other liabilities........................... 1,543,000 1,663,000
------------ ------------
Total liabilities......................................... 213,524,000 212,358,000
------------ ------------
Minority interest in subsidiaries................................ 796,000 775,000
------------ ------------
Stockholders' Equity
Common stock, no par value; authorized, issued and outstanding
1,000 shares................................................ 1,000 1,000
Preferred stock................................................ 6,092,000 6,092,000
Additional paid-in capital..................................... 1,579,000 1,579,000
Retained earnings.............................................. 3,874,000 3,686,000
Unrealized gain on securities available for sale, net.......... 166,000 483,000
------------ ------------
Total stockholders' equity................................ 11,712,000 11,841,000
------------ ------------
Total liabilities and stockholders' equity................ $226,032,000 $224,974,000
============ ============

See Accompanying Notes to Unaudited Consolidated Financial Statements.

F-54
139

PRAIRIE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1995

SIX MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
------------ ----------
(UNAUDITED)

Interest income:
Loans and fees on loans.......................................... $ 3,136,000 $2,720,000
Taxable.......................................................... 4,094,000 4,507,000
Exempt from federal income taxes................................. 191,000 159,000
Dividends........................................................ 44,000 61,000
Other............................................................ 62,000 30,000
----------- -----------
Total interest income......................................... 7,527,000 7,477,000
----------- -----------
Interest expense:
Deposits......................................................... 3,948,000 3,950,000
Short-term borrowings............................................ 264,000 203,000
Federal Home Loan Bank advances and notes payable................ 580,000 974,000
----------- -----------
Total interest expense........................................ 4,792,000 5,127,000
----------- -----------
Net interest income........................................... 2,735,000 2,350,000
Provision for loan losses.......................................... 20,000 (22,000)
----------- -----------
Net interest income after provision for loan losses........... 2,715,000 2,372,000
----------- -----------
Noninterest income:
Service charges and fees......................................... 205,000 166,000
Securities gains, net............................................ -- 406,000
Other............................................................ 51,000 111,000
----------- -----------
256,000 683,000
----------- -----------
Noninterest expenses:
Salaries, wages and employee benefits............................ 1,206,000 1,190,000
Occupancy and equipment.......................................... 351,000 329,000
Professional fees................................................ 36,000 35,000
Office supplies.................................................. 69,000 60,000
Travel and entertainment......................................... 14,000 13,000
Telephone........................................................ 36,000 32,000
Advertising...................................................... 34,000 38,000
Postage.......................................................... 58,000 57,000
Amortization of intangibles...................................... 8,000 11,000
Dues and subscriptions........................................... 9,000 10,000
Insurance........................................................ 12,000 13,000
Credit cards..................................................... 6,000 4,000
Bank service charge.............................................. 44,000 49,000
FDIC assessment.................................................. 17,000 100,000
Other............................................................ 317,000 433,000
----------- -----------
2,217,000 2,374,000
----------- -----------
Income before minority interest and income taxes.............. 754,000 681,000
Minority interest.................................................. 42,000 44,000
----------- -----------
Income before income taxes.................................... 712,000 637,000
Income taxes....................................................... 215,000 156,000
----------- -----------
Net income.................................................... $ 497,000 $ 481,000
=========== ===========
Net income applicable to common stock.............................. $ 188,000 $ 252,000
=========== ===========
Earnings per share of common stock................................. 188 252
=========== ===========

See Accompanying Notes to Unaudited Consolidated Financial Statements.

F-55
140

PRAIRIE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995

SIX MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
----------- -----------
(UNAUDITED)

Cash Flows from Operating Activities
Net income....................................................... $ 497,000 $ 481,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation
Provision for loan losses..................................... 20,000 (22,000)
Amortization of premiums and accretion of discounts on
securities, net.............................................. 168,000 96,000
(Gain) on sale of securities, net............................. -- (406,000)
Minority interest in net income of subsidiaries, net of
dividends paid............................................... 34,000 20,000
Change in assets and liabilities:
Decrease in accrued interest receivable and other assets.... 18,000 207,000
Increase in accrued interest payable and other
liabilities................................................ 50,000 23,000
----------- -----------
Net cash provided by operating activities................ 975,000 569,000
----------- -----------
Cash Flows from Investing Activities
(Increase) decrease in federal funds sold........................ (86,000) 954,000
Investment securities:
Held to maturity:
Proceeds from maturities, calls and paydowns................ 5,933,000 3,975,000
Purchases................................................... (40,000) (587,000)
Available for sale:
Proceeds from maturities, calls and paydowns................ 3,098,000 293,000
Proceeds from sales......................................... 920,000 9,466,000
Purchases................................................... (1,545,000) (7,034,000)
Net (increase) in loans.......................................... (6,678,000) (5,141,000)
Purchase of premises and equipment............................... (45,000) (226,000)
----------- -----------
Net cash provided by investing activities................ 1,557,000 1,700,000
----------- -----------
Cash Flows from Financing Activities
Net (decrease) in noninterest-bearing deposits................... (639,000) (1,411,000)
Net increase (decrease) in interest-bearing deposits............. 5,183,000 (7,035,000)
Net increase (decrease) in federal funds purchased............... 1,705,000 (110,000)
Net increase (decrease) in repurchase agreements................. 309,000 (2,194,000)
Net increase (decrease) in Federal Home Loan Bank advances....... (5,272,000) 6,711,000
Principal payments on notes payable.............................. -- (1,050,000)
Proceeds from issuance of preferred stock........................ -- 1,500,000
Dividends paid................................................... (309,000) (229,000)
Purchase of minority interest in subsidiaries.................... -- (74,000)
----------- -----------
Net cash provided by (used in) financing activities...... 977,000 (3,892,000)
----------- -----------
Net increase (decrease) in cash and due from banks....... 3,509,000 (1,623,000)
Cash and due from banks:
Beginning........................................................ 4,458,000 5,361,000
----------- -----------
End.............................................................. $ 7,967,000 $ 3,738,000
=========== ===========

See Accompanying Notes to Unaudited Consolidated Financial Statements.

F-56
141

PRAIRIE BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The financial information of Prairie Bancorp, Inc. and subsidiaries
included herein is unaudited; however, such information reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
The results of the interim period ended June 30, 1996 are not necessarily
indicative of the results expected for the year ending December 31, 1996.

NOTE 2. SECURITIES

Amortized costs and fair values of securities are summarized as follows:

HELD TO MATURITY

JUNE 30, 1996
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ---------- ----------- ------------

States and political subdivisions.......... $ 377,000 $ 16,000 $ -- $ 393,000
Mortgage-backed securities................. 97,455,000 -- (2,563,000) 94,892,000
----------- -------- ----------- -----------
$ 97,832,000 $ 16,000 $(2,563,000) $ 95,285,000
=========== ======== =========== ===========

DECEMBER 31, 1995
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ---------- ----------- ------------

States and political subdivisions.......... $ 514,000 $ 25,000 $ -- $ 539,000
Mortgage-backed securities................. 103,312,000 151,000 (2,379,000) 101,084,000
------------ -------- ----------- ------------
$103,826,000 $ 176,000 $(2,379,000) $101,623,000
============ ======== =========== ============

AVAILABLE FOR SALE

JUNE 30, 1996
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ ---------- ----------- ------------

U.S. Treasury and government agency
securities............................... $ 7,714,000 $ -- $ (159,000) $ 7,555,000
States and political subdivisions.......... 6,061,000 76,000 -- 6,137,000
Mortgage-backed securities................. 24,173,000 347,000 -- 24,520,000
Other...................................... 1,247,000 -- -- 1,247,000
----------- -------- --------- -----------
$ 39,195,000 $ 423,000 $ (159,000) $ 39,459,000
=========== ======== ========= ===========

F-57
142

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

DECEMBER 31, 1995
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
----------- ----------- ------------ ------------

U.S. Treasury and government agency
securities............................ $ 6,730,000 $ -- $ (128,000) $ 6,602,000
States and political subdivisions....... 5,577,000 337,000 -- 5,914,000
Mortgage-backed securities.............. 27,908,000 563,000 (8,000) 28,463,000
Other................................... 1,520,000 -- -- 1,520,000
----------- -------- --------- -----------
$41,735,000 $ 900,000 $ (136,000) $42,499,000
=========== ======== ========= ===========

The amortized cost and fair value of investment securities as of June 30,
1996 and December 31, 1995, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because the mortgages
underlying the mortgage-backed and related securities may be called or prepaid
without any penalties. Therefore, these securities are not included in the
maturity categories in the following summary. Certain other securities are
excluded from the maturity categories because they do not have a fixed maturity
date.

HELD TO MATURITY

JUNE 30, 1996 DECEMBER 31, 1995
-------------------------- ----------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ------------ ------------

Due in one year or less................. $ 50,000 $ 50,000 $ 130,000 $ 132,000
Due after one year through five years... 168,000 173,000 198,000 204,000
Due after five years through ten
years................................. 159,000 170,000 186,000 203,000
Mortgage-backed securities.............. 97,455,000 94,892,000 103,312,000 101,084,000
----------- ----------- ------------ ------------
$97,832,000 $95,285,000 $103,826,000 $101,623,000
=========== =========== ============ ============

AVAILABLE FOR SALE

JUNE 30, 1996 DECEMBER 31, 1995
-------------------------- ----------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ------------ ------------

Due in one year or less................. $ 2,779,000 $ 2,691,000 $ 1,700,000 $ 1,664,000
Due after one year through five years... 5,566,000 5,412,000 5,183,000 5,091,000
Due after five years through ten
years................................. 2,855,000 2,859,000 1,329,000 1,406,000
Due after ten years..................... 2,575,000 2,730,000 4,095,000 4,355,000
Mortgage-backed securities.............. 24,173,000 24,520,000 27,908,000 28,463,000
Other................................... 1,247,000 1,247,000 1,520,000 1,520,000
----------- ----------- ----------- -----------
$39,195,000 $39,459,000 $41,735,000 $42,499,000
=========== =========== =========== ===========

Securities with carrying values of approximately $73,888,000 and
$71,689,000 at June 30, 1996 and December 31, 1995, respectively, were pledged
to secure public deposits as permitted or required by law.

F-58
143

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3. LOANS

The major classifications of loans follow:

DECEMBER
JUNE 30, 31,
1996 1995
----------- -----------

Commercial......................................................... $25,885,000 $21,327,000
Real estate........................................................ 40,972,000 37,652,000
Installment........................................................ 7,014,000 8,218,000
----------- -----------
73,871,000 67,197,000
----------- -----------
Deduct:
Unearned interest................................................ 37,000 64,000
Allowance for loan losses........................................ 784,000 741,000
----------- -----------
821,000 805,000
----------- -----------
$73,050,000 $66,392,000
=========== ===========

NOTE 4. ALLOWANCE FOR LOAN LOSSES

An analysis of activity in the allowance for loan losses follows:

SIX MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
----------- -----------

Balance, January 1................................................. $ 741,000 $ 715,000
Provision for loan losses........................................ 20,000 (22,000)
Recoveries....................................................... 125,000 108,000
Loans charged off................................................ 102,000 51,000
----------- -----------
Balance, end of period............................................. $ 784,000 $ 750,000
========== ==========

NOTE 5. SHORT TERM BORROWINGS

Short term borrowings include federal funds purchased and securities sold
under agreements to repurchase.

Average and maximum balances and rates on federal funds purchased and
securities sold under agreements to repurchase were as follows:

SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
----------- ----------

Maximum month end balance........................................... $13,573,000 $9,822,000
Average month end balance........................................... 7,463,000 6,108,000
Weighted average interest rate for the period....................... 7.07% 6.65%
Weighted average interest rate at end of period..................... 5.98% 6.70%

F-59
144

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6. CONTINGENT LIABILITIES

At June 30, 1996 and December 31, 1995, loan commitments and standby
letters of credit, were as follows:

DECEMBER
JUNE 30, 31,
1996 1995
----------- ----------

Unused lines-of-credit............................................ $4,360,000 $4,598,000
Standby letters of credit......................................... 352,000 75,000

NOTE 7. NEW ACCOUNTING RULES AND REGULATIONS

During March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" (Statement No. 121). Statement No. 121
generally requires long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the entity should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(discounted and without interest charges) is less than the carrying amount of
the asset, an impairment is recognized. Prairie adopted Statement No. 121
effective January 1, 1996. Management believes that the adoption of Statement
No. 121 will not have a material effect on Prairie's financial statements.

In May 1995, the Financial Accounting Standards Board issued Statement No.
122, "Accounting for Mortgage Servicing Rights" (Statement No. 122). Statement
No. 122 requires the Prairie Banks to recognize as separate assets rights to
service mortgage loans for others, however those servicing rights are acquired.
If the Prairie Banks acquire mortgage servicing rights through either the
purchase or origination of mortgage loans and sell or securitize those loans
with servicing rights retained, the Prairie Banks should allocate the total cost
of the mortgage loans to mortgage servicing rights and the loans (without the
mortgage servicing rights) based on their relative fair values. The mortgage
servicing rights should be amortized in proportion to and over the period of
estimated net servicing income. The Prairie Banks adopted Statement No. 122
effective January 1, 1996. Management believes that the adoption of Statement
No. 122 will not have a material effect on the financial statements of the
Prairie Banks.

In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock Based Compensation" (Statement No. 123).
Statement No. 123 establishes a fair value based method of accounting for stock
options and other equity instruments. Statement No. 123 permits the continued
use of the intrinsic value method included in Accounting Principle Board Opinion
25, "Accounting for Stock Issued to Employees" (APB 25), but regardless of the
method used to account for the compensation cost associated with stock option or
similar plans, it requires employers to disclose information required by
Statement No. 123. Prairie plans to continue to measure compensation cost using
APB 25; therefore, the adoption of Statement No. 123 will not have any impact on
Prairie's financial condition or results of operations.

F-60
145

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Prairie Bancorp, Inc.
Princeton, Illinois

We have audited the accompanying consolidated balance sheets of Prairie
Bancorp, Inc. and Subsidiaries as of December 31, 1995 and 1994, 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, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Prairie
Bancorp, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.

As described in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for investment securities in 1994.

McGLADREY & PULLEN, LLP

Davenport, Iowa
January 26, 1996

F-61
146

PRAIRIE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

1995 1994
------------ ------------

ASSETS
Cash and due from banks.......................................... $ 4,458,000 $ 5,361,000
Federal funds sold............................................... 2,045,000 954,000
Securities held to maturity (fair value $101,623,000 in 1995;
$126,794,000 in 1994).......................................... 103,826,000 135,145,000
Securities available for sale.................................... 42,499,000 20,591,000
Loans, net of allowance for loan losses of $741,000 in 1995;
$715,000 in 1994............................................... 66,392,000 60,080,000
Premises and equipment........................................... 3,327,000 3,303,000
Accrued interest and other assets................................ 2,427,000 2,754,000
------------ ------------
Total assets........................................... $224,974,000 $228,188,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest bearing......................................... $ 13,017,000 $ 11,171,000
Interest bearing............................................ 170,279,000 169,739,000
------------ ------------
Total deposits............................................ 183,296,000 180,910,000
Federal funds purchased........................................ 275,000 960,000
Repurchase agreements.......................................... 6,181,000 8,869,000
Federal Home Loan Bank advances................................ 16,993,000 21,079,000
Notes payable.................................................. 3,950,000 5,245,000
Accrued interest and other liabilities......................... 1,663,000 1,397,000
------------ ------------
Total liabilities...................................... 212,358,000 218,460,000
------------ ------------
Minority interest in subsidiaries................................ 775,000 760,000
------------ ------------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, no par value; authorized, issued, and outstanding
1,000 shares................................................ 1,000 1,000
Preferred stock................................................ 6,092,000 4,592,000
Additional paid-in capital..................................... 1,579,000 1,579,000
Retained earnings.............................................. 3,686,000 3,342,000
Unrealized gain (loss) on securities available for sale........ 483,000 (546,000)
------------ ------------
Total stockholders' equity............................. 11,841,000 8,968,000
------------ ------------
Total liabilities and stockholders' equity............. $224,974,000 $228,188,000
============ ============

See Accompanying Notes to Consolidated Financial Statements.

F-62
147

PRAIRIE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

1995 1994 1993
----------- ----------- -----------

Interest income:
Interest and fees on loans.......................... $ 5,819,000 $ 5,003,000 $ 4,804,000
Interest and dividends on investment-taxable........ 8,753,000 7,716,000 4,664,000
Exempt from federal income taxes.................... 318,000 343,000 887,000
Dividends........................................... 121,000 126,000 43,000
Other interest income............................... 112,000 63,000 68,000
----------- ----------- -----------
Total interest income............................ 15,123,000 13,251,000 10,466,000
----------- ----------- -----------
Interest expense:
Interest on deposits................................ 8,049,000 6,665,000 5,332,000
Interest on short-term borrowings................... 510,000 386,000 258,000
Interest on Federal Home Loan Bank advances and
notes payable.................................... 1,768,000 1,531,000 710,000
----------- ----------- -----------
Total interest expense........................... 10,327,000 8,582,000 6,300,000
----------- ----------- -----------
Net interest income.............................. 4,796,000 4,669,000 4,166,000
Provision for loan losses............................. (31,000) 10,000 (100,000)
----------- ----------- -----------
Net interest income after provision for loan
losses......................................... 4,827,000 4,659,000 4,266,000
Other income:
Service charges and fees............................ 346,000 317,000 300,000
Securities gains, net............................... 402,000 505,000 866,000
Other............................................... 245,000 275,000 274,000
----------- ----------- -----------
Total other income............................... 993,000 1,097,000 1,440,000
----------- ----------- -----------
Other expenses:
Salaries, wages and employee benefits............... 2,424,000 2,190,000 1,827,000
Occupancy and equipment............................. 702,000 669,000 500,000
Professional fees................................... 91,000 82,000 142,000
FDIC assessment..................................... 157,000 367,000 297,000
Office supplies..................................... 137,000 152,000 158,000
Advertising......................................... 126,000 144,000 96,000
Travel and entertainment............................ 49,000 47,000 42,000
Telephone........................................... 61,000 60,000 51,000
Postage............................................. 105,000 89,000 96,000
Amortization of intangibles......................... 58,000 35,000 53,000
Dues and subscriptions.............................. 33,000 37,000 35,000
Insurance........................................... 59,000 66,000 58,000
Credit cards........................................ 9,000 12,000 10,000
Bank service charge................................. 97,000 100,000 112,000
Other............................................... 514,000 598,000 534,000
----------- ----------- -----------
Total other expenses............................. 4,622,000 4,648,000 4,011,000
----------- ----------- -----------
Income before minority interest and income
taxes.......................................... 1,198,000 1,108,000 1,695,000
Minority interest..................................... 95,000 95,000 113,000
----------- ----------- -----------
Income before income taxes....................... 1,103,000 1,013,000 1,582,000
Income tax expense.................................... 275,000 227,000 271,000
----------- ----------- -----------
Net income....................................... $ 828,000 $ 786,000 $ 1,311,000
=========== =========== ===========
Net income applicable to common stock................. $ 344,000 $ 442,000 $ 1,245,000
=========== =========== ===========
Earnings per share of common stock.................... 344 442 1,245
=========== =========== ===========

See Accompanying Notes to Consolidated Financial Statements.

F-63
148

PRAIRIE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

UNREALIZED
GAIN (LOSS)
SERIES A SERIES B SERIES C SERIES D ADDITIONAL ON SECURITIES
COMMON PREFERRED PREFERRED PREFERRED PREFERRED PAID-IN RETAINED AVAILABLE
STOCK STOCK STOCK STOCK STOCK CAPITAL EARNINGS FOR SALE, NET TOTAL
------ ---------- ---------- ---------- ---------- ---------- ---------- ------------- -----------

Balance, December
31, 1992........ $1,000 $1,092,000 $ -- $ -- $ -- 1,419,000 $1,655,000 $ -- $ 4,167,000
Net income for
year ended
December 31,
1993.......... -- -- -- -- -- -- 1,311,000 -- 1,311,000
Dividend on
preferred
stock ($60 per
share)........ -- -- -- -- -- -- (66,000) -- (66,000)
Stockholders'
contribution... -- -- -- -- -- 160,000 -- -- 160,000
------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Balance, December
31, 1993........ 1,000 1,092,000 -- -- -- 1,579,000 2,900,000 -- 5,572,000
Net income for
year ended
December 31,
1994.......... -- -- -- -- -- -- 786,000 -- 786,000
Preferred stock,
Series B, no
par, issued
2,500
shares........ -- -- 2,500,000 -- -- -- -- -- 2,500,000
Preferred stock,
Series C, no
par, issued
1,000
shares........ -- -- -- 1,000,000 -- -- -- -- 1,000,000
Dividends on
Series A
preferred
stock ($60.00
per share).... -- -- -- -- -- -- (65,000) -- (65,000)
Dividends on
Series B
preferred
stock ($230.17
per share).... -- -- -- -- -- -- (230,000) -- (230,000)
Dividends on
Series C
preferred
stock ($49.11
per share).... -- -- -- -- -- -- (49,000) -- (49,000)
Effect of
Adoption of
SFAS No. 115,
net........... -- -- -- -- -- -- -- 442,000 442,000
Change in
unrealized
losses on
securities
available for
sale, net..... -- -- -- -- -- -- -- (988,000) (988,000)
------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Balance, December
31, 1994........ 1,000 1,092,000 2,500,000 1,000,000 -- 1,579,000 3,342,000 (546,000) 8,968,000
Net income for
year ended
December 31,
1995.......... -- -- -- -- -- -- 828,000 -- 828,000
Preferred stock,
Series D, no
par, issued
1,500
shares........ -- -- -- -- 1,500,000 -- -- -- 1,500,000
Dividends on
Series B
preferred
stock ($108.16
per share).... -- -- -- -- -- -- (271,000) -- (271,000)
Dividends on
Series C
preferred
stock ($108.32
per share).... -- -- -- -- -- -- (108,000) -- (108,000)
Dividends on
Series D
preferred
stock ($70.13
per share).... -- -- -- -- -- -- (105,000) -- (105,000)
Change in
unrealized
gain (loss) on
securities
available for
sale, net..... -- -- -- -- -- -- -- 1,029,000 1,029,000
------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
Balance, December
31, 1995........ $1,000 $1,092,000 $2,500,000 $1,000,000 $1,500,000 $1,579,000 $3,686,000 $ 483,000 $11,841,000
====== ========== ========== ========== ========== ========== ========== ========== ===========

See Accompanying Notes to Consolidated Financial Statements.

F-64
149

PRAIRIE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993

1995 1994 1993
------------ ------------ ------------

Cash Flows from Operating Activities:
Net income............................................................ $ 828,000 $ 786,000 $ 1,311,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation........................................................ 380,000 343,000 247,000
Deferred income taxes............................................... 20,000 23,000 5,000
Provision for loan losses........................................... (31,000) 10,000 (100,000)
Amortization of premiums and accretion of discounts on investment
securities, net................................................... 239,000 422,000 140,000
(Gain) on sale of investment securities, net........................ (402,000) (505,000) (866,000)
Minority interest in net income of subsidiaries, net of dividends
paid.............................................................. 38,000 37,000 69,000
(Increase) decrease in:
Accrued interest receivable....................................... (116,000) (242,000) 141,000
Other assets...................................................... 140,000 58,000 (185,000)
Increase (decrease) in:
Accrued interest payable.......................................... 92,000 242,000 (17,000)
Other liabilities................................................. (108,000) (398,000) 352,000
------------ ------------ ------------
Net cash provided by operating activities....................... 1,080,000 776,000 1,097,000
------------ ------------ ------------
Cash Flows from Investing Activities:
(Increase) decrease in federal funds sold............................. (1,091,000) 96,000 1,794,000
Proceeds from maturities, calls and principal of investment securities
held
to maturity......................................................... 10,797,000 12,730,000 25,959,000
Proceeds from maturities, calls and principal of investment securities
available
for sale............................................................ 668,000 1,025,000 --
Proceeds from sale of investment securities available for sale........ 12,740,000 16,983,000 12,963,000
Purchase of investment securities held to maturity.................... (587,000) (60,128,000) (74,363,000)
Purchase of investment securities available for sale.................. (12,401,000) (12,187,000) --
Loans originated, net................................................. (6,281,000) (7,047,000) (2,975,000)
Purchase of property and equipment.................................... (404,000) (811,000) (945,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities............. 3,441,000 (49,339,000) (37,567,000)
------------ ------------ ------------
Cash Flows from Financing Activities:
Net increase in noninterest-bearing deposits.......................... 1,846,000 1,310,000 1,062,000
Net increase in interest-bearing deposits............................. 540,000 36,433,000 16,351,000
Net increase (decrease) in federal funds purchased.................... (685,000) 702,000 108,000
Net increase (decrease) in repurchase agreements...................... (2,688,000) 2,523,000 3,947,000
Net increase (decrease) in Federal Home Loan Bank advances............ (4,086,000) 5,522,000 13,607,000
Principal payments on note payable.................................... (1,295,000) (350,000) --
Proceeds from note payable............................................ -- -- 1,150,000
Proceeds from issuance of preferred stock............................. 1,500,000 3,500,000 --
Stockholders' contribution............................................ -- -- 160,000
Dividends paid preferred stock........................................ (484,000) (344,000) (66,000)
Purchase of minority interest in subsidiaries......................... (72,000) -- --
Minority interest contribution........................................ -- -- 92,000
------------ ------------ ------------
Net cash provided by (used in) financing activities............. (5,424,000) 49,296,000 36,411,000
------------ ------------ ------------
Net increase (decrease) in cash and due from banks.............. (903,000) 733,000 (59,000)
Cash and due from banks:
Beginning............................................................. 5,361,000 4,628,000 4,687,000
------------ ------------ ------------
Ending................................................................ $ 4,458,000 $ 5,361,000 $ 4,628,000
============ ============ ============
Supplemental Disclosure of Cash Flow Information, payments for:
Interest.............................................................. $ 10,235,000 $ 8,339,000 $ 6,317,000
============ ============ ============
Income taxes.......................................................... $ 127,000 $ 212,000 $ 125,000
============ ============ ============
Supplemental Disclosure of Noncash Investing and Financing Activities:
Transfer of loans to other real estate acquired in settlement of
loans............................................................... $ -- $ 18,000 $ --
============ ============ ============
Securities transferred to available for sale at amortized cost........ $ -- $ 19,955,000 $ --
============ ============ ============
Securities transferred from held to maturity to available for sale, at
fair value.......................................................... $ 21,387,000 $ -- $ --
============ ============ ============
Change in unrealized gain (loss) on securities available for sale..... $ 1,643,000 $ (879,000) $ --
============ ============ ============
Increase (decrease) in deferred taxes attributable to the unrealized
gain (loss) on securities available for sale........................ $ 614,000 $ 33,000 $ --
============ ============ ============

See Accompanying Notes to Consolidated Financial Statements.

F-65
150

PRAIRIE BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES

The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and reporting practices prescribed for
the banking industry.

The significant accounting and reporting policies for Prairie Bancorp, Inc.
and its subsidiaries follow:

Nature of business: Prairie Bancorp, Inc. is a six-bank holding company.
The Banks provide a full range of banking services to individual and corporate
customers in the Northwestern Illinois area. The Banks are subject to
competition from other financial institutions and nonfinancial institutions
providing financial products. Additionally, Prairie Bancorp, Inc. and its Bank
subsidiaries are subject to regulations of certain regulatory agencies and
undergo periodic examinations by those regulatory agencies.

Accounting estimates: In preparing the consolidated financial statements,
Prairie's management is required to make estimates and assumptions which
significantly affect the amounts reported in the consolidated financial
statements. Significant estimates which are particularly susceptible to change
in a short period of time include the determination of the allowance for loan
losses and valuation of real estate and other properties acquired in connection
with foreclosures or in satisfaction of amounts due from borrowers on loans.
Actual results could differ from those estimates.

Principles of consolidation: The consolidated financial statements include
the accounts of Prairie and its majority owned subsidiaries, First National Bank
of Manlius (Manlius) (98.50% owned), Tampico National Bank (Tampico) (99.41%
owned), Bank of Ladd (Ladd) (80% owned), Tiskilwa State Bank (Tiskilwa) (94.99%
owned) and its wholly-owned subsidiaries Farmers State Bank of Ferris (Ferris),
and Hanover State Bank (Hanover), collectively referred to as the "Prairie
Banks". All significant intercompany balances and transactions have been
eliminated in consolidation.

Presentation of cash flows: For purposes of reporting cash flows, cash and
due from banks include cash on hand and amounts due from banks, including cash
items in process of clearing. Cash flows from loans originated by the subsidiary
banks, deposits, federal funds purchased and securities sold under agreements to
repurchase and Federal Home Loan Bank advances are reported net.

Investment securities: Prior to January 1, 1994, all debt securities were
carried at amortized cost. Effective January 1, 1994, Prairie adopted Financial
Accounting Standards Board (FASB) Statement No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" and classified investments as held to
maturity or available for sale. The effect of adopting Statement No. 115 on the
accompanying balance sheet as of January 1, 1994 was an increase in
stockholders' equity of $442,000 net of the related income tax effect of
$228,000 to recognize the net unrealized gain in securities available for sale
at that date. There were no investments held for trading purposes during 1994
and 1995.

Securities classified as held to maturity are those for which the
subsidiary bank's have the ability and intent to hold to maturity. Securities
meeting such criteria at the date of purchase and as of the balance sheet date
are carried at cost, adjusted for amortization of premiums and discounts
computed using the interest method over their contractual lives.

Securities classified as available for sale are those debt securities that
the subsidiary banks intend to hold for an indefinite period of time, but not
necessarily to maturity. Any decision to sell a security classified as available
for sale would be based on various factors, including significant movements in
interest rates, changes in the maturity mix of Prairie's assets and liabilities,
liquidity needs, regulatory capital considerations, and other similar factors.
Securities available for sale are carried at fair value. The differences between
fair value and cost, adjusted for amortization of premium and accretion of
discounts, results in an unrealized gain or loss. Unrealized gains or losses are
reported as increases or decreases in stockholders' equity, net of the related
deferred tax effect. Gains or losses from the sale of securities are determined
using the specific identification method.

F-66
151

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pursuant to a FASB Special Report "A Guide to Implementation of Statement
No. 115 on Accounting for Certain Investments in Debt and Equity Securities"
Prairie transferred at fair value $21,387,000 of investment securities from held
to maturity to available for sale on December 31, 1995 which increased
stockholders' equity by $298,000 net of the related income tax effect of
$154,000.

Loans: Loans are stated at the principal amount outstanding, net of
unearned discount and the allowance for loan losses. Interest on all loans
except installment loans is credited to income based on the principal amount
outstanding. Interest on installment loans is credited to income over the term
of the loan using a method which approximates the interest method.

Unearned discount on certain installment loans is credited to income over
the term of the loan using the interest method. For all other loans, interest is
credited to income as earned using the simple interest method applied to the
daily balances of the principal outstanding.

Prairie's policy is to discontinue the accrual of interest income on any
loan when, in the opinion of management, there is reasonable doubt as to the
timely collectibility of interest or principal. Interest income on these loans
is recognized to the extent interest payments are received and the principal is
considered fully collectible.

Allowance for loan losses: The allowance for loan losses is maintained at a
level considered adequate to provide for losses that can be reasonably
anticipated. The allowance is increased by provisions charged to operating
expense and reduced by net charge-offs. The Prairie Banks make continuous credit
reviews of the loan portfolios and consider current economic conditions,
historical loan loss experience and other factors in determining the adequacy of
the allowance balance. In addition, regulatory agencies, as an integral part of
their examination process, periodically review the Prairie Banks' allowances for
loan losses, and may require additions to the allowance based on their judgment
about information available to them at the time of their examinations.

On January 1, 1995, Prairie adopted FASB Statement of Financial Accounting
Standards No. 114 "Accounting by Creditors for Impairment of a Loan", as amended
by Statement No. 118, which requires loans to be considered impaired when, based
on current information and events, it is probable Prairie will not be able to
collect all amounts due. The portion of the allowance for loan losses applicable
to impaired loans has been computed based on the present value of the estimated
future cash flows of interest and principal discounted at the loan's effective
interest rate or on the fair value of the collateral for collateral dependent
loans. The entire change in present value of expected cash flows of impaired
loans is reported as bad debt expense in the same manner in which impairment
initially was recognized or as a reduction in the amount of bad debt expense
that otherwise would be reported. Prairie recognizes interest income on impaired
loans on an accrual basis.

Premises and equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed by the straight-line and
declining balance methods over their estimated useful lives.

Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.

Preferred stock: Terms of the preferred stock are as follows:

Series A Preferred Stock: Dividends are 6%, cumulative,
nonparticipating and senior to Common Stock, Series B, Series C, and Series
D Preferred Stock dividends. Dividends have been declared through

F-67
152

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1995. 1,000,000 shares have been authorized and 1,092 have
been issued with no par value. These shares are callable in whole or in
part at $1,000 per share plus accumulated dividends at any time, but may
not be called in part without dividends being paid current. These shares
are to be liquidated in Prairie's dissolution senior to the Common Stock,
the Series B, Series C, and Series D Preferred Stock at $1,000 per share
plus accumulated dividends, with merger or consolidation of Prairie not
deemed to be a dissolution. These shares are non-voting except for a
proposed issuance of Preferred Stock senior to Series A Preferred Stock or
an amendment to the Articles of Incorporation relative to the terms of
Series A Preferred Stock.

Series B Preferred Stock: Dividends are 2% plus Prime (as determined
by averaging the LaSalle National Bank of Chicago prime rate for the prior
6 months), non-cumulative, nonparticipating and senior to Common Stock,
Series C and Series D Preferred Stock dividends. 1,000,000 shares have been
authorized and 2,500 have been issued with no par value. These shares are
callable in whole or in part at $1,000 per share plus dividends declared
and unpaid, if any, at any time. These shares are to be liquidated in
Prairie's dissolution senior to the Common Stock, Series C and Series D
Preferred Stock at $1,000 per share plus dividends declared and unpaid, if
any, with merger or consolidation of Prairie not deemed to be a
dissolution. These shares are non-voting except for a proposed issuance of
Preferred Stock senior to Series B Preferred Stock or an amendment to the
Articles of Incorporation relative to the terms of Series B Preferred
Stock.

Series C Preferred Stock: Dividends are 2% plus Prime (as determined
by averaging the LaSalle National Bank of Chicago prime rate for the prior
6 months), non-cumulative, nonparticipating and senior to Common Stock and
Series D Preferred Stock dividends. 1,000,000 shares have been authorized
and 1,000 have been issued with no par value. These shares are callable in
whole or in part at $1,000 per share plus dividends declared and unpaid, if
any, at any time. These shares are to be liquidated in Prairie's
dissolution senior to the Common Stock and Series D Preferred Stock at
$1,000 per share plus dividends declared and unpaid, if any, with merger or
consolidation of Prairie not deemed to be a dissolution. These shares are
non-voting except for a proposed issuance of Preferred Stock senior to
Series C Preferred Stock or an amendment to the Articles of Incorporation
relative to the terms of Series C Preferred Stock.

Series D Preferred Stock: Dividends are 2% plus Prime (as determined
by averaging the LaSalle National Bank of Chicago prime rate for the prior
6 months), non-cumulative, nonparticipating and senior to Common Stock
dividends. 1,000,000 shares have been authorized and 1,500 have been issued
with no par value. These shares are callable in whole or in part at $1,000
per share plus dividends declared and unpaid, if any, at any time. These
shares are to be liquidated in Prairie's dissolution senior to the Common
Stock at $1,000 per share plus dividends declared and unpaid, if any, with
merger or consolidation of Prairie not deemed to be a dissolution. These
shares are non-voting except for a proposed issuance of Preferred Stock
senior to Series D Preferred Stock or an amendment to the Articles of
Incorporation relative to the terms of Series D Preferred Stock.

Current accounting developments: The Financial Accounting Standards
Board has issued Statement No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (Statement
No. 121) which becomes effective for years beginning after December 15,
1995. Statement No. 121 generally requires long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the
review for recoverability, the entity should estimate the future cash flows
expected to result from the use of the asset and its eventual disposition.
If the sum of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the asset, an
impairment is recognized. Management believes that adoption of this
Statement will not have a material effect on Prairie's financial
statements.

F-68
153

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Financial Accounting Standards Board has issued Statement No. 122
"Accounting for Mortgage Servicing Rights" (Statement No. 122) which becomes
effective for years beginning after December 15, 1995. This Statement amends
FASB Statement No. 65 "Accounting for Certain Mortgage Banking Activities" to
require that an entity recognize as separate assets rights to service mortgage
loans for others, however those rights are acquired. An entity that acquires
mortgage servicing rights through either the purchase or origination of mortgage
loans and sells or securitizes those loans with servicing rights retained should
allocate the total cost of the mortgage loans to the mortgage servicing rights
and the loans (without the mortgage servicing rights) based on their relative
fair values. If it is not practicable to estimate the fair values separately,
the entire cost of purchasing or originating the loans should be allocated to
the mortgage loans (without the mortgage servicing rights) and no cost should be
allocated to the mortgage servicing rights. This Statement also requires that an
entity assess its capitalized mortgage servicing rights for impairment based on
the fair value of those rights. Management believes that adoption of this
Statement will not have a material effect on Prairie's financial statements.

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123 (Statement No. 123), Accounting for
Stock-Based Compensation. Statement No. 123 establishes a fair value based
method of accounting for stock options and other equity instruments. Statement
No. 123 permits the continued use of the intrinsic value method included in
Accounting Principle Board Opinion 25 ("APB-25"), Accounting for Stock Issued to
Employees, but regardless of the method used to account for the compensation
cost associated with stock option or similar plans, it requires employers to
disclose information required by Statement No. 123. Statement No. 123 is
effective for fiscal years beginning after December 15, 1995. Prairie believes
the adoption of Statement No. 123 will not have a material impact on its
consolidated financial statements.

Earnings per share of common stock: Earnings per share of common stock is
computed by dividing net income, after deducting preferred stock dividends, by
the weighted average number of shares outstanding during the reported period.

NOTE 2. CASH AND DUE FROM BANKS

Two of the Prairie Bank subsidiaries are required to maintain legal
reserves composed of funds on deposit with the Federal Reserve Bank and cash on
hand. The required balances as of December 31, 1995 and 1994 were $54,000 and
$68,000, respectively.

F-69
154

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3. INVESTMENT SECURITIES

The amortized cost and fair value of investment securities as of December
31, 1995 and 1994 are as follows:

DECEMBER 31, 1995
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ -------- ----------- ------------

Securities held to maturity:
States and political subdivisions........ $ 514,000 $ 25,000 $ -- $ 539,000
Mortgage-backed and related securities... 103,312,000 151,000 (2,379,000) 101,084,000
------------ -------- ----------- ------------
Total................................. $103,826,000 $176,000 $(2,379,000) $101,623,000
============ ======== =========== ============
Securities available for sale:
U.S. Treasury and government agency
securities............................ $ 6,730,000 $ -- $ (128,000) $ 6,602,000
States and political subdivisions........ 5,577,000 337,000 -- 5,914,000
Mortgage-backed and related securities... 27,908,000 563,000 (8,000) 28,463,000
Other.................................... 1,520,000 -- -- 1,520,000
------------ -------- ----------- ------------
Total................................. $ 41,735,000 $900,000 $ (136,000) $ 42,499,000
============ ======== =========== ============

DECEMBER 31, 1994
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS (LOSSES) VALUE
------------ -------- ----------- ------------

Securities held to maturity:
States and political subdivisions........ $ 747,000 $16,000 $ -- $ 763,000
Mortgage-backed and related securities... 134,398,000 40,000 (8,407,000) 126,031,000
------------ -------- ----------- ------------
Total................................. $135,145,000 $56,000 $(8,407,000) $126,794,000
============ ======== =========== ============
Securities available for sale:
U.S. Treasury and government agency
securities............................ $ 7,006,000 $ 4,000 $ (403,000) $ 6,607,000
States and political subdivisions........ 7,537,000 14,000 (271,000) 7,280,000
Mortgage-backed and related securities... 4,978,000 -- (223,000) 4,755,000
Other.................................... 1,949,000 -- -- 1,949,000
------------ -------- ----------- ------------
Total................................. $ 21,470,000 $18,000 $ (897,000) $ 20,591,000
============ ======== =========== ============

The amortized cost and fair value of the investment securities as of
December 31, 1995, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities because the mortgages underlying the
mortgage-backed and related securities may be called or prepaid without any
penalties.

F-70
155

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Therefore, these securities are not included in the maturity categories in the
following summary. Other securities are excluded from the maturity categories as
there is no fixed maturity date.

DECEMBER 31, 1995
----------------------------------------------------------
SECURITIES AVAILABLE FOR
SECURITIES HELD TO MATURITY SALE
---------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
------------ ------------ ----------- -----------

Due in one year or less................. $ 130,000 $ 132,000 $ 1,700,000 $ 1,664,000
Due after one year through five......... 198,000 204,000 5,183,000 5,091,000
Due after five years through ten........ 186,000 203,000 1,329,000 1,406,000
Due after ten years..................... -- -- 4,095,000 4,355,000
------------ ------------ ----------- -----------
514,000 539,000 12,307,000 12,516,000
Mortgage-backed and related
securities............................ 103,312,000 101,084,000 27,908,000 28,463,000
Other................................... -- -- 1,520,000 1,520,000
------------ ------------ ----------- -----------
$103,826,000 $101,623,000 $41,735,000 $42,499,000
============ ============ =========== ===========

Gross realized gains and losses for the years ended December 31, 1995,
1994, and 1993 are as follows:

1995 1994 1993
-------- -------- --------

Realized gains................................................ $407,000 $574,000 $893,000
Realized (losses)............................................. (5,000) (69,000) (27,000)

As of December 31, 1995 and 1994, investment securities with a carrying
value of approximately $71,689,000 and $68,212,000, respectively, were pledged
to collateralize government and public deposits and to secure securities sold
under agreements to repurchase as permitted or required by law.

Prairie transferred securities with an amortized cost of $20,935,000 and an
unrealized gain of $452,000 from held to maturity to available for sale on
December 31, 1995, based on management's reassessment of their previous
designations of securities giving consideration of liquidity needs, management
of interest rate risk, and other factors.

NOTE 4. LOANS

Loans as of December 31, 1995 and 1994 are summarized as follows:

1995 1994
----------- -----------

Real estate, mortgage.............................................. $37,652,000 $33,422,000
Commercial and agricultural........................................ 21,327,000 20,625,000
Installment........................................................ 8,218,000 6,889,000
----------- -----------
67,197,000 60,936,000
Less:
Unearned discount................................................ 64,000 141,000
Allowance for loan losses........................................ 741,000 715,000
----------- -----------
Loans, net.................................................. $66,392,000 $60,080,000
=========== ===========

Prairie's opinion as to the ultimate collectibility of these loans is
subject to estimates regarding future cash flows from operations and the value
of property, real and personal, pledged as collateral. These estimates are
affected by changing economic conditions and the economic prospects of
borrowers.

F-71
156

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Changes in the allowance for loan losses for the years ended December 31,
1995, 1994, and 1993 were as follows:

1995 1994 1993
-------- --------- ---------

Balance, beginning.......................................... $715,000 $ 781,000 $ 963,000
Provision for loan losses................................. (31,000) 10,000 (100,000)
Loans charged off......................................... (87,000) (153,000) (153,000)
Recoveries................................................ 144,000 77,000 71,000
-------- --------- ---------
Balance, ending............................................. $741,000 $ 715,000 $ 781,000
======== ========= =========

Management believes that loan balances on loans determined to be impaired
are immaterial.

NOTE 5. PREMISES AND EQUIPMENT

Premises and equipment as of December 31, 1995 and 1994 are summarized as
follows:

1995 1994
---------- ----------

Land.................................................. $ 305,000 $ 301,000
Buildings and improvements............................ 3,036,000 2,849,000
Furniture and equipment............................... 2,556,000 2,348,000
---------- ----------
5,897,000 5,498,000
Less accumulated depreciation......................... 2,570,000 2,195,000
---------- ----------
$3,327,000 $3,303,000
========== ==========

NOTE 6. DEPOSITS

A maturity distribution of time certificates of deposit in denominations of
$100,000 or more were as follows:

1995 1994
----------- -----------

3 months or less.................................... $15,871,000 $ 6,706,000
Over 3 months through 6 months...................... 3,754,000 5,186,000
Over 6 months through 12 months..................... 5,346,000 4,161,000
Over 12 months...................................... 4,211,000 3,795,000
---------- ----------
$29,182,000 $19,848,000
========== ==========

NOTE 7. SHORT-TERM BORROWINGS

Short-term borrowings include federal funds purchased and securities sold
under agreements to repurchase.

Average and maximum balances and rates on aggregate short-term borrowings
outstanding were as follows:

1995 1994 1993
----------- ----------- ----------

Maximum month-end balance.............................. $15,390,000 $15,203,000 $9,473,000
Average month-end balance.............................. 7,523,000 6,404,000 3,395,000
Weighted average interest rate for the year............ 6.78% 6.03% 7.60%
Weighted average interest rate at year-end............. 6.30 6.22 7.20

F-72
157

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8. FEDERAL HOME LOAN BANK ADVANCES

Pursuant to agreements with the Federal Home Loan Bank (FHLB), advances are
collateralized by qualifying first mortgage loans and investment securities.
Advances as of December 31, 1995 carry fixed interest rates ranging from 4.3%
through 7.5%. The maturities of advances as of December 31, 1995 were as
follows:

YEAR ENDED DECEMBER 31:
-----------------------------------------------------------------

1996........................................................ $12,272,000
1997........................................................ 566,000
1998........................................................ 2,960,000
Thereafter.................................................. 1,195,000
-----------
$16,993,000
==========

NOTE 9. NOTE PAYABLE

Prairie has a $4,195,000 revolving promissory note with a balance of
$3,950,000 as of December 31, 1995. The loan is secured by Prairie's stock in
the Prairie Banks. The note bears interest at the rate of LaSalle National
Bank's prime rate (8.5% at December 31, 1995). Payments of interest on the note
are required to be made quarterly until all amounts outstanding are paid. The
balance is due on or before April 1, 1996. The loan agreement contains certain
affirmative and negative covenants. Prairie was in compliance with the covenants
as of December 31, 1995.

NOTE 10. PROFIT SHARING PLANS

Prairie has a 401(k) plan covering substantially all employees.
Participants are not required to make any contribution but may make a voluntary
contribution of up to 12% of their compensation. The plan provides for
discretionary contributions to be determined annually by Prairie's Board of
Directors. The total contributions to the plan for the years ended December 31,
1995, 1994, and 1993 were $106,000, $125,000, and $111,000, respectively.

NOTE 11. INCOME TAXES

The components of income tax expense for the years ended December 31, 1995,
1994, and 1993 were as follows:

1995 1994 1993
-------- -------- --------

Current....................................................... $255,000 $204,000 $266,000
Deferred...................................................... 20,000 23,000 5,000
-------- -------- --------
$275,000 $227,000 $271,000
======== ======== ========

A reconciliation of the expected federal income tax expense using a
statutory federal rate of 34% to the income tax expense included in the
statements of income for the years ended December 31, 1995, 1994, and 1993 is as
follows:

1995 1994 1993
--------- --------- ---------

Computed "expected" tax expense............................ $ 407,000 $ 388,000 $ 571,000
Tax exempt interest income, net............................ (130,000) (182,000) (303,000)
Other...................................................... (2,000) 21,000 3,000
--------- --------- ---------
$ 275,000 $ 227,000 $ 271,000
========= ========= =========

F-73
158

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

There were no state income taxes for the years ended December 31, 1995,
1994, and 1993 due primarily to U.S. Treasury interest exemption and net
operating loss carryforwards utilized.

The net deferred tax assets (liabilities) on the consolidated balance
sheets included in other assets (liabilities) as of December 31, 1995 and 1994
include the following amounts:

1995 1994
--------- --------

Deferred tax assets:
Net unrealized losses on securities available for
sale............................................... $ -- $306,000
Allowance for loan losses............................. 73,000 96,000
--------- --------
73,000 402,000
--------- --------
Deferred tax liabilities:
Net unrealized gains on securities available for
sale............................................... (260,000) --
Premises and equipment................................ (90,000) (87,000)
Other................................................. (6,000) (12,000)
--------- --------
(356,000) (99,000)
--------- --------
Net deferred tax assets (liabilities).............. $(283,000) $303,000
========= ========

NOTE 12. REGULATORY CAPITAL REQUIREMENTS

Federal regulatory agencies have adopted various capital standards for
banks, including risk-based capital standards. The primary objectives of the
risk-based capital framework are to provide a more consistent system for
comparing capital positions of banks and to take into account the different
risks among banks' assets and off-balance sheet items.

Risk-based capital standards have been supplemented with requirements for a
minimum Tier 1 capital to assets ratio (leverage ratio). In addition, regulatory
agencies consider the published capital levels as minimum levels and may require
banks to maintain capital at higher levels.

A comparison of Prairie's and each of the Prairie Banks' capital as of
December 31, 1995 with the minimum requirements is presented below:

MINIMUM PRAIRIE
REQUIREMENTS BANCORP, INC. MANLIUS TAMPICO
------------ ------------- ------- -------

Tier 1 risk-based capital......... 4.00% 14.52% 13.67 % 24.54%
Total risk-based capital.......... 8.00 15.46 14.31 25.70
Leverage ratio.................... 3.00 5.05 6.56 6.77

LADD TISKILWA FERRIS HANOVER
------------ ------------- ------ -------

Tier 1 risk-based capital......... 17.87% 20.37% 16.74 % 24.53%
Total risk-based capital.......... 18.50 21.52 17.51 25.78
Leverage ratio.................... 7.04 6.83 5.70 8.10

According to Federal Reserve Board capital guidelines, Prairie is
considered to be adequately capitalized. According to FDIC capital guidelines,
the Prairie Banks are considered to be well capitalized.

National bank regulations restrict the amount of dividends that may be paid
by banks to their stockholders. Dividends declared by national banks that exceed
the net income for the current year plus retained net income for the preceding
two years must be approved by the Comptroller of the Currency. Under this
formula, dividends of approximately $301,000 and $106,000 may be paid without
prior regulatory approval by Manlius and Tampico, respectively.

F-74
159

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13. PARENT COMPANY ONLY FINANCIAL INFORMATION

The primary source of funds for Prairie is dividends from the Prairie
Banks. Certain regulatory requirements restrict the amount of dividends that may
be paid by the Prairie Banks to Prairie. At December 31, 1995, approximately
$1,800,000 of dividends were allowable from the Prairie Banks to Prairie without
prior regulatory approval. As a practical matter, dividend payments are
restricted to maintain prudent capital levels.

BALANCE SHEETS (PARENT COMPANY ONLY)

DECEMBER 31,
--------------------------
1995 1994
----------- -----------

ASSETS
Cash............................................................... $ 257,000 $ 122,000
Investment in subsidiaries......................................... 15,428,000 14,013,000
Premises and equipment, net........................................ 46,000 54,000
Other assets....................................................... 72,000 149,000
----------- -----------
$15,803,000 $14,338,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable...................................................... $ 3,950,000 $ 5,245,000
Other liabilities.................................................. 12,000 125,000
----------- -----------
3,962,000 5,370,000
----------- -----------
Stockholders' equity:
Common stock, no par value; authorized, issued and outstanding
1,000 shares.................................................. 1,000 1,000
Preferred stock.................................................. 6,092,000 4,592,000
Additional paid-in capital....................................... 1,579,000 1,579,000
Retained earnings................................................ 3,686,000 3,342,000
Unrealized gains (losses) on securities available for sale....... 483,000 (546,000)
----------- -----------
Total stockholders' equity.................................... 11,841,000 8,968,000
----------- -----------
$15,803,000 $14,338,000
=========== ===========

F-75
160

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INCOME STATEMENTS (PARENT COMPANY ONLY)

YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
---------- ---------- ----------

Operating revenue:
Dividends received from subsidiaries................... $1,392,000 $ 980,000 $ 865,000
Other.................................................. 47,000 124,000 124,000
---------- ---------- ----------
1,439,000 1,104,000 989,000
Operating expenses....................................... 911,000 858,000 712,000
---------- ---------- ----------
Income before income tax (credits) and equity in
undistributed net income of subsidiaries....... 528,000 246,000 277,000
Income tax (credits)..................................... (274,000) (247,000) (185,000)
---------- ---------- ----------
802,000 493,000 462,000
Equity in undistributed net income of subsidiaries....... 26,000 293,000 850,000
---------- ---------- ----------
Net income........................................ $ 828,000 $ 786,000 $1,311,000
========== ========== ==========

STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)

YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------

Cash Flows from Operating Activities:
Net income.......................................... $ 828,000 $ 786,000 $ 1,311,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of
subsidiaries................................... (26,000) (293,000) (850,000)
Depreciation..................................... 11,000 5,000 --
Decrease in other assets......................... 77,000 78,000 21,000
(Decrease) in other liabilities.................. (113,000) (172,000) (122,000)
----------- ----------- -----------
Net cash provided by operating activities...... 777,000 404,000 360,000
----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of additional shares of subsidiaries....... (360,000) (3,046,000) (1,712,000)
Purchase of premises and equipment.................. (3,000) (59,000) --
----------- ----------- -----------
Net cash (used in) investing activities........ (363,000) (3,105,000) (1,712,000)
----------- ----------- -----------
Cash Flows from Financing Activities:
Cash dividends paid................................. (484,000) (345,000) (66,000)
Proceeds from note payable.......................... -- -- 1,150,000
Principal payments on notes payable................. (1,295,000) (350,000) --
Proceeds from issuance of preferred stock........... 1,500,000 3,500,000 --
Stockholders' contribution.......................... -- -- 160,000
----------- ----------- -----------
Net cash provided by (used in) financing
activities.................................. (279,000) 2,805,000 1,244,000
----------- ----------- -----------
Net increase (decrease) in cash................ 135,000 104,000 (108,000)
Cash, beginning....................................... 122,000 18,000 126,000
----------- ----------- -----------
Cash, ending.......................................... $ 257,000 $ 122,000 $ 18,000
=========== =========== ===========

F-76
161

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14. RELATED PARTY TRANSACTIONS

In the normal course of business, loans are made to employees, executive
officers, directors, principal stockholders of Prairie and the Prairie Banks and
to parties which Prairie or its directors, executive officers, and stockholders
have the ability to significantly influence its management or operations
(related parties). In the opinion of management, the terms of these loans,
including interest rates and collateral, are similar to those prevailing for
comparable transactions with other customers and do not involve more than a
normal risk of collectibility. Changes in such loans during the year ended
December 31, 1995 are as follows:

Balance, beginning............................................... $ 1,455,000
New loans, extensions, and modifications....................... 608,000
Repayments..................................................... (1,205,000)
-----------
Balance, ending.................................................. $ 858,000
==========

NOTE 15. COMMITMENTS AND CONTINGENCIES

The Prairie Banks are parties to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include unused lines of credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the balance sheets.

The Prairie Banks' exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for unused lines of credit and
standby letters of credit is represented by the contractual amounts of these
instruments. The Prairie Banks use the same credit policies in making
commitments and conditional obligations as they do for on-balance sheet
instruments.

Financial instruments whose contractual amounts represent credit risk as of
December 31, 1995 and 1994 are summarized as follows:

1995 1994
---------- ----------

Unused lines of credit................................ $4,598,000 $4,064,961
Standby letters of credit............................. 75,000 10,700

Unused lines of credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. These
agreements generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since some of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Prairie Banks evaluate each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Prairie Banks upon extension of credit is based upon
management's credit evaluation of the counter-party. Collateral 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 Prairie
Banks to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements and extend for no more than one year. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers.

Prairie does not engage in the use of interest rate swaps or futures,
forwards or option contracts.

F-77
162

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Concentration of credit risk: The Prairie Banks grant commercial,
residential and consumer loans to customers throughout the Prairie Banks' market
areas which are primarily in the following Illinois counties:

BANKS COUNTY
------------------------------------------------------------------ ----------

Manlius, Ladd and Tiskilwa........................................ Bureau
Tampico........................................................... Whiteside
Ferris............................................................ Hancock
Hanover........................................................... Jo Davies

Although the Prairie Banks have diversified loan portfolios, a substantial
portion of their debtors' ability to honor their contracts is dependent upon the
agribusiness and industrial economic sectors. The Prairie Banks' policy for
requiring collateral is consistent with prudent lending practice and anticipates
the potential for economic fluctuations. Collateral varies but may include
accounts receivable, inventory, property, plant and equipment and
income-producing commercial properties. It is the policy of the Prairie Banks to
file financing statements and mortgages covering collateral pledged.

NOTE 16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

FASB Statement No. 107 "Disclosures about Fair Value of Financial
Instruments" requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Statement No. 107 excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. These fair value disclosures are not intended to represent the
market value of Prairie. The investment securities held to maturity and loan
portfolios are intended to be held to maturity, and unrealized gains and losses
are not intended to be realized. Income taxes and transaction costs have not
been considered in estimating fair values.

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

Cash and due from banks: For those short-term instruments, the
carrying amount is a reasonable estimate of fair value.

Investment securities: For investment securities held to maturity and
securities available for sale, fair value equals quoted market price, if
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.

Federal funds sold: The carrying amount is a reasonable estimate of
fair value.

Loans: The fair value of loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.

Deposits: The fair value of demand deposits, NOW accounts, savings
accounts, and money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated by discounting cash flows using the rates currently offered for
deposits of similar remaining maturities.

Federal funds purchased: The carrying amount is a reasonable estimate
of fair value.

F-78
163

PRAIRIE BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Repurchase agreements: For short-term agreements, the carrying amount
is a reasonable estimate of fair value. For agreements with a term greater
than six months, fair value is estimated by discounting cash flows using
the rates currently offered for agreements of similar remaining maturities.

Federal Home Loan Bank advances and note payable: The cash flows
discounted at rates currently available to the Company for debt with
similar terms and remaining maturities are used to estimate fair value of
existing debt.

Commitments to extend credit and standby letters of credit: The fair
value of commitments is estimated using the fees currently charged to enter
into similar agreements. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
commitment rates. The fair value of letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to
terminate them.

The estimated fair values of Prairie's financial instruments rounded to the
nearest $1,000 are as follows:

DECEMBER 31, 1995
----------------------------
CARRYING
AMOUNT FAIR VALUE
------------ ------------

Financial assets:
Cash and due from banks......................... $ 4,458,000 $ 4,458,000
Investment securities:
Held to maturity............................. 103,826,000 101,623,000
Available for sale........................... 42,499,000 42,499,000
Federal funds sold.............................. 2,045,000 2,045,000
Loans, net...................................... 66,392,000 66,167,000
Financial liabilities:
Deposits........................................ 183,296,000 184,211,000
Federal funds purchased......................... 275,000 275,000
Repurchase agreements........................... 6,181,000 6,353,000
Federal Home Loan Bank advances and note
payable...................................... 20,943,000 21,012,000
Unrecognized financial instruments:
Commitments to extend credit.................... -- --
Standby letters of credit....................... -- --

In addition, other assets and liabilities of Prairie that are not defined
as financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not recognized
in financial statements nevertheless may have value but are not included in the
above disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the trained work force, customer goodwill and
similar items.

NOTE 17. SUBSEQUENT EVENTS

In January of 1996, Prairie entered into an Agreement and Plan of Merger
which would merge Prairie Bancorp, Inc. with Prairie Acquisition Corporation, a
wholly-owned subsidiary of UnionBancorp, Inc. in which Prairie would be the
surviving entity.

F-79
164

COUNTRY BANCSHARES, INC.

SELECTED CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial data of Country Bancshares,
Inc. should be read in conjunction with the Consolidated Financial Statements of
Country Bancshares, Inc. and the Notes thereto appearing elsewhere in this
Prospectus and the information contained in "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Country Bancshares,
Inc." The selected historical consolidated financial data as of and for the two
years in the period ended December 31, 1995 are derived from Country's
Consolidated Financial Statements which have been audited by independent public
accountants. The selected historical consolidated financial data as of and for
the six months ended June 30, 1996 and June 30, 1995 is unaudited.

SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
--------------------------- --------------------------
1996 1995 1995 1994
------------ ----------- ----------- -----------

INCOME STATEMENT DATA:
Interest income........................ $ 3,817,540 $ 2,677,130 $ 6,029,752 $ 3,808,189
Interest expense....................... 2,449,162 1,480,190 3,531,998 1,789,304
------------ ----------- ----------- -----------
Net interest income............... 1,368,378 1,196,940 2,497,754 2,018,885
Provision for loan losses.............. 144,713 -- 40,200 15,800
------------ ----------- ----------- -----------
Net interest income after
provision for loan losses...... $ 1,223,665 $ 1,196,940 $ 2,457,554 $ 2,003,085
Noninterest income..................... 601,489 254,870 588,735 398,227
Noninterest expense.................... 1,599,866 1,400,247 2,840,209 2,485,239
Net income before income taxes......... 225,288 51,563 206,080 (83,927)
Income tax (benefit)................... 70,000 18,000 (2,518) (46,830)
------------ ----------- ----------- -----------
Net income............................. $ 155,288 $ 33,563 $ 208,598 $ (37,097)
============ =========== =========== ===========
COMMON SHARE DATA:
Net income............................. $ 5.92 $ 1.28 $ 7.95 $ (3.57)
Book value............................. 93.06 85.27 93.89 83.99
Weighted average common shares
outstanding......................... 26,225 26,225 26,225 10,403
Period end common shares outstanding... 26,225 26,225 26,225 26,225
BALANCE SHEET DATA:
Total assets........................... $103,172,283 $81,506,381 $96,604,878 $64,245,341
Loans, net............................. 66,073,420 47,265,290 56,177,110 37,648,698
Allowance for loan losses.............. 500,318 381,092 420,426 329,251
Total deposits......................... 90,844,320 74,030,796 86,546,471 58,945,175
Stockholders' equity................... 2,440,428 2,236,120 2,462,260 2,202,557
PERFORMANCE DATA:
Return (loss) on average total
assets(1)........................... 0.30% 0.09% 0.26% (0.06)%
Return (loss) on average stockholders'
equity(1)........................... 12.67 3.05 8.94 (1.79)
Net interest margin.................... 2.90 3.61 3.39 3.90
Loans to deposits...................... 72.73 63.85 64.91 63.87
Efficiency ratio(2).................... 80.80 95.89 91.66 102.66
ASSET QUALITY RATIOS:
Nonperforming assets to total assets... 1.63% 0.62% 0.61% 1.00%
Nonperforming loans to total loans..... 2.39 0.94 0.95 1.54
Net loan charge-offs to average
loans(1)............................ 0.21 (0.12) (0.11) 0.04
Allowance for loan losses to total
loans............................... 0.75 0.80 0.74 0.87
Allowance for loan losses to
nonperforming loans................. 31.09 84.88 77.80 55.97
CAPITAL RATIOS: (OMNI BANK)
Tier I risk-based capital.............. 10.51% 13.87% 11.44% 11.40%
Total risk-based capital............... 11.30 14.69 12.20 12.29
Leverage............................... 6.41 7.92 6.61 6.57

- -------------------------
(1) All interim periods have been annualized.
(2) Calculated as noninterest expense less amortization of intangibles and
expenses related to other real estate owned divided by the sum of net
interest income before provision for loan losses and total noninterest
income excluding securities gains and losses.

F-80
165

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF COUNTRY BANCSHARES, INC.

The following discussion provides additional information regarding the
operations and financial condition of Country Bancshares, Inc. ("Country") for
the six months ended June 30, 1996 and 1995 and the years ended December 31,
1995 and 1994. The discussion should be read in conjunction with the
consolidated statements of financial condition as of, and the results of
operations, for the years ended December 31, 1995 and 1994 and for the six
months ended June 30, 1996 and 1995 and accompanying notes included elsewhere in
the Prospectus.

GENERAL

Country derives substantially all of its revenues and income from the
operations of its subsidiary, Omni Bank, which provides a full range of
commercial and consumer banking services to businesses and individuals,
primarily in the western Illinois area. As of June 30, 1996, Country had total
assets of $103.2 million, net loans of $66.1 million, total deposits of $90.8
million and total stockholders' equity of $2.4 million. Country reported net
income of $155,288 for the six months ended June 30, 1996 compared with net
income of $33,563 for the six months ended June 30, 1995 as a result of internal
loan and deposit portfolio growth.

On December 5, 1994, Country merged with Paloma Bancshares, Inc. and its
two subsidiaries, Paloma Exchange Bank and First National Bank of Blandinsville.
In conjunction with the merger, Paloma Bancshares, Inc. was merged into Country
and Paloma Exchange Bank and First National Bank of Blandinsville were merged
into Omni Bank. Country continues to actively serve the banking needs of these
local communities, as it has served the local communities of its other branches.

During 1995 and the first six months of 1996, Country substantially
expanded its efforts to increase deposits, loans and total assets, and Country
increased its emphasis on the Macomb market. Deposits grew from $58.9 million at
the end of December 31, 1994 to $90.8 million at the end of June, 1996, a 54.1%
increase. Loans, net of the allowance for loan losses, increased from $37.6
million to $66.1 million, a 75.5% increase. During the same period, total assets
grew from $64.2 million to $103.2 million, a 60.6% increase.

RESULTS OF OPERATIONS

Net Income

Net income was $155,288 ($5.92 per share) for the six months ended June 30,
1996, compared with net income of $33,563 ($1.28 per share) for the six months
ended June 30, 1995, an increase of $121,725 or 362.7%. Factors contributing to
the increase in net income in 1996 compared with 1995 included growth in
Country's loan and deposit portfolios and a gain of approximately $190,000 on
the sale of a nonperforming loan.

Net income was $208,598 for 1995 ($7.95 per share), compared with a net
loss of $37,097 for 1994 ($3.57 per share). The net income per share in 1994 was
affected by additional shares issued in December 1994 in connection with the
acquisition of Paloma Bancshares. The $245,695 increase in net income for 1995
was attributable to an increase in net interest income resulting from growth in
Country's loan and deposit portfolios.

Net Income before Income Taxes

Net income before income taxes was $225,288 for the six months ended June
30, 1996, compared with $51,563 for the first six months of 1995, an increase of
$173,725 or 336.9%.

Net income before income taxes was $206,080 in 1995 compared with a net
loss of $83,927 in 1994, an increase of $290,007 or 345.5%. The improvement in
net income before income taxes for 1995 compared to 1994 was primarily
attributable to an increase in net interest income resulting from growth in
Country's loan and deposit portfolios.

F-81
166

Net Interest Income

Net interest income is the difference between income earned on
interest-earning assets and the interest expense incurred on interest-bearing
liabilities. The net yield on total interest-earning assets, also referred to as
interest rate margin or net interest margin, represents net interest income
divided by average interest-earning assets. Country's principal interest-earning
assets are loans, investment securities and federal funds sold.

Net interest income was $1,368,378 for the first six months of 1996, an
increase of $171,438 or 14.3% compared with the first six months of 1995,
resulting principally from an increase in average total interest-earning assets
from $66.9 million to $95.4 million, a significant portion of which was
comprised of loans (typically the highest yielding asset). The increase in
average total interest-earning assets was offset by an increase in
interest-bearing liabilities from $60.3 million to $ 87.8 million, and a
decrease in the net interest spread from 3.12% to 2.44% for the six months ended
June 30, 1995 and 1996, respectively. The foregoing decrease resulted
principally from the fact that the cost of interest-bearing liabilities
increased more than the yield on the interest-earning assets. The yield on
interest-earning assets remained constant, while the cost of interest-bearing
liabilities increased from 4.95% to 5.61% for the six months ended June 30, 1995
and 1996, respectively.

Net interest income was $2,497,754 for 1995, an increase of $478,869 or
23.7% compared with net interest income of $2,018,885 for 1994, which
represented an increase of $79,893 or 4.1% compared with 1993. Country's average
total interest-earning assets increased from approximately $51.8 million for
1994 to $73.8 million for 1995, representing a 42.5% increase resulting
principally from an increase in loans. The net interest margin decreased to
3.39% for 1995 from 3.9% for 1994.

The following table sets forth for each category of interest-earning assets
and interest-bearing liabilities the average amounts outstanding, the interest
earned or paid on such amounts and the average rate paid for the six months
ended June 30, 1996 and 1995 and for the years ended December 31, 1995 and 1994.
The table also sets forth the average rate earned on all interest-earning
assets, the average rate paid on all interest-bearing liabilities, the net
interest spread and the net interest margin on average interest-earning assets
for the same periods.

F-82
167

AVERAGE BALANCE SHEET
AND ANALYSIS OF NET INTEREST INCOME

FOR THE SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------------------------------
1996 1995
------------------------------------- ------------------------------------
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------------ ---------- ------- ----------- ---------- -------

ASSETS
Interest-earning assets:
Certificates of deposit... $ -- $ -- -- $ 66,514 $ 2,098 6.36%
Federal funds sold........ 10,781,494 291,516 5.44% 9,145,144 266,247 5.87
U.S. Treasury and agency
securities(1).......... 22,217,655 662,565 6.00 15,224,434 474,509 6.29
States and political sub-
divisions(1)(2)........ 224,738 6,862 6.14 866,560 25,057 5.83
Loans(3)(4)............... 61,576,465 2,845,217 9.29 41,539,741 1,908,931 9.27
Other interest-earning
assets................. 552,668 11,380 4.14 36,000 288 1.61
------------ ---------- ---- ----------- ---------- ----
Net earning assets........ $ 95,353,020 $3,817,540 8.05% $66,878,393 $2,677,130 8.07%
------------ ---------- ----------- ----------
Less: Allowance for loan
losses................. (454,823) (328,706)
Cash and due from banks... 2,504,080 2,581,790
Premises and equipment.... 3,640,239 2,642,988
Other assets.............. 1,458,842 1,339,942
------------ -----------
Total assets........... $102,501,358 $73,114,407
============ ===========
LIABILITIES
Interest-earning
liabilities:
Interest-bearing demand
deposits............... $ 9,885,649 $ 127,138 2.59% $ 9,636,665 $ 123,900 2.59%
Savings deposits.......... 4,194,065 46,042 2.21 4,384,383 48,062 2.21
Time deposits............. 66,165,783 1,996,417 6.07 43,602,306 1,204,228 5.57
Notes payable............. 7,519,475 279,565 7.48 2,654,587 104,000 7.90
------------ ---------- ---- ----------- ---------- ----
Total interest-bearing
liabilities............ $ 87,764,972 $2,449,162 5.61 $60,277,941 $1,480,190 4.95
------------ ---------- ----------- ----------
Noninterest-bearing
deposits............... 10,873,509 9,729,877
Other liabilities 1,411,533 887,200
------------ -----------
Total liabilities...... 100,050,014 70,895,018
------------ -----------
Stockholders' equity........ 2,451,344 2,219,389
------------ -----------
Total liabilities and
equity............... $102,501,358 $73,114,407
============ ===========
Net interest income......... $1,368,378 $1,196,940
========== ==========
Net interest spread......... 2.44% 3.12%
==== ====
Net interest margin......... 2.90% 3.61%
==== ====

- -------------------------
(1) Average balance and average rate on securities classified as available for
sale is based on historical amortized cost balances.

(2) Interest income on tax exempt securities does not reflect the tax equivalent
yield.

(3) Loans on nonaccrual status have been included in the computation of average
balances.

(4) The interest income on loans includes loan fees. Loan fees were $210,998 and
$85,262 for the six months ended June 30, 1996 and 1995, respectively.

F-83
168

AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME

YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1995 1994
---------------------------------- ----------------------------------
INTEREST INTEREST
AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- ---------- ------- ----------- ---------- -------

ASSETS
Interest-earning assets:
Certificates of deposit........ $ 32,984 $ 2,098 6.36% $ 182,000 $ 1,567 0.86%
Federal funds sold............. 9,096,414 531,491 5.84 5,443,003 232,514 4.27
U.S. Treasury and agency
securities(1)............... 16,698,794 1,075,320 6.44 11,586,634 453,987 3.92
States and political
subdivisions(1)(2).......... 852,461 49,399 5.79 998,487 62,237 6.23
Loans(3)(4).................... 46,980,953 4,370,787 9.30 33,501,783 3,043,219 9.08
Other interest-earning
assets...................... 96,572 657 0.68 42,000 14,665 34.90
----------- ---------- ---- ----------- ---------- -----
Total interest earning
assets................. $73,758,178 $6,029,752 8.18% $51,753,907 $3,808,189 7.36%
----------- ---------- ----------- ----------
Less: Allowance for loan
losses...................... (362,922) (327,908)
Cash and due from banks........ 2,729,000 3,755,172
Premises and equipment......... 3,180,227 2,218,879
Other assets................... 1,078,368 1,206,148
----------- -----------
Total assets.............. $80,382,851 $58,606,198
=========== ===========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing demand
deposits.................... $ 9,787,777 $ 247,420 2.53% $11,315,861 $ 253,863 2.24%
Savings deposits............... 4,296,022 94,218 2.19 4,935,017 102,304 2.07
Time deposits.................. 49,407,934 2,872,390 5.81 28,202,734 1,219,893 4.33
Notes payable.................. 3,343,222 317,970 9.51 2,412,500 213,244 8.84
----------- ---------- ---- ----------- ---------- -----
Total interest-bearing
liabilities............ $66,834,955 $3,531,998 5.28 $46,866,112 $1,789,304 3.82
----------- ---------- ----------- ----------
Noninterest-bearing deposits... 10,309,771 9,055,273
Other liabilities.............. 905,716 614,492
----------- -----------
Total liabilities......... 78,050,442 56,535,877
Stockholders' equity........... 2,332,409 2,070,321
----------- -----------
Total liabilities and
equity................. $80,382,851 $58,606,198
=========== ===========
Net interest income.............. $2,497,754 $2,018,885
========== ==========
Net interest spread.............. 2.90% 3.54%
==== =====
Net interest margin.............. 3.39% 3.90%
==== =====

- -------------------------
(1) Average balance and average rate on securities classified as available for
sale is based on historical amortized cost balances.

(2) Interest income on tax exempt securities does not reflect the tax equivalent
yield.

(3) Loans on nonaccrual status have been included in the computation of average
balances.

(4) The interest income on loans includes loan fees. Loan fees were $261,239 and
$155,034 for the years ended December 31, 1995 and 1994, respectively.

F-84
169

Country's net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities, referred to as a
"volume change." It is also affected by changes in yields earned on
interest-earning assets and rates paid on interest-bearing deposits and other
borrowed funds referred to as a "rate change." The decline in the net yield on
total interest-earning assets from 1995 through the first six months of 1996
resulted principally from an increase in investment securities as a percentage
of total interest-earning assets, which produced a lower average rate of return
for Country than loans. The following table reflects the changes in net interest
income stemming from changes in interest rates and from asset and liability
volume, including mix. The change in interest attributable to both rate and
volume has been allocated to the changes in the rate and the volume on a pro
rata basis.

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

SIX MONTHS ENDED JUNE 30, 1996
COMPARED YEARS ENDED DECEMBER 31, 1995
WITH SIX MONTHS ENDED JUNE 30, 1995 COMPARED WITH DECEMBER 31, 1994
------------------------------------- ------------------------------------
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
------------------------------------- ------------------------------------
VOLUME(1) RATE CHANGES VOLUME(1) RATE CHANGES
---------- --------- ---------- ---------- -------- ----------

Interest Income:
Loans...................................... $ 925,765 $ 10,521 $ 936,286 $1,252,333 $ 75,235 $1,327,568
Certificates of deposit.................... (1,049) (1,049) (2,098) (78) 609 531
Federal funds sold......................... 41,997 (16,728) 25,269 193,146 105,831 298,977
U.S. Treasury and agency................... 207,572 (19,516) 188,056 252,733 368,600 621,333
States and political subdivisions.......... (19,682) 1,487 (18,195) (8,670) (4,168) (12,838)
Other interest-earning assets.............. 9,996 1,096 11,092 (57,089) 43,081 (14,008)
---------- --------- ---------- ---------- -------- ----------
Total interest income........................ $1,164,599 $ (24,189) $1,140,410 $1,632,375 $589,188 $2,221,563
---------- --------- ---------- ---------- -------- ----------
Interest Expense:
Interest-bearing deposits.................. $ 3,202 $ 36 $ 3,238 $ (105,338) $ 98,895 $ (6,443)
Savings deposits........................... (2,089) 69 (2,020) (14,636) 6,550 (8,086)
Time deposits.............................. 740,857 51,332 792,189 1,133,721 518,776 1,652,497
Borrowed funds............................. 82,432 93,133 175,565 87,491 17,235 104,726
---------- --------- ---------- ---------- -------- ----------
Total interest expense....................... $ 824,402 $ 144,570 $ 968,972 $1,101,238 $641,456 $1,742,694
---------- --------- ---------- ---------- -------- ----------
Net interest margin.......................... $ 340,197 $(168,759) $ 171,438 $ 531,137 $(52,268) $ 478,869
========== ========= ========== ========== ======== ==========

YEARS ENDED DECEMBER 31, 1994
COMPARED WITH DECEMBER 31, 1993
------------------------------------

INCREASE (DECREASE) DUE TO
------------------------------------
VOLUME(1) RATE CHANGES
---------- --------- ---------
<
Interest Income:
Loans...................................... $401,672 $ 133,289 $ 534,961
Certificates of deposit.................... 331 (1,612) (1,281)
Federal funds sold......................... 6,089 105,974 112,063
U.S. Treasury and agency................... 73,000 (281,367) (208,367)
States and political subdivisions.......... (11,168) (37,755) (48,923)
Other interest-earning assets.............. (7,241) (42,964) (50,205)
-------- --------- --------
Total interest income........................ $462,683 $(124,435) $ 338,248
-------- --------- --------
Interest Expense:
Interest-bearing deposits.................. $(31,865) $ (25,598) $ (57,463)
Savings deposits........................... (3,786) (44,706) (48,492)
Time deposits.............................. 290,298 832 291,130
Borrowed funds............................. (4,089) 77,269 73,180
-------- --------- --------
Total interest expense....................... $250,558 $ 7,797 $ 258,355
-------- --------- --------
Net interest margin.......................... $212,125 $(132,232) $ 79,893
======== ========= ========

- -------------------------
(1) Nonaccrual loans are included in the average volumes used in calculating
this table.

F-85
170

Provision for Loan Losses

The amount of the provision for loan losses is based on periodic (not less
than quarterly) evaluations of the loan portfolio, with particular attention
directed toward nonperforming and other potential problem loans. During these
evaluations, consideration is given to such factors as management's evaluation
of specific loans, the level and composition of nonperforming loans, historical
loss experience, results of examinations by regulatory agencies, the market
value of collateral, the strength and availability of guaranties, concentrations
of credits, and other judgmental factors.

Country recorded a $144,713 provision for loan losses during the six months
ended June 30, 1996 compared with no provision during the first six months of
1995. As Country's ratio of net charge-offs to average loans increased slightly
during 1996, additional amounts were provided to compensate for ongoing growth
in the loan portfolio in order to maintain the allowance for loan losses at an
adequate level.

The 1995 provision for loan losses was $40,200 compared with $15,800 in
1994. The increase in the 1995 provision occurred as a result of the 40.2%
growth in average loans outstanding.

Noninterest Income

The following table sets forth the various categories of noninterest income
for the six months ended June 30, 1996 and 1995 and for the years ended December
31, 1995 and 1994.

SIX MONTHS ENDED YEARS ENDED DECEMBER
JUNE 30, 31,
-------------------- --------------------
1996 1995 1995 1994
-------- -------- -------- --------

Noninterest income
Service charges................................... $311,050 $220,024 $494,659 $379,881
Securities gains, net............................. -- -- 5,730 --
Other............................................. 290,439 34,846 88,346 18,346
-------- -------- -------- --------
Total noninterest income....................... $601,489 $254,870 $588,735 $398,227
======== ======== ======== ========

Noninterest income is generated primarily from fees associated with
noninterest and interest-bearing accounts. Noninterest income for the first six
months of 1996 was $601,489, an increase of $346,619 or 136% compared with
noninterest income of $254,870 for the first six months of 1995. The growth of
Omni Bank during 1996 increased the number and balance of noninterest and
interest-bearing accounts, which resulted in increased noninterest income.

Other noninterest income was $290,439 for the first six months of 1996, an
increase of $255,593 compared with other noninterest income of $34,846 for the
first six months of 1995. The increase in other noninterest income is primarily
due to a gain of approximately $190,000 on the sale of a nonperforming loan.

Noninterest income was $588,735 for 1995, an increase of $190,508 or 47.8%
compared with noninterest income of $398,227 for 1994. Noninterest income
increased from 1994 to 1995 in all categories, primarily as a result of the
growth of Omni Bank's noninterest and interest-bearing accounts.

F-86
171

Noninterest Expense

The following table sets forth the various categories of noninterest
expense for the six months ended June 30, 1996 and 1995 and for the years ended
December 31, 1995 and 1994.

SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------ ------------------------
1996 1995 1995 1994
---------- ---------- ---------- ----------

Salaries and wages............................ $ 783,244 $ 632,073 $1,317,433 $1,138,623
Employee benefits............................. 72,414 104,955 193,329 201,804
Occupancy and equipment....................... 236,884 214,829 492,966 400,992
FDIC assessment............................... (120) 78,017 84,524 97,558
Other expenses:
Legal....................................... 108,288 23,062 28,720 26,850
Stationary, supplies and printing........... 50,177 43,026 76,834 71,671
Telephone................................... 34,577 38,025 56,367 65,309
Postage..................................... 48,186 36,838 74,081 68,317
Correspondent bank charges.................. 40,719 36,050 74,926 42,178
Directors fees.............................. 13,050 16,845 38,230 66,900
Amortization................................ 8,149 8,176 16,325 3,851
Other....................................... 204,298 168,351 386,474 301,186
---------- ---------- ---------- ----------
Total other expenses................... 507,444 370,373 751,957 646,262
---------- ---------- ---------- ----------
Total noninterest expense.............. $1,599,866 $1,400,247 $2,840,209 $2,485,239
========== ========== ========== ==========

Noninterest expense was $1,599,866 for the first six months of 1996, an
increase of $199,619 or 14.3% compared with noninterest expense of $1,400,247
for the first six months of 1995. The growth of Omni Bank resulted in additional
personnel, occupancy and office expenses.

Deposits held by Omni Bank are insured by the Bank Insurance Fund ("BIF")
of the Federal Deposit Insurance Corporation ("FDIC"), and as FDIC-insured
institutions, the Omni Banks are required to pay deposit insurance premium
assessments to the FDIC. The amount an institution pays for FDIC deposit
insurance coverage is determined in accordance with a risk-based assessment
system under which each insured depository institution is placed into one of
nine categories and assessed insurance premiums based upon its level of capital
and the results of supervisory evaluations. The FDIC has issued refunds to the
best-rated institutions for assessment which exceeded the recapitalization
requirements of the BIF. The Omni Banks received a total refund from the FDIC of
approximately $41,000. The change in the deposit insurance assessment rate is
expected to significantly reduce the cost of deposit insurance for the Omni
Banks. See "Regulation and Supervision -- The Bank Subsidiaries -- Deposit
Insurance".

Noninterest expense was $2,840,209 for 1995, an increase of $354,970 or
14.3% compared with noninterest expense of $2,485,239 for 1994. The increase in
noninterest expense for 1995 from 1994 was attributable to a 12.7% increase in
salaries and employee benefits and a 22.9% increase in occupancy expenses. The
increase in salaries and benefits and occupancy expenses were due primarily to
additional staffing associated with Omni Bank's loan and deposit growth.

Income Taxes

Country has recognized an income tax expense of $70,000 on income before
income taxes of $225,288 for the six months ended June 30, 1996, an effective
tax rate of 31.1%, as compared with an income tax expense of $18,000 on income
before income taxes of $51,563 for the six months ended June 30, 1995, an
effective tax rate of 34.9%. Country recognized income tax benefits of $2,518
and $46,830 on income before income taxes of $206,080 and loss before income
taxes of $83,927 for the years ended December 31, 1995 and 1994, respectively.
Effective tax benefits were 1.2% and 55.8% for those years. Country's effective
tax rates varied from the statutory tax rate primarily due to interest income on
municipal investments, which is exempt from federal income tax.

F-87
172

Interest Rate Sensitivity Management

The operating income and net income of Omni Bank depend, to a substantial
extent, on "rate differentials", i.e., the differences between the income Omni
Bank receives from loans, securities and other earning assets, and the interest
expense it pays to obtain deposits and other liabilities. These rates are highly
sensitive to many factors which are beyond the control of Omni Bank, including
general economic conditions and the policies of various governmental and
regulatory authorities. See "Investment Considerations -- Impact of Interest
Rates and Economic Conditions".

One way to analyze interest rate risk is to evaluate the balance of
Country's interest rate sensitivity position. A mix of assets and liabilities
that are roughly equal in volume and term and repricing represents a matched
interest rate sensitivity position. Any excess of assets or liabilities in a
particular period results in an interest rate sensitivity gap. The following
table presents the interest rate sensitivity for Country's interest-earning
assets and interest-bearing liabilities at June 30, 1996:

INTEREST-RATE SENSITIVE ASSETS AND LIABILITIES

3 MONTHS 3 MONTHS TO 6 MONTHS 1 YEAR TO
OR LESS 6 MONTHS TO 1 YEAR 5 YEARS OVER 5 YEARS TOTAL
------------ ------------ ------------ ------------ ------------ -----------

Interest-bearing assets:
Federal funds sold..... $ 2,075,000 $ -- $ -- $ -- $ -- $ 2,075,000
Investment
securities........... 2,599,694 2,076,413 2,770,500 18,597,017 87,000 26,130,624
Loans.................. 9,070,263 3,750,900 10,996,561 19,295,000 24,081,333 67,194,057
Other interest-earning
assets............... -- -- -- -- 714,300 714,300
------------ ------------ ------------ ------------ ----------- -----------
Interest-earning
assets................. $ 13,744,957 $ 5,827,313 $ 13,767,061 $ 37,892,017 $ 24,882,633 $96,113,981
------------ ------------ ------------ ------------ ----------- -----------
Interest-bearing
liabilities:
Interest-bearing demand
deposits............. $ 9,921,512 $ -- $ -- $ -- $ -- $ 9,921,512
Savings deposits....... 4,320,923 -- -- -- -- 4,320,923
Time deposits.......... 15,699,200 16,744,700 25,510,355 8,157,100 -- 66,111,355
Notes payable and other
borrowings........... 3,550,000 -- -- 700,000 4,300,000 8,550,000
------------ ------------ ------------ ------------ ----------- -----------
Interest-bearing
liabilities............ $ 33,491,635 $ 16,744,700 $ 25,510,355 $ 8,857,100 $ 4,300,000 $88,903,790
------------ ------------ ------------ ------------ ----------- -----------
Period interest
sensitivity gap........ $(19,746,678) $(10,917,387) $(11,743,294) $ 29,034,917 $ 20,582,633 $ 7,210,191
============ ============ ============ ============ =========== ===========
Cumulative interest
sensitivity gap........ $(19,746,678) $(30,664,065) $(42,407,359) $(13,372,442) $ 7,210,191
============ ============ ============ ============ ===========
Cumulative gap as
a percentage of
total assets........... (19.14)% (29.72)% (41.10)% (12.96)% 6.99%
============ ============ ============ ============ ===========
Cumulative interest-
sensitive assets as a
percentage of
cumulative
interest-sensitive
liabilities............ 41.0% 39.0% 44.0% 84.2% 108.1%
============ ============ ============ ============ ===========

F-88
173

The cumulative rate-sensitive gap position at one year was a
liability-sensitive position of $42.4 million, or negative 41.1%, which
indicates that Country was in a liability interest rate-sensitive position at
June 30, 1996. Accordingly, Country's earnings could experience a significant
negative impact from increases in interest rates.

Country undertakes this interest rate-sensitivity analysis to monitor the
potential risk to future earnings from the impact of possible future changes in
interest rates on currently existing net assets or net liability positions.
However, this type of analysis is as of a point-in-time, when in fact Country's
interest rate sensitivity can quickly change as market conditions, customer
needs and management strategies change. Thus, interest rate changes do not
affect all categories of assets and liabilities equally or at the same time.
Country is not involved in the purchase of derivative financial instruments or
structured notes.

The preceding table does not necessarily indicate the impact of general
interest rate movements on Country's net interest income because the repricing
of certain assets and liabilities is discretionary and is subject to competitive
and other pressures.

ANALYSIS OF FINANCIAL CONDITION

Loans and Asset Quality

Country's loans are diversified by borrower and industry group. Loan growth
has occurred every year over the past two years and can be attributed to
mergers, increased loan demand and the addition of new lending products. The
following table describes the composition of loans by major categories
outstanding at June 30, 1996 and at December 31, 1995 and 1994.

DECEMBER 31,
JUNE 30, --------------------------
1996 1995 1994
----------- ----------- -----------
AGGREGATE PRINCIPAL AMOUNT
-----------------------------------------

Loans:
Commercial.......................................... $22,368,261 $20,005,093 $13,347,394
Real estate......................................... 39,191,966 32,381,324 21,898,594
Installment......................................... 5,048,167 4,374,598 3,012,595
Other............................................... 585,663 413,635 57,903
------------ ------------ ------------
Gross loans..................................... 67,194,057 57,174,650 38,316,486
Less: Allowance for loan losses....................... (500,318) (420,426) (329,251)
Unearned interest............................... (620,319) (577,114) (338,537)
------------ ------------ ------------
Loans, net....................................... $66,073,420 $56,177,110 $37,648,698
============ ============ ============

PERCENTAGE OF TOTAL LOAN PORTFOLIO
----------------------------------

Loans:
Commercial loans.................................... 33.29% 34.99% 34.83%
Real estate loans................................... 58.33 56.64 57.15
Installment loans................................... 7.51 7.65 7.86
Other............................................... 0.87 0.72 0.16
------------ ------------ ------------
Gross loans...................................... 100.00% 100.00% 100.00%
============ ============ ============

As of June 30, 1996 and December 31, 1995, commitments of Omni Bank under
standby letters of credit and unused lines of credit totaled approximately
$10,587,900 and $9,975,700, respectively.

The loan portfolio includes a concentration of loans to agricultural and
agricultural-related industries amounting to approximately $15,104,000, or
approximately 22.48% of gross loans, as of June 30, 1996.

F-89
174

Stated loan maturities (including floating rate loans reset to market
interest rates) of the total loan portfolio, before unearned income, as of June
30, 1996 and December 31, 1995 were:

STATED LOAN MATURITIES

WITHIN ONE ONE YEAR TO AFTER FIVE
YEAR FIVE YEARS YEARS TOTAL
----------- ----------- ----------- -----------

JUNE 30, 1996
Stated Loan Maturities/Floating Rates
Reset:
Commercial.............................. $13,638,661 $ 6,644,200 $ 2,085,400 $22,368,261
Real estate............................. 9,357,100 7,987,900 21,846,966 39,191,966
Installment............................. 236,300 4,662,900 148,967 5,048,167
Other................................... 585,663 -- -- 585,663
----------- ----------- ----------- -----------
Total................................ $23,817,724 $19,295,000 $24,081,333 $67,194,057
=========== =========== =========== ===========

WITHIN ONE ONE YEAR TO AFTER FIVE
YEAR FIVE YEARS YEARS TOTAL
----------- ----------- ----------- -----------

DECEMBER 31, 1995
Stated Loan Maturities/Floating Rates
Reset:
Commercial.............................. $11,123,793 $ 7,463,100 $ 1,418,200 $20,005,093
Real estate............................. 6,668,200 10,079,700 15,633,424 32,381,324
Installment............................. 253,478 3,928,565 192,555 4,374,598
Other................................... 413,635 -- -- 413,635
----------- ----------- ----------- -----------
Total................................ $18,459,106 $21,471,365 $17,244,179 $57,174,650
=========== =========== =========== ===========

Rate sensitivities of the total loan portfolio, before unearned income, as
of June 30, 1996 and December 31, 1995 were as follows:

LOAN REPRICING

WITHIN ONE ONE YEAR TO AFTER FIVE
YEAR FIVE YEARS YEARS TOTAL
----------- ----------- ----------- -----------

JUNE 30, 1996
Fixed rate................................ $13,165,940 $17,250,643 $ 9,754,426 $40,171,009
Variable rate............................. 9,339,185 2,044,335 14,324,257 25,707,777
Nonaccrual................................ 1,315,271 -- -- 1,315,271
----------- ----------- ----------- -----------
Total................................ $23,820,396 $19,294,978 $24,078,683 $67,194,057
=========== =========== =========== ===========

WITHIN ONE ONE YEAR TO AFTER FIVE
YEAR FIVE YEARS YEARS TOTAL
----------- ----------- ----------- -----------

DECEMBER 31, 1995
Fixed rate................................ $10,121,019 $18,865,501 $ 5,059,704 $34,046,224
Variable rate............................. 7,888,455 2,855,827 11,982,144 22,726,426
Nonaccrual................................ 402,000 -- -- 402,000
----------- ----------- ----------- -----------
Total................................ $18,411,474 $21,721,328 $17,041,848 $57,174,650
=========== =========== =========== ===========

F-90
175

Nonperforming Assets

Country's financial statements are prepared on the accrual basis of
accounting, including the recognition of interest income on its loan portfolio,
unless a loan is placed on a nonaccrual basis. Loans are placed on a nonaccrual
basis when there are serious doubts regarding the collectibility of all
principal and interest due under the terms of the loan. Amounts received on
nonaccrual loans generally are applied first to principal and then to interest
after all principal has been collected. It is the policy of Omni Bank not to
renegotiate the terms of a loan because of a delinquent status. Rather, a loan
is generally transferred to nonaccrual status if it is not in the process of
collection and is delinquent in payment of either principal or interest beyond
90 days.

NONPERFORMING ASSETS

DECEMBER 31,
JUNE 30, --------------------
1996 1995 1994
---------- -------- --------

Nonaccrual loans(1)......................................... $1,315,271 $402,000 $365,120
Loans 90 days past due and still accruing interest.......... 293,835 138,377 223,139
---------- --------- ---------
Total nonperforming loans................................... 1,609,106 540,377 588,259
Other real estate owned and other assets.................... 69,084 53,707 53,036
---------- --------- ---------
Total nonperforming assets.................................. $1,678,190 $594,084 $641,295
========== ========= =========
Nonperforming assets to total assets........................ 1.63% 0.61% 1.00%
Nonperforming loans to total loans.......................... 2.39 0.95 1.54

- -------------------------
(1) Includes loans of $1,246,019, $225,000 and $225,000 at June 30, 1996,
December 31, 1995 and December 31, 1994, respectively, that will be sold to
the shareholders of Country as part of the acquisition.

The classification of a loan on nonaccrual status does not necessarily
indicate that the principal is uncollectible, in whole or in part. A
determination as to collectibility is made by Omni Bank on a case-by-case basis.
Omni Bank considers both the adequacy of the collateral and the other resources
of the borrower in determining the steps to be taken to collect nonaccrual
loans. The final determination as to these steps is made on a case-by-case
basis. Alternatives that are considered are foreclosure, collecting on
guarantees, restructuring the loan or collection lawsuits.

On January 1, 1995, Country adopted guidelines for impaired loans required
by Financial Accounting Standards Board Statement No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by Statement No. 118,
"Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures." The adoption of SFAS No. 114 did not significantly impact the
comparability of the allowance related tables of Country included in this
prospectus.

F-91
176

The following table sets forth a summary of other real estate owned and
other collateral acquired as of June 30, 1996:

OTHER REAL ESTATE OWNED & OTHER COLLATERAL ACQUIRED

NUMBER OF
PARCELS/ NET BOOK
DESCRIPTION AUTOS CARRYING VALUE
------------------------------------------------------- --------- --------------

Developed property..................................... 2 $ 37,379
Vacant land or unsold lots............................. 1 3,857
Repossessed automobiles................................ 14 27,848
-- -------
17 $ 69,084
== =======

Allowance for Loan Losses

In originating loans, management of Country recognizes that credit losses
will be experienced and the risk of loss will vary with, among other things,
general economic conditions, the type of loan being made, the creditworthiness
of the borrower over the term of the loan and, in the case of a collateralized
loan, the quality of the collateral for such loan. The allowance for loan losses
represents Country's estimate of the allowance necessary to provide for losses
incurred in the loan portfolio. In making this determination, Country analyzes
the ultimate collectibility of Country's loan portfolio, incorporating feedback
provided by internal loan staff and provided by examinations performed by
regulatory agencies. Country makes an ongoing evaluation as to the adequacy of
the allowance for loan losses. To establish the appropriate level of the
allowance, all loans (including nonperforming loans), commitments to extend
credit and standby letters of credit are reviewed and classified as to potential
loss exposure. Specific allowances are then established for those loans,
commitments to extend credit or standby letters of credit with identified loss
exposure and an additional allowance is maintained based upon the size, quality,
and concentration characteristics of the remaining loan portfolio using both
historical quantitative trends and Country's evaluation of qualitative factors
including future economic and industry outlooks. The determination by Country of
the appropriate level of the allowance amount was $500,318 at June 30, 1996.

F-92
177

analysis of Country's allowance for loan losses for the six months ended June
30, 1996 and for the years ended December 31, 1995 and 1994.

ALLOWANCE FOR LOAN LOSSES

DECEMBER 31,
JUNE 30, ---------------------------
1996 1995 1994
----------- ----------- -----------

Beginning balance................................... $ 420,426 $ 329,251 $ 326,565
----------- ----------- -----------
Charge-offs:
Commercial........................................ -- 33,331 32,449
Real estate....................................... 55,000 16,000 1,000
Installment....................................... 8,929 -- 5,000
Other............................................. 892 -- --
----------- ----------- -----------
Total charge-offs................................... 64,821 49,331 38,449
----------- ----------- -----------
Recoveries:
Commercial........................................ -- 2,214 22,335
Real estate....................................... -- 92,495 1,000
Installment....................................... -- 5,597 2,000
----------- ----------- -----------
Total recoveries.................................... -- 100,306 25,335
----------- ----------- -----------
Net charge-offs..................................... 64,821 (50,975) 13,114
Provision for loan losses........................... 144,713 40,200 15,800
----------- ----------- -----------
Ending balance...................................... $ 500,318 $ 420,426 $ 329,251
=========== =========== ===========
Period end total loans, net of unearned interest.... $66,573,738 $56,597,536 $37,977,949
=========== =========== ===========
Average loans....................................... $61,576,465 $46,980,953 $33,501,783
=========== =========== ===========
Ratio of net charge-offs to average loans........... 0.21% (0.11)% 0.04%
=========== =========== ===========
Ratio of provision for loan losses to average
loans............................................. 0.47 0.09 0.05
=========== =========== ===========
Ratio of allowance for loan losses to ending total
loans............................................. 0.75 0.74 0.87
=========== =========== ===========
Ratio of allowance for loan losses to total
nonperforming loans............................... 31.09 77.80 55.97
=========== =========== ===========
Ratio of allowance for loan losses to total
nonperforming assets.............................. 29.81 70.77 51.34
=========== =========== ===========

The following table sets forth an allocation of the allowance for loan
losses among categories as of June 30, 1996 and December 31, 1995 and 1994.
Management of Country believes that any allocation of the allowance for loan
losses into categories lends an appearance of precision which does not exist.
The allowance is utilized as a single unallocated allowance available for all
loans. The following allocation table should not be interpreted as an indication
of the specific amounts or the relative proportion of future charges to the
allowance and has been derived by applying a general allowance to the portfolio
as a whole, in addition to specific allowance amounts for internally classified
loans. In retrospect, the specific allocation in any particular

F-93
178

category may prove excessive or inadequate and consequently may be reallocated
in the future to reflect the then current condition. Accordingly, the entire
allowance is available to absorb losses in any category.

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------- ----------------------- -----------------------
PERCENT OF PERCENT OF PERCENT OF
LOANS IN LOANS IN LOANS IN
EACH EACH EACH
CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- ---------- -------- ---------- -------- ----------

Commercial.................... $275,358 33.29% $237,191 34.99% $174,569 34.83%
Real estate................... 149,237 58.33 117,616 56.64 109,493 57.15
Installment................... 75,723 7.51 65,619 7.65 45,189 7.86
Other......................... -- 0.87 -- 0.72 -- 0.16
-------- ------ -------- ------ -------- ------
Total.................. $500,318 100.00% $420,426 100.00% $329,251 100.00%
======== ====== ======== ====== ======== ======

Investment Activities

The investment portfolio, which was 27.2% of Country's earning asset base
as of June 30, 1996, is being managed to minimize interest rate risk, maintain
sufficient liquidity and maximize return. Country's financial planning
anticipates income streams based on normal maturity and reinvestment. The short
duration of the portfolio provides adequate liquidity through normal maturities.
Investment securities classified as available-for-sale are purchased with the
intent to provide liquidity and to increase returns. The securities classified
as available-for-sale are carried at fair value. Country currently does not have
any securities classified as held-to-maturity or trading.

Prior to January 1, 1994, all debt securities were carried at amortized
cost. Effective January 1, 1994, Country adopted SFAS No. 115, and classified
investments as held-to-maturity or available-for-sale.

The following tables describe the composition of investments by major
category and maturity:

INVESTMENT PORTFOLIO

HELD TO MATURITY

DECEMBER 31,
JUNE 30, --------------------------
1996 1995 1994
----------- ----------- -----------

U.S. Treasury......................................... $ -- $ -- $ 9,464,335
U.S. Government agencies and corporations............. -- -- 2,634,794
States and political subdivisions..................... -- -- 875,372
Mortgage backed securities............................ -- -- 515,897
----------- ----------- -----------
Total............................................ $ -- $ -- $13,490,398
=========== =========== ===========

AVAILABLE FOR SALE

DECEMBER 31,
JUNE 30, --------------------------
1996 1995 1994
----------- ----------- -----------

U.S. Treasury......................................... $17,043,156 $12,928,391 $ --
U.S. Government agencies and corporations............. 8,426,172 9,403,563 --
States and political subdivisions..................... 225,250 263,375 --
Mortgage backed securities............................ 436,046 34,532 --
----------- ----------- -----------
Total............................................ $26,130,624 $22,629,861 $ --
=========== =========== ===========

F-94
179

INVESTMENT PORTFOLIO MATURITY/REPRICING SCHEDULE

MATURING OR REPRICING
-----------------------------------------------------------------------------------------------
AFTER 1 YEAR AFTER 5 YEARS
BUT BUT
WITHIN 1 YEAR WITHIN 5 YEARS WITHIN 10 YEARS AFTER 10 YEARS TOTAL
------------------ ------------------- --------------- ---------------- -----------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
---------- ----- ----------- ----- ------- ----- -------- ----- -----------

JUNE 30, 1996
AVAILABLE-FOR-SALE
U.S. Treasury.......... $4,317,063 6.96 % $12,726,093 5.28 % $ -- -- $ -- -- $17,043,156
U.S. Government
agencies and
corporations......... 3,020,294 5.62 5,405,878 7.79 -- -- -- -- 8,426,172
States and political
subdivisions(1)...... 109,250 6.35 29,000 4.00 87,000 5.66 % -- -- 225,250
Mortgage backed
securities........... -- -- -- -- -- -- 436,046 8.25 % 436,046
---------- ----------- ------- -------- -----------
Total.............. $7,446,607 $18,160,971 $87,000 $436,046 $26,130,624
========== =========== ======= ======== ===========
DECEMBER 31, 1995
AVAILABLE-FOR-SALE
U.S. Treasury.......... $4,225,641 6.28 % $ 8,702,750 5.39 % $ -- -- $ -- -- $12,928,391
U.S. Government
agencies and
corporations......... 5,044,813 5.43 4,358,750 6.65 -- -- -- -- 9,403,563
States and political
subdivisions(1)...... 62,000 4.98 106,375 4.41 95,000 5.66 % -- -- 263,375
Mortgage backed
securities........... -- -- -- -- -- -- 34,532 9.50 % 34,532
---------- ----------- ------- -------- -----------
Total.............. $9,332,454 $13,167,875 $95,000 $ 34,532 $22,629,861
========== =========== ======= ======== ===========

- -------------------------
(1) Rates on tax-exempt securities have been adjusted to tax equivalent yields
using a 34% income tax rate.

Deposit Activities

Deposits are attracted through the offering of a broad variety of deposit
instruments, including checking accounts, money market accounts, regular savings
accounts, term certificate accounts (including "jumbo" certificates in
denominations of $100,000 or more), and retirement savings plans. Country's
average balance of total deposits was $91,119,006 for the six months ended June
30, 1996, representing an increase of $17,317,502 or 23.5% compared with the
average balance of total deposits for the year ended December 31, 1995.
Country's average balance of total deposits was $73,801,504 for the year ended
1995, an increase of $20,292,619 or 37.9% compared with the average balance of
total deposits outstanding for 1994 of $53,508,885. The increases in deposits
were due to internally generated growth.

F-95
180

The following table sets forth certain information regarding Omni Bank's
average deposits as of June 30, 1996 and December 31, 1995 and 1994.

AVERAGE DEPOSITS

JUNE 30, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------------ ------------------------------------ -----------------------------------
AVERAGE PERCENT OF AVERAGE AVERAGE PERCENT OF AVERAGE AVERAGE PERCENT OF AVERAGE
AMOUNT TOTAL RATE PAID AMOUNT TOTAL RATE PAID AMOUNT TOTAL RATE PAID
----------- ---------- --------- ----------- ---------- --------- ----------- ---------- ---------

Noninterest-bearing
demand
deposits... $10,873,509 11.93% -- $10,309,771 13.97% -- $ 9,055,273 16.92% --
Interest-bearing
demand
deposits... 9,885,649 10.85 2.60% 9,787,777 13.26 2.53% 11,315,861 21.15 2.24%
Savings
deposits... 4,194,065 4.60 2.22 4,296,022 5.82 2.19 4,935,017 9.22 2.07
Time
deposits... 66,165,783 72.62 6.10 49,407,934 66.95 5.81 28,202,734 52.71 4.33
----------- ------ ---- ----------- ------ ---- ----------- ------ ----
$91,119,006 100.00% 4.80% $73,801,504 100.00% 4.35% $53,508,885 100.00% 2.95%
=========== ====== ==== =========== ====== ==== =========== ====== ====

As of June 30, 1996, non-brokered time deposits of $100,000 or more
represented 12.1% of total deposits, compared with 11.6% of total deposits as of
December 31, 1995 and 6.9% as of December 31, 1994. Omni Bank does not have and
does not solicit brokered deposits.

The following table sets forth the remaining maturities for time deposits
of $100,000 or more at June 30, 1996 and at December 31, 1995:

TIME DEPOSITS OF $100,000 OR MORE

MATURITY RANGE

JUNE 30, DECEMBER 31,
1996 1995
----------- ------------

Three months or less.............................................. $ 3,235,709 $ 3,650,267
Three through six months.......................................... 2,347,481 1,459,803
Six through twelve months......................................... 3,800,292 3,563,272
Over twelve months................................................ 1,649,225 1,389,404
----------- -----------
Total........................................................... $11,032,707 $ 10,062,746
=========== ===========

Return on Equity and Assets

The following are various ratios for Country for the six months ended June
30, 1996 and the years ended December 31, 1995 and 1994.

RETURN ON EQUITY AND ASSETS

FOR THE FOR THE YEARS
SIX MONTHS ENDED
ENDED DECEMBER 31,
JUNE 30, ----------------
1996 1995 1994
---------- ---- -----

Return on average assets..................................... 0.30% 0.26% (0.06)%
Return on average equity..................................... 12.67 8.94 (1.79)
Average equity to average assets............................. 2.39 2.90 3.53
Dividend payout rates on common stock........................ 0.00 0.00 0.00

F-96
181

Liquidity

Liquidity measures the ability of Country to meet maturing obligations and
its existing commitments, to withstand fluctuations in deposit levels, to fund
its operations and to provide for customers' credit needs. The liquidity of
Country principally depends on cash flows from operating activities, investment
in and maturity of assets, changes in balances of deposits and borrowings, and
its ability to borrow funds.

Omni Bank's investment securities portfolio, including federal funds sold,
and its cash and due from bank deposit balances serve as the primary sources of
liquidity. At June 30, 1996, 11.1% of Omni Bank's interest-bearing liabilities
were in the form of time deposits of $100,000 and over. Substantially all of
such large deposits were obtained from Omni Bank's market area and none of such
deposits were brokered deposits. Management believes these deposits to be a
stable source of funds. However, if a large number of these time deposits
matured at approximately the same time and were not renewed, Omni Bank's
liquidity could be adversely affected. Currently, the maturities of Omni Bank's
large time deposits are spread throughout the year, with 29.3% maturing in the
third quarter of 1996, 21.3% maturing in the fourth quarter of 1996, 34.4%
maturing in the first and second quarter of 1997, and the remaining 15.0%
maturing thereafter. Omni Bank monitors those maturities in an effort to
minimize any adverse effect on liquidity.

At June 30, 1996, approximately 50% of Omni Bank's large time deposits
mature during the second half of 1996. Management believes it has the ability to
retain a significant portion of these deposits in their current form. However,
in the event of short-term liquidity needs, Omni Bank may purchase federal funds
from correspondent banks. This source would be used from time to time on a
limited basis. Omni Bank may borrow from the Federal Reserve Bank, but has not
previously done so. Omni Bank may borrow additional funds from the Federal Home
Loan Bank of Chicago for short or long-term purposes, and may also utilize
securities classified as available for sale and cash flows from loan payments to
meet short-term liquidity needs.

Country's short-term borrowings at June 30, 1996 consisted of a note in the
principal amount of $3,550,000 payable to Country's principal correspondent
bank. The Country Acquisition agreement requires the stockholders of Country to
retire this outstanding borrowing at the closing.

Country's principal source of funds is dividends from Omni Bank. At June
30, 1996, approximately $1,000,000 was available for dividends without
regulatory approval. See "Supervision and Regulation".

Capital Resources

Country's stockholders' equity at June 30, 1996 was $2.4 million, compared
with $2.5 million at December 31, 1995. The decrease in equity has been the
result of the retention of earnings offset by the equity effect of unrealized
losses on securities available for sale of $177,120. Country had consolidated
net income of $155,288 for the six months ended June 30, 1996.

Omni Bank is expected to meet a minimum risk-based capital to risk-weighted
assets ratio of 8%, of which at least one-half (or 4%) must be in the form of
Tier 1 (core) capital. The remaining one-half (or 4%) may be in the form of Tier
1 (core) or Tier 2 (supplementary) capital. The amount of loan loss allowance
that may be included in capital is limited to 1.25% of risk-weighted assets. The
ratio of Tier 1 (core) and the combined amount of Tier 1 (core) and Tier 2
(supplementary) capital to risk-weighted assets for Omni Bank were 10.51% and
11.30%, respectively, at June 30, 1996, and 11.44% and 12.20%, respectively, at
December 31, 1995. Omni Bank is currently, and expects to continue to be, in
compliance with these guidelines. See "Supervision and Regulation -- The Bank
Subsidiaries -- Capital Requirements".

The Board of Governors of the Federal Reserve System has announced a policy
sometimes known as the "source of strength doctrine" that requires a bank
holding company to serve as a source of financial and managerial strength to its
subsidiary banks. The FRB has interpreted this requirement to require that a
bank holding company, such as Country, stand ready to use available resources to
provide adequate capital funds to its subsidiary banks during periods of
financial stress or adversity. The FRB has stated that it would generally view a
failure to assist a troubled or failing subsidiary bank in these circumstances
as an unsound or unsafe banking practice or a violation of Regulation Y or both,
justifying a cease and desist order or other enforcement action, particularly if
appropriate resources are available to the bank holding company on a

F-97
182

reasonable basis. The requirement that a bank holding company, such as Country,
make its assets and resources available to a failing subsidiary bank could have
an adverse effect upon Country and its stockholders.

The following table sets forth an analysis of Omni Bank's capital ratios:

RISK-BASED CAPITAL RATIOS

DECEMBER 31, MINIMUM WELL-
JUNE 30, -------------------------- CAPITAL CAPITALIZED
1996 1995 1994 RATIOS RATIOS
----------- ----------- ----------- ------- -----------

Tier I risk-based capital.......... $ 6,622,354 $ 6,390,183 $ 4,221,850
Tier II risk-based capital......... 500,318 420,426 329,251
Total capital...................... 7,122,672 6,810,609 4,551,101
Risk-weighted assets............... 63,005,853 55,843,031 37,038,615
Capital ratios:
Tier I risk-based capital........ 10.51% 11.44% 11.40% 4.00% 6.00%
Tier II risk-based capital....... 11.30 12.20 12.29 8.00 10.00
Leverage ratio................... 6.41 6.61 6.57 4.00 5.00

ACCOUNTING MATTERS

In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors of Impairment of a Loan" as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures". Together, these statements require that when a loan is impaired, a
creditor shall measure impairment based on the present value of expected future
cash flows discounted at the loan's effective interest rate, the fair value of
the collateral if the loan is collateral dependent or the loan's observable
market price. A loan is considered impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all amounts
due according to the contractual terms of the loan agreement. The new statements
also require certain disclosures regarding impaired loans. Country adopted these
statements effective January 1, 1995. The adoption of these accounting
statements did not have a material effect on Country's consolidated financial
position or results of operations since Country's recognition and measurement
policies regarding nonperforming loans are materially consistent with the
accounting statements.

F-98
183

IMPACT OF INFLATION, CHANGING PRICES AND MONETARY POLICIES

The financial statements and related financial data concerning Country
presented in this Prospectus have been prepared in accordance with generally
accepted accounting principles which require the measurement of financial
position and operating results in terms of historical dollars without
considering changes in the relative purchasing power of money over time due to
inflation. The primary effect of inflation on the operations of Country is
reflected in increased operating costs. Unlike most industrial companies,
virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, changes in interest rates have a more
significant effect on the performance of a financial institution than do the
effects of changes in the general rate of inflation and changes in prices.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. Interest rates are highly
sensitive to many factors which are beyond the control of Country, including the
influence of domestic and foreign economic conditions and the monetary and
fiscal policies of the United States government and federal agencies,
particularly the FRB. See "Investment Considerations -- Impact of Interest Rates
and General Economic Conditions".

F-99
184

COUNTRY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995

DECEMBER 31,
1995
JUNE 30, ------------
1996
------------
(UNAUDITED)

ASSETS
Cash and due from banks........................................... $ 2,945,125 $ 2,214,864
Federal funds sold................................................ 2,075,000 10,045,000
Securities available for sale..................................... 26,130,624 22,629,861
Loans (net of allowance for loan losses of $500,318 in 1996 and
$420,426 in 1995)............................................... 66,073,420 56,177,110
Premises and equipment, net....................................... 3,632,931 3,748,388
Accrued interest and other assets................................. 2,315,183 1,789,655
------------ -----------
Total assets............................................ $103,172,283 $ 96,604,878
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand.......................................................... $ 10,490,530 $ 10,880,457
Savings and NOW................................................. 14,242,435 13,828,262
Other time...................................................... 55,078,648 51,775,006
Time deposits of $100,000 or more............................... 11,032,707 10,062,746
------------ -----------
Total deposits.......................................... 90,844,320 86,546,471
Short term borrowings............................................. 3,550,000 3,550,000
Long term borrowings.............................................. 5,000,000 2,700,000
Income taxes payable.............................................. -- 9,466
Deferred income taxes............................................. 181,139 279,798
Accrued interest and other liabilities............................ 1,156,396 1,056,883
------------ -----------
Total liabilities....................................... 100,731,855 94,142,618
------------ -----------
Stockholders' Equity
Preferred stock................................................. 314,470 314,470
Common stock.................................................... 26,225 26,225
Surplus......................................................... 1,057,776 1,057,776
Retained earnings............................................... 1,156,673 1,001,385
Unrealized gain (loss) on securities available for sale......... (114,716) 62,404
------------ -----------
Total stockholders' equity.............................. 2,440,428 2,462,260
------------ -----------
Total liabilities and stockholders' equity.............. $103,172,283 $ 96,604,878
============ ===========

See Accompanying Notes to Unaudited Consolidated Financial Statements.

F-100
185

COUNTRY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1995

SIX MONTHS ENDED
JUNE 30,
------------------------
1996 1995
---------- ----------
(UNAUDITED)

Interest income:
Loans and fees on loans............................................ $2,845,217 $1,908,931
Securities:
U.S. Treasuries................................................. 419,930 253,715
U.S. Government agencies and corporations....................... 242,635 220,794
States and political subdivisions............................... 6,862 25,057
Federal funds sold................................................. 291,516 266,247
Other.............................................................. 11,380 2,386
---------- ----------
Total interest income......................................... 3,817,540 2,677,130
---------- ----------
Interest expense:
Deposits........................................................... 2,169,597 1,376,190
Notes payable...................................................... 279,565 104,000
---------- ----------
Total interest expense........................................ 2,449,162 1,480,190
---------- ----------
Net interest income........................................... 1,368,378 1,196,940
Provision for loan losses............................................ 144,713 --
---------- ----------
Net interest income after provision for loan losses........... 1,223,665 1,196,940
---------- ----------
Noninterest income:
Service charges and fees........................................... 311,050 220,024
Other.............................................................. 290,439 34,846
---------- ----------
601,489 254,870
---------- ----------
Noninterest expenses:
Salaries and wages................................................. 783,244 632,073
Employee benefits.................................................. 72,414 104,955
Occupancy and equipment rental..................................... 236,884 214,829
FDIC assessment.................................................... (120) 78,017
Legal.............................................................. 108,288 23,062
Stationary, supplies and printing.................................. 50,177 43,026
Telephone.......................................................... 34,577 38,025
Postage............................................................ 48,186 36,838
Correspondent bank charges......................................... 40,719 36,050
Directors fees..................................................... 13,050 16,845
Amortization....................................................... 8,149 8,176
Other.............................................................. 204,298 1,683,513
---------- ----------
1,599,866 1,400,247
---------- ----------
Income before income taxes.................................... 225,288 51,563
Income taxes......................................................... 70,000 18,000
---------- ----------
Net income.................................................... $ 155,288 $ 33,563
========== ==========
Earnings per share of common stock............................ $ 5.92 $ 1.28
========== ==========
Weighted average number of common shares outstanding.......... 26,225 26,225
========== ==========

See Accompanying Notes to Unaudited Consolidated Financial Statements.

F-101
186

COUNTRY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995

SIX MONTHS ENDED
JUNE 30,
----------------------------
1996 1995
------------ ------------
(UNAUDITED)

Cash Flows from Operating Activities
Net income..................................................... $ 155,288 $ 33,563
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................ 136,523 80,325
Provision for loan losses................................... 144,713 --
Amortization of bond premiums, net.......................... 19,104 17,214
Change in assets and liabilities:
(Increase) in accrued interest and other assets........... (525,529) (249,976)
Increase in accrued interest and other liabilities........ 90,048 297,839
------------ ------------
Net cash provided by operating activities.............. 20,147 178,965
------------ ------------
Cash Flows from Investing Activities
Investment securities:
Held to maturity:
Proceeds from calls, paydowns and maturities.............. -- 1,034,552
Purchases................................................. -- (6,202,433)
Available for sale:
Proceeds from sales....................................... 1,000,000 --
Proceeds from calls, paydowns and maturities.............. 5,683,264 --
Purchases................................................. (10,478,910) --
Net (increase) decrease in federal funds sold.................. 7,970,000 (3,043,000)
Net decrease in certificates of deposit........................ -- 199,000
Net (increase) in loans........................................ (10,041,023) (9,616,592)
Purchase of premises and equipment............................. (21,066) (236,089)
------------ ------------
Net cash (used in) investing activities................ (5,887,735) (17,864,562)
------------ ------------
Cash Flows from Financing Activities
Net increase in demand deposit, NOW accounts and savings
accounts.................................................... 24,246 682,171
Net increase in time deposits.................................. 4,273,603 14,403,450
Payments on short term borrowings.............................. -- (12,500)
Proceeds from short term borrowings............................ -- 2,070,000
Payments on long term borrowings............................... -- (175,000)
Proceeds from long term borrowings............................. 2,300,000 --
------------ ------------
Net cash provided by financing activities.............. 6,597,849 16,968,121
------------ ------------
Net increase (decrease) in cash and due from banks..... 730,261 (717,476)
Cash and due from banks:
Beginning...................................................... 2,214,864 3,624,274
------------ ------------
End............................................................ $ 2,945,125 $ 2,906,798
============ ============

See Accompanying Notes to Unaudited Consolidated Financial Statements.

F-102
187

COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The financial information of Country Bancshares, Inc. and subsidiary
included herein is unaudited; however, such information reflects all adjustments
(consisting of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
The results of the interim period ended June 30, 1996 are not necessarily
indicative of the results expected for the year ending December 31, 1996.

NOTE 2. SECURITIES

Amortized costs and fair values of securities are summarized as follows:

AVAILABLE FOR SALE

JUNE 30, 1996
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------

U.S. Treasury.................................. $17,191,771 $ 23,200 $ 171,815 $17,043,156
U.S. Government agencies and corporations...... 8,449,090 55,280 78,198 8,426,172
States and political subdivisions.............. 223,621 1,629 -- 225,250
Mortgage backed securities..................... 439,954 -- 3,908 436,046
----------- ------- -------- -----------
$26,304,436 $ 80,109 $ 253,921 $26,130,624
=========== ======= ======== ===========

AVAILABLE FOR SALE

DECEMBER 31, 1995
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------

U.S. Treasury.................................. $12,858,183 $ 75,043 $ 4,835 $12,928,391
U.S. Government agencies and corporations...... 9,373,853 63,797 34,087 9,403,563
States and political subdivisions.............. 261,468 1,907 -- 263,375
Mortgage backed securities..................... 34,390 142 -- 34,532
----------- -------- ------- -----------
$22,527,894 $ 140,889 $ 38,922 $22,629,861
=========== ======== ======= ===========

The amortized cost and fair value of securities classified as available for
sale at June 30, 1996 and December 31, 1995, by contractual maturity, are shown
below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.

JUNE 30, 1996 DECEMBER 31, 1995
-------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
----------- ----------- ----------- -----------

Due in one year or less................... $ 7,462,344 $ 7,446,607 $ 9,330,269 $ 9,332,454
Due after one year through five years..... 18,315,267 18,160,971 13,068,500 13,167,875
Due after five years through ten years.... 86,871 87,000 94,735 95,000
Due after ten years....................... -- -- -- --
Mortgage backed securities................ 439,954 436,046 34,390 34,532
----------- ----------- ----------- -----------
$26,304,436 $26,130,624 $22,527,894 $22,629,861
=========== =========== =========== ===========

F-103
188

COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Securities with carrying values of approximately $13,749,000 and $9,174,000
at June 30, 1996 and December 31, 1995, respectively, were pledged to secure
public deposits, to secure securities sold under agreements to repurchase and
for other purposes as required or permitted by law.

NOTE 3. LOANS

The major classifications of loans follow:

JUNE 30, DECEMBER 31,
1996 1995
----------- ------------

Commercial......................................................... $22,368,261 $ 20,005,093
Real estate........................................................ 39,191,966 32,381,324
Installment........................................................ 5,048,167 4,374,598
Other.............................................................. 585,663 413,635
----------- -----------
67,194,057 57,174,650
----------- -----------
Deduct:
Unearned interest................................................ 620,319 577,114
Allowance for loan losses........................................ 500,318 420,426
----------- -----------
1,120,637 997,540
----------- -----------
$66,073,420 $ 56,177,110
=========== ===========

NOTE 4. ALLOWANCE FOR LOAN LOSSES

An analysis of activity in the allowance for loan losses follows:

SIX MONTHS ENDED
JUNE 30,
--------------------
1996 1995
-------- --------

Balance, January 1...................................................... $420,426 $329,251
Provision for loan losses............................................. 144,713 --
Recoveries............................................................ -- 98,922
Loans charged off..................................................... (64,821) (47,081)
-------- --------
Balance, end of period.................................................. $500,318 $381,092
======== ========

NOTE 5. SHORT TERM BORROWINGS

Short term borrowings include a note payable to a third party lender and
securities sold under agreements to repurchase.

Average and maximum balances and rates on note payable and securities sold
under agreements to repurchase were as follows:

SIX MONTHS ENDED
JUNE 30,
------------------------
1996 1995
---------- ----------

Maximum month end balance............................................ $3,550,000 $3,520,000
Average month end balance............................................ 3,550,000 1,685,146
Weighted average interest rate for the period........................ 8.75% 8.73%
Weighted average interest rate at end of period...................... 8.75% 8.88%

F-104
189

COUNTRY BANCSHARES, INC., AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6. CONTINGENT LIABILITIES

At June 30, 1996 and December 31, 1995, loan commitments, including standby
letters of credit, approximated $10,587,900 and $9,975,700, respectively,
substantially all of which are variable rate commitments.

NOTE 7. NEW ACCOUNTING RULES AND REGULATIONS

During March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" (Statement No. 121). Statement No. 121
generally requires long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing the review for recoverability, the entity should
estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows
(discounted and without interest charges) is less than the carrying amount of
the asset, an impairment is recognized. Country adopted Statement No. 121
effective January 1, 1996. Management believes that the adoption of Statement
No. 121 will not have a material effect on Country's financial statements.

In May 1995, the Financial Accounting Standards Board issued Statement No.
122 "Accounting for Mortgage Servicing Rights" (Statement No. 122). Statement
No. 122 requires Omni Bank to recognize as separate assets rights to service
mortgage loans for others, however those servicing rights are acquired. If Omni
Bank acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells or securitizes those loans with
servicing rights retained, Omni Bank should allocate the total cost of the
mortgage loans to mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values. The mortgage servicing
rights should be amortized in proportion to and over the period of estimated net
servicing income. Omni Bank adopted Statement No. 122 effective January 1, 1996.
Management believes that the adoption of Statement No. 122 will not have a
material effect on the financial statements of Omni Bank.

In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock Based Compensation" (Statement No. 123).
Statement No. 123 establishes a fair value based method of accounting for stock
options and other equity instruments. Statement No. 123 permits the continued
use of the intrinsic value method included in Accounting Principle Board Opinion
25, "Accounting for Stock Issued to Employees" (APB 25), but regardless of the
method used to account for the compensation cost associated with stock option or
similar plans, it requires employers to disclose information required by
Statement No. 123. Country plans to continue to measure compensation cost using
APB 25; therefore, the adoption of Statement No. 123 will not have any impact on
Country's financial condition or results of operations.

F-105
190

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Country Bancshares, Inc.
Macomb, Illinois

We have audited the accompanying consolidated balance sheets of Country
Bancshares, Inc. and Subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Country
Bancshares, Inc. and Subsidiary as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.

McGLADREY & PULLEN, LLP

Champaign, Illinois
May 24, 1996

F-106
191

COUNTRY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

1995 1994
----------- -----------

ASSETS
Cash and due from banks............................................ $ 2,214,864 $ 3,624,274
Certificates of deposit............................................ -- 199,000
Federal funds sold................................................. 10,045,000 5,694,000
Securities held to maturity (fair value $13,315,525 in 1994)....... -- 13,490,398
Securities available for sale...................................... 22,629,861 --
Loans (net of allowance for loan losses of $420,426 in 1995 and
$329,251 in 1994)................................................ 56,177,110 37,648,698
Premises and equipment............................................. 3,748,388 2,486,855
Income tax receivable.............................................. -- 38,483
Accrued interest and other assets.................................. 1,789,655 1,063,633
----------- -----------
Total assets................................................ $96,604,878 $64,245,341
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand........................................................... $10,880,457 $ 9,273,375
Savings and NOW.................................................. 13,828,262 14,757,651
Other time....................................................... 51,775,006 30,854,632
Time deposits of $100,000 or more................................ 10,062,746 4,059,517
----------- -----------
Total deposits.............................................. 86,546,471 58,945,175
Short term borrowings.............................................. 3,550,000 1,462,500
Long term borrowings............................................... 2,700,000 875,000
Deferred income taxes.............................................. 279,798 283,524
Income tax payable................................................. 9,466 --
Accrued interest and other liabilities............................. 1,056,883 476,585
----------- -----------
Total liabilities........................................... 94,142,618 62,042,784
----------- -----------
Commitments, Contingencies and Credit Risk
Stockholders' Equity
Preferred stock.................................................. 314,470 314,470
Common stock..................................................... 26,225 26,225
Surplus.......................................................... 1,057,776 1,057,776
Retained earnings................................................ 1,001,385 804,086
Unrealized gain on securities available for sale................. 62,404 --
----------- -----------
Total stockholders' equity.................................. 2,462,260 2,202,557
----------- -----------
Total liabilities and stockholders' equity.................. $96,604,878 $64,245,341
=========== ===========

See Accompanying Notes to Consolidated Financial Statements.

F-107
192

COUNTRY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1994

1995 1994
---------- ----------

Interest income:
Loans and fees on loans............................................ $4,370,787 $3,043,219
Securities:
U.S. Treasury securities........................................ 494,713 354,108
U.S. Government agencies and corporations....................... 580,607 99,879
States and political subdivisions............................... 49,399 62,237
Federal funds sold................................................. 531,491 232,514
Other.............................................................. 2,755 16,232
---------- ----------
Total interest income...................................... 6,029,752 3,808,189
---------- ----------
Interest expense:
Deposits........................................................... 3,214,028 1,576,060
Notes payable...................................................... 317,970 213,244
---------- ----------
Total interest expense..................................... 3,531,998 1,789,304
---------- ----------
Net interest income........................................ 2,497,754 2,018,885
Provision for loan losses............................................ 40,200 15,800
---------- ----------
Net interest income after provision for loan losses........ 2,457,554 2,003,085
---------- ----------
Noninterest income:
Service charges and fees........................................... 494,659 379,881
Securities gains, net.............................................. 5,730 --
Other.............................................................. 88,346 18,346
---------- ----------
588,735 398,227
---------- ----------
Noninterest expenses:
Salaries and wages................................................. 1,317,433 1,138,623
Employee benefits.................................................. 193,329 201,804
Occupancy and equipment rental..................................... 492,966 400,992
FDIC assessment.................................................... 84,524 97,558
Legal.............................................................. 28,720 26,850
Stationery, supplies and printing.................................. 76,834 71,671
Telephone.......................................................... 56,367 65,309
Postage............................................................ 74,081 68,317
Correspondent bank charges......................................... 74,926 42,178
Directors fees..................................................... 38,230 66,900
Amortization....................................................... 16,325 3,851
Other.............................................................. 386,474 301,186
---------- ----------
2,840,209 2,485,239
---------- ----------
Income (loss) before income taxes.......................... 206,080 (83,927)
Income taxes (benefit)............................................... (2,518) (46,830)
---------- ----------
Net income (loss).......................................... $ 208,598 $ (37,097)
========== ==========
Earnings (loss) per share of common stock.................. $ 7.95 $ (3.57)
========== ==========
Weighted average number of shares outstanding.............. 26,225 10,403
========== ==========

See Accompanying Notes to Consolidated Financial Statements.

F-108
193

COUNTRY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994

UNREALIZED
GAIN ON
SECURITIES
PREFERRED COMMON RETAINED AVAILABLE
STOCK STOCK SURPLUS EARNINGS FOR SALE TOTAL
--------- ------- ---------- ---------- ---------- ----------

Balance, December 31, 1993... $ 112,985 $ 8,934 $ 974,985 $ 841,183 $ -- $1,938,087
Issuance of 683 shares of
Series 2 preferred stock
and 17,291 shares of
common stock............ 201,485 17,291 82,791 -- -- 301,567
Net (loss)................. -- -- -- (37,097) -- (37,097)
--------- -------- ----------- ----------- -------- -----------
Balance, December 31, 1994... 314,470 26,225 1,057,776 804,086 -- 2,202,557
Net income................. -- -- -- 208,598 -- 208,598
Change in unrealized gain
on securities available
for sale................ -- -- -- -- 62,404 62,404
Cash dividends on Series 1
preferred stock, $29.50
per share............... -- -- -- (11,299) -- (11,299)
--------- -------- ----------- ----------- -------- -----------
Balance, December 31, 1995... $ 314,470 $26,225 $1,057,776 $1,001,385 $ 62,404 $2,462,260
========= ======== =========== =========== ======== ===========

See Accompanying Notes to Consolidated Financial Statements.

F-109
194

COUNTRY BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994

1995 1994
------------ ------------

Cash Flows from Operating Activities
Net income (loss)................................................................... $ 208,598 $ (37,097)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation...................................................................... 262,315 141,317
Amortization of intangibles....................................................... 6,496 (6,307)
Provision for loan losses......................................................... 40,200 15,800
Provision for deferred income taxes............................................... (43,289) 132,323
Amortization of bond premiums, net................................................ 36,077 33,586
Gain on sale of securities........................................................ (5,730) --
Change in assets and liabilities:
(Increase) in accrued interest and other assets................................. (694,034) (341,883)
Increase in accrued interest and other liabilities.............................. 589,763 158,920
------------ ------------
Net cash provided by operating activities..................................... 400,396 96,659
------------ ------------
Cash Flows from Investing Activities
Investment securities:
Held to maturity:
Proceeds from calls and maturities.............................................. 5,752,214 3,836,000
Proceeds from paydowns.......................................................... 80,925 687,288
Purchases....................................................................... (13,787,981) (6,367,430)
Available for sale:
Proceeds from sales............................................................. 1,360,280 --
Purchases....................................................................... (2,473,281) --
Net (increase) in loans............................................................. (18,568,612) (8,988,128)
Net (increase) in federal funds sold................................................ (4,351,000) (502,000)
Net (increase) decrease in certificates of deposit.................................. 199,000 (34,000)
Purchase of premises and equipment.................................................. (1,523,848) (677,271)
Proceeds from sale of real estate acquired in settlement of loans................... -- 662,937
------------ ------------
Net cash (used in) investing activities....................................... (33,312,303) (11,382,604)
------------ ------------
Cash Flows from Financing Activities
Net increase (decrease) in demand deposits, NOW accounts and savings accounts....... 677,693 (2,550,249)
Net increase in time deposits....................................................... 26,923,603 13,422,831
Proceeds from short term borrowings................................................. 2,100,000 --
Payments on short term borrowings................................................... (12,500) (25,000)
Payments on long term borrowings.................................................... (175,000) (125,000)
Proceeds from long term borrowings.................................................. 2,000,000 --
Proceeds from issuance of common stock.............................................. -- 100,082
Proceeds from issuance of preferred stock........................................... -- 201,485
Dividends paid...................................................................... (11,299) --
------------ ------------
Net cash provided by financing activities..................................... 31,502,497 11,024,149
------------ ------------
Net increase in cash and due from banks....................................... (1,409,410) (261,796)
Cash and due from banks:
Beginning of year................................................................... 3,624,274 3,886,070
------------ ------------
End of year......................................................................... $ 2,214,864 $ 3,624,274
============ ============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest -- depositors............................................................ $ 2,640,061 $ 1,396,387
============ ============
-- short-term borrowings.................................................... $ 259,090 $ 86,475
============ ============
-- long-term borrowings..................................................... $ 74,672 $ 97,365
============ ============
Income taxes...................................................................... $ (7,178) $ (101,349)
============ ============
Supplemental Schedule of Noncash Investing and Financing Activities
Transfer of loans to real estate acquired in settlement of loans.................... $ -- $ 22,682
============ ============
Change in unrealized gain on securities available for sale.......................... $ 101,967 $ --
============ ============
Increase in deferred taxes attributable to the unrealized gain on securities
available for sale................................................................ $ (39,563) $ --
============ ============
Amortized cost of securities transferred from held to maturity to available for
sale.............................................................................. $ 21,431,021 $ --
============ ============

See Accompanying Notes to Consolidated Financial Statements.

F-110
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COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. ACCOUNTING POLICIES

The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and reporting practices prescribed for
the banking industry.

The significant accounting and reporting policies for Country Bancshares,
Inc. and its subsidiary ("Country"), follow:

Nature of Business

Through its subsidiary, Omni Bank ("Omni Bank"), Country provides a full
range of banking services to individual and corporate customers in its five
locations in the western Illinois area. Country is subject to competition from
other financial institutions and nonfinancial institutions providing financial
products. Additionally, Country and Omni Bank are subject to regulations of
certain regulatory agencies and undergo periodic examinations by those
regulatory agencies.

Basis of consolidation

The consolidated financial statements include the accounts of Country and
its wholly-owned subsidiary, Omni Bank. All significant intercompany accounts
and transactions have been eliminated in consolidation.

Basis of accounting

In preparing the consolidated financial statements, Country management is
required to make estimates and assumptions which significantly affect the
amounts reported in the consolidated financial statements. Significant estimates
which are particularly susceptible to change in a short period of time include
the determination of the allowance for loan losses and valuation of real estate
and other properties acquired in connection with foreclosures or in satisfaction
of amounts due from borrowers on loans. Actual results could differ from those
estimates.

Securities held to maturity

Securities classified as held to maturity are those debt securities Country
has both the intent and ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in general economic conditions.
These securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed using the interest method over their contractual
lives.

Securities available for sale

Securities classified as available for sale are those debt securities that
Country intends to hold for an indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified as available for sale would
be based on various factors, including significant movements in interest rates,
changes in the maturity mix of Country's assets and liabilities, liquidity
needs, regulatory capital considerations, and other similar factors. Securities
available for sale are carried at fair value. The difference between fair value
and cost, adjusted for amortization of premium and accretion of discounts,
results in an unrealized gain or loss. Unrealized gains or losses are reported
as increases or decreases in stockholders' equity, net of the related deferred
income tax effect. Gains or losses from the sale of securities are determined
using the specific identification method. Amortization of premiums and accretion
of discounts, computed using the interest method, are recognized in interest
income using the interest method over their contractual lives.

F-111
196

COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Loans

Loans are stated at the principal amount outstanding, net of unearned
interest and the allowance for loan losses.

Country's policy is to discontinue the accrual of interest income on any
loan when, in the opinion of management, there is reasonable doubt as to the
timely collectibility of interest or principal. Interest income on these loans
is recognized to the extent interest payments are received and the principal is
considered fully collectible.

Allowance for loan losses

The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb losses on existing loans that may become uncollectible, based on
evaluation of the collectibility of loans and prior loss experience. The
evaluation also takes into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may affect the borrowers'
ability to pay. While management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary if there are
significant changes in economic conditions. In addition, regulatory agencies, as
an integral part of their examination process, periodically review Omni Bank's
allowance for loan losses, and may require Omni Bank to make additions to the
allowance based on their judgment about information available to them at the
time of their examinations.

On January 1, 1995, Country adopted Financial Accounting Standards Board
Statement No. 114 (Statement No. 114), "Accounting by Creditors for the
Impairment of a Loan," as amended by Statement No. 118, which requires loans to
be considered impaired when, based on current information and events, it is
probable that Omni Bank will not be able to collect all amounts due. The portion
of the allowance for loan losses applicable to impaired loans has been computed
based on the present value of the estimated future cash flows of interest and
principal discounted at the loan's effective interest rate or on the fair value
of the collateral for collateral dependent loans. The entire change in present
value of expected cash flows of impaired loans or of collateral value is
reported as bad debt expense in the same manner in which impairment initially
was recognized or as a reduction in the amount of bad debt expense that
otherwise would be reported.

Premises and equipment

Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the accelerated and straight-line methods over the
estimated useful lives of the assets.

Deferred income taxes

F-112
197

COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Per share data

Earnings per share of common stock are calculated on the weighted average
number of shares of common stock outstanding during the year.

Statements of cash flows

For purposes of reporting cash flows, cash and due from banks include cash
on hand and amounts due from banks (including cash items in process of
clearing).

Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of

The Financial Accounting Standards Board has issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (Statement No. 121). Statement No. 121 generally requires
long-lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. In
performing the review for recoverability, the entity should estimate the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows (discounted and
without interest charges) is less than the carrying amount of the asset, an
impairment is recognized. Management believes that adoption of this Statement
will not have a material effect on Country's financial statements.

Accounting for Mortgage Servicing Rights

In May 1995, the Financial Accounting Standards Board issued Statement No.
122, "Accounting for Mortgage Servicing Rights" (Statement No. 122). Statement
No. 122 requires Omni Bank to recognize as separate assets rights to service
mortgage loans for others, however those servicing rights are acquired. If Omni
Bank acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells or securitizes those loans with
servicing rights retained, Omni Bank should allocate the total cost of the
mortgage loans to mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values. The mortgage servicing
rights should be amortized in proportion to and over the period of estimated net
servicing income.

Statement No. 122 is effective for years beginning after December 15, 1995.
Country believes the adoption of Statement No. 122 will not have a material
impact on its consolidated financial statements.

Accounting for Stock Based Compensation

In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock Based Compensation" (Statement No. 123).
Statement No. 123 establishes a fair value based method of accounting for stock
options and other equity instruments. Statement No. 123 permits the continued
use of the intrinsic value method included in Accounting Principle Board Opinion
25, "Accounting for Stock Issued to Employees", but regardless of the method
used to account for the compensation cost associated with stock option or
similar plans, it requires employers to disclose information required by
Statement No. 123.

Statement No. 123 is effective for years beginning after December 15, 1995.
Country believes the adoption of Statement No. 123 will not have a material
impact on its consolidated financial statements.

NOTE 2. CASH AND DUE FROM BANKS

Omni Bank is required to maintain legal reserves composed of funds on
deposit with the Federal Reserve Bank and cash on hand. The required balances as
of December 31, 1995 and 1994, were $361,000 and $25,000, respectively.

F-113
198

COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3. SECURITIES

Country adopted Financial Accounting Standards Board Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (Statement
No. 115) as of January 1, 1994. Country elected to classify its entire portfolio
as held to maturity and therefore the financial statements were not affected by
adopting Statement No. 115.

In November 1995, the Financial Accounting Standards Board decided to allow
all enterprises to make a one-time reassessment of the classification of
securities made under Statement No. 115. These transfers were only allowed
during the period from the issuance of the Financial Accounting Standards Board
Special Report through December 31, 1995. Country transferred its entire
security portfolio, with an amortized cost of $21,431,021, from the held to
maturity classification to the available for sale classification and recorded,
as a component of equity, an unrealized gain of $49,038, net of $31,090 of
deferred taxes, to allow for more flexibility in managing Country's asset mix.

Amortized costs and fair values of securities are summarized as follows:

AVAILABLE FOR SALE

DECEMBER 31, 1995
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------

HELD TO MATURITY

DECEMBER 31, 1994
------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------

U.S. Treasury.................................. $ 9,464,335 $ -- $ 184,929 $ 9,279,406
U.S. Government agencies and corporations...... 2,634,794 6,456 34,343 2,606,907
States and political subdivisions.............. 875,372 13,845 1,750 887,467
Mortgage backed securities..................... 515,897 25,848 -- 541,745
----------- ------- -------- -----------
$13,490,398 $ 46,149 $ 221,022 $13,315,525
=========== ======= ======== ===========

F-114
199

COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The amortized cost and fair value of securities classified as available for
sale at December 31, 1995, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.

DECEMBER 31, 1995
--------------------------
AVAILABLE FOR SALE
--------------------------
AMORTIZED FAIR
COST VALUE
----------- -----------

Due in one year or less............................. $ 9,330,269 $ 9,332,454
Due after one year through five years............... 13,068,500 13,167,875
Due after five years through ten years.............. 94,735 95,000
Due after ten years................................. -- --
Mortgage backed securities.......................... 34,390 34,532
----------- -----------
$22,527,894 $22,629,861
=========== ===========

Securities with carrying values of approximately $9,174,000 and $200,000 at
December 31, 1995 and 1994, respectively, were pledged to secure public
deposits, to secure securities sold under agreements to repurchase and for other
purposes as required or permitted by law.

Realized gains and losses from securities available for sale during 1995
and 1994 follows:

1995 1994
------- ----

Gross gains.................................................... $36,084 $--
Gross losses................................................... 30,354 --
------- ---
$ 5,730 $--
======= ===

NOTE 4. LOANS

The major classifications of loans follow:

DECEMBER 31,
--------------------------
1995 1994
----------- -----------

Commercial.......................................... $20,005,093 $13,347,394
Real estate......................................... 32,381,324 21,898,594
Installment......................................... 4,374,598 3,012,595
Other............................................... 413,635 57,903
------------ ------------
57,174,650 38,316,486
------------ ------------
Deduct:
Unearned interest................................. 577,114 338,537
Allowance for loan losses......................... 420,426 329,251
------------ ------------
997,540 667,788
------------ ------------
$56,177,110 $37,648,698
============ ============

Country's opinion as to the ultimate collectibility of these loans is subject to
estimates regarding future cash flows from operations and the value of property,
real and personal, pledged as collateral. These estimates are affected by
changing economic conditions and the economic prospects of borrowers.

F-115
200

COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents data on impaired loans at December 31, 1995:

Impaired loans for which an allowance has been provided........................... $ --
Impaired loans for which an allowance has not been provided....................... 389,297
---------
Total loans determined to be impaired............................................. $389,297
=========
Allowance for loan loss for impaired loans included in the allowance for loan
losses.......................................................................... $ --
=========
Average recorded investment in impaired loans..................................... $212,932
=========
Interest income recognized from impaired loans.................................... $ --
=========
Cash basis interest income recognized from impaired loans......................... $ 400
=========

Loans on which the accrual of interest had been discontinued or reduced amounted
to $369,104 at December 31, 1994, which had the effect of reducing interest
income approximately $35,000.

Country and Omni Bank conduct most of their business activities, including
granting agribusiness, commercial, residential and installment loans with
customers in the counties of McDonough, Adams, Pike, and Schuyler, Illinois and
Marion, Missouri. The loan portfolio includes a concentration of loans to
agricultural and agricultural-related industries amounting to approximately
$15,105,000 and $12,200,000 as of December 31, 1995 and 1994, respectively.
Generally those loans are collateralized by assets of those entities. The loans
are expected to be repaid from cash flows or from proceeds from the sale of
selected assets of the borrowers. Credit losses arising from lending
transactions with agricultural entities compare favorably with the Omni Bank's
credit loss experience on the loan portfolio as a whole.

In the normal course of business, loans are made to executive officers,
directors, and principal stockholders of Country and Omni Bank and to parties
which Country or its directors, executive officers and stockholders have the
ability to significantly influence its management or operations (related
parties). In the opinion of management, the terms of these loans, including
interest rates and collateral, are similar to those prevailing for comparable
transactions with other customers and do not involve more than a normal risk of
collectibility. Changes in such loans during the year ended December 31, 1995
follow:

Balance at the beginning of year.................................. $1,100,000
New loans, extensions and modifications........................... 505,000
Repayments........................................................ (391,000)
----------
Balance at end of year............................................ $1,214,000
==========

NOTE 5. ALLOWANCE FOR LOAN LOSSES

An analysis of activity in the allowance for loan losses follows:

YEARS ENDED
DECEMBER 31,
--------------------
1995 1994
-------- --------

Balance at beginning of year............................. $329,251 $326,565
Provision for loan losses.............................. 40,200 15,800
Recoveries............................................. 100,306 25,335
Loans charged off...................................... (49,331) (38,449)
-------- --------
Balance at end of year................................... $420,426 $329,251
======== ========

F-116
201

COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6. PREMISES AND EQUIPMENT

Premises and equipment consisted of:

YEARS ENDED
DECEMBER 31,
------------------------
1995 1994
---------- ----------

Land.................................................. $ 478,740 $ 226,570
Buildings............................................. 2,222,818 971,608
Furniture and equipment............................... 2,043,089 1,541,117
Construction in Progress.............................. -- 481,504
---------- ----------
4,744,647 3,220,799
Less accumulated depreciation......................... 996,259 733,944
---------- ----------
$3,748,388 $2,486,855
========== ==========

NOTE 7. DEPOSITS

A maturity distribution of time certificates of deposit in denominations of
$100,000 or more was as follows:

DECEMBER 31,
-------------------------
1995 1994
----------- ----------

3 months or less...................................... $ 3,650,267 $ 200,597
Over 3 months through 6 months........................ 1,459,803 508,533
Over 6 months through 12 months....................... 3,563,272 2,744,571
Over 12 months........................................ 1,389,404 605,816
----------- ----------
$10,062,746 $4,059,517
=========== ==========

NOTE 8. LONG TERM BORROWINGS

Long term borrowings are summarized as follows:

DECEMBER 31,
-------------------------
1995 1994
----------- ----------

Advances from the Federal Home Loan Bank, interest
quarterly at 6.04%, balance due December 26, 2001
collateralized with a blanket lien on all qualifying
mortgage loans held by the Bank..................... $2,000,000 $ --
Debentures, interest quarterly at 8.5%, due at various
dates in September and October 1998................. 700,000 875,000
----------- ----------
$2,700,000 $875,000
=========== ==========

NOTE 9. SHORT TERM BORROWINGS

Short term borrowings include a note payable to a third party lender of
$3,450,000 and securities sold under agreements to repurchase of $100,000.

F-117
202

COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Average and maximum balances and rates on notes payable and securities sold
under agreements to repurchase were as follows:

YEARS ENDED DECEMBER 31,
--------------------------
1995 1994
---------- ----------

Maximum month end balance........................... $3,550,000 $1,487,500
Average month end balance........................... 2,639,317 2,550,073
Weighted average interest rate for the year......... 8.47% 9.00%
Weighted average interest rate at year end.......... 8.26% 9.00%

The note payable of $3,450,000 contains certain covenants which limit the
amounts of dividends paid, the purchase of other banks and/or businesses, the
purchase of investments not in the ordinary course of business, the changes in
capital structure and the guarantees of other liabilities and obligations. In
addition, Country must maintain certain financial ratios. Country was in
compliance with all covenants as of the year ended December 31, 1995.

NOTE 10. STOCKHOLDERS' EQUITY

The Company's common stock has a $1 par value. There were 50,000 shares
authorized and 26,225 shares issued and outstanding at December 31, 1995 and
1994.

Terms of the preferred stock are as follows:

Series 1: 450 shares of $295 par value, voting, Series 1 preferred stock
are authorized and 383 shares were issued and outstanding at December 31, 1995
and 1994. Dividends are cumulative at 8.5% and noncumulative at an additional
1.5%.

Series 2: 5,000 shares of $295 par value, voting, Series 2 preferred stock
are authorized and 683 shares were issued and outstanding at December 31, 1995
and 1994. Dividends are noncumulative.

NOTE 11. INCOME TAXES

Income taxes (benefits) consisted of:

YEARS ENDED DECEMBER 31,
-------------------------
1995 1994
-------- ---------

Federal:
Current............................................ $ 40,771 $(179,153)
Deferred........................................... (43,289) 132,323
-------- ---------
$ (2,518) $ (46,830)
======== =========

F-118
203

COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Country's income tax (benefits) differed from the statutory federal rate of
34% as follows:

YEARS ENDED DECEMBER
31,
-----------------------
1995 1994
-------- --------

Expected income taxes (benefit)..................................... $ 70,067 $(28,535)
Income tax effect of:
Interest earned on tax free investments and loans................. (22,217) (22,396)
Nondeductible interest expense incurred to carry tax-free
investments and loans.......................................... 1,865 1,826
Other............................................................. (52,233) 2,275
-------- --------
$ (2,518) $(46,830)
======== ========

The net deferred income tax liability in the accompanying balance sheets
includes the following amounts of deferred tax assets and liabilities:

DECEMBER 31,
------------------------
1995 1994
--------- ---------

Deferred tax liability............................................. $(325,630) $(335,566)
Deferred tax asset................................................. 45,832 52,042
--------- ---------
Net deferred tax liability......................................... $(279,798) $(283,524)
========= =========

The tax effects of principal temporary differences are shown in the
following table:

DECEMBER 31,
------------------------
1995 1994
--------- ---------

Allowance for loan losses.......................................... $ (72,590) $ (84,898)
Premises and equipment basis....................................... (213,477) (183,552)
Securities available for sale...................................... (39,563) --
Net operating loss carryforwards................................... 22,796 52,042
Other.............................................................. 23,036 (67,116)
--------- ---------
$(279,798) $(283,524)
========= =========

Net operating loss carryforwards of approximately $67,000 are available to
offset future taxable income. The carryforwards expire in the years 2002 through
2009.

NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS

F-119
204

COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

Cash and due from banks

The carrying amounts reported in the balance sheet for cash and due from
banks approximate their fair values.

Federal funds sold

The stated carrying amounts of federal funds sold approximate their fair
values.

Securities

Loans

Off-balance-sheet instruments

Fair values for Country's off-balance-sheet instruments are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing. The
fair value of these items is not material.

Deposit liabilities

The fair values for demand deposits equal their carrying amounts, which
represents the amount payable on demand. The carrying amounts for variable-rate,
fixed-term money market accounts and certificates of deposit approximate their
fair values at the reporting date. Fair values for fixed-rate certificates of
deposit 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 time deposits. The carrying amount of
accrued interest payable approximates its fair value.

Long term and short term borrowings

Rates currently available to Country for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.

F-120
205

COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The estimated fair values of Country's financial instruments were as
follows:

DECEMBER 31, 1995
--------------------------
CARRYING FAIR
AMOUNT VALUE
----------- -----------

Financial Assets:
Cash and due from banks........................... $ 2,214,864 $ 2,214,864
Federal funds sold................................ 10,045,000 10,045,000
Securities........................................ 22,629,861 22,629,861
Loans............................................. 56,177,110 56,213,470
Financial Liabilities:
Deposits.......................................... 86,546,471 86,586,498
Short term borrowings............................. 3,550,000 3,550,000
Long term borrowings.............................. 2,700,000 2,700,000

In addition, other assets and liabilities of Country that are not defined
as financial instruments are not included in the above disclosures, such as
property and equipment. Also, nonfinancial instruments typically not recognized
in financial statements nevertheless may have value but are not included in the
above disclosures. These include, among other items, the estimated earnings
power of core deposit accounts, the earnings potential of loan servicing rights,
the trained work force, customer goodwill and similar items.

NOTE 13. COMMITMENTS, CONTINGENCIES AND CREDIT RISK

In the normal course of business, there are outstanding various contingent
liabilities such as claims and legal actions, which are not reflected in the
consolidated financial statements. In the opinion of management, no material
losses are anticipated as a result of these actions or claims.

Omni Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet. The
contractual amounts of those instruments reflect the extent of involvement in
particular classes of financial instruments.

Country's exposure to credit loss, in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit written, is represented by the contractual amount of
those instruments. Omni Bank uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments. At
December 31, 1995 and 1994, loan commitments, including standby letters of
credit, approximated $9,975,700 and $5,620,000, respectively, substantially all
of which were variable rate commitments. Country does not anticipate any
material losses as a result of these commitments.

Country has employment agreements with its executive officers and certain
other management personnel. These agreements generally continue until terminated
by the executive or Country and provide for continued salary and benefits to the
executive under certain circumstances. The agreements provide the employees with
additional rights after a change of control of Country occurs.

Country does not engage in the use of interest rate swaps, or futures,
forwards or option contracts.

NOTE 14. CONDENSED FINANCIAL INFORMATION -- PARENT COMPANY ONLY

The primary source of funds for Country is dividends from Omni Bank.
Certain regulatory requirements restrict the amount of dividends that may be
paid by Omni Bank to Country. At December 31, 1995, approximately $1,000,000 of
dividends were allowable from Omni Bank to Country without prior regulatory
approval. As a practical matter, dividend payments are restricted to maintain
prudent capital levels.

F-121
206

COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Condensed financial information for Country Bancshares, Inc. follows:

BALANCE SHEETS (PARENT COMPANY ONLY)

DECEMBER 31,
------------------------
1995 1994
---------- ----------

ASSETS
Cash and due from banks.............................................. $ 9,345 $ 215,505
Investment in subsidiary............................................. 6,576,251 4,355,343
Income tax receivable................................................ 90,184 42,695
---------- ----------
$6,675,780 $4,613,543
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short term borrowings................................................ $3,450,000 $1,462,500
Long term borrowings................................................. 700,000 875,000
Accrued interest payable and other liabilities....................... 63,520 73,486
---------- ----------
4,213,520 2,410,986
---------- ----------
Stockholders' Equity
Preferred stock.................................................... 314,470 314,470
Common stock....................................................... 26,225 26,225
Surplus............................................................ 1,057,776 1,057,776
Retained earnings.................................................. 1,001,385 804,086
Unrealized gain on securities available for sale................... 62,404 --
---------- ----------
2,462,260 2,202,557
---------- ----------
$6,675,780 $4,613,543
========== ==========

INCOME STATEMENTS (PARENT COMPANY ONLY)

YEARS ENDED DECEMBER
31,
----------------------
1995 1994
-------- ---------

Dividends from subsidiary............................................ $282,132 $ 237,423
Amortization of negative goodwill.................................... 19,640 19,640
-------- ---------
Total income.................................................... 301,772 257,063
-------- ---------
Interest expense..................................................... 317,970 213,244
Amortization of organizational costs................................. 26,136 13,333
Other expenses....................................................... 32,238 970
-------- ---------
Total expenses.................................................. 376,344 227,547
-------- ---------
Income (loss) before income tax benefit and equity in
undistributed earnings of subsidiary......................... (74,572) 29,516
Income tax benefit................................................... 124,666 61,041
-------- ---------
Income before equity in undistributed earnings of
subsidiary................................................... 50,094 90,557
Equity in undistributed earnings (loss) of subsidiary................ 158,504 (127,654)
-------- ---------
Net income (loss)............................................. $208,598 $ (37,097)
======== =========

F-122
207

COUNTRY BANCSHARES, INC., AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)

YEARS ENDED DECEMBER 31,
------------------------
1995 1994
----------- ---------

Cash Flows from Operating Activities
Net income (loss)................................................. $ 208,598 $ (37,097)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Undistributed earnings of subsidiary........................... (158,504) 127,654
Amortization of negative goodwill.............................. (19,640) (19,640)
Amortization of organizational costs........................... 26,136 13,333
Change in assets and liabilities:
(Increase) decrease in other assets.......................... (48,159) 13,021
Increase (decrease) in other liabilities..................... (15,792) 4,946
----------- ---------
Net cash (used in) provided by operating activities....... (7,361) 102,217
----------- ---------
Cash Flows from Investing Activities
Organizational costs incurred in merger........................... -- (85,398)
Investment in subsidiary.......................................... (2,000,000) 43,377
----------- ---------
Net cash (used in) investing activities................... (2,000,000) (42,021)
----------- ---------
Cash Flows from Financing Activities
Dividends paid.................................................... (11,299) --
Proceeds from issuance of common stock............................ -- 100,082
Proceeds from issuance of preferred stock......................... -- 201,485
Proceeds on short-term borrowings................................. 2,000,000 --
Payments on short-term borrowings................................. (12,500) (25,000)
Payments on long-term borrowings.................................. (175,000) (125,000)
----------- ---------
Net cash provided by financing activities................. 1,801,201 151,567
----------- ---------
Net (decrease) increase in cash and due from banks........ (206,160) 211,763
Cash and due from banks:
Beginning of year................................................. 215,505 3,742
----------- ---------
End of year....................................................... $ 9,345 $ 215,505
=========== =========
Supplemental Schedule of Noncash Investing and Financing Activities
Change in unrealized gain on securities available for sale.......... $ 101,967 $ --
=========== =========
Increase in deferred taxes attributable to the unrealized gain on
securities available for sale..................................... $ (39,563) $ --
=========== =========

NOTE 15. SUBSEQUENT EVENTS

On March 21, 1996, Country entered into an Agreement and Plan of Merger
pursuant to which Country agreed to be merged with CBI Acquisition Corporation,
a wholly-owned subsidiary of UnionBancorp, Inc., with Country being the
surviving corporation.

F-123
208

- ------------------------------------------------------
- ------------------------------------------------------

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF
WHICH INFORMATION IS SET FORTH HEREIN. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH
INFORMATION.
------------------------
TABLE OF CONTENTS

PAGE
----

Prospectus Summary.................... 3
Unaudited Pro Forma Combined Condensed
Financial Statements................ 7
Risk Factors.......................... 17
Use of Proceeds....................... 20
Capitalization........................ 21
Dilution.............................. 22
Market for Common Stock and
Dividends........................... 23
The Acquisitions...................... 24
Selected Consolidated Financial
Data................................ 30
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of the Company........ 31
Business.............................. 53
Management............................ 61
Beneficial Ownership of Common
Stock............................... 68
Supervision and Regulation............ 70
Description of Capital Stock of the
Company............................. 76
Shares Eligible for Future Sale....... 81
Underwriting.......................... 81
Legal Opinions........................ 82
Experts............................... 82
Additional Information................ 83
Index to Financial Statements and
Financial Information............... F-1

------------------------

UNTIL , 1996 (25 DAYS AFTER THE
DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,100,000 SHARES

UNIONBANCORP, INC.

COMMON STOCK

--------------------

PROSPECTUS

--------------------

HOEFER & ARNETT

INCORPORATED

, 1996

- ------------------------------------------------------
- ------------------------------------------------------
209

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses in connection with the
sale and distribution of the Common Stock being registered, other than
underwriting discounts and commissions. All amounts shown are estimates, except
the Commission's registration fee, the NASD filing fee and the Nasdaq
application fee.

Commission registration fee........................................ $ 5,017
NASD filing fee.................................................... 1,955
Nasdaq application fee............................................. 19,757
Printing and mailing expenses...................................... 100,000
Fees and expenses of Company counsel............................... 165,000
Accounting and related expenses.................................... 95,000
Blue Sky fees and expenses......................................... 15,000
Miscellaneous...................................................... 98,271
--------
Total......................................................... $500,000
========

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

In accordance with the General Corporation Law of the State of Delaware
(being Chapter 1 of Title 8 of the Delaware Code), Articles VIII and XIII of the
Registrant's Restated Certificate of Incorporation, as amended, provide as
follows:

ARTICLE VIII:

The Company shall, to the full extent permitted by Section 145 of the
General Corporation Law of the State of Delaware, as amended from time to time,
indemnify all persons who it may indemnify pursuant thereto.

ARTICLE XIII:

No director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty by such directors
as a director; provided, however, that this Article XIII shall not eliminate or
limit the liability of a director to the extent provided by applicable law (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Corporation Law of the State of Delaware, or (iv) for any transaction from
which the director derived an improper personal benefit. No amendment to or
repeal of this Article XIII shall apply to or have any effect on the liability
or alleged liability of any director of the Company for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The Company has not issued any securities in the past three years except
with respect to the three-for-one stock split in the form of a stock dividend
effected in May, 1996, and with respect to the acquisitions of Prairie and
LaSalle Collections. With respect to the stock split, the Company had 710,577
issued and outstanding shares of Common Stock prior to such event and 2,131,731
issued and outstanding shares immediately following the May 20, 1996 effective
date for the stock split. In connection with the Prairie Acquisition, the
Company issued 710,576 shares of Common Stock and 2,762.24 shares of Series A
Preferred Stock to the holders of shares of Prairie Common Stock, and issued 857
shares of Series B Preferred Stock to the holders of Prairie's Series A
Preferred Stock electing to receive securities in lieu of cash. See "The
Acquisitions -- Prairie Bancorp, Inc. -- Consideration for Prairie Common and
Preferred Stock." In connection with the acquisition of LaSalle Collections, the
Company issued 9,090 shares of Common Stock to Julie A. Johnson, its sole
stockholder. The Company believes all of the securities issued in connection
with the acquisitions of Prairie and LaSalle Collections were issued in
transactions exempt from the registration requirements of the Securities Act of
1933 pursuant to Section 4(2) thereof and Regulation D promulgated thereunder.

II-1
210

ITEM 16. EXHIBITS

EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------

1.1 Form of Underwriting Agreement with Hoefer & Arnett, Incorporated
3.1 Restated Certificate of Incorporation of UnionBancorp, Inc., as amended*
3.2 Bylaws of UnionBancorp, Inc.*
4.1 Articles IV, VI, VIII, X XI, XII, XIII and XIV of UnionBancorp, Inc.'s Restated
Certificate of Incorporation, as amended*
4.2 Articles III, IV, VII, IX and XII of UnionBancorp, Inc.'s Bylaws*
4.3 Certificate of Designation, Preferences and Rights of Series A Convertible
Preferred Stock of UnionBancorp, Inc.*
4.4 Certificate of Designation, Preferences and Rights of Series B Preferred Stock of
UnionBancorp, Inc.*
4.5 Certificate of Designation, Preferences and Rights of Series C Junior
Participating Preferred Stock*
4.6 Specimen Common Stock Certificate of UnionBancorp, Inc.*
4.7 Rights Agreement between UnionBancorp, Inc. and Harris Trust and Savings Bank,
dated August 5, 1996*
5.1 Opinion of Barack, Ferrazzano, Kirschbaum & Perlman regarding legality of
securities being registered*
10.1 Employment Agreement dated January 1, 1992, between UnionBank, UnionBancorp, Inc.
and R. Scott Grigsby, as amended on October 1, 1993, April 4, 1996 and August 5,
1996*
10.2 Employment Agreement dated March 1, 1994, among UnionBank, UnionBancorp, Inc. and
Wayne L. Bismark, as amended on April 4, 1996*
10.3 Employment Agreement dated January 1, 1992, between UnionBancorp, Inc. and Charles
J. Grako, as amended on October 1, 1993, April 4, 1996 and August 5, 1996*
10.4 Employment Agreement dated January 1, 1992, by and among UnionBank, UnionBancorp,
Inc. and Everett J. Solon, as amended on October 1, 1993, April 11, 1996 and
August 5, 1996*
10.5 Employment Agreement dated June 3, 1996, between UnionBancorp, Inc. and John M.
Daw*
10.6 Employment Agreement dated March 4, 1996, between UnionBank, UnionBancorp, Inc.
and Jimmie D. Lansford, as amended on April 4, 1996*
10.7 Agreement and Plan of Merger dated January 22, 1996, as amended, among
UnionBancorp, Inc., Prairie Acquisition Corporation and Prairie Bancorp, Inc.*
10.8 Agreement and Plan of Merger dated March 21, 1996, among UnionBancorp, Inc., CBI
Acquisition Corporation and Country Bancshares, Inc.*
10.9 Standstill Agreements dated August 6, 1996, between UnionBancorp, Inc. and each of
Wayne W. Whalen and Dennis J. McDonnell*
10.10 Registration Agreement dated August 6, 1996, between UnionBancorp, Inc. and each
of Wayne W. Whalen and Dennis J. McDonnell*
10.11 Loan Agreement between UnionBancorp, Inc. and LaSalle National Bank dated August
2, 1996*
10.12 UnionBancorp, Inc. Employee Stock Ownership Plan*
10.13 UnionBancorp, Inc. 1993 Stock Option Plan, as amended*
21.1 Subsidiaries of UnionBancorp, Inc.*
23.1 Consent of Barack, Ferrazzano, Kirschbaum & Perlman (included in opinion filed as
Exhibit 5.1)*

II-2
211

EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------

23.2 Consents of McGladrey & Pullen, LLP
23.3 Consent of Robert J. Doty*
23.4 Consent of Scott C. Sullivan*
24.1 Power of Attorney (included on the signature page of this Registration Statement)*
27.1 Financial Data Schedule*

- -------------------------
* Indicates previously filed

ITEM 17. UNDERTAKINGS

(a) The Registrant will provide to the Underwriter at the closing specified
in the underwriting agreement certificates in such denominations and registered
in such names as required by the Underwriter to permit prompt delivery to each
purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

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212

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-1 and authorized this Amendment No. 2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Ottawa, State of Illinois, on September 24, 1996.

UNIONBANCORP, INC.

By:
/s/ R. Scott Grigsby
------------------------------------
R. Scott Grigsby
Chairman of the Board, President and
Chief Executive Officer

By:
Charles J. Grako
------------------------------------
Charles J. Grako
Executive Vice President and Chief
Financial and Accounting Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 was signed by the following persons in the capacities indicated on
September 24, 1996.

SIGNATURE TITLE
- ------------------------------------------ ----------------------------------------------

/s/ R. Scott Grigsby Chairman of the Board of Directors,
- ------------------------------------------ President and Chief Executive Officer
R. Scott Grigsby
* Director
- ------------------------------------------
Richard J. Berry
* Director
- ------------------------------------------
Walter E. Breipohl
* Director
- ------------------------------------------
L. Paul Broadus
* Director
- ------------------------------------------
John Michael Daw
* Director
- ------------------------------------------
Jimmie D. Lansford
* Director
- ------------------------------------------
Lawrence J. McGrogan
* Director
- ------------------------------------------
C. Robert Myers

II-4
213

SIGNATURE TITLE
--------- -----
Jr.* Director
- ------------------------------------------
H. Dean Reynolds
* Director
- ------------------------------------------
John A. Trainor

*R. Scott Grigsby, by signing his name hereto, does hereby sign this document on
behalf of himself and on behalf of each of the other directors named above
pursuant to powers of attorney duly executed by such other persons.

/s/ R. Scott Grigsby

------------------------------------

R. Scott Grigsby, Attorney in Fact

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