HEARTLAND BANCSHARES INC, PREM14A, 1999-02-26

HEARTLAND BANCSHARES INC
PREM14A, 1999-02-26
SAVINGS INSTITUTION, FEDERALLY CHARTERED

Previous: PRIMUS TELECOMMUNICATIONS GROUP INC, S-8, 1999-02-26

Next: VALLEY FORGE LIFE INSURANCE CO VARIABLE ANNUITY SEPARATE ACC, 485APOS, 1999-02-26

SCHEDULE 14A INFORMATION

(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[X] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

HEARTLAND BANCSHARES, INC.
(Name of Registrant as Specified in Its Charter)

(Name of Person Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[ ] No fee required

[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11

1) Title of each class of securities to which transaction applies:
COMMON STOCK, $0.01 PAR VALUE
2) Aggregate number of securities to which transaction applies:
832,833 OUTSTANDING SHARES PLUS 17,528 SHARES PURSUANT TO
CANCELLATION OF OPTIONS
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined):
$15.75 PER SHARE FOR 832,833 OUTSTANDING SHARES
$1.75 PER SHARE FOR 17,528 SHARES PURSUANT TO
CANCELLATION OF OPTIONS
4) Proposed maximum aggregate value of transaction: $13,147,794
5) Total fee paid: $3,655.09

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
<PAGE>

[Heartland Bancshares, Inc. letterhead]

March ____, 1999

Dear Shareholder:

You are cordially invited to attend a Special Meeting of
Shareholders (the "Special Meeting") of Heartland Bancshares, Inc. (The
"Company") to be held at __________________________________________,
______________________, Herrin, Illinois, on _____________,
___________________, 1999 at __:__ _.m.

At the Special Meeting, the shareholders of the Company will be
asked to consider and vote upon a proposal to approve the Agreement and
Plan of Merger, dated as of December 23, 1998 (the "Agreement"), pursuant
to which the Company will be acquired by means of the merger of Banterra
Acquisitionco, Inc., a wholly owned subsidiary of Banterra Corp., with and
into the Company (the "Merger"). Upon consummation of the Merger, (i) each
share of the Company's common stock will be converted into the right to
receive $15.75 in cash and (ii) each holder of a fully vested option to
acquire the Company's common stock will be entitled to receive $1.75 in
cash multiplied by the number of shares covered in the option, all as more
fully described in the accompanying Notice of Special Meeting of
Shareholders and Proxy Statement.

THE BOARD OF DIRECTORS OF THE COMPANY CAREFULLY CONSIDERED AND
UNANIMOUSLY APPROVED THE AGREEMENT AS BEING IN THE BEST INTEREST OF THE
COMPANY AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF THE COMPANY
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO APPROVE THE
AGREEMENT. AN ABSTENTION OR FAILURE TO VOTE IS THE EQUIVALENT OF VOTING
AGAINST THE PROPOSED ACQUISITION.

Your vote is important, regardless of the number of shares you own.
ON BEHALF OF THE BOARD OF DIRECTORS, WE URGE YOU TO SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE, EVEN IF YOU CURRENTLY PLAN TO
ATTEND THE SPECIAL MEETING. This will NOT prevent you from voting in
person, but will assure that your vote is counted if you are unable to
attend the Special Meeting.

Sincerely,

Roger O. Hileman
President and Chief Executive Officer

** PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME **

PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
- ----------------------------------------------------------------------------
HEARTLAND BANCSHARES, INC.
318 SOUTH PARK AVENUE
HERRIN, ILLINOIS 62948-3604
(618) 942-7373
- ----------------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ________________, 1999

- ----------------------------------------------------------------------------

NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the
"Special Meeting") of Heartland Bancshares, Inc. (the "Company") will be
held at _______________________, _______________________, Herrin, Illinois,
on ___________, _______________, 1999 at _____:_____ __.m., local time for
the purpose of considering and acting upon the following proposals:

1. The approval of an Agreement and Plan of Merger, dated as of
December 23, 1998 (the "Agreement"), by and among Banterra Corp.
("Banterra"), Banterra Acquisitionco, Inc. ("Acquisitionco") and the
Company, pursuant to which: (i) the Company will be acquired by
Banterra by means of the merger of Acquisitionco, a wholly owned
subsidiary of Banterra, with and into the Company (the "Merger")
with the Company as the surviving corporation; (ii) each share of
the Company's common stock, $0.01 par value per share (the "Common
Stock"), will be converted into the right to receive $15.75 in cash;
and (iii) each holder of an option to acquire Common Stock will be
entitled to receive $1.75 in cash multiplied by the number of shares
covered by the option, under such terms and conditions as are
described in detail in the enclosed Proxy Statement.

2. The transaction of such other matters as may properly come before
the Special Meeting or any adjournment or postponement thereof.

Enclosed are the following items relating to the Special Meeting and
the Merger: (1) Proxy Statement; (2) Proxy Card; and (3) a pre-addressed
return envelope for the Proxy Card.

Any action may be taken on any of the foregoing proposals at the
Special Meeting on the date specified above or on any date or dates to
which, by original or later adjournment, the Special Meeting may be
adjourned. Pursuant to the Bylaws, the Board of Directors has fixed the
close of business on March ____, 1999 as the record date for determination
of the shareholders entitled to notice of and to vote at the Special
Meeting.

Pursuant to Sections 11.65 and 11.70 of the Illinois Business
Corporation Act of 1983, as amended, each holder of the Company's Common
Stock will have the right to dissent from the Agreement and to demand a
determination of the fair value of such shareholder's shares in the event
the Agreement is approved and the Merger consummated.

You are requested to complete and sign the enclosed form of proxy
which is solicited by the Board of Directors and to mail it promptly in the
enclosed envelope. The proxy will not be used if you attend and vote at
the Special Meeting in person.

BY ORDER OF THE BOARD OF DIRECTORS

____________________________________________
Secretary
Herrin, Illinois
______________, 1999

PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

HEARTLAND BANCSHARES, INC.
318 SOUTH PARK AVENUE
HERRIN, ILLINOIS 62948-3604

-----------------
PROXY STATEMENT
-----------------

SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _______________, 1999

INTRODUCTION

This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of Heartland Bancshares,
Inc. (the "Company") to be used at a Special Meeting of Shareholders (the
"Special Meeting") to be held at _______________________________,
_____________________________, Herrin, Illinois on ______________,
_________________, 1999 at ____:____ __.m., local time, and at any
adjournment or postponement thereof. At the Special Meeting, shareholders
will be asked to consider and vote upon a proposal to approve an Agreement
and Plan of Merger, dated as of December 23, 1998 (the "Agreement"), by and
among Banterra Corp. ("Banterra"), Banterra Acquisitionco, Inc.
("Acquisitionco") and the Company, pursuant to which the Company will
be acquired by Banterra by means of the merger of Acquisitionco, a wholly
owned subsidiary of Banterra, with and into the Company (the "Merger") with
the Company as the surviving corporation. Only shareholders of record as
of the close of business on March ____, 1999 (the "Record Date") are
entitled to notice of and to vote at the Special Meeting. The accompanying
Notice of Special Meeting and this Proxy Statement, together with the
enclosed proxy card, are being mailed to shareholders of record on or about
_______________, 1999.

The Agreement provides for the acquisition of the Company by
Banterra by means of the Merger. The Company will be the surviving
corporation of the Merger (the "Surviving Corporation") and as a result of
the Merger will become a wholly owned subsidiary of Banterra. At the
effective time of the Merger (the "Effective Time"), each share of the
Company's Common Stock, $0.01 par value per share (the "Common Stock"),
outstanding immediately prior thereto (other than (i) treasury shares,
(ii) shares of Common Stock that are forfeitable and/or not fully vested
and (iii) shares the holders of which have perfected dissenters' rights of
appraisal ("Dissenting Shares")) will be cancelled and converted into the
right to receive a cash payment from Banterra equal to $15.75 (the "Merger
Consideration"). The last sale price for the Common Stock as reported in
the National Daily Quotation System "Pink Sheets" on December 18, 1998, the
last business day prior to the announcement of the signing of the Agreement
on which a sale occurred, was $12.25 per share. The last reported sale
price of the Common Stock on ______________, 1999, the latest practicable
date prior to the mailing of this Proxy Statement, was $__________ per
share. In addition, at the Effective Time, all outstanding options issued
pursuant to the Heartland Bancshares, Inc. 1996 Stock Option and Incentive
Plan (the "Option Plan") that are outstanding and fully vested as of the
Effective Time (the "Issued Options") will be cancelled, and, in
consideration for such cancellation, each holder of an Issued Option will
be paid $1.75 multiplied by the number of shares of Common Stock covered by
such Issued Option (the "Option Consideration"). THE BOARD OF DIRECTORS
BELIEVES THE MERGER IS IN THE BEST INTERESTS OF THE COMPANY'S SHAREHOLDERS
AND UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AGREEMENT.

ALL INFORMATION CONTAINED IN THIS PROXY STATEMENT WITH RESPECT TO
BANTERRA AND ITS SUBSIDIARIES AND ACQUISITIONCO HAS BEEN SUPPLIED BY
BANTERRA, AND ALL INFORMATION WITH RESPECT TO THE COMPANY AND HEARTLAND
NATIONAL BANK (THE "BANK") HAS BEEN SUPPLIED BY THE COMPANY.

PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

- ----------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE YOUR COMPANY THE EXPENSE
OF FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. AN ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
IN THE UNITED STATES.
- ----------------------------------------------------------------------------

** PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME **

SHAREHOLDERS WILL BE GIVEN DETAILED INSTRUCTIONS FOR
SURRENDERING THEIR STOCK CERTIFICATES AS SOON
AS PRACTICABLE AFTER THE MERGER BECOMES EFFECTIVE.

PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
TABLE OF CONTENTS

SUMMARY 3
SELECTED CONSOLIDATED FINANCIAL DATA OF HEARTLAND
BANCSHARES, INC. 8
MEETING INFORMATION 9
Date, Time and Place 9
Voting Rights 9
Voting and Revocation of Proxies 9
Solicitation of Proxies 9
TERMS OF THE PROPOSED MERGER 10
General 10
Business of Heartland Bancshares, Inc. 10
Business of Banterra Corp. 11
Business of Banterra Acquisitionco, Inc. 11
Background of and Reasons for the Merger;
Board Recommendations 11
Recommendation of the Board of Directors; Reasons
for the Merger 13
Opinion of Trident Financial Corporation 14
Vote Required 19
Dissenters' Rights 19
Description of the Merger 20
Exchange of Stock Certificates and Settlement of
Issued Options 21
Effective Time 21
Conditions to the Merger 21
Conduct of Business Pending the Merger 22
No Solicitation 24
Representations and Warranties of the Company 25
Representations, Warranties and Covenants of Banterra
and Acquisitionco 25
Termination of the Agreement; Termination Fee 25
Waiver and Amendment 27
Expenses 27
Effect on Employees and Certain Employee Benefit
Plans 27
Interests of Certain Persons in the Merger 27
Certain Material Federal Income Tax Consequences 29
Accounting Treatment 30
Regulatory Approvals 30
HEARTLAND BANCSHARES, INC. 31
General 31
Lending Activities 31
Investment Activities 42
Deposit Activity and Other Sources of Funds 46
Subsidiary Activities 48
Performance Ratios 48
Competition 49
Employees 49
Properties 49
SUPERVISION AND REGULATION 50
General 50
Certain Transactions with Affiliates 50
Payment of Dividends 50
Capital Adequacy 50
Support of the Bank 51
FIRREA and FDICIA 51
Depositor Preference Statute 52
FDIC Insurance Assessments 52
Interstate Banking and Other Recent Legislation 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 53
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS 66
MARKET FOR THE COMMON STOCK AND DIVIDENDS 68
INDEPENDENT ACCOUNTANTS 68
OTHER MATTERS 68
SHAREHOLDER PROPOSALS 68
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 70

ANNEXES

Annex A - Opinion of Trident Financial
Corporation A-1
Annex B - Dissenters' Rights Statute B-1

- 2 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

SUMMARY

The following is a brief summary of certain information regarding
the proposed Merger and related information contained elsewhere in this
Proxy Statement. This summary does not purport to be complete and is
qualified in its entirety by reference to the more detailed information
contained elsewhere in this Proxy Statement. Each shareholder is urged to
read this Proxy Statement in its entirety before casting his or her vote.

INFORMATION RELATING TO THE SPECIAL MEETING

The Special Meeting of Shareholders will be held on ____________,
______________, 1999 at ____:____ __.m., local time, at
____________________________, ______________________________, Herrin,
Illinois. At the Special Meeting, shareholders will be asked to consider
and vote upon a proposal to approve the Agreement pursuant to which the
Company will be acquired by Banterra by means of the merger of
Acquisitionco with and into the Company. Only shareholders of record as of
the close of business on March ____, 1999 (the "Record Date") are entitled
to notice of and to vote at the Special Meeting. See "Meeting
Information."

APPROVAL OF THE AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF THE
HOLDERS OF AT LEAST TWO-THIRDS OF THE COMPANY'S COMMON STOCK.

THE MERGER

The Agreement provides for the acquisition of the Company by
Banterra by means of the Merger in accordance with the provisions of the
Agreement and applicable provisions of Illinois law. The Company will be
the Surviving Corporation and, as a result of the Merger, will be a wholly
owned subsidiary of Banterra. The Agreement has been approved and adopted
by the Board of Directors of both the Company, Banterra and Acquisitionco.
At the Effective Time, each share of Common Stock outstanding immediately
prior thereto (other than (i) treasury shares, (ii) shares of Common Stock
that are forfeitable and/or not fully vested and (iii) shares the holders
of which have perfected dissenters' rights of approval ("Dissenting Shares"))
will be cancelled and converted into the right to receive a cash payment from
Banterra equal to $15.75 (the "Merger Consideration"). In addition, all of
the outstanding options issued pursuant to the Heartland Bancshares, Inc.
1996 Stock Option and Incentive Plan (the "Option Plan") that are
outstanding and fully vested as of the Effective Time (the "Issued
Options") will be cancelled, and each holder thereof will be paid an amount
equal to $1.75 multiplied by the number of shares of Common Stock covered
by such Issued Options (the "Option Consideration").

The Merger Consideration and Option Consideration were determined in
negotiations between the Company and Banterra with the assistance of the
Company's financial advisor. For a general discussion of these
negotiations, the factors considered by the Board of Directors of the
Company in evaluating the Merger and the basis for the opinion of the
Company's financial advisor that the Merger Consideration is fair to
shareholders from a financial point of view, see "Terms of the Proposed
Merger -- Background of the Merger," "-- Recommendation of the Board of
Directors; Reasons for the Merger" and "-- Opinion of Trident Financial
Corporation."

BUSINESS OF HEARTLAND BANCSHARES, INC.

The Company, an Illinois corporation, was organized in 1996 to serve
as the holding company for the Bank. The Company's principal business is
that of overseeing the business of the Bank. The Company has no
significant assets other than its investment in the Bank, a loan to the
Company's employee stock ownership plan (the "ESOP") and certain cash and
cash equivalents and investment securities. At December 31, 1998, on a
consolidated basis, the Company had total assets of $63.3 million, total
loans of $36.4 million, total investment

- 3 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

and mortgage-backed securities of $11.3 million, total deposits of $51.4
million and shareholders' equity of $11.3 million.

The Bank is a national banking association operating through offices
in Herrin and Carterville, Illinois, serving Williamson, Franklin and
Jackson Counties in southeastern Illinois. The principal business of the
Bank historically has consisted of attracting deposits from the general
public and investing these deposits in loans secured by first mortgages on
single-family residences in the Bank's market area. The Bank derives its
income principally from interest earned on loans and, to a lesser extent,
interest earned on mortgage-backed and related securities and investment
securities and noninterest income. Funds for these activities are provided
principally by operating revenues, deposits and repayments of outstanding
loans and mortgage-backed and related securities.

The Bank is the successor to First Federal Savings and Loan
Association of Herrin (the "Association"). The Association converted to a
national banking association (the "Bank Conversion") immediately following
its conversion to stock form (the "Stock Conversion" and, together with the
Bank Conversion, the "Conversion") which was consummated on June 28, 1996.
As part of the Stock Conversion, the Association became a wholly owned
subsidiary of the Company, which acquired all of the Association's newly
issued capital stock with the proceeds from a public offering of the
Company's Common Stock.

As a bank holding company, the Company is registered with, and
subject to regulation and examination by, the Board of Governors of the
Federal Reserve System (the "Federal Reserve"). The Bank is subject to
comprehensive examination, supervision and regulation by the Office of the
Comptroller of the Currency (the "OCC"). Because the Bank was formerly
chartered as a savings association, the Bank's deposits are insured by the
Savings Association Insurance Fund (the "SAIF") of the Federal Deposit
Insurance Corporation (the "FDIC") up to the applicable limits for each
depositor.

The executive offices of the Company are located at 318 South Park
Avenue, Herrin, Illinois 62948-3604 and its main telephone number is (618)
942-7373.

BUSINESS OF BANTERRA CORP.

Banterra, an Illinois corporation, was organized in 1981 to serve as
the holding company for its banking subsidiary, Banterra Bank. At
December 31, 1998, on a consolidated basis, Banterra and Banterra Bank had
total assets of $549.1 million, total deposits of $500.0 million and total
shareholders' equity of $54.2 million.

Banterra Bank, which operates 14 banking offices in Illinois and
Kentucky, is engaged in the general banking business of accepting funds for
deposit, making loans, renting safe deposit boxes and performing such other
banking services as are usual and customary of banks of similar size and
character.

The business of Banterra consists primarily of the ownership,
supervision and control of Banterra Bank and Banterra Bank's wholly owned
subsidiary, Banterra Insurance, Inc. ("Banterra Insurance"). In addition
to customary banking services, Banterra Bank provides mortgage loan
servicing and offers lending through its Small Business Lending Center.
Banterra Insurance offers all lines of insurance, mutual funds and fixed
and variable annuities.

The executive offices of Banterra are located at U.S. Route 45
South, Eldorado, Illinois 62930, and its main telephone number is (618)
273-9346.

BUSINESS OF BANTERRA ACQUISITIONCO, INC.

Acquisitionco is an Illinois corporation and a wholly owned
subsidiary of Banterra. Acquisitionco has conducted no business operations
and was formed solely to consummate the Merger.

- 4 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

The executive offices of Acquisitionco are located at U.S. Route 45
South, Eldorado, Illinois 62930, and its main telephone number is (618)
273-9346.

RECOMMENDATION OF THE BOARD OF DIRECTORS; VOTE REQUIRED

The Board of Directors of the Company has unanimously approved the
Agreement and determined that the Merger is in the best interests of the
Company and its shareholders. THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE THE
AGREEMENT. See "Terms of the Proposed Merger -- Recommendation of the
Board of Directors; Reasons for the Merger." Approval of the Agreement
requires the affirmative vote of at least two-thirds of the shares of
Common Stock outstanding. Concurrent with the execution of the Agreement,
all of the directors of the Company executed voting agreements obligating
them to vote their shares of Common Stock in favor of approval of the
Agreement. As of the Record Date, directors and executive officers of the
Company and their affiliates were the beneficial owners of ____________
shares, or ______%, of the Common Stock outstanding at that date. See
"Terms of the Proposed Merger -- Vote Required" and "-- Voting Agreements."

CONDITIONS TO THE MERGER

The Agreement sets forth a number of conditions which must be
satisfied before the Merger may be consummated, including the approval of
the Agreement by the requisite vote of the shareholders of the Company and
the receipt of all governmental approvals required by the Agreement. An
application for approval of the Merger has been submitted to the Federal
Reserve. No assurance can be given that such application will be approved
or that it will not be approved on terms or conditions that may require an
amendment to the Agreement. No amendment made after Company shareholders
have approved the Agreement may reduce either the amount or form of the
Merger Consideration or the Option Consideration.

If shareholder approval of the Agreement is not obtained, none of
the transactions contemplated thereby, including the Merger, will be
consummated. While no definitive plans have been formulated as to what
course of action would be pursued in the event shareholder approval is not
obtained, the Board of Directors presently intends to continue the
operation of the Company as an independent entity.

The Merger also is subject to a number of other conditions set forth
in the Agreement.

EXCHANGE OF STOCK CERTIFICATES

It is currently anticipated that Illinois Stock Transfer Company
will serve as Exchange Agent (the "Exchange Agent"). No later than five
business days after the closing date of the merger (the "Closing Date"),
the Exchange Agent will send a notice and a form of letter of transmittal
("Letter of Transmittal") to each holder of certificate(s) which
immediately prior to the Effective Time represented shares of Common Stock
and to each holder of an Issued Option, advising them of the terms of the
exchange and the procedures for surrendering such certificate(s) in
exchange for the Merger Consideration or the Option Consideration. Upon
receipt of the certificate(s) and properly completed Letters of
Transmittal, the Exchange Agent will make the appropriate cash payment.
See "Terms of the Proposed Merger -- Exchange of Stock Certificates and
Settlement of Issued Options."

PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.

- 5 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

OPINION OF FINANCIAL ADVISOR

The Board of Directors retained Trident Financial Corporation
("Trident") to render financial advisory services to the Company and
requested that Trident render its opinion with respect to the fairness,
from a financial point of view, to the Company's shareholders of the
consideration to be received in the Merger. Trident rendered its opinion
to the Board on December 23, 1998 that, from a financial point of view, the
consideration to be offered in the Merger was fair to the shareholders of
the Company (the "Opinion"). The Opinion has been updated and confirmed as
of the date of this Proxy Statement. The Opinion sets forth a description
of the assumptions made and matters considered by Trident and contains
certain limitations and qualifications. A copy of the Opinion is attached
as Annex A hereto, and the description set forth herein is qualified in its
entirety by reference to the attached Opinion. For additional information,
see "Terms of the Proposed Merger -- Opinion of Trident Financial
Corporation" and the Opinion attached hereto as Annex A.

NO SOLICITATION

The Agreement provides that none of the Company or its subsidiaries
will authorize or permit any of their respective officers, directors,
employees or agents to, directly or indirectly, solicit, initiate or
encourage or (subject to the Board's fiduciary duties as advised by
counsel) hold discussions or negotiations with or provide any information
to any person in connection with any proposal from any person for the
acquisition of all or any substantial portion of the business, assets,
shares of Common Stock or other securities of the Company or the Bank, or
any merger of the Company or the Bank with any person. The Company is
obligated to promptly inform Banterra of its receipt of any such proposal
or inquiry concerning such proposal, the substance of such proposal or
inquiry and the identity of such person.

The Agreement further provides that, in certain circumstances, the
Company would be obligated to pay to Banterra a termination fee equal to
$450,000 if the Agreement is terminated by Banterra due to the occurrence
of any of the following events: (i) any person or group of persons (other
than Banterra and its affiliates) shall have acquired, or have the right to
acquire, thirty-five percent (35%) or more of the outstanding shares of
Common Stock; (ii) the expiration date of a tender or exchange offer by any
person or group of persons (other than Banterra and its affiliates) to
purchase or acquire securities of the Company if upon consummation of such
offer, such person or group of persons would own, control or acquire the
right to acquire more than thirty-five percent (35%) of the issued and
outstanding shares of Common Stock; or (iii) the entry by the Company into
a definitive agreement with a person or group of persons (other than
Banterra and its affiliates) for such person or group of persons to
acquire, merge or consolidate with the Company or to acquire all or
substantially all of the Company's assets or more than thirty-five percent
(35%) of the outstanding shares of Common Stock. Such termination fee
would be in full satisfaction of all obligations or liability of the
Company under the Agreement.

The foregoing provisions may have the effect of discouraging
competing offers to acquire or merge with the Company. See "Terms of the
Proposed Merger -- No Solicitation."

TERMINATION OF THE AGREEMENT

The Agreement may be terminated at any time before the Effective
Time, whether before or after approval by the shareholders of the Company,
in a number of circumstances, including the following (as used herein, the
term "Party" shall mean the Company and the Bank, on the one hand, and
Banterra and Acquisitionco, on the other hand, and the term "Parties" shall
mean the Company, the Bank, Banterra and Acquisitionco): (i) by written
agreement of the Parties; (ii) at the election of either Party if the
closing of the Merger (the "Closing") shall not have occurred on or before
September 23, 1999, unless the failure to so close is due to the failure of
the Party seeking to terminate to perform or observe such Party's covenants
and agreements contained in the Agreement; (iii) by the non-breaching Party
in the event that there is a breach in any of the

- 6 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

representations and warranties or a material breach of any of the
agreements of the other Party which breach is not cured within 30 days
after written notice to cure such breach is given to the breaching Party;
(iv) by either Party in the event any of the conditions of either Party are
not satisfied or waived on or prior to the Closing Date and any applicable
cure period has lapsed; (v) the final denial by any applicable regulatory
authority of any required regulatory application; (vi) by either Party if
the shareholders of the Company do not approve the Agreement; (vii) by
Banterra if the Board of Directors of the Company should have failed to
recommend approval of the Agreement or have withdrawn or modified in an
adverse manner its recommendation; and (viii) by Banterra in the event
certain third parties should acquire, or have the right to acquire, 35% or
more of the outstanding shares of Common Stock. In the event the Agreement
is terminated by Banterra, the Company may be obligated to pay a
termination fee to Banterra. For additional information, see "Terms of the
Proposed Merger -- Termination of the Agreement; Termination Fee."

DISSENTERS' RIGHTS

Under Illinois law, dissenters' rights of appraisal are available to
shareholders of the Company who comply with the statutory procedures for
requesting appraisal in connection with the Merger. AMONG OTHER
REQUIREMENTS, SHAREHOLDERS WISHING TO EXERCISE THEIR RIGHTS OF APPRAISAL
MUST MAKE A WRITTEN DEMAND FOR APPRAISAL PRIOR TO THE TAKING OF A VOTE ON
THE AGREEMENT. A VOTE AGAINST THE MERGER DOES NOT CONSTITUTE SUCH A
WRITTEN DEMAND. SHAREHOLDERS WHO RETURN AN EXECUTED BLANK PROXY WILL BE
DEEMED TO HAVE VOTED IN FAVOR OF THE AGREEMENT AND THEREBY TO HAVE WAIVED
THEIR DISSENTERS' RIGHTS OF APPRAISAL. See "Terms of the Proposed Merger
- -- Dissenters' Rights."

CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES

All shareholders should read carefully the discussion in "Terms of
the Proposed Merger -- Certain Material Federal Income Tax Consequences"
and other sections of this Proxy Statement. Shareholders are urged to
consult their own tax advisors as to the specific consequences to them of
the Merger under applicable tax laws.

The receipt of cash by a shareholder of the Company in exchange for
shares of the Common Stock pursuant to the Merger will be a taxable
transaction to such shareholder for federal income tax purposes. In
general, a shareholder who receives cash in the Merger in exchange for such
shareholder's shares of Common Stock will recognize gain or loss equal to
the difference, if any, between (i) the cash payment of $15.75 per share
received from Banterra in exchange for the shares of the Common Stock and
(ii) the shareholder's tax basis in such shares of Common Stock. See
"Terms of the Proposed Merger -- Certain Material Federal Income Tax
Consequences."

ACCOUNTING TREATMENT

The Company has been advised by Banterra that the Merger will be
accounted for under the purchase method of accounting as required by
Accounting Principles Board Opinion No. 16 Business Combinations. See
"Terms of the Proposed Merger -- Accounting Treatment."

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Certain members of the Company's Board of Directors and its officers
and employees have interests in the Merger in addition to their interests
as shareholders of the Company generally. These interests include, among
others, provisions in the Agreement relating to liability insurance and
indemnification, severance payments and other employee benefit matters.
The Agreement provides that Roger Hileman will become entitled to a change
in control payment under his current employment agreement as a result of
the Merger. See "Terms of the Proposed Merger -- Interests of Certain
Persons in the Merger" and "-- Effect on Employees and Certain Employee
Benefit Plans."

- 7 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

SELECTED CONSOLIDATED FINANCIAL DATA OF HEARTLAND BANCSHARES, INC.

The following table presents selected consolidated financial
information for the Company at the dates and for the periods indicated.
This information is derived from and should be read in conjunction with the
Company's consolidated financial statements and the notes thereto contained
elsewhere in this Proxy Statement.

<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996<F2> 1995<F2> 1994<F2>
---- ---- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA (END OF PERIOD):
Assets $ 63,325 $ 67,461 $ 65,856 $ 61,309 $ 59,032
Loans receivable, net 36,382 46,307 41,466 35,060 27,294
Cash and interest-bearing deposits in other
depository institutions 13,581 5,065 2,165 5,244 6,238
Investments securities 6,432 7,341 11,138 9,222 13,274
Mortgage-backed securities 4,912 6,986 9,477 10,463 10,930
Deposits 51,417 54,022 52,832 55,632 53,600
Total shareholders' equity 11,295 12,145 12,616 4,750 4,803

OPERATING DATA:
Interest income $ 4,447 $ 4,738 $ 4,431 $ 4,007 $ 3,835
Interest expense 2,547 2,665 2,719 2,629 2,353
Net interest income 1,900 2,073 1,712 1,378 1,482
Provision for loan losses 106 156 5 200 --
Net interest income after provision for
loan losses 1,794 1,917 1,707 1,178 1,482
Other income 187 194 211 233 271
Other expense 2,213 1,893 1,841 1,213 1,002
Income before income taxes (232) 218 77 198 751
Income tax expense (benefit) (99) 55 (452) 495 284
Net income (loss) (133) 163 529 (297) 467

PERFORMANCE RATIOS:
Return on average assets (0.21)% 0.24% 0.81% (0.50)% 0.78%
Return on average equity (1.14) 1.33 5.69 (5.87) 9.76
Net interest margin 2.95 3.10 2.62 2.25 2.46
Interest rate spread 2.34 2.41 2.16 2.11 2.31
Dividend payout ratio <F1> (179.70) 200.00 30.43 N/A N/A
Ratio of average interest-earning assets
to average interest-bearing liabilities 118.60x 119.63x 113.33x 106.47x 106.21x

ASSET QUALITY RATIOS:
Nonperforming assets to total assets 1.24% 1.27% 0.95% 0.93% 0.26%
90-day past-due loans to total loans 1.36 1.34 1.19 1.63 0.56
Allowance for loan losses to total loans 1.02 0.86 0.72 0.86 0.36
Allowance for loan losses to 90-day past-due
loans 75.46 64.62 60.85 52.63 65.36
Net charge-offs to average loans outstanding 0.21 0.12 0.01 -- --

CAPITAL RATIOS:
Average equity to average assets 18.03 18.35 14.20 8.48 7.94
Tangible capital (Bank only) 15.65 14.48 14.71 7.72 8.35
Core capital (Bank only) 15.65 14.48 14.71 7.72 8.35
Total risk-based capital (Bank only) 31.55 28.12 32.04 20.52 25.27

PER SHARE DATA:
Basic earnings per share $ (.17) $ 0.20 $ 0.45 $ N/A $ N/A
Dividends per share .30 .40 .20 N/A N/A
Book value per share <F1> 12.27 12.59 14.39 N/A N/A

<FN>
- -------------
<F1> For purposes of this calculation, it is assumed that all options have
been exercised and shares held by the Company's management recognition
plans (the "MRP") and the ESOP are treated as fully vested and outstanding.

<F2> The above data reflects the operations of the Association only for
periods prior to June 28, 1996 (the date of Conversion). Prior to that
date, no stock was outstanding.
</TABLE>

- 8 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

<PAGE>
<PAGE>
MEETING INFORMATION

DATE, TIME AND PLACE

The Special Meeting will be held on ___________, _______________,
1999 at ____:____ __.m., local time, at _____________________________,
________________________, Herrin, Illinois.

VOTING RIGHTS

The securities entitled to vote at the Special Meeting consist of
the Common Stock. Shareholders of record as of the close of business on
the Record Date are entitled to one vote for each share of Common Stock
then held. The presence, either in person or by proxy, of at least one-
third of the outstanding Common Stock is required for a quorum. As of the
Record Date, the Company had ___________ shares of Common Stock issued and
outstanding, including shares held by certain employee benefit plans of the
Company and the Bank. At that date, such shares were held of record by
approximately ___________ shareholders.

VOTING AND REVOCATION OF PROXIES

SHARES OF THE COMMON STOCK REPRESENTED BY PROPERLY EXECUTED PROXIES
WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED ON THE PROXIES
OR, IF NO INSTRUCTIONS ARE INDICATED, WILL BE VOTED "FOR" THE PROPOSAL TO
APPROVE THE AGREEMENT. The proxy confers discretionary authority on the
persons named therein to vote with respect to matters incident to the
conduct of the Special Meeting. If any other business is presented at the
Special Meeting or any adjournment or postponement thereof, properly
executed proxies will be voted by those named therein in accordance with
the determination of a majority of the Board of Directors. In the event
there are insufficient votes represented, in person or by proxy, at the
Special Meeting to approve the Agreement, the persons named as proxies may
vote for one or more adjournments of the Special Meeting to permit
solicitation of additional proxies; provided, however, that no proxy which
is voted against the Agreement will be voted in favor of such adjournment.
Proxies marked as abstentions will not be counted as votes cast. In
addition, shares held in street name which have been designated by brokers
on proxy cards as not voted will not be counted as votes cast. Proxies
marked as abstentions or as broker "non-votes," however, will be treated as
shares present for purposes of determining whether a quorum is present.

Shareholders who execute proxies in the form solicited hereby will
retain the right to revoke their proxies at any time before the Special
Meeting. A shareholder may revoke a proxy by filing a written notice of
revocation with, or delivering a duly executed proxy bearing a later date
to, the Secretary of the Company at the Company's main office address at
any time before the Special Meeting. Shareholders also may revoke proxies
by delivering a duly executed proxy bearing a later date to the Inspector
of Election at the Special Meeting or by attending the Special Meeting and
casting a contrary vote. The presence of a shareholder at the Special
Meeting alone will not automatically revoke the shareholder's proxy.

SOLICITATION OF PROXIES

The Company will bear the cost of solicitation of proxies. Proxies
will be solicited by mail. In addition to solicitations by mail, proxies
also may be solicited by officers and regular employees of the Company and
its subsidiaries personally or by telephone, but such persons will not be
specifically compensated for such services. Brokerage houses, custodians,
nominees and fiduciaries will be requested to forward the soliciting
material to the beneficial owners of stock held of record by such persons
and will be reimbursed for their reasonable expenses incurred in connection
therewith.

- 9 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
TERMS OF THE PROPOSED MERGER

The following description of the Agreement does not purport to be
complete and is qualified in its entirety by reference to the Agreement.
The Company, upon written or oral request, will furnish a copy of the
Agreement, without charge, to any person who receives a copy of this Proxy
Statement. Such requests should be directed to Roger O. Hileman, at the
Company's main office at 318 South Park Avenue, Herrin, Illinois 62948-
3604.

GENERAL

On December 23, 1998, the Company, Banterra and Acquisitionco
entered into the Agreement, which provides for the acquisition of the
Company by Banterra by means of the Merger, with the Company surviving the
Merger and thereupon becoming a wholly owned subsidiary of Banterra.
Pursuant to the Agreement, subject to the satisfaction or waiver of certain
conditions precedent, including receipt of all required regulatory
approvals, the approval by the holders of the Common Stock and the
satisfaction or waiver of a number of other conditions, each outstanding
share of the Company's Common Stock (other than (i) treasury shares, (ii)
shares of Common Stock that are forfeitable and/or not fully vested,
(iii) Dissenting Shares and (iv) shares awarded pursuant to the MRP which
are not fully vested as of the Closing Date) will be converted into the
right to receive $15.75 in cash. In addition, each holder of Issued Options
will be entitled to receive $1.75 in cash multiplied by the number of shares
covered by such Issued Options. See "-- Description of the Merger."

The aggregate purchase price to be paid by Banterra for the Common
Stock in the Merger is approximately $13.1 million (including the cash-out
of Issued Options). Banterra has represented that it will have the
financial capability at the Effective Time of the Merger to pay for the
shares of Common Stock pursuant to the Agreement.

APPROVAL OF THE AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF AT LEAST
TWO-THIRDS OF ALL VOTES ENTITLED TO BE CAST BY THE HOLDERS OF THE COMMON
STOCK.

BUSINESS OF HEARTLAND BANCSHARES, INC.

The Company was organized to serve as the holding company for the
Bank. The Company's principal business is that of overseeing the business
of the Bank. The Company has no significant assets other than its
investment in the Bank, a loan to the Company's ESOP and certain cash and
cash equivalents and investment securities. At December 31, 1998, on a
consolidated basis, the Company had total assets of $63.3 million, total
loans of $36.4 million, total investment and mortgage-backed securities of
$11.3 million, total deposits of $51.4 million and shareholders' equity of
$11.3 million.

The Bank maintains offices in Herrin and Carterville, Illinois, both
located in Williamson County. There are 3,000 residences in Herrin and
approximately 23,000 occupied housing units in Williamson County. The
median housing price in Herrin is $43,000.00. The Bank

- 10 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

also serves Jackson and Franklin Counties, which have similar
characteristics.

The Bank is the successor to the Association. The Association
converted to a national banking association immediately following its
conversion to stock form, which was consummated on June 28, 1996. As part
of the Stock Conversion, the Association became a wholly owned subsidiary
of the Company which acquired all of the Association's newly issued capital
stock with the proceeds from a public offering of the Company's Common
Stock.

As a bank holding company, the Company is registered with, and
subject to regulation and examination by, the Federal Reserve. The Bank is
subject to comprehensive examination, supervision, and regulation by the
OCC. Because the Bank was formerly chartered as a savings association, the
Bank's deposits are insured by the SAIF of the FDIC up to the applicable
limits for each depositor.

The executive offices of the Company are located at 318 South Park
Avenue, Herrin, Illinois 62948-3604, and its main telephone number is (618)
942-7373.

BUSINESS OF BANTERRA CORP.

Banterra, an Illinois corporation, was organized in 1981 to serve as
the holding company for Banterra Bank. At December 31, 1998, on a
consolidated basis, Banterra and Banterra Bank had total assets of
$549.1 million, total deposits of $500.0 million and total shareholders'
equity of $54.2 million.

The business of Banterra consists primarily of the ownership,
supervision and control of Banterra Bank and Banterra Insurance. In addition
to customary banking services, Banterra Bank provides mortgage loan
servicing and offers lending through its Small Business Lending Center.
Banterra Insurance offers all lines of insurance, mutual funds and fixed
and variable annuities.

The executive offices of Banterra are located at U.S. Route 45
South, Eldorado, Illinois 62930, and its main telephone number is (618)
273-9346.

BUSINESS OF BANTERRA ACQUISITIONCO, INC.

Acquisitionco is an Illinois corporation and wholly owned subsidiary
of Banterra. Acquisitionco has conducted no business operations and was
formed solely to consummate the Merger.

The executive offices of Acquisitionco are located at U.S. Route 45
South, Eldorado, Illinois 62930, and its main telephone number is (618)
273-9346.

BACKGROUND OF THE MERGER

On June 28, 1996, First Federal Savings and Loan Association of
Herrin converted from a federal mutual savings and loan association to a
federal stock savings and loan association and then to a national banking
association known as Heartland National Bank. Simultaneously, the Company
was formed to act as the holding company of the Bank.

Prior to the 1997 Annual Meeting of Shareholders, held April 24, 1997,
Mr. Barrett Rochman proposed himself and Mr. Chuck Decker as nominees for the
Board of Directors and also proposed a resolution

- 11 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

calling on the Board, among other things, to examine the feasibility
of a sale of the Company. Messrs. Rochman and Decker were not elected
and resolution was defeated.

During 1997 and early 1998, representatives of the Company met
informally with representatives of Banterra several times to discuss
Banterra's interest in acquiring the Company. A purchase price for the
Common Stock of the Company was not discussed at that time. The
representatives of the Company communicated the discussions with Banterra
to the Board of Directors of the Company.

During February and March 1998, the Board retained Ferguson &
Company, a nationally recognized bank consulting firm, to assist the Board
in preparing a strategic plan to look at the Company's long range prospects
and to devise a plan to achieve a higher rate of return and a lower cost of
funds. After a review of the plan, the Board determined that the Company
would not be able to achieve an acceptable rate of return based on the
excess capital position of the Company.

In connection with the 1998 Annual Meeting of Shareholders, held May
7, 1998, Mr. Rochman solicited proxies in opposition to the Board of
Directors. He proposed himself and Mr. David Burns as nominees for the Board
of Directors and also proposed a resolution calling on the Board, among other
things, to engage the services of an investment banking firm or other
appropriate consultant that specializes in financial institutions to make
recommendations to the Board of Directors as to specific actions designed
to improve earnings and enhance shareholder value.

In connection with the voting at the 1998 Annual Meeting, the
Board of Directors invoked Article XIV of the Company's Articles of
Incorporation. Article XIV prohibits the acquisition of more than 10% of
any class of equity security within five years of the conversion (without
the approval of the Company's Board of Directors). Pursuant to this action,
shares for which Mr. Rochman held proxies were disqualified. As a result,
a lawsuit was filed against the Company challenging the Board's decision
to invoke Article XIV.

In June 1998, the Board decided to retain an independent financial
advisor to advise it with regard to strategic alternatives. Accordingly,
the Company engaged Trident to perform a valuation analysis of the Company
in an acquisition context. On July 15, 1998, Trident presented its
valuation report to the Board of Directors. Based on Trident's report,
the Board decided to solicit offers for the acquisition of the Company.

The Board of Directors authorized Trident to explore the interest of
certain financial institutions in engaging in discussions concerning a
possible acquisition and, in conjunction therewith, to prepare and provide
an information statement regarding the Company to certain institutions.
Several institutions expressed an interest in conducting discussions with
the Company. The most favorable responses came from Banterra and one other
bank. After further discussion, the Board decided to focus on completing a
transaction with Banterra.

During late 1998, Banterra and the Company had several discussions
concerning the possible purchase price for the Common Stock of the Company.
It was ultimately agreed that Banterra would acquire the Common Stock of
the Company for a purchase price of $15.75 per share.

In November 1998, the lawsuit against the Company challenging the
application of Article XIV at the 1998 Annual Meeting of Shareholders
was settled prior to trial. Pursuant to the Settlement

- 12 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Agreement, Mr. Rochman, Mr. Burns and Mr. James Cripps were appointed
to newly created positions on the Board of Directors.

On December 23, 1998, a definitive agreement was reached between
Banterra and the Company. At that time, the Board of Directors held a
meeting at which it reviewed the terms of the Agreement. Representatives
of Trident and the Company's legal counsel were available for questions.
The Board considered, among other things, the following: (a) the value
and medium of payment being offered the Company's shareholders by
Banterra in relation to the book value and earnings per share of the
Company's Common Stock; (b) information concerning the business and
financial condition of Banterra; (c) the competitive environment for
financial institutions generally; (d) the financial terms of other recent
business combinations in the local financial services industry; (e) the
fact that the consideration to be received in the Merger by the Company's
shareholders reflected a premium for the Company's Common Stock over the
values at which it has recently traded in the market; and (f) the
Opinion from Trident that the consideration to be received in the Merger
is fair to the shareholders of the Company from a financial point of
view. No one item was deemed more important than any other item. In
light of the foregoing factors, the Board of Directors of the Company
unanimously approved the Agreement and the Merger. The Agreement was
executed by the parties on December 23, 1998.

RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER

THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER
IS IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
AGREEMENT. In determining that the Merger is in the best interests of
the Company's shareholders, the Board of Directors, in consultation with
its legal and financial advisors, considered numerous factors including,
but not limited to, the following:

(i) The value being offered the Company's shareholders by
Banterra in relation to the market value, book value and earnings per
share of the Common Stock prior to announcement of the Merger. The
Board of Directors believes that the Merger Consideration to be received
by shareholders will provide the Company's shareholders with an
immediate premium for their shares.

(ii) The future business prospects for the Company as an
independent bank holding company; the competitive environment for
financial institutions generally and for bank holding companies in its
market area.

(iii) The financial terms of other recent comparable business
combinations in the financial services industry.

(iv) The solicitation and negotiation process preceding the
Agreement. The terms of the Merger reflect extensive arm's length
negotiations between the parties after a thorough canvass of the market.
The Board of Directors believes that the financial institutions most
likely to bid on the Company were identified and given an opportunity to
express their interest in an affiliation before negotiations with
Banterra began.

(v) The value of the Merger Consideration in relation to
anticipated returns to shareholders through continued operation as an
independent entity. With the assistance of its financial advisor, the
Board of Directors has analyzed a variety of operating strategies as an
independent entity, including continued operation of the Company in its
current manner. In each case considered, however, the expected returns
to shareholders from implementation of these strategies after a three-
year period were lower than the Merger Consideration.

(vi) The opinion of the Company's financial advisor that the
consideration to be received by the Company's shareholders is fair to
such shareholders from a financial point of view. In determining
whether to enter into the Agreement, the Board of Directors has received
an opinion from its financial advisor that the Merger Consideration was
fair to shareholders from a financial point of view. The Company's
financial advisor has confirmed this opinion as of the date of mailing
of this Proxy Statement. See "-- Opinion of Financial Advisor."

In its deliberations, the Board of Directors discussed a variety
of other matters related to the Merger but believes that the foregoing
factors represent the material factors considered in the Board's
collective

- 13 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

determination that the Merger is in the best interest of the Company's
shareholders. The Board of Directors did not quantify or otherwise
attempt to assign relative weights to the factors considered in making
its determination and does not believe that any single factor discussed
above was given greater weight than any other factor. Having considered
all of the foregoing, however, the Board of Directors determined that
the Merger is in the best interest of shareholders and unanimously
recommends that shareholders vote for the proposal to approve the
Agreement.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF THE COMPANY VOTE "FOR" THE PROPOSAL TO APPROVE THE
AGREEMENT.

OPINION OF TRIDENT FINANCIAL CORPORATION

The Company retained Trident to act as its financial advisor and to
render a fairness opinion in connection with a possible merger. In June
1998, Trident was engaged to perform a valuation analysis of the Company in
an acquisition context and to advise the Board of Directors with regard to
strategic alternatives. On July 15, 1998, Trident presented its valuation
report (the "Valuation Report") to the Board of Directors.

On December 23, 1998, Trident met with the Company's Board of
Directors to review the proposed terms of the Agreement. At that time,
Trident presented a report (the "Fairness Opinion Report") to the Company's
Board of Directors summarizing the financial terms of the Merger and
providing updated market information with respect to thrift mergers and
acquisitions. In its analyses, even though the Bank operates under a
commercial bank charter, Trident chose to compare the Company to a thrift
due to the fact that the Company's balance sheet and profitability more
resembled that of a thrift. In addition, Trident rendered its written
Opinion to the Company's Board of Directors to the effect that, as of that
date, the consideration to be received by the Company's shareholders
pursuant to the Agreement was fair to them from a financial point of view.
The financial fairness standard employed by Trident in rendering its
Opinion was whether such consideration was within the range of the economic
values of consideration that companies having the characteristics of the
Company and Banterra might negotiate in comparable circumstances, not
whether the consideration proposed in the Agreement is at or approaching
the higher end of such range.

Trident confirmed and delivered its Opinion to the Company's Board
of Directors as of the date of this Proxy Statement that the consideration
to be received by the shareholders of the Company in the Merger is fair
from a financial point of view, as of such date. A copy of the Opinion,
which sets forth certain assumptions made, matters considered and
limitations on the reviews undertaken, is attached to this Proxy Statement
as Annex A. Trident has consented to the inclusion of such Opinion and
summaries of the Valuation Report and Fairness Opinion Report in this Proxy
Statement.

TRIDENT'S OPINION IS DIRECTED TO THE BOARD OF DIRECTORS OF THE
COMPANY AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE CONSIDERATION TO BE RECEIVED BY THE COMPANY'S SHAREHOLDERS
BASED ON CONDITIONS AS THEY EXISTED AND COULD BE EVALUATED AS OF THE DATE
OF THE OPINION. TRIDENT'S OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY COMPANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE
SPECIAL MEETING, NOR DOES TRIDENT'S OPINION ADDRESS THE UNDERLYING BUSINESS
DECISION TO EFFECT THE MERGER. THIS SUMMARY OF TRIDENT'S OPINION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION,
WHICH IS ATTACHED TO THIS PROXY STATEMENT AS ANNEX A. SHAREHOLDERS ARE
URGED TO READ TRIDENT'S OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE
ASSUMPTIONS MADE AND MATTERS CONSIDERED AND THE LIMITS ON THE REVIEW
UNDERTAKEN IN RENDERING SUCH OPINION.

- 14 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

In connection with rendering its Opinion, Trident reviewed and
analyzed, among other things, the following: (i) the Agreement; (ii) this
Proxy Statement; (iii) certain publicly available information concerning
the Company, including the audited financial statements of the Company for
each of the years in the four-year period ended December 31, 1998; (iv)
certain other internal information, primarily financial in nature,
concerning the business and operations of the Company furnished to Trident
by the Company for purposes of Trident's analysis; (v) information with
respect to the trading market for the Company Common Stock; (vi) certain
publicly available information with respect to other companies that Trident
believed to be comparable to the Company and the trading markets for such
other companies' securities; and (vii) certain publicly available
information concerning the nature and terms of other transactions that
Trident considered relevant to its inquiry. Trident also met with certain
officers and employees of the Company to discuss the foregoing, as well as
other matters which it believed relevant to its inquiry. No limitations
were imposed by either the Company or its Board or management with respect
to the investigation made or procedures followed by Trident.

In its review and analysis and in arriving at its Opinion, Trident
assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to it by the Company, or that was
publicly available, the accuracy of the representations and warranties of
the officers and the employees of the Company with whom Trident held
discussions and the accuracy of the representations and warranties of the
Company in the Agreement, and did not attempt independently to verify any
such information. Trident further assumed that there are no conditions in
the regulatory approvals of the Agreement that will have a material adverse
effect upon the contemplated economic benefits of the Merger. The
financial information provided to Trident by the Company was of the type
normally produced by the management of the Company and reviewed by the
Company's Board of Directors at its regular meetings and the Board and
management of the Company have represented to Trident that they have no
reason to believe that Trident's reliance thereon was unreasonable. The
Company's Board, however, did not specifically review the information,
assumptions and other information provided by management to Trident for
accuracy and completeness. Trident did not conduct a physical inspection
of the properties or facilities of the Company, nor did they make or obtain
any independent evaluations or appraisals of any of such properties or
facilities.

In conducting its analyses and arriving at its Opinion as expressed
herein, Trident considered such financial and other factors as it deemed
appropriate under the circumstances including, among others, the following:
(i) the historical and current financial condition and results of
operations of the Company, including interest income, interest expense, net
interest income, net interest margin, interest sensitivity, non-interest
expense, earnings, dividends, book value, return on assets, return on
equity, capitalization, the amount and type of non-performing assets and
the reserve for loan losses; (ii) the business prospects of the Company;
(iii) the economy in the Company's market area; (iv) the historical and
current market for the Common Stock and for the equity securities of
certain other companies that Trident believed to be comparable to the
Company; and (v) the nature and terms of certain other acquisition
transactions that Trident believed to be relevant. Trident also took into
account its assessment of general economic, market, financial and
regulatory conditions and trends, as well as its knowledge of the financial
institutions industry, its experience in connection with similar
transactions, and its knowledge of securities valuation generally.
Trident's Opinion necessarily was based upon conditions in existence and
subject to evaluation on the respective dates of its Opinion. Trident's
Opinion is, in any event, limited to the fairness, from a financial point
of view, of the consideration to be received by the holders of the Common
Stock in the Merger and does not address the Company's underlying business
decision to effect the Merger.

The summaries set forth below reflect all the material analysis,
factors and assumptions considered by Trident and the material valuation
methodologies used by Trident in arriving at its Opinion as to fairness
described above. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial or summary
description. Trident believes that its analyses and the summary set forth
below must be considered as a whole, and that selecting portions of its
analyses without considering all of the analyses, or reviewing the summary
without considering all factors and analyses, would create an incomplete
view of the processes underlying the

- 15 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

analyses set forth in Trident's reports and its Opinion. Therefore, the
ranges of valuations resulting from any single analysis described below
should not be taken to be Trident's view of the actual value of the Company
or the combined company. In performing its analyses, Trident made numerous
assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control
of the Company. The results of the specific analyses performed by Trident
may differ from the Company's actual values or actual future results as a
result of changing economic conditions, changes in company strategy and
policies, as well as a number of other factors. Such individual analyses
were prepared to provide valuation guidance solely as part of Trident's
overall valuation analysis and the determination of the fairness of the
consideration to be paid to the Company's shareholders. The analyses do
not purport to be appraisals or to reflect the prices at which a company
might actually be sold or the prices at which any securities may trade at
the present time or at any time in the future. In addition, as described
above, Trident's Opinion and presentations to the Company's Board of
Directors were among the many factors taken into consideration by the
Company's Board of Directors in making its determination to approve the
Agreement.

Trident met or engaged in discussions with the Board of Directors of
the Company at various times between June 1998 and December 1998 to present
analyses contained in a series of reports that serve as the basis for
Trident's Opinion. Two key reports presented by Trident were the Valuation
Report dated July 15, 1998 and the Fairness Opinion Report dated December
23, 1998. The following is a brief summary of the Valuation Report
presented by Trident to the Board of Directors of the Company on July 15,
1998:

Financial Analysis of the Company. Trident examined the
Company's financial performance for the period December 31, 1994
through March 31, 1998 by analyzing the composition of its balance
sheet, adjusting and normalizing its earnings and calculating a
variety of operating and financial ratios for the Company. Trident
compared the Company's deposit market share with other financial
institutions operating in the same market. Trident also studied the
trading market for the Company Common Stock and reviewed the
performance of the Standard and Poor's Index as well as indices of
actively-traded banks and thrifts during the last twelve months.

Peer Group Analysis. Trident evaluated the Company's
strengths and weaknesses by comparing the financial performance
of the Company to that of the following groups of stock thrift
institutions based on regulatory financial information as of
December 31, 1997: (i) all U.S. thrifts; (ii) Illinois thrifts;
(iii) Midwest thrifts; (iv) U.S. thrifts of similar size ($40 to
$100 million of assets); and (v) Midwest thrifts of similar size.
This analysis compared a number of the Company's historical
financial ratios to those of the peer groups, including, but not
limited to: (i) balance sheet composition; (ii) key ratios; (iii)
income and expense ratios for the trailing four quarters, the most
recent quarter, and the most recent calendar year; (iv) historical
ROAA and ROAE; and (v) asset, loan, deposit and equity growth rates
for selected periods.

State of the Market. Trident reviewed the current and
historical trading market for thrift and bank equities, and current
and historical trends in the acquisition markets for banks and
thrifts. Trident focused on the acquisition market for thrifts with
particular attention to the segments of the market which it believed
to be the most relevant to the Company, such as thrifts of similar
size and profitability, thrifts with similar capital structures and
asset quality and thrifts located in the same geographic region.

Control Valuation of the Company Common Stock. Trident
estimated the fair market value of the Company Common Stock in a
merger. In valuing the Company Common Stock, Trident utilized the
income approach, the asset approach and the market approach, and
then reconciled the values derived therefrom.

Trident used an income method in its valuation of the Company
by capitalizing adjusted earnings for the three months ended March
31,1998. Prior to capitalizing earnings, Trident took into account
the Company's significant level of excess capital. Trident
estimated that the Company only

- 16 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

required 7.00% capital to operate the Bank. Therefore, Trident
isolated the excess capital (the amount in excess of 7.00%) and
adjusted the earnings base for the income associated with this
excess capital at a pre-tax yield of 5.50% (3.58% after-tax). The
base earnings were then annualized and adjusted to exclude non-
recurring income and expenses, plus merger cost saving of 40% to 60%
as a result of an assumed acquisition of the Company (the
"normalized earnings"). The normalized earnings were capitalized at
rates between 11% and 15%, to reflect earnings growth rates between
0% and 4%. The capitalization rates chosen were estimates of the
required rates of return for holders or prospective holders of
shares of financial institutions similar to the Company, based on a
number of factors, including prevailing interest rates, the pricing
ratios of publicly traded financial institutions, the financial
condition and operating results of the Company, as well as well as
Trident's general knowledge of valuation, the securities markets and
acquisition values in mergers of other financial institutions.
Trident adjusted the resulting values to reflect the cost of
terminating certain long-term contracts and benefit plans, and
certain merger-related expenses, and added back the excess capital
identified earlier. Using the income approach, Trident established
a reference range of $13.25 to $16.75 per share.

The asset approach considers the market value of a company's
assets and liabilities, as well as any intangible value the Company
may have. Trident estimated the Company's net asset value by
adjusting the carrying value of its assets and liabilities to
reflect current market values. In addition, Trident adjusted the
Company's net asset value for the impact of terminating certain
benefit plans and other merger-related expenses. Based on the
adjustments discussed above, Trident estimated the Company's fully
diluted net asset value to be approximately $12.1 million, or $12.98
per share. After determining the Company's net asset value, Trident
added an intangible premium to reflect the estimated value of its
customer relationships. Based on intangible ("core deposit")
premiums observed in the market for thrift acquisitions, as well as
Trident's knowledge of the Company, Trident applied premiums equal
to 4% and 10% of core deposits to the Company's estimated fully-
diluted net asset value. Using the asset approach, Trident
established a reference range of $15.00 to $18.00 per share.

In the market approach, Trident analyzed certain median
pricing ratios (e.g., price to book value, price to tangible book
value, price to reported earnings, price to assets and the premium
paid over tangible book value as a percentage of core deposits)
resulting from selected completed thrift merger transactions, as
well as recently announced pending transactions. In applying the
market approach, Trident considered the pricing ratios for the
following groups of thrift merger transactions: (i) all pending
thrift merger transactions (55 transactions); (ii) all pending
thrift mergers announced during the 90 days prior to June 30, 1998
(the date of the market data) (23 transactions); (iii) all thrift
mergers announced since 1/1/97 involving thrifts located in the
Midwest region (13 transactions); (iv) all thrift mergers announced
since 1/1/97 involving thrifts located in Illinois (7 transactions);
(v) all thrift mergers announced since 1/1/97 in which the target
thrift had assets between $50 million and $100 million (24
transactions); (vi) all thrift mergers announced since 1/1/97 in
which the aggregate consideration was between $10 million and $25
million (23 transactions); (vii) all thrift mergers announced since
1/1/97 in which the target thrift had a return on assets of between
0.00% and 0.40% (12 transactions); (viii) all thrift mergers
announced since 1/1/97 in which the target thrift had a return on
equity of between 0% and 4% (12 transactions); and (ix) all thrift
mergers announced since 1/1/97 in which the target thrift had a
tangible equity to assets ratio of between 15% and 25% (9
transactions). Trident also considered the pricing ratios for 11
pending or completed thrift merger transactions in which the target
thrift was of similar size and capital structure as the Company, and
in which the target thrift had similar profitability and asset
quality. Trident then compared a number of financial ratios for the
Company to those of the target thrift institutions.

Based on the Company's financial condition and results of
operations, as well as other factors, relative to the groups of
thrift mergers noted above, Trident chose ranges of pricing ratios
to apply to the Company. Trident chose price to book value ratios
of 115% to 140%, resulting in per share values of

- 17 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

$16.25 to $19.75; price to tangible book value ratios of 115% to
140%, also resulting in per share values of $16.25 to $19.75; and
price to assets ratios of 21% to 27%, resulting in per share values
of $16.00 to $20.50. Price to earnings ratios were not meaningful
due to the Company's low profitability. Based on these derived
ranges of value, Trident established a reference range of $16.25 to
$19.75 per share using the market approach.

Trident then reviewed the results from the three approaches,
and after consideration of all relevant facts, reconciled the
acquisition values generated by each approach and determined a final
range for the acquisition value of the Company of $16.00 to $19.00
per share. Trident did not apply specific weights to the results
under any of the three methods, but Trident gave greater
consideration to the asset and market approaches, which better
reflect specific adjustments and considerations unique to the
Company.

Strategic Alternatives. Trident presented a list of the pros
and cons of various strategic alternatives open to the Company,
including (i) remaining independent and (ii) merging with a larger
financial institution. Trident projected future trading prices and
acquisition values for the Company Common Stock based on the
Company's business plan. Trident also compared the present values
and rates of return for remaining independent with the expected
present value and rate of return that might be realized in a merger
transaction.

Prospective Acquirors. Trident presented the Company with a
list of other financial institutions with operations in the Midwest
that it believed to be prospective acquirors. These prospective
acquirors were categorized based on Trident's perceived level of
interest from the prospective acquiror and "fit" with the Company.

The following is a summary of the Fairness Opinion Report presented
to the Board of Directors of the Company on December 23, 1998:

Process. Trident briefly reviewed the process that lead to
the Agreement. Trident presented a list of the financial
institutions that were contacted regarding a possible business
combination with the Company.

Recent Developments. Trident reviewed changes in the trading
market and the acquisition market for thrift institutions since the
Valuation Report. Trident outlined changes in the composition of
the Company's balance sheet and financial performance since the
Valuation Report. Trident discussed the impact of changes in market
conditions and changes in the Company's financial condition on the
valuation range for the Company Common Stock presented in the
Valuation Report. Although the Merger Consideration is less than
the valuation range, given the changes in the market, the financial
condition of the Company and the indications of value received from
other potential acquirors, Trident confirmed that the consideration
to be received by the shareholders of the Company in the Merger is
fair from a financial point of view.

Summary of Proposed Transaction. Trident presented a summary
of the financial terms of the Merger and reviewed a timetable
estimating the time and events necessary to close the deal.

Trident reported that during its investigation, Trident did not
discover any conditions that would prevent it from rendering its
fairness opinion to the Company's Board of Directors. As discussed
above, Trident relied, without independent verification, upon the
accuracy and completeness of all of the financial and other
information provided by the Company.

- 18 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Trident, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwriting and
valuations for corporate and other purposes. Trident has extensive
experience with the valuation of financial institutions. Trident
Securities Inc., an affiliate of Trident, served as the Company's sales
agent in its mutual-to-stock conversion in 1996, and received total fees
and commissions of $186,899 for that transaction. In addition, in the
ordinary course of business, Trident Securities Inc. may trade the
securities of the Company for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short
position in such securities. The Board of Directors selected Trident as
its financial advisor because of its previous experience with Trident,
because Trident is a nationally recognized investment banking firm
specializing in financial institutions and because of its substantial
experience in transactions similar to the Merger. Trident is not
affiliated with the Company or Banterra.

For its services as financial advisor, the Company paid Trident
$15,000 to perform a valuation of the Company and to advise the Board of
Directors with regard to strategic alternatives. The Company paid Trident
a fee of $25,000 upon execution of the Agreement. An additional fee equal
to 2.0% of the aggregate merger consideration, less $40,000, will be
payable to Trident upon consummation of the Merger (a balance due of
approximately $222,956 based on the total merger consideration and the
aforementioned fee structure). The Company also has agreed to reimburse
Trident for its reasonable out-of-pocket expenses and to indemnify Trident
against certain liabilities, including certain liabilities under federal
securities laws.

VOTE REQUIRED

Under Illinois law, approval of the Agreement requires the
affirmative vote of at least two-thirds of the outstanding shares of Common
Stock of the Company. Pursuant to the terms of the Agreement, all of the
directors of the Company executed voting agreements obligating them to vote
all of the shares beneficially owned by them in favor of the proposal to
approve the Agreement. As of the Record Date, _______ shares, or _______%
of the Common Stock outstanding at that date, were covered by such voting
agreements.

DISSENTERS' RIGHTS

Each holder of the Company's Common Stock has the right to dissent
from the Merger and receive the fair value of such shares of the Company's
Common Stock in cash if the shareholder follows the procedures set forth in
the Illinois Business Corporation Act of 1983, as amended (the "IBCA"),
included as Annex B hereto and the material provisions of which are
summarized below. Pursuant to the IBCA, a holder of the Company's Common
Stock may dissent and the Company, as the surviving corporation, will pay
to such shareholder the fair value of such shareholder's shares of the
Company's Common Stock, exclusive of any appreciation or depreciation in
anticipation of the Merger, as of immediately before the consummation of
the Merger, if such shareholder (1) files with the Company prior to the
vote being taken a written demand for payment for his or her shares if the
Merger is consummated and (2) does not vote in favor of the Merger. The
Exchange Agent will include notice of the Effective Date in its letter to
all shareholders of the Company notifying them of the procedures to
exchange their shares for the cash payment due to such shareholders
pursuant to the Agreement. Such letter shall be sent promptly following
the Effective Date. Within 10 days after the shareholders' vote is
effective or 30 days after the shareholder delivers to the Company the
written demand for payment, whichever is later, the Company shall send each
shareholder who has delivered a written demand for payment a statement
setting forth the opinion of the Company as to the estimated fair value of
the shares, the Company's latest balance sheet as of the end of a fiscal
year ended not earlier than 16 months before the delivery of the statement,
together with the statement of income for that year and the latest
available interim financial statements, and either a commitment to pay for
the shares of the dissenting shareholder at the estimated fair value
thereof upon transmittal to the Company of the certificate or certificates,
or other evidence of ownership, with respect to the shares. A VOTE AGAINST
THE MERGER, WHETHER BY PROXY OR IN PERSON, WILL NOT, BY

- 19 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

ITSELF, BE REGARDED AS A WRITTEN DEMAND FOR PAYMENT FOR PURPOSES OF
ASSERTING DISSENTERS' RIGHTS.

Upon consummation of the Merger, the Company shall pay to each
dissenter who transmits to the Exchange Agent the certificate or other
evidence of ownership of the shares the amount the Company estimates to be
the fair value of the shares, plus accrued interest, accompanied by a
written explanation of how the interest was calculated. Upon payment of
the agreed value, the dissenting shareholder shall cease to have any
interest in such shares or in the Company.

If the dissenting shareholder does not agree with the opinion of the
Company as to the estimated fair value of the shares or the amount of
interest due, the dissenting shareholder must, within 30 days from the
delivery of the Company's statement of value, notify the Company in writing
of the shareholder's estimated fair value and interest due and demand
payment for the difference between the shareholder's estimate of fair value
and interest due and the amount of the payment by the Company. If, within
60 days from delivery to the Company of the shareholder notification of
estimate of fair value of shares and interest due, the Company and the
dissenting shareholder have not agreed in writing upon the fair value of
the shares and interest due, the Company shall either pay the difference in
value demanded by the shareholder, with interest, or file a petition in the
circuit court of the county in which either the registered office or the
principal office of the Company is located, requesting the court to
determine the fair value of the shares and interest due. The "fair value"
determined by the court may be more or less than the amount offered to the
Company's shareholders under the Agreement. The judgment shall be payable
only upon, and simultaneously with, the surrender to the Company of the
certificate or certificates representing said shares of the Company Common
Stock. Upon the payment of the judgment, the dissenting shareholder shall
cease to have any interest in such shares or in the Company.

THE FOREGOING SUMMARY OF THE PROVISIONS REGARDING DISSENTERS' RIGHTS
UNDER THE IBCA IS QUALIFIED IN ITS ENTIRETY BY THE COMPLETE TEXT OF THE
IBCA WHICH IS ATTACHED HERETO AS ANNEX B.

Shareholders who are interested in perfecting dissenters' rights
pursuant to the IBCA in connection with the Merger should consult with
their counsel for advice as to the procedures required to be followed.

DESCRIPTION OF THE MERGER

Subject to the terms of the Agreement, Banterra will acquire the
Company through the Merger in accordance with the Agreement and applicable
provisions of Illinois law. The Company shall be the Surviving Corporation
and, as a result of the Merger, will become a wholly owned subsidiary of
Banterra. The Merger will become effective and the separate corporate
existence of Acquisitionco shall cease at the Effective Time. Each share of
Common Stock outstanding immediately prior to the Effective Time (other
than (i) treasury shares, (ii) shares of Common Stock that are forfeitable
and/or not fully vested and (iii) Dissenting Shares) shall, by virtue of
the Merger and without any further action by the holder thereof, be cancelled
and converted into and represent the right to receive the Merger Consideration.
In addition, at the Effective Time, each Issued Option will be cancelled,
and each holder thereof will receive the Option Consideration. Each share
of common stock, $1.00 par value per share, of Acquisitionco (the
"Acquisitionco Common Stock") which is issued and outstanding immediately
prior to the Effective Time shall by virtue of the Merger, be converted
into and become one validly issued and outstanding share of common stock of
the Surviving Corporation. Following the Effective Time, there shall be no
further registration or transfer on the records of the Company of shares of
Common Stock which were outstanding immediately prior to the Effective
Time.

- 20 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

EXCHANGE OF STOCK CERTIFICATES AND SETTLEMENT OF ISSUED OPTIONS

It is currently anticipated that Illinois Stock Transfer Company
will act as Exchange Agent to make payment of the Merger Consideration and
the Option Consideration to each holder of shares of Common Stock or Issued
Options (the "Option Certificates") who surrenders the certificate for
such shares of Common Stock or the Option Certificate representing issued
Options, as the case may be, together with a duly executed Letter of
Transmittal (which the Exchange Agent will mail not later than five
business days after the Effective Time to each holder of record of a
certificate or certificates which, immediately prior to the Effective Time,
represented issued and outstanding shares of Common Stock or Issued
Options). On or before the Effective Time, Banterra shall cause to be
deposited with the Exchange Agent an amount of immediately available funds
equal to the aggregate Merger Consideration and the aggregate Option
Consideration. The Exchange Agent will not be required to deliver the
consideration to which a holder of shares of Common Stock or a holder of
Issued Options is entitled until the holder surrenders his or her
certificates representing such shares or Issued Options or an appropriate
affidavit of loss and indemnity agreement and/or bond as may be required by
Banterra. If any payment for shares of Common Stock is to be made in a
name other than that in which the certificate for such shares is
registered, it shall be a condition of such payment that the certificate
shall be properly endorsed in proper form for transfer and that the person
requesting such payment shall pay to the Exchange Agent any transfer or
other taxes required by reason of the payment to a person other than the
registered holder of the certificate or establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not payable. After the
Effective Time, there shall be no transfers on the stock transfer books of
the Company of the shares of Common Stock outstanding immediately prior to
the Effective Time and any such shares presented for transfer after the
Effective Time shall be cancelled and exchanged for the Merger
Consideration or the Option Consideration. No interest shall accrue on the
Merger Consideration or the Option Consideration after the Effective Time.

PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.

EFFECTIVE TIME

The Effective Time shall be upon the issuance of a Certificate of
Merger by the Secretary of State of the State of Illinois, which the
parties will use their best efforts to cause to occur on the Closing Date.
Assuming that the Agreement is approved by the Company's shareholders, the
Merger will remain subject to a number of conditions, including the receipt
of required regulatory approvals. See "-- Regulatory Approvals."

CONDITIONS TO THE MERGER

The obligations of the Company, Banterra and Acquisitionco to
consummate the Merger are subject to the satisfaction of a number of
conditions on or before Closing, including the following: (i) the approval
of the Agreement by the shareholders of the Company; (ii) receipt of all
requisite regulatory approvals, consents, orders, approvals and clearances
required by law for the consummation of the transactions contemplated by
the Agreement and the expiration of all applicable waiting periods; (iii)
no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing consummation of the transactions
contemplated by the Agreement shall be in effect, nor shall any proceeding
by any regulatory agency or other person seeking any of the foregoing be
pending, and there shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation of the Merger illegal; (iv) the
representations and warranties of each Party as set forth in the Agreement
shall be correct on and as of the Closing Date with the same effect as
though such representations and warranties had been made or given on and as
of the Closing Date (except for any such representations and warranties
made only as of a specified date which shall be true and correct as of such
date); (v) prior to the Closing, each Party shall have in all material
respects performed all

- 21 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

<PAGE>
<PAGE>
material obligations and complied with all material agreements required to
be performed by it by the Closing; and (vi) each Party shall have received
from counsel for the other Party the required legal opinion in the form
specified in the Agreement and each Party shall have received from the
other Party all documents required to be received from them on or prior to
the Closing Date, all in form and substance reasonably satisfactory to such
Party. In addition, the obligations of the Company also are contingent upon
Banterra depositing, or causing to be deposited, the aggregate Merger
Consideration and the aggregate Option Consideration with the Exchange Agent.

The obligations of Banterra also are contingent upon the following:
(i) Banterra shall have received the environmental reports required by the
Agreement, and shall not have elected, pursuant to the Agreement, to
terminate and cancel the Agreement; (ii) Banterra shall have reasonably
determined, in good faith, that there has not been any change in the
financial condition, the results of operations or the business of the
Company and its subsidiaries that would have, or has had, since the date of
the Agreement, a material adverse effect on the Company; (iii) all of the
agreements entered into between Banterra and all of the holders of Issued
Options (the "Option Consideration Agreements") shall be in full force and
effect; and (iv) Banterra shall have received information from Foley &
Lardner concerning the matters upon which Foley & Lardner currently
represents the Company in form and substance acceptable to Banterra.

Pursuant to the Agreement, any Party to the Agreement may in writing
waive the obligations to it of any other Party to the Agreement.
Additionally, the Agreement may be amended in writing by all the parties to
the Agreement. However, no amendment made after the Company shareholders
have approved the Agreement may alter or change the Merger Consideration or
the Option Consideration. See "-- Waiver and Amendment."

CONDUCT OF BUSINESS PENDING THE MERGER

The Company has agreed that it will, and will cause each of its
subsidiaries to, conduct its respective business in the ordinary course and
preserve its respective business intact. Specifically, the Company and each
of its subsidiaries may not do any of the following without the prior
written consent of Banterra (which consent will not be unreasonably
withheld): (i) issue, cause to be issued or agree to issue any shares of
its capital stock or any options, warrants or other rights to subscribe for
or purchase shares of its capital stock or any securities convertible or
exchangeable into shares of its capital stock other than the issuance of
shares of Common Stock by the Company upon the exercise of Issued Options;
(ii) declare or pay any dividend; (iii) directly or indirectly redeem,
purchase or otherwise acquire any shares of capital stock or effect a
reclassification, recapitalization, splitup, exchange of shares,
readjustment or other similar change in or to any capital stock or
otherwise reorganize or recapitalize the Company or any subsidiary of the
Company; (iv) amend its Articles of Incorporation or Bylaws; (v) grant any
increase, other than ordinary increases consistent with past practices, in
the compensation payable or to become payable to officers or salaried
employees, grant any options except as required by law, contract or as
previously disclosed to Banterra, adopt or make any change in any bonus,
insurance, pension or other employee benefit plan, agreement, payment or
arrangement applicable to any officer or salaried employee; (vi) borrow or
agree to borrow any amount of funds except in the ordinary course of
business, or directly or indirectly guarantee or agree to guarantee any
obligations of others, except in the ordinary course of business; (vii)
make or commit to make any new loan or letter of credit or any new or
additional discretionary advance under any existing line of credit in
principal amounts in excess of $150,000 or that would increase the
aggregate credit outstanding to any one borrower (or group of affiliated
borrowers) to more than $150,000 (excluding for this purpose any accrued
interest or overdrafts) unless the amount of any additional loan, letter of
credit or advance is no greater than $50,000 and is made to an existing
borrower whose indebtedness currently exceeds $150,000, provided that such
borrower is not on a watchlist of the Company or its subsidiaries or has
any credit classified for regulatory purposes; (viii) purchase or otherwise
acquire any investment security for its own account, except in a manner and
pursuant to policies consistent with past practice; (ix) increase or
decrease the rate of interest paid on time deposits or certificates of
deposit, except in a manner and pursuant to policies consistent with past
practices; (x) enter into any agreement, contract or commitment out of the
ordinary course of business that requires an annual payment in excess of
Ten Thousand

- 22 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Dollars ($10,000); (xi) except in the ordinary course of business, place on
any of its assets or properties any mortgage, pledge, lien, charge, or
other encumbrance; (xii) except in the ordinary course of business, cancel
or accelerate any material indebtedness owing to the Company or any of its
subsidiaries or any claims which the Company or any of its subsidiaries may
possess, or waive any material rights with respect thereto; (xiii) sell or
otherwise dispose of any real property or any material amount of any
tangible or intangible personal property other than in the ordinary course
of business and other than properties acquired in foreclosure or otherwise
in the ordinary collection of indebtedness to the Company or any of its
subsidiaries; (xiv) foreclose upon or otherwise take title to or possession
or control of any real property without first obtaining a phase one
environmental report thereon which indicates that the property is free of
pollutants, contaminants or hazardous or toxic waste materials; provided,
however, that the Company and its subsidiaries shall not be required to
obtain such a report with respect to single-family, nonagricultural
residential property of one acre or less to be foreclosed upon unless it
has reason to believe that such property might contain any such waste
materials or otherwise might be contaminated; (xv) commit any act or fail
to do any act which would cause a breach of any agreement, contract or
commitment and which would have a material adverse effect on the Company;
(xvi) except as may be necessary to comply with Year 2000 requirements in
an amount not to exceed Ten Thousand Dollars ($10,000) or as may otherwise
be approved in writing by Banterra, purchase any real or personal property
or make any other capital expenditure, except in a manner and pursuant to
policies consistent with past practice; (xvii) take any action which would
materially and adversely effect or delay the ability of either Banterra or
the Company to obtain any necessary approvals of any regulatory agency or
other governmental authority required for the transactions contemplated by
this Agreement or to perform its covenants and agreements under the
Agreement; (xviii) violate any law, statute, rule, governmental regulation
or order, which violation would have a material adverse effect on the
Company; or (xix) change accounting principles or practices, or the method
of applying such principles or practices, except as required by generally
accepted accounting principles.

The Company also has agreed that it and its subsidiaries will do all
of the following: (i) refrain from engaging in any transaction or taking
any action that would render untrue any of the representations and
warranties contained in the Agreement, except as otherwise contemplated by
the Agreement or with respect to such representations and warranties that
speak only as of the date of the Agreement; (ii) promptly notify Banterra
in writing of the occurrence of any matter or event known to and directly
involving the Company (other than those affecting the banking industry as a
whole) that would have, either individually or in the aggregate, a material
adverse effect on the Company; (iii) promptly notify Banterra in the event
it has knowledge of the occurrence, or impending or threatened occurrence,
of any event or condition that would constitute a breach of any of its
representations and warranties contained in the Agreement and use its best
efforts to prevent or promptly remedy the same; (iv) cause the Agreement to
be submitted to its shareholders for approval at a special meeting and, in
connection therewith, prepare and mail this Proxy Statement which shall
contain the recommendation of the Board of Directors that the Agreement be
approved, subject to compliance with its fiduciary duties as advised by
counsel; (v) use its best efforts to obtain all necessary consents with
respect to all interests of the Company and its subsidiaries in any
material leases, licenses, contracts, instruments and rights which require
the consent of another person for their transfer or assumption pursuant to
the Merger, if any; (vi) use its best efforts to perform and fulfill all
conditions and obligations on its part to be performed or fulfilled under
the Agreement and to effect the Merger and the other transactions
contemplated thereby and to effect the transition and integration of the
business and operations of the Company and its subsidiaries with the
business and operations of Banterra and its subsidiaries; (vii) furnish to
Banterra in a timely manner all information, data and documents in the
possession of the Company or its subsidiaries requested by Banterra as may
be required to obtain any necessary regulatory or other approvals of the
Merger and otherwise cooperate fully with Banterra to carry out the purpose
and intent of the Agreement; (viii) provide to Banterra, as soon as
reasonably practical, but not later than sixty (60) days after the date of
the Agreement, a report of a phase one environmental investigation on all
real property owned.

The Company has further undertaken to do all of the following: (i)
permit representatives of Banterra and its accountants reasonable access to
its property to and to make available to Banterra all books, documents,

- 23 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

papers, records and computer systems documentation and files relating to
its assets, stock ownership, properties, operations, obligations and
liabilities, employee benefit plans and any other business activities or
prospects in which Banterra may have a reasonable and legitimate interest
in furtherance of the transactions contemplated by the Agreement; (ii) upon
the request of Banterra, cause the Bank to enter into a merger agreement,
subject to the conditions of the Agreement with Banterra Bank and take all
other actions and cooperate with Banterra in causing such merger to be
effected; (iii) enter into a separate plan of merger or certificate of
merger for purposes of any filing requirement of Illinois law; (iv) as of
the date of the Agreement, cause all of its directors and their spouses,
with one exception, to enter into voting agreements concurrent with the
execution of the Agreement, obligating them to vote all shares of Common
Stock beneficially owned or controlled by them in favor of approval of the
Agreement; (v) if requested by Banterra, arrange a meeting between Banterra
and Gray Hunter Stenn LLP, the Company's independent auditors, to review
and discuss the Company's financial statements; (vi) consult with and
reasonably cooperate with Banterra with respect to the determination of the
amount of and timing for recognizing all expenses of the Merger and any
restructuring charges, provided that, in no event is the Company obligated
to take any such action unless and until Banterra and Acquisitionco
acknowledge in writing that all conditions precedent to the obligations of
Banterra and Acquisitionco under the Agreement have been met and provide
written waiver of any termination right they may have under the Agreement;
(vii) cause all of the holders of Issued Options to enter into the Option
Consideration Agreements; (viii) pursue resolution or settlement of certain
pending litigation; (ix) use its best efforts to promptly recover from its
insurer for any legal fees and expenses incurred in connection with the
settlement of the lawsuit filed on behalf of Barrett Rochman; and (ix) from
and after the date of the Agreement to the Effective Time, maintain and
keep all of the Company's employee benefit plans fully funded, and, to the
extent any such benefit plan may not be fully or adequately funded, to make
such contributions as are necessary to fully fund any such inadequately
funded benefit plan, including payments to the ESOP, as may be required.

NO SOLICITATION

The Agreement provides that none of the Company or its subsidiaries
will authorize or permit any of their respective officers, directors,
employees or agents to, directly or indirectly, solicit, initiate or
encourage or (subject to the board's fiduciary duties as advised by
counsel) hold discussions or negotiations with or provide any information
to any person in connection with any proposal from any person for the
acquisition of all or any substantial portion of the business, assets,
shares of Common Stock or other securities of the Company or the Bank or
any merger of the Company or the Bank with any person. The Company is
obligated to promptly inform Banterra of its receipt of any such proposal
or inquiry concerning such proposal, the substance of such proposal or
inquiry and the identity of such person.

The Agreement further provides that the Company would be obligated
to pay to Banterra a termination fee equal to $450,000 if the Agreement is
terminated by Banterra due to the occurrence of any of the following
events: (i) any person or group of persons (other than Banterra and its
affiliates) shall have acquired, or have the right to acquire, thirty-five
percent (35%) or more of the outstanding shares of Common Stock; (ii) the
expiration date of a tender or exchange offer by any person or group of
persons (other than Banterra and its affiliates) to purchase or acquire
securities of the Company if, upon consummation of such offer, such person
or group of persons would own, control or acquire the right to acquire more
than thirty-five percent (35%) of the issued and outstanding shares of
Common Stock; or (iii) the entry by the Company into a definitive agreement
with a person or group of persons (other than Banterra and its affiliates)
for such person or group of persons to acquire, merge or consolidate with
the Company or to acquire all or substantially all of the Company's assets
or more than thirty-five percent (35%) of the outstanding shares of Common
Stock. Such termination fee would be in full satisfaction of all
obligations or liability of the Company under the Agreement.

The foregoing provisions may have the effect of discouraging
competing offers to acquire or merge with the Company.

- 24 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company has made certain representations and warranties to
Banterra with respect to, among other things, the following: (i)
organization and capital stock; (ii) authority with respect to the
Agreement; (iii) subsidiaries; (iv) financial statements; (v) the absence
of certain changes or events; (vi) regulatory enforcement matters; (vii)
certain tax matters; (viii) litigation and related matters; (ix) employment
agreements; (x) regulatory and securities filings; (xi) employee matters
and ERISA; (xii) title to properties and insurance; (xiii) environmental
matters; (xiv) compliance with laws; (xv) brokers' or finders' fees; (xvi)
non-banking activities of the Company and its subsidiaries; (xvii) trust
administration; (xviii) Year 2000; (xix) material contracts and agreements;
(xx) the absence of any undisclosed liabilities; (xxi) the truth and
accuracy of the statements with respect to the Company contained in this
Proxy Statement and in other regulatory filings in connection with the
transactions contemplated by the Agreement; (xxii) the inapplicability of
certain state antitakeover laws; (xxiii) fair lending compliance and the
Community Reinvestment Act; (xxiv) the loan portfolio; (xxv) interest rate
risk management instruments; (xxvi) interim events; and (xxvii) the absence
of any fact or circumstance reasonably likely to prevent the consummation
of the Merger.

REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANTERRA AND ACQUISITIONCO

Banterra and Acquisitionco have made certain representations and
warranties to the Company with respect to, among other things, the
following: (i) organization and capital stock; (ii) authority with respect
to the Agreement; (iii) subsidiaries; (iv) Banterra's financial
information; (v) the absence of certain changes; (vi) litigation; (vii)
regulatory reports; (viii) compliance with laws; (ix) the truth and
accuracy of the information furnished or to be furnished to the Company by
Banterra or Acquisitionco in connection with this Proxy Statement or any
other regulatory filing in connection with the transactions contemplated by
the Agreement; (x) regulatory enforcement matters; (xi) the inapplicability
of certain state antitakeover laws; (xii) the absence of any undisclosed
liabilities; (xiii) the Community Reinvestment Act; (xiv) the absence of
any fact or circumstance likely to prevent the consummation of the Merger;
(xv) the availability of sufficient funds to pay the aggregate Merger
Consideration and Option Consideration; and (xvi) compliance with capital
adequacy guidelines.

Banterra and Acquisitionco also have agreed to the following: (i)
Banterra shall file all regulatory applications required in order to
consummate the Merger, including, but not limited to, the necessary
applications for the prior approval of the Federal Reserve and the OTS;
(ii) Banterra shall keep the Company reasonably informed as to the status
of all regulatory applications and, at least five business days prior to
filing, to provide copies of such applications to the Company and its
counsel for review and comment; (iii) Banterra shall refrain from engaging
in any transaction or taking any action that would render untrue any of its
representations and warranties contained in the Agreement (except for any
such representations and warranties made only as of a specified date)
without the prior written consent of the Company; (iv) Banterra shall give
prompt written notice to the Company in the event it has knowledge of the
occurrence, or impending or threatened occurrence, of any event or
condition which would cause or constitute a breach (or would have caused or
constituted a breach had such event occurred or been known prior to the
date of the Agreement) of any of its representations or agreements
contained or referred to in the Agreement and to use its best efforts to
prevent or promptly remedy the same; and (v) Banterra and Acquisitionco
shall use their respective best efforts to perform and fulfill all
conditions and obligations on their part to be performed or fulfilled under
the Agreement and to effect the Merger in accordance with the terms and
conditions of the Agreement.

TERMINATION OF THE AGREEMENT; TERMINATION FEE

Pursuant to its terms, the Agreement may be terminated by the
Parties in the following circumstances, regardless of whether approval of
the Agreement by the shareholders of the Company has been previously
obtained: (i) by the mutual written agreement of Banterra and the Company
at any time prior to the Closing

- 25 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Date; (ii) by the non-breaching Party in the event that there is a breach
in any of the representations and warranties or a material breach of any of
the agreements of Banterra or the Company, which breach is not cured within
30 days after written notice to cure such breach is given to the breaching
Party by the non-breaching Party; (iii) by Banterra for a period of 15 days
after receipt of any reasonable estimate indicating that any costs
associated with the remediation of any environmental problems would exceed
$100,000; (iv) by either Party in the event any of the conditions to the
obligations of such Party are not satisfied or waived on or prior to the
Closing Date, and if any applicable cure period has lapsed; (v) in the
event that any regulatory application filed pursuant to the Agreement
should be finally denied or disapproved by the respective regulatory
authority, or not obtained from the respective regulatory authority on or
before the date which is nine months following the date of the Agreement,
provided, however, that (A) a request for additional information or
undertaking by Banterra, as a condition for approval, shall not be deemed
to be a denial or disapproval so long as Banterra diligently provides the
requested information or undertaking and (B) in the event that an
application is denied pending an appeal, petition for review or similar
such act on the part of Banterra, then the application shall be deemed
denied unless Banterra prepares and timely files such appeal and continues
the appellate process for purposes of obtaining the necessary approval;
(vi) by Banterra if its Board of Directors shall have reasonably determined
in good faith that any of the requisite regulatory approvals imposes a
burdensome condition, not later than five days after receipt by Banterra of
notice of the imposition of such burdensome condition from the applicable
regulatory agency (unless an appeal of such determination is being pursued
by Banterra, in which event the foregoing notice may be given within 30
days of the termination of any such appeal by Banterra or the denial of
such appeal by the appropriate regulatory agency); (vii) by either Party if
the Agreement is not approved by the requisite vote of the shareholders of
the Company at the Special Meeting; (viii) by Banterra if the Company's
Board of Directors shall have failed to approve or recommend the Agreement
or the Merger, or shall have withdrawn or modified in any manner adverse to
Banterra its approval or recommendation of the Agreement or the Merger, or
shall have resolved or publicly announced an intention to do either of the
foregoing; (ix) by Banterra in the event that the Company or any of its
subsidiaries shall, after the date of the Agreement, become a party or
subject to any new or amended written agreement, memorandum of
understanding, cease and desist order, imposition of civil money penalties
or other regulatory enforcement action or proceeding with a regulatory
agency which would have a material adverse effect on the Company; (x) by
the Company in the event that Banterra or any of its subsidiaries shall,
after the date of the Agreement, become a party or subject to any new or
amended written agreement, memorandum of understanding, cease and desist
order, imposition of civil money penalties or other regulatory enforcement
action or proceeding with a regulatory agency which would have a material
adverse effect on Banterra; (xi) by either Party if the Closing Date does
not occur on or prior to nine months from the date of the Agreement, unless
the failure of the Closing to occur by such date shall be due to the
failure of the Party seeking to terminate the Agreement to perform or
observe the covenants and agreements of such Party set forth in the
Agreement; and (xii) by Banterra in the event (A) any person or group of
persons (other than Banterra and its affiliates) shall have acquired, or
have the right to acquire, thirty-five percent (35%) or more of the
outstanding shares of Common Stock; (B) the expiration date of a tender or
exchange offer by any person or group of persons (other than Banterra and
its affiliates) to purchase or acquire securities of the Company if, upon
consummation of such offer, such person or group of persons would own,
control or acquire the right to acquire more than thirty-five percent (35%)
of the issued and outstanding shares of Common Stock; or (C) the entry by
the Company into a definitive agreement with a person or group of persons
(other than Banterra and its affiliates) for such person or group of
persons to acquire, merge or consolidate with the Company or to acquire all
or substantially all of the Company's assets or more than thirty-five
percent (35%) of the outstanding shares of Common Stock (collectively, a
"Third Party Transaction").

The Agreement provides that, in the event the Agreement is
terminated by Banterra due to (i) a material breach of the Agreement by the
Company that has not been cured or (ii) the failure of the shareholders of
the Company to approve the Agreement at the Special Meeting, the Company
would be obligated to pay, within 10 days of its receipt of a written
demand therefor, a termination fee of $150,000 as liquidated damages, in
lieu of all remedies at law or in equity and in full satisfaction of all
obligations or liabilities under the Agreement. In the

- 26 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

event the Agreement is terminated by Banterra due to the occurrence of a
Third Party Transaction, the required termination fee would be $450,000.

WAIVER AND AMENDMENT

The conditions of the Agreement which may be waived may only be
waived by notice to the other Party waiving such condition. The Agreement
may be amended or modified by the Parties at any time before or after
shareholder approval of the Agreement; provided, however, that after any
such approval no such amendment or modification may alter the amount or
change the form of the Merger Consideration or Option Consideration.

EXPENSES

The Agreement provides that each Party shall bear and pay all
expenses incurred by it in connection with the transactions contemplated by
the Agreement.

EFFECT ON EMPLOYEES AND CERTAIN EMPLOYEE BENEFIT PLANS

Severance. The Agreement provides that Banterra will provide to any
employee of the Company or its subsidiaries whose employment is terminated
at the Effective Time or within six months thereafter severance pay in an
amount equal to one week's salary for each full year of employment by the
Company or its subsidiaries, with a minimum of four (4) weeks severance pay
and a maximum of ten (10) weeks severance pay, plus any accrued vacation
pay, subject to certain restrictions. No severance pay will be paid to any
employee of the Company whose employment is terminated at the Effective
Time if such employee was offered employment by Banterra or its
subsidiaries that involved such employee's place of employment being his or
her current place of employment, Marion, Illinois, or Carbondale, Illinois,
and that is at a comparable compensation level and level of responsibility
to his or her previous position with the Company or its subsidiaries.

Outplacement Assistance. Banterra has agreed to provide customary
out placement assistance, in an amount not to exceed $500 per employee, and
continued health insurance (as required by the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA")) to any employee of the Company or its
subsidiaries whose employment is terminated at the Effective Time.

Employee Benefit Plans. At the Effective Time, all existing
employee benefit plans of the Company and its subsidiaries will be
terminated. Each employee of the Company and its subsidiaries who becomes
an employee of Banterra or its subsidiaries after the Effective Time will
be eligible to participate in employee benefit plans of Banterra which are
substantially similar in coverage and benefits to those available to
similarly situated employees of Banterra if such employees meet the
eligibility requirements for such plans. For the purposes of participation
in and vesting of benefits under all such plans, employees of the Company
and its subsidiaries will be given service credit for all of their service
with the Company, the Bank or any of their respective subsidiaries. Such
employees and/or covered dependents will not be subject to pre-existing
conditions exclusions to the extent permitted by such plans.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

Certain members of the Boards of Directors and management of the
Company and the Bank may be deemed to have certain interests in the Merger
in addition to their interests as shareholders of the Company generally.
The Board of Directors of the Company was aware of these interests
and considered them, among other matters, in unanimously approving
the Agreement and the transactions contemplated thereby. See
"-- Recommendation of the Board of Directors; Reasons for the Merger."

- 27 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Change in Control Payment. Mr. Roger Hileman is party to employment
agreements with the Company and the Bank that provide for a severance
payment upon the occurrence of certain events, including termination of his
employment under such agreements following a change in control of the
Company or the Bank. The Agreement provides that the employment of Mr.
Hileman will be terminated at the Effective Time and that the Bank shall
make the payment to which Mr. Hileman is entitled under his employment
agreements upon a change in control. It is currently anticipated that Mr.
Hileman will be entitled to a severance payment under his current
employment agreements in the approximate amount of $310,000. Mr. Hileman
has agreed to serve as a vice president and mortgage loan lender for
Banterra Bank at a salary of $50,000 per year following the Merger.

Stock Options. Pursuant to the Agreement, at the Effective Time,
each holder of an Issued Option will receive, in consideration for his or
her agreement to surrender such Issued Option, an amount determined by
multiplying $1.75 by the number of shares of Common Stock subject to such
Issued Option. The amount each director and executive officer of the
Company is expected to receive in exchange for the cancellation of his or
her Issued Options outstanding as of the Record Date is as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES NET REALIZABLE
UNDERLYING VALUE OF ISSUED
NAME POSITION ISSUED OPTIONS OPTIONS
---- -------- ---------------- ---------------
<S> <C> <C> <C>
Roger O. Hileman Director, President and Chief 8,768 $15,344
Executive Officer
Paul R. Calcaterra Director 1,752 3,066
B. D. Cross Director 1,752 3,066
Charles E. Stevens Director 1,752 3,066
James C. Walker Director 1,752 3,066
Randall A. Youngblood Director 1,752 3,066
</TABLE>

Employee Stock Ownership Plan. On or before the Effective Time, the
Company shall take all steps reasonably necessary to cause the ESOP to be
terminated as of the Effective Time. Upon its termination, the assets of
the ESOP will be distributed to its participants in accordance with the
terms of the plan. Based on his current interest in the ESOP, Mr. Hileman
is expected to receive an ESOP distribution of approximately $____________.

Insurance; Indemnification. Banterra has agreed that, for a period
of three years after the Effective Time, it will use its reasonable best
efforts to maintain the current policies of directors' and officers'
liability insurance maintained by the Company (provided that Banterra may
substitute therefor policies of comparable coverage with respect to claims
arising from facts or events which occurred before the Effective Time);
provided, however, that in no event shall Banterra be obligated to expend a
total amount in excess of $53,100 in order to maintain or provide insurance
coverage (the "Maximum Amount"). If the amount of the annual premiums
necessary to maintain or procure such insurance coverage exceeds the
Maximum Amount, Banterra shall use all reasonable efforts to maintain the
most advantageous policies of directors' and officers' insurance obtainable
but in no event shall the cost of such insurance exceed the Maximum Amount.
Notwithstanding the foregoing, prior to the Effective Time, Banterra may
request the Company to, and the Company shall, purchase insurance coverage,
on such terms and conditions as shall be acceptable to Banterra, extending
for a period of three (3) years the Company's directors' and officers'
liability insurance coverage in effect as of the date of the Agreement
(covering past or future claims with respect to periods before the
Effective Time) and such coverage shall satisfy Banterra's obligations
under the Agreement.

Banterra has also agreed that, for a period of six (6) years after
the Effective Time, Banterra shall, or shall cause Banterra Bank to,
indemnify, defend and hold harmless each person who is now, or who has been
at any time before the date of the Agreement or who becomes before the
Effective Time, an officer or director of the Company, the Bank or any of
their respective subsidiaries (the "Indemnified Parties") against all
losses, claims, damages, costs, expenses (including attorney's fees),
liabilities or judgments or amounts that are paid in settlement (which
settlement shall require the prior written consent of Banterra, which
consent shall not be

- 28 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

unreasonably withheld) of or in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, or administrative
(each a "Claim"), in which an Indemnified Party is, or is threatened to be
made, a party or witness in whole or in part on or arising in whole or in
part out of the fact that such person is or was a director, officer or
employee of the Company, the Bank or any of their subsidiaries if such
Claim pertains to any matter of fact arising, existing or occurring before
the Effective Time (including, without limitation, the Merger and the other
transactions contemplated hereby), regardless of whether such Claim is
asserted or claimed before, or at or after, the Effective Time, to the
fullest extent permitted under applicable state or federal law in effect as
of the date of the Agreement or as amended applicable to a time before the
Effective Time and under the Company's and the Bank's key corporate
documents. Banterra has also agreed to pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to
the full extent permitted by applicable state or federal law in effect as
of the date of the Agreement or as amended applicable to a time before the
Effective Time upon receipt of an undertaking to repay such advance
payments if he shall be adjudicated or determined to be not entitled to
indemnification. In the event of any such Claim (whether arising before or
after the Effective Time), (1) Banterra shall have the right to assume the
defense thereof (in which event the Indemnified Parties will cooperate in
the defense of any such matter) and upon such assumption Banterra shall not
be liable to any Indemnified Party for any legal expenses of other counsel
or any other expenses subsequently incurred by any Indemnified Party in
connection with the defense thereof, except that if Banterra elects not to
assume such defense, or counsel for the Indemnified Parties reasonably
advises the Indemnified Parties that there are or may be (whether or not
any have yet actually arisen) issues which raise conflicts of interest
between Banterra and the Indemnified Parties, the Indemnified Parties may
retain counsel reasonably satisfactory to them, and Banterra shall pay the
reasonable fees and expenses of such counsel for the Indemnified Parties,
(2) Banterra shall be obligated to pay for only one firm of counsel for all
Indemnified Parties whose reasonable fees and expenses shall be paid
promptly as statements are received, (3) Banterra shall not be liable for
any settlement effected without its prior written consent (which consent
shall not be unreasonably withheld) and (4) no Indemnified Party shall be
entitled to indemnification hereunder with respect to a matter as to which
(x) he shall have been adjudicated in any proceeding not to have acted in
good faith in the reasonable belief that his action was in the best
interests of the Company, the Bank or any subsidiary or (y) in the event
that a proceeding is compromised or settled so as to impose any liability
or obligation upon an Indemnified Party, if there is a determination that
with respect to said matter said Indemnified Party did not act in good
faith in the reasonable belief that his action was in the best interests of
the Company, the Bank or any subsidiary. In the event that either Banterra
or Banterra Bank or any of its successors or assigns (i) consolidates with
or merges into any other person and shall not be the continuing or
surviving bank or entity of such consolidation or merger or (ii) transfers
all or substantially all of its properties and assets to any person, then,
and in each such case, proper provision shall be made so that the
successors and assigns of Banterra shall assume the obligations set forth
in the Agreement.

CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a general summary of the material United
States federal income tax ("federal income tax") consequences of
participating in the Merger and does not purport to be a complete analysis
or listing of all potential tax considerations or consequences relevant to
a decision whether to participate in the Merger. The discussion does not
address all aspects of federal income taxation that may be applicable to
shareholders in light of their status or personal investment circumstances,
nor does it address the federal income tax consequences of the Merger that
are applicable to shareholders subject to special federal income tax
treatment including (without limitation) foreign persons, insurance
companies, tax-exempt entities, retirement plans, dealers in securities,
persons who acquired their shares of Common Stock pursuant to the exercise
of employee stock options or otherwise as compensation, and persons who
hold their shares of Common Stock as part of a "straddle," "hedge" or
"conversion transaction." In addition, the discussion does not address the
effect of any applicable state, local or foreign tax laws, or the effect of
any federal tax laws other than those pertaining to the federal income tax.
AS A RESULT, EACH SHAREHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH
SHAREHOLDER.

-29-
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

For federal income tax purposes, the receipt of cash by a
shareholder of the Company in exchange for shares of the Common Stock
pursuant to the Merger will constitute a taxable transaction to such
shareholder. In general, a shareholder who receives cash in the Merger in
exchange for such shareholder's shares of Common Stock will recognize gain
or loss equal to the difference, if any, between (i) the sum of the cash
payment of $15.75 per share received from Banterra in exchange for the
shares of the Common Stock and (ii) the shareholder's tax basis in such
Common Stock. Any gain or loss will be treated as capital gain or loss if
the Common Stock exchanged was held as a capital asset in the hands of the
shareholder.

The cash payments due to the holders of the Common Stock upon the
exchange thereof pursuant to the Merger (other than certain exempt entities
and persons) will be subject to a backup withholding tax at the rate of 31%
unless certain requirements are met. Generally, the Exchange Agent will be
required to deduct and withhold the tax in the following circumstances: (i)
the shareholder fails to furnish a taxpayer identification number ("TIN")
to the Exchange Agent or fails to certify under penalty of perjury that
such TIN is correct; (ii) the Internal Revenue Service ("IRS") notifies the
Exchange Agent that the TIN furnished by the shareholder is incorrect;
(iii) the IRS notifies the Exchange Agent that the shareholder has failed
to report interest, dividends or original issue discount in the past; or
(iv) there has been a failure by the shareholder to certify under penalty
of perjury that such shareholder is not subject to the backup withholding
tax. Any amounts withheld by the Exchange Agent in collection of the backup
withholding tax will reduce the federal income tax liability of the
shareholders from whom such tax was withheld. The TIN of an individual
shareholder is that shareholder's Social Security number.

No ruling has been or will be requested from the IRS as to any of
the tax effects of any of the transactions discussed in this Proxy
Statement to shareholders of the Company, and no opinion of counsel has
been or will be rendered to the Company's shareholders with respect to any
of the tax effects of the Merger to the Company's shareholders.

ACCOUNTING TREATMENT

The Company has been advised by Banterra that the transaction will
be accounted for under the purchase method of accounting as required by
Accounting Principles Board Opinion No. 16 Business Combinations.

REGULATORY APPROVALS

Consummation of the Merger is subject to the receipt of all
regulatory approvals required for the completion of the Merger. The Merger
must be approved by the Federal Reserve. An application for approval of
the Merger has been submitted to the Federal Reserve. No assurance can be
given that such application will be approved or that it will not be
approved on terms or conditions that may require an amendment to the
Agreement. No amendment made after Company shareholders have approved the
Agreement may reduce either the amount or form of the Merger Consideration
or the Option Consideration.

- 30 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

HEARTLAND BANCSHARES, INC.

GENERAL

The Company. The Company was incorporated under the laws of the
State of Illinois in January 1996 at the direction of the Board of
Directors of First Federal Savings and Loan Association of Herrin for the
purpose of serving first as a savings institution holding company for the
Association upon its conversion from mutual to stock form, and then as a
bank holding company upon the subsequent conversion of the Association to a
national banking association known as Heartland National Bank. On June 28,
1996, the Conversion and the Bank Conversion were consummated and the
Company completed its initial public offering of the Common Stock. A total
of 876,875 shares were sold at $10.00 per share. Net proceeds from the
offering, after deducting expenses and the funds necessary to fund the
Company's ESOP, amounted to approximately $7.4 million. Unless otherwise
stated herein, references to the Bank refer to the Bank and its
predecessor, the Association. The Company is registered with and subject to
the regulation and supervision of the Federal Reserve as a bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHCA").

The Company's principal business is overseeing the business of the
Bank and investing the portion of the net proceeds from its initial public
offering retained by it. The Company has no significant assets other than
its investment in the Bank, a loan to the ESOP and certain cash and cash
equivalents and investment securities. Accordingly, the information set
forth herein relates primarily to the Bank. At December 31, 1998, the
Company had consolidated total assets of $63.3 million, total loans of
$36.4 million, total investment and mortgage-backed securities of $11.3
million, total deposits of $51.4 million and total shareholders' equity of
$11.3 million.

The Company's executive offices are located at 318 South Park
Avenue, Herrin, Illinois 62948-3604, and its main telephone number is (618)
942-7373.

The Bank. The principal business of the Bank historically has
consisted of attracting deposits from the general public and investing
these deposits in loans secured by first mortgages on single-family
residences in its market area. At December 31, 1998, one- to four-family
residential mortgage loans comprised 77.00% of the Bank's total loan
portfolio. The Bank derives its income principally from interest earned on
loans and, to a lesser extent, interest earned on mortgage-backed and
related securities and investment securities and noninterest income. Funds
for these activities are provided principally by operating revenues,
deposits and repayments of outstanding loans and mortgage-backed and
related securities.

The Bank's deposits are insured by the SAIF up to the applicable
limits for each depositor. The Bank is subject to comprehensive
examination, supervision and regulation by the OCC and the FDIC. This
regulation is intended primarily for the protection of depositors. The Bank
is a member of the Federal Reserve Bank of St. Louis and the Federal Home
Loan Bank of Chicago.

LENDING ACTIVITIES

General. The Bank's gross loan portfolio totaled $37.0 million at
December 31, 1998, representing 58.40% of the Company's total assets at
that date. It is the Bank's policy to concentrate its lending within the
counties of Williamson, Jackson and Franklin located in southeastern
Illinois. At December 31, 1998, $28.5 million, or 77.00%, of the Bank's
total loan portfolio, consisted of one- to four-family, residential
mortgage loans. At December 31, 1998, other loans secured by real estate
included multi-family residential real estate loans, which amounted to $1.0
million, or 2.78%, of the Bank's total loan portfolio, church loans, which
amounted to $1.7 million, or 4.52%, of the Bank's total loan portfolio,
commercial real estate loans which amounted to $3.2 million, or 8.57%, of
the Bank's gross loan portfolio and construction loans which amounted to
$653,000, or 1.77%, of the Bank's gross loan portfolio.

- 31 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

The Bank also is active in the origination of consumer loans, which
primarily consist of loans secured by savings deposits, home improvement
loans, automobile loans and personal loans. Consumer loans amounted to
$2.0 million, or 5.36%, of the Bank's total loan portfolio at December 31,
1998.

Loan Portfolio Composition. The following table sets forth selected
data relating to the composition of the Bank's loan portfolio by type of
loan at the dates indicated. At December 31, 1998, the Bank had no
concentrations of loans exceeding 10% of total loans other than as
disclosed below.

<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------------------------
1998 1997
------------------- -------------------
AMOUNT % AMOUNT %
------ - ------ -
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Type of Loan:
Real estate loans:
One- to four-family residential $28,475 77.00% $37,546 79.62%
Multi-family residential 1,028 2.78 1,433 3.04
Construction 653 1.77 381 0.81
Church 1,671 4.52 1,735 3.68
Commercial 3,171 8.57 3,140 6.66
------- ------ ------- ------
Total real estate loans $34,998 94.64 $44,235 93.81
------- ------ ------- ------

Consumer loans:
Automobiles 466 1.26 508 1.08
Savings account 384 1.04 477 1.01
Home improvement 848 2.29 779 1.65
Other 284 .77 1,157 2.45
------- ------ ------- ------
Total consumer loans 1,982 5.36 2,921 6.19
------- ------ ------- ------

Total gross loans $36,980 100.00% 47,156 100.00%
------- ====== ------- ======

Less:
Loans in process 182 375
Deferred service charge 44 74
Allowance for loan losses 372 400
------- -------
Total $36,382 $46,307
======= =======
</TABLE>

Loan Maturity Schedule

The following table sets forth certain information at December 31,
1998 regarding the dollar amount of loans maturing in the Bank's portfolio
based on their contractual terms to maturity, including scheduled
repayments of principal. Demand loans, loans having no stated schedule of
repayments and no stated maturity, and overdrafts are reported as due in
one year or less. The table does not include any estimate of prepayments
which significantly shorten the average life of all mortgage loans and may
cause the Bank's repayment experience to differ from that shown below.

- 32 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DUE AFTER
DUE DURING THE 1 THROUGH DUE AFTER
YEAR ENDING 5 YEARS AFTER 5 YEARS AFTER
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1998 TOTAL
-------------- ------------- ------------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
One- to four-family residential $6,437 $7,459 $14,579 $28,475
Multi-family residential 188 -- 840 1,028
Construction 653 -- -- 653
Church 249 505 917 1,671
Commercial 163 1,056 2033 3,252
Consumer 638 898 365 1,901
------ ------ ------- -------
Total $8,328 $9,918 $18,734 $36,980
====== ====== ======= =======
</TABLE>

The next table sets forth at December 31, 1998, the dollar amount of
all loans due one year or more after December 31, 1998 which have
predetermined interest rates and have floating or adjustable interest
rates.
<TABLE>

PREDETERMINED FLOATING OR
RATE ADJUSTABLE RATES
------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
One- to four-family residential $15,598 $6,440
Multi-family residential 840 --
Construction -- --
Church 1,347 75
Commercial 2,309 780
Consumer 1,263 --
------- ------
Total $21,357 $7,295
======= ======
</TABLE>

Scheduled contractual principal repayments of loans do not reflect
the actual life of such assets. The average life of loans is substantially
less than their contractual terms because of prepayments. In addition,
due-on-sale clauses on loans generally give the Bank the right to declare a
loan immediately due and payable in the event, among other things, that the
borrower sells the real property subject to the mortgage and the loan is
not repaid. The average life of mortgage loans tends to increase when
current mortgage loan market rates are substantially higher than rates on
existing mortgage loans and, conversely, decreases when current mortgage
loan market rates are substantially lower than rates on existing mortgage
loans.

Originations, Purchases and Sales of Loans. The Bank generally has
authority to originate and purchase loans secured by real estate located
throughout the United States. Consistent with its emphasis on being a
community-oriented financial institution, the Bank concentrates its lending
activities in its market area.

- 33 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

The following table sets forth certain information with respect to
the Bank's loan originations for the periods indicated. There were nine
fixed rate mortgage loans totaling $510,000 that were originated into the
secondary market during 1998.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Loans originated:
Real estate loans:
One- to four-family residential $2,773 $9,253
Multi-family residential -- 420
Construction 629 1,539
Church -- 795
Commercial 445 1,705
Consumer loans 1,874 2,823
------ -------
Total loans originated $5,721 $16,535
====== =======
</TABLE>

The Bank's loan originations are derived from a number of sources,
including referrals by realtors, depositors and borrowers, as well as walk-
in customers. The Bank's solicitation programs consist of advertisements in
local media, in addition to occasional participation in various community
organizations and events. Real estate loans are originated by the Bank's
loan officers. All of the Bank's loan officers are salaried, and the Bank
does not compensate loan officers on a commission basis for loans
originated. Loan applications are accepted at each of the Bank's offices.

Loan Underwriting Policies. The Bank's lending activities are
subject to the Bank's written, non-discriminatory underwriting standards
and to loan origination procedures prescribed by the Bank's Board of
Directors and its management. Detailed loan applications are obtained to
determine the borrower's ability to repay, and the more significant items
on these applications are verified through the use of credit reports,
financial statements and confirmations. Property valuations are performed
by appraisers approved by the Bank's Board of Directors. All residential
real estate loans and all consumer loans in excess of an individual loan
officer's approval authority must be approved by the Bank's Loan Committee,
which consists of the President of the Bank and two other directors. All
multi-family real estate loans and commercial real estate loans must be
approved by the full Board of Directors. Individual officers of the Bank
have been granted authority by the Board of Directors to approve consumer
loans up to varying specified dollar amounts, depending upon the type of
loan.

Currently, applications for fixed-rate, single-family real estate
loans are underwritten and documented in accordance with the standards of
the Federal Home Loan Mortgage Corporation ("FHLMC") and the Federal
National Mortgage Association ("FNMA"). Prior to October 1994, however, the
Bank did not use FHLMC and FNMA documents to close its loans. It is the
Bank's policy to record a lien on the real estate securing the loan and to
obtain title insurance or a lawyer's opinion of title which insures that
the property is free of prior encumbrances. Borrowers also must obtain
hazard insurance policies prior to closing and, when the property is in a
flood plain as designated by the Department of Housing and Urban
Development, paid flood insurance policies. Earthquake insurance also is
required on all real estate loans except land loans. Mine subsidence
insurance also is required when the property securing the loan is located
in an area that has been determined to be undermined.

Federal regulations require that all appraisals performed in
connection with federally related transactions must be performed by state-
certified or state-licensed appraisers. Federally related transactions are
defined to include real estate-related financial transactions which the OCC
regulates, and would include mortgages made by the Bank. Appraisals by
state-certified appraisers will be required for all such transactions

- 34 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

having a value of $1.0 million or more. The OCC is authorized to determine
other circumstances in which appraisals must be performed by state-
certified appraisers. The OCC has adopted regulations requiring that all
real estate-related financial transactions engaged in by national banking
associations having a transaction value of $250,000 or more, other than
those involving appraisals of one- to four-family residential properties,
require an appraisal performed by a state-certified appraiser. One- to
four-family residential property financing may require an appraisal by a
state-certified appraiser if the amount involved exceeds $1.0 million or
the financing involves a "complex" one- to four-family property appraisal.
Exceptions are made for financings in which the transaction value is
$250,000 or less or when the lien is not necessary security. Illinois
currently has a certification program in effect. It is the policy of the
Bank that appraisals be obtained in connection with all loans for the
purchase of real estate or to refinance real estate loans where the
existing mortgage is held by a party other than the Bank.

The Bank is permitted to lend up to 95% of the appraised value of
the real property securing a mortgage loan. The Bank is required by
federal regulations to obtain private mortgage insurance on that portion of
the principal amount of any loan that is 80% or greater of the appraised
value of the property. The Bank will make a single-family residential
mortgage loan with a loan-to-value ratio of up to 95% and to require
private mortgage insurance for loan amounts in excess of 80%. The maximum
loan-to-value ratio permitted on land loans is 50%. The Bank generally
limits the loan-to-value ratio on commercial and multi-family real estate
mortgage loans to 70%.

Under applicable law, with certain limited exceptions, loans and
extensions of credit by a national banking association to a person
outstanding at one time shall not exceed 15% of the institution's
unimpaired capital and surplus. Loans and extensions of credit fully
secured by readily marketable collateral may comprise an additional 10% of
unimpaired capital and surplus. The Bank's loans to one borrower were
limited to $1.5 million at December 31, 1998. At December 31, 1998, the
Bank had no lending relationships in excess of the loans-to-one-borrower
limit. At December 31, 1998, the Bank's largest loan was a $567,000 loan
to a local law firm and the Bank's next four largest loans ranged from
$410,000 to $522,000. All five loans were current and continued to perform
in accordance with their terms at December 31, 1998.

Interest rates charged by the Bank on loans are affected principally
by competitive factors, the demand for such loans and the supply of funds
available for lending purposes. These factors are, in turn, affected by
general economic conditions, monetary policies of the federal government,
including the Federal Reserve, legislative tax policies and government
budgetary matters.

One- to Four-Family Residential Real Estate Lending. The Bank
historically has been and continues to be an originator of one- to four-
family, residential real estate loans in its primary market area. At
December 31, 1998, one- to four-family, residential mortgage loans, totaled
$28.5 million, or 77.00%, of the Bank's total loan portfolio.

The Bank originates both fixed rate and adjustable rate mortgage
loans. The Bank offers fixed rate mortgage loans with terms of up to 20
years. All fixed rate mortgage loans are sold in the secondary market. The
Bank originates one and three-year adjustable rate loans with terms of up
to 30 years. Since October 1994, the adjustable rate loans originated by
the Bank are indexed to the one or three-year Treasury Bill rate, adjusted
for constant maturity. Approximately $10.8 million of the Bank's
adjustable rate loans at December 31, 1998 were tied to this index. Rate
adjustments on one-year adjustable rate loans are limited to a maximum of
two percentage points per adjustment and six percentage points over the
life of the loan. Rate adjustments on three-year adjustable rate loans are
limited to a maximum of three percentage points per adjustment and
six percentage points over the life of the loan.

Adjustable rate loans originated prior to October 1994 were indexed
to the FHLB Average Interest Rate Paid on Previously Occupied Homes.
Changes in this index generally lag changes in other indices. Interest
rates

- 35 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

on such loans are not adjusted based upon an increment over such rate but
adjust based upon the changes in such rate, subject to floors and ceilings
on the rate. As of December 31, 1998, approximately $2.9 million of the
Bank's adjustable rate loans had been originated in accordance with these
terms.

The retention of adjustable-rate mortgage loans in the Bank's loan
portfolio helps reduce the Bank's exposure to changes in interest rates.
However, there are unquantifiable credit risks resulting from potential
increased costs to the borrower as a result of repricing of adjustable-rate
mortgage loans. It is possible that during periods of rising interest
rates, the risk of default on adjustable-rate and short-term or callable
fixed-rate mortgage loans may increase due to the upward adjustment of
interest cost to the borrower. Accordingly, there can be no assurance that
yields on the Bank's adjustable-rate mortgages will adjust sufficiently to
compensate for increases in the Bank's cost of funds.

Multi-Family and Commercial Real Estate Lending. The Bank's multi-
family residential loan portfolio consists primarily of loans secured by
small apartment buildings. The Bank's commercial real estate loan portfolio
consists primarily of loans to finance the acquisition of small retail
establishments and distribution centers. Such loans generally range in
size from $3,000 to $567,000. At December 31, 1998, the Bank had $1.0
million of multi-family residential loans and $3.2 million of commercial
real estate loans, which amounted to 2.78% and 8.57%, respectively, of the
Bank's total loan portfolio at such date. Multi-family and commercial real
estate loans are generally underwritten with loan-to-value ratios of up to
70% of the lesser of the appraised value or the purchase price of the
property. Generally, such loans are made for ten-year terms and may provide
for a balloon payment at the end of such term. The maximum term for these
types of loans is 20 years. Because of the inherently greater risk
involved in this type of lending, the Bank generally limits its multi-
family and commercial real estate lending to borrowers within its market
area with which it has had prior experience.

Multi-family residential and commercial real estate lending entails
significant additional risks as compared with single-family residential
property lending. Multi-family residential and commercial real estate loans
typically involve large loan balances to single borrowers or groups of
related borrowers. The payment experience on such loans typically is
dependent on the successful operation of the real estate project. These
risks can be significantly impacted by supply and demand conditions in the
market for office and retail and residential space, and, as such, may be
subject to a greater extent to adverse conditions in the economy generally.
To minimize these risks, the Bank generally limits itself to its market
area or to borrowers with which it has prior experience or who are
otherwise well known to the Bank. It has been the Bank's policy to obtain
annual financial statements of the project for which commercial and multi-
family residential real estate loans are made. In addition, in the case of
commercial mortgage loans made to a partnership or a corporation, the Bank
seeks, whenever possible, to obtain personal guarantees and annual
financial statements of the principals of the partnership or corporation.

Church Lending. The Bank's loan portfolio includes a number of real
estate loans made to finance the construction or acquisition of church
properties located in the Bank's market area. At December 31, 1998, the
Bank had eight church loans aggregating approximately $1.7 million, the
largest of which had a balance outstanding of $522,000. Such loans are
generally originated on a fixed rate basis at a rate approximately 0.5%
higher than the fixed rate charged on one- to four-family residential real
estate loans. The maximum term on church loans is generally 15 years.

Construction Lending. On a limited basis, the Bank also offers
construction loans to qualified borrowers for construction of single-family
residences in the Bank's market area. Typically, the Bank limits its
construction lending to individuals who are building their primary
residences or to a limited number of local builders with whom the Bank has
substantial experience for the construction of a maximum of two one- to
four-family residential properties. These loans generally provide for a
six-month construction period with only interest being paid during such
time and convert to a permanent loan at the end of the construction period.
Construction loans are underwritten in accordance with the same standards
as the Bank's mortgages on existing

- 36 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

properties. Construction loans generally have a maximum loan-to-value
ratio of 80% of the appraised value of the property on an "as completed
basis." Borrowers must satisfy all credit requirements which would apply
to the Bank's permanent mortgage loan financing for the subject property.

Construction financing generally is considered to involve a higher
degree of risk of loss than long-term financing on improved, occupied real
estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. During the construction phase, a number of factors could
result in delays and cost overruns. If the estimate of construction costs
proves to be inaccurate, the Bank may be required to advance funds beyond
the amount originally committed to permit completion of the development. If
the estimate of value proves to be inaccurate, the Bank may be confronted,
at or prior to the maturity of the loan, with a project having a value
which is insufficient to assure full repayment. The ability of a developer
to sell developed lots or completed dwelling units will depend on, among
other things, demand, pricing, availability of comparable properties and
economic conditions. The Bank has sought to minimize this risk by limiting
construction lending to qualified borrowers in the Bank's market area and
by limiting the aggregate amount of outstanding construction loans. At
December 31, 1998, construction loans amounted to $653,000, or 1.77%, of
the Bank's loan portfolio.

Consumer Lending. The consumer loans originated by the Bank include
loans secured by savings deposits, home improvement loans, automobile
loans, home equity loans, unsecured loans and personal loans. At December
31, 1998, consumer loans totaled $2.0 million, or 5.36%, of the Bank's
total loan portfolio.

Automobile loans are secured by both new and used cars and,
depending on the creditworthiness of the borrower, may be made for up to
90% of the dealer's invoice plus destination and local charges, or, with
respect to used automobiles, the loan value as published by the National
Automobile Dealers Association. New cars are financed for a period of up
to five years, while used cars are financed for up to four and one-half
years depending on the age of the vehicle. Collision insurance is required
for all automobile loans. At December 31, 1998, automobile loans totaled
$466,000, or 1.26%, of the Bank's total loan portfolio.

Home improvement loans generally are made on the security of
residences on which the Bank holds the first mortgage. The maximum size of
home improvement loans is 85% of the "as completed" appraised value of the
residence, less the outstanding principal of the first mortgage, and have
terms of up to 10 years. The Bank also participates in the Federal Housing
Authority ("FHA") Title I Home Improvement loan program. Such loans must be
to finance only certain types of improvements up to a maximum loan size of
$7,500. The FHA guarantees 90% of the principal amount of each such loan.
Home improvement loans generally are made on a fixed-rate basis. At
December 31, 1998, home improvement loans amounted to $848,000, or 2.29%,
of the Bank's total loan portfolio.

The Bank makes deposit account loans for up to 90% of the
depositor's deposit account balance. The interest rate is normally 2%
above the rate paid on the deposit account, and the account must be pledged
as collateral to secure the loan. Interest generally is billed on a
quarterly basis. At December 31, 1998, loans on deposit accounts totaled
$384,000, or 1.04%, of the Bank's total loan portfolio.

Consumer lending affords the Bank the opportunity to earn yields
higher than those obtainable on single-family residential lending or
agricultural lending. However, consumer loans entail greater risk than do
residential mortgage loans, particularly in the case of loans which are
unsecured or secured by rapidly depreciable assets such as automobiles.
Repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan balance as a result of
the greater likelihood of damage, loss or depreciation. The remaining
deficiency often does not warrant further substantial collection efforts
against the borrower. In addition, consumer and credit card loan
collections are dependent on the borrower's

- 37 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

continuing financial stability, and thus are more likely to be adversely
affected by events such as job loss, divorce, illness or personal
bankruptcy.

Loan Fees and Servicing. In addition to interest earned on loans,
the Bank receives fees in connection with late payments and for
miscellaneous services related to its loans. During 1998, the Bank began
charging a $250 loan origination fee on all loans. The Bank generally does
not service loans for others and has earned minimal income from this
activity.

Nonperforming Loans and Other Problem Assets. It is management's
policy to continually monitor its loan portfolio to anticipate and address
potential and actual delinquencies. When a borrower fails to make a
payment on a loan, the Bank takes immediate steps to have the delinquency
cured and the loan restored to current status. All loans originated since
October 1994 provide that a late fee of 5% of principal and interest due
will be due after a payment is 15 days delinquent. Loans originated prior
to October 1994 provided that no late fee would be assessed until a payment
was 40 days or more delinquent, at which time a late fee was assessed equal
to 5% of principal and interest. As a matter of policy, the Bank will
contact the borrower after a payment is 45 days delinquent. Computer
generated notices are sent out prior to this time. If payment is not
promptly received, the borrower is contacted again, and efforts are made to
formulate an affirmative plan to cure the delinquency. Generally, after any
loan is delinquent 90 days or more, formal legal proceedings are commenced
to collect amounts owed.

Loans generally are placed on nonaccrual status if the loan becomes
past due more than 90 days, except in instances where in management's
judgment there is no doubt as to full collectibility of principal and
interest, or management concludes that payment in full is not likely.
Consumer loans are generally charged off, or any expected loss is reserved
for, after they become more than 120 days past due. All other loans are
charged off when management concludes that they are uncollectible.

Real estate acquired by the Bank as a result of foreclosure is
classified as real estate acquired through foreclosure until such time as
it is sold. When such property is acquired, it is recorded at the lower of
cost or its fair value less estimated selling costs. Any required write-
down of the loan to its fair value less estimated selling costs upon
foreclosure is charged against the allowance for loan losses.

- 38 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

The following table sets forth information with respect to the
Bank's nonperforming assets at the dates indicated. There were no
restructured loans within the meaning of Statement of Financial Accounting
Standard No. 15.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis:<F1>
Real estate loans:
One- to four-family residential $ 478 $ 534
Multi-family residential -- --
Church -- --
Commercial -- --
Commercial -- --
Consumer -- 85
----- -----
Total $ 478 $ 619
===== =====

Accruing loans which are contractually
past due 90 days or more:
Real estate:
Residential $ -- $ --
Commercial -- --
Consumer 15 --
----- -----
Total 15 --
----- -----
Total nonperforming loans $ 493 $ 619
===== =====

Percentage of total loans 1.36% 1.34%
Other nonperforming assets<F2> $ 293 $ 239

<FN>
- -----------
<F1> Non-accrual status denotes loans on which, in the opinion of
management, the collection of additional interest is unlikely.
Payments received on a nonaccrual loan are either applied to the
outstanding principal balance or recorded as interest income,
depending on management's assessment of the collectibility of the
loan.

<F2> Other nonperforming assets represents property acquired by the Bank
through foreclosure. This property is carried at the lower of its
fair market value or the principal balance of the related loan,
whichever is lower.
</TABLE>

At December 31, 1998, nonaccrual loans amounted to $478,000 as
compared to $619,000 at December 31, 1997. The residential nonaccrual
loans consisted of 12 single-family home loans with outstanding balances at
December 31, 1998 ranging from $10,000 to $58,000. Consumer nonaccrual
loans at December 31, 1998 were $0 as compared to $85,000 at December 31,
1997. The decrease in total nonaccrual loans was due to increased
collection efforts.

During the year ended December 31, 1998, gross interest income of
$13,000 would have been recorded on loans accounted for on a nonaccrual
basis if the loans had been current throughout the respective periods.
There were no restructured loans during the periods.

At December 31, 1998, there were no loans which were not currently
classified as non-accrual, 90 days past due or restructured but where known
information about possible credit problems of borrowers causes management
to have serious concerns as to the ability of the borrowers to comply with
present loan repayment terms and may result in disclosure as non-accrual,
90 days past due or restructured.

Real estate acquired through foreclosure is initially recorded at
the lower of cost (net loan receivable balance at date of foreclosure) or
fair value less estimated selling costs. Fair value is defined as the
amount in

- 39 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

cash or cash-equivalent value of other consideration that a real estate
parcel would yield in a current sale between a willing buyer and a willing
seller, as measured by market transactions. If a market does not exist,
fair value of the item is estimated based on selling prices of similar
items in active markets or, if there are no active markets for similar
items, by discounting a forecast of expected cash flows at a rate
commensurate with the risk involved. Fair value is generally determined
through an appraisal at the time of foreclosure. The Bank records a
valuation allowance for estimated selling costs of the property immediately
after foreclosure. Subsequent to foreclosure, real estate acquired through
foreclosure is periodically evaluated by management and an allowance for
loss is established if the estimated fair value of the property, less
estimated costs to sell, declines. At December 31, 1998, the Bank had
$293,000 in estate owned, consisting of five single-family residences and
one parcel of property consisting of various lots in a subdivision in
Murphysboro, Illinois.

Federal regulations require national banking associations to
classify their assets on the basis of quality on a regular basis. An asset
is classified as substandard if it is determined to be inadequately
protected by the current retained earnings and paying capacity of the
obligor or of the collateral pledged, if any. An asset is classified as
doubtful if full collection is highly questionable or improbable. An asset
is classified as loss if it is considered uncollectible, even if a partial
recovery could be expected in the future. The regulations also provide for
a special mention designation, described as assets which do not currently
expose a national bank to a sufficient degree of risk to warrant
classification but do possess credit deficiencies or potential weaknesses
deserving management's close attention. Assets classified as substandard or
doubtful require a national bank to establish general allowances for loan
losses. If an asset or portion thereof is classified as loss, a national
bank must either establish a specific allowance for loss in the amount of
the portion of the asset classified as loss, or charge off such amount.
Federal examiners may disagree with a bank's classifications. If a bank
does not agree with an examiner's classification of an asset, it may appeal
this determination to the District Manager of the OCC. The Bank regularly
reviews its assets to determine whether any assets require classification
or re-classification. At December 31, 1998, the Bank had $1,200,000 in
classified assets, which consisted of $1,200,000 in assets classified as
substandard and no assets classified as loss.

Allowance for Loan Losses. In originating loans, the Bank
recognizes that credit losses will be experienced and that the risk of
loss will vary with, among other things, the type of loan being made, the
creditworthiness of the borrower over the term of the loan, general
economic conditions and, in the case of a secured loan, the quality of the
security for the loan. It is management's policy to maintain an adequate
allowance for loan losses based on, among other things, the Bank's and the
industry's historical loan loss experience, evaluation of economic
conditions, regular reviews of delinquencies and loan portfolio quality and
evolving standards imposed by federal bank examiners. The Bank increases
its allowance for loan losses by charging provisions for loan losses
against the Bank's income. During the year ended December 31, 1998, the
Bank made a $106,000 provision to the allowance for loan losses on the
basis of management's assessment of the level of risk in the loan
portfolio. Among other factors, management believed that this amount was
warranted because of charges made against the reserve during 1998 as well
as the risks posed by the Bank's overall loan portfolio.

Management will continue to actively monitor the Bank's asset
quality and allowance for loan losses. Management will charge off loans and
properties acquired in settlement of loans against the allowances for
losses on such loans and such properties when appropriate and will provide
specific loss allowances when necessary. Although management believes it
uses the best information available to make determinations with respect to
the allowances for losses and believes such allowances are adequate, future
adjustments may be necessary if economic conditions differ substantially
from the economic conditions in the assumptions used in making the initial
determinations.

The Bank's methodology for establishing the allowance for loan
losses takes into consideration probable losses that have been identified
in connection with specific assets as well as losses that have not been
identified but can be expected to occur. Management conducts regular
reviews of the Bank's assets and

- 40 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
evaluates the need to establish allowances on the basis of this review.
Assets reviewed include nonaccrual loans, accruing loans 90 days or more
delinquent, loans modified in troubled debt restructurings and real estate
owned, as well as any additional classified loans or loans not failing
within any of the above categories but where known information about
possible credit problems of borrowers causes management to have serious
concerns as to the ability of the borrowers to comply with loan repayment
terms and may result in disclosure of the loans as nonaccrual, 90 days past
due or restructured. Allowances are established by the Board of Directors
on a quarterly basis based on an assessment of risk in the Bank's assets
taking into consideration the composition and quality of the portfolio,
delinquency trends, current charge-off and loss experience, loan
concentrations, the state of the real estate market, regulatory reviews
conducted in the regulatory examination process and economic conditions
generally. Additional provisions for losses on loans are made in order to
bring the allowance to a level deemed adequate. Specific reserves will be
provided for individual assets, or portions of assets, when ultimate
collection is considered improbable by management based on the current
payment status of the assets and the fair value of the security. At the
date of foreclosure or other repossession or at the date the Bank
determines a property is an "in-substance foreclosed" property, the Bank
would transfer the property to real estate acquired in settlement of loans
at the lower of cost or fair value less estimated selling costs. Any
portion of the outstanding loan balance in excess of fair value less
estimated selling costs would be charged off against the allowance for loan
losses. If, upon ultimate disposition of the property, net sales proceeds
exceed the net carrying value of the property, a gain on sale of real
estate would be recorded.

OCC policy requires maintenance of an adequate allowance for loan
and lease losses and an effective loan review system. This policy includes
an arithmetic formula for checking the reasonableness of an institution's
allowance for loan loss estimate compared to the average loss experience of
the industry as a whole. Examiners will review an institution's allowance
for loan losses and compare it against the sum of the following: (i) up to
60% of the portfolio that is classified doubtful; (ii) up to 25% of the
portfolio that is classified as substandard; and (iii) for the portions of
the portfolio that have not been classified (including those loans
designated as special mention), estimated credit losses over the upcoming
12 months given the facts and circumstances as of the evaluation date.
This amount is considered neither a "floor" nor a "safe harbor" of the
level of allowance for loan losses an institution should maintain, but
examiners will view a shortfall relative to the amount as an indication
that they should review management's policy on allocating these allowances
to determine whether it is reasonable based on all relevant factors.

The following table sets forth an analysis of the Bank's allowance
for loan losses for the periods indicated. There were $141,000 of loans
charged off during 1998.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1998 1997
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period $ 400 $ 300
Charge-offs (141) (60)
Recoveries 7 4
Provision for loan losses 106 156
----- -----
Balance at end of period $ 372 $ 400
===== =====
Ratio of net charge-offs to average
loans outstanding during the period 0.32% 0.12%
</TABLE>

- 41 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

The following table allocates the allowance for loan losses by loan
category at the dates indicated. The allocation of the allowance to each
category is not necessarily indicative of future losses and does not
restrict the use of the allowance to absorb losses in any category.

<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------
1998 1997
-------------------- --------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ----------- ------ -----------
(DOLLARS
IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate - mortgage:
One- to four-family residential $286 77.00% $318 79.62%
Multi-family residential 10 2.78 12 3.04
Construction 7 1.77 3 0.81
Church 17 4.52 15 3.68
Commercial 32 8.57 27 6.66
Consumer 20 5.36 25 6.19
---- ------ ---- ------
Total allowance for loan losses $372 100.00% $400 100.00%
==== ====== ==== ======
</TABLE>

INVESTMENT ACTIVITIES

The Bank is permitted under federal law to make certain investments,
including investments in securities issued by various federal agencies and
state and municipal governments, deposits at the FHLB of Chicago, mortgage-
backed and related securities, certificates of deposits in federally
insured institutions, certain bankers' acceptances and federal funds. It
also may invest, subject to certain limitations, in commercial paper having
one of the two highest investment ratings of a nationally recognized credit
rating agency, and certain other types of corporate debt securities and
mutual funds. Federal regulations require the Bank to maintain an
investment in FHLB and Federal Reserve stock and a minimum amount of liquid
assets which may be invested in cash and specified securities.

The investment policy of the Company and the Bank currently allows
for investment in various types of mortgage-backed and related securities,
liquid assets, including United States Government and Agency securities,
time deposits at the FHLB of Chicago, certificates of deposit or bankers'
acceptances at other federally insured depository institutions subject to
certain limitations, and obligations of states and political subdivisions.
Generally, the objectives of the Bank's investment policy are to (i)
maximize returns, (ii) provide and maintain liquidity within the guidelines
of OCC regulations, (iii) maintain a balance of high-quality, diversified
investments to minimize risk, (iv) provide collateral for pledging
requirements, (v) serve as a counter-cyclical balance to the loan
portfolio, (vi) manage interest rate risk, and (vii) insure compliance with
all regulatory requirements. In accordance with the investment policy, at
December 31, 1998, the Company and the Bank had investments in U.S.
Government and agency notes, obligations of state and political
subdivisions, interest-earning deposits and certificates of deposit and
FHLB of Chicago stock and Federal Reserve stock.

Mortgage-Backed and Related Securities. Mortgage-backed securities
represent a participation interest in a pool of single-family or multi-
family mortgages, the principal and interest payments on which are passed
from the mortgage originators through intermediaries that pool and
repackage the participation interest in the form of securities to investors
such as the Bank. Such intermediaries may include quasi-governmental
agencies such as GNMA, which are guaranteed as the payment of principal and
interest by the U.S. Government, and FHLMC and FNMA, which are guaranteed
by those agencies only. Mortgage-backed securities generally increase the
quality of the Bank's assets by virtue of the guarantees that back them,
are more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of the Bank.

- 42 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Mortgage-backed securities typically are issued with stated
principal amounts and the securities are backed by pools of mortgages that
have loans with interest rates that are within a range and have similar
maturities. The underlying pool of mortgages can be composed of either
fixed-rate or adjustable-rate mortgage loans. Mortgage-backed securities
generally are referred to as mortgage participation certificates or pass-
through certificates. As a result, the interest rate risk characteristics
of the underlying pool of mortgages, i.e., fixed-rate or adjustable-rate,
as well as prepayment risk, are passed on to the certificate holder. The
life of a mortgage-backed pass-through security is equal to the life of the
underlying mortgages.

The actual maturity of a mortgage-backed security varies, depending
on when the mortgagors prepay or repay the underlying mortgages.
Prepayments of the underlying mortgages may shorten the life of the
investment, thereby adversely affecting its yield to maturity and the
related market value of the mortgage-backed security. The yield is based
upon the interest income and the amortization of the premium or accretion
of the discount related to the mortgage-backed security. Premiums and
discounts on mortgage-backed securities are amortized or accredited over
the estimated term of the securities using a level yield method. The
prepayment assumptions used to determine the amortization period for
premiums and discounts can significantly affect the yield of the mortgage-
backed security, and these assumptions are reviewed periodically to reflect
the actual prepayment. The actual prepayments of the underlying mortgages
depend on many factors, including the type of mortgage, the coupon rate,
the age of the mortgages, the geographical location of the underlying real
estate collateralizing the mortgages and general levels of market interest
rates. The difference between the interest rates on the underlying
mortgages and the prevailing mortgage interest rates is an important
determinant in the rate of prepayments. During periods of falling mortgage
interest rates, prepayments generally increase, and, conversely, during
periods of rising mortgage interest rates, prepayments generally decrease.
If the coupon rate of the underlying mortgage significantly exceeds the
prevailing market interest rates offered for mortgage loans, refinancing
generally increases and accelerates the prepayment of the underlying
mortgages. Prepayment experience is more difficult to estimate for
adjustable-rate mortgage-backed securities.

Mortgage-related securities are typically issued by a special
purpose entity, which may be organized in a variety of legal forms, such as
a trust, a corporation or a partnership. The entity aggregates pools of
pass-through securities, which are used to collateralize the mortgage-
related securities. Once combined, the cash flows can be divided into
"tranches" or "classes" of individual securities, thereby creating more
predictable average lives for each security than the underlying pass-
through pools. Accordingly, under this security structure, all principal
paydowns from the various mortgage pools are allocated to a mortgage-
related securities' class or classes structured to have priority until it
has been paid off. These securities generally have fixed interest rates,
and, as a result, changes in interest rates generally would affect the
market value and possibly the prepayment rates of such securities.

Some mortgage-related securities instruments are like traditional
debt instruments due to their stated principal amounts and traditionally
defined interest rate terms. Purchasers of certain other mortgage-related
securities instruments are entitled to the excess, if any, of the issuer's
cash flows. These mortgage-related securities instruments may include
instruments designated as residual interest and are riskier in that they
could result in the loss of a portion of the original investment. Cash
flows from residual interests are very sensitive to prepayments and, thus,
contain a high degree of interest rate risk.

The Bank's mortgage-backed and related securities portfolio consists
primarily of seasoned fixed-rate and adjustable rate mortgage-backed and
related securities. The Bank makes such investments in order to manage
cash flow, diversify assets and obtain yield.

- 43 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

The following table sets forth the carrying value of the Company's
investments on a consolidated basis at the dates indicated.

<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Securities available for sale:<F1>
U.S. Government and agency and
municipal securities $ 1,145 $ 1,714
Collateral mortgage obligations -- --
Mortgage-backed securities 661 1,249

Securities held to maturity:
U.S. government and agency and
municipal securities 5,287 5,627
Mortgage-backed securities 4,251 5,737
------ ------
Total investment securities 11,344 14,327

Cash and cash equivalents 10,220 3,319
Certificates of deposit 1,379 95
FHLB and FRB stock 539 577
------- -------
Total investments $23,482 $18,318
======= =======

<FN>
- -----------
(1) The carrying value of securities available for sale is the market
value.
</TABLE>

- 44 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

The following table sets forth information in the scheduled
maturities, amortized cost, market values and average yields for the
Company's investment and mortgage-backed securities portfolio at December
31, 1998.

<TABLE>
<CAPTION>
ONE YEAR OR LESS ONE TO FIVE YEARS FIVE TO TEN YEARS
-------------------- -------------------- ---------------------
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale:
U.S. government, agency and
municipal securities $ 252 6.34% $ 893 6.14% $ -- --%
Mortgage-backed securities 532 6.87 129 6.91 -- --

Securities held to maturity:
U.S. government, agency and
municipal securities 3,704 5.45 1,358 6.17 225 5.38
Mortgage-backed securities -- -- 2,649 6.01 548 6.94
------ ------ ----

Total $4,488 5.67 $5,029% 6.10 $773 6.48
====== ====== ====

<CAPTION>
MORE THAN TEN YEARS TOTAL INVESTMENT PORTFOLIO
-------------------- ---------------------------------
CARRYING AVERAGE CARRYING MARKET AVERAGE
VALUE YIELD VALUE VALUE YIELD
----------------------------------------------------------
Securities available for sale:
U.S. government, agency and
municipal securities $ -- --% $ 1,145 $ 1,145 6.18%
Mortgage-backed securities -- -- 661 661 6.18

Securities held to maturity:
U.S. government, agency and
municipal securities -- -- 5,287 5,320 5.63
Mortgage-backed securities 1,054 7.45 4,251 4,285 6.49
------ ------- -------

Total $1,054 7.45 $11,344 $11,411 6.08%
====== ======= =======
</TABLE>

- 45 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS

General. Deposits are the primary source of the Bank's funds for
lending, investment activities and general operational purposes. In
addition to deposits, the Bank derives funds from loan principal and
interest repayments, maturities of investment securities and mortgage-
backed and related securities and interest payments thereon. Although loan
repayments are a relatively stable source of funds, deposit inflows and
outflows are significantly influenced by general interest rates and money
market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds, or on a longer term
basis for general operational purposes.

Deposits. The Bank attracts deposits principally from within its
market area by offering a variety of deposit instruments, including
checking accounts, NOW accounts, regular savings accounts, Individual
Retirement Accounts, and certificates of deposit which range in maturity
from 90 days to three years. Deposit terms vary according to the minimum
balance required, the length of time the funds must remain on deposit and
the interest rate. Maturities, terms, service fees and withdrawal penalties
for its deposit accounts are established by the Bank on a periodic basis.
The Bank reviews its deposit mix and pricing on a weekly basis. In
determining the characteristics of its deposit accounts, the Bank considers
the rates offered by competing institutions, funds acquisition and
liquidity requirements, growth goals and federal regulations. Management
believes it prices its deposits comparably to rates offered by its
competitors. The Bank does not accept brokered deposits.

The Bank competes for deposits with other institutions in its market
areas by offering deposit instruments that are competitively priced and by
providing customer service through convenient and attractive offices,
knowledgeable and efficient staff and hours of service that meet customers'
needs. Substantially all of the Bank's depositors are Illinois residents.

Savings deposits in the Company on a consolidated basis at December
31, 1998 were represented by the various types of savings programs
described below.

<TABLE>
<CAPTION>
INTEREST MINIMUM MINIMUM BALANCES PERCENTAGE OF
RATE TERM CATEGORY AMOUNT IN THOUSANDS TOTAL SAVINGS
-------- ------- -------- ------- ------------ -------------
<C> <C> <C> <C> <C> <C>
N/A% None Non-interest bearing accounts N/A $ 1,042 2.03%
3.84-4.23 None Passbook accounts $ 10.00 7,222 14.04
2.83-3.33 None NOW accounts 50.00 7,669 14.92
4.08 12 Month Christmas Club 5.00 10 .02

Certificates of Deposit

4.30-4.32 91 days Fixed-term, fixed-rate 2,500 441 .86
4.74-4.82 6 month Fixed-term, fixed-rate 2,500 3,708 7.21
5.30-5.37 12 month Fixed-term, fixed-rate 500 7,413 14.42
5.73-5.77 18 month Fixed-term, fixed-rate 500 5,822 11.32
5.86-5.91 30 month Fixed-term, fixed-rate 500 6,364 12.38
5.60-5.98 36 month Fixed-term, fixed-rate 500 863 1.68
5.95-6.05 48 month Fixed-term, fixed-rate 500 402 .78
5.43-5.79 60 month Fixed-term, fixed-rate 500 614 1.19
6.04-6.26 72 month Fixed-term, fixed-rate 500 1,095 2.13
6.49-6.85 96 month Fixed-term, fixed-rate 500 1,393 2.71
5.80-5.93 IRAs Fixed-term, fixed-rate 100 3,292 6.40
4.29-5.97 Variable Fixed-term, fixed-rate 100,000 4,007 7.79
5.98 36 month<F1> Fixed-term, adjustable-rate 5,000 60 .12
------- ------
$51,417 100.00%
======= ======
<FN>
- -----------
<F1> Customer has option at any time during term of certificate to request
a one-time increase to the then-prevailing 36 month certificate of
deposit rate.

- 46 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

The following table sets forth the change in dollar amount of
deposits in the various types of accounts offered by the Company between
the dates indicated.

</TABLE>
<TABLE>
<CAPTION>
INCREASE
BALANCE AT (DECREASE) FROM BALANCE AT
DECEMBER 31, % OF DECEMBER 31, DECEMBER 31, % OF
1998 DEPOSITS 1997 1997 DEPOSITS
------------ -------- --------------- ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-interest bearing accounts $ 1,042 2.03% $ 375 $ 667 1.23%
Passbook and regular savings 7,222 14.04 167 7,055 13.06
NOW 7,669 14.91 (1,199) 8,868 16.42
Christmas club 10 .02 2 8 0.01
Certificates of deposit 32,077 62.39 (1,899) 33,976 62.90
IRA 3,397 6.61 (51) 3,448 6.38
------- ------ ------- ------- ------

Total $51,417 100.00% $(2,605) $54,022 100.00%
======= ====== ======= ======= ======
</TABLE>

The following table sets forth the average month-end balances and
interest rates for interest-bearing demand deposits and time deposits for
the periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997
---------------------- -------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Savings deposits $ 7,105 3.92% $ 6,934 3.96%
Interest-bearing demand deposits 8,062 2.86 9,059 2.83
Certificates of deposits 36,135 5.69 36,295 5.68
------- -------
Total $51,302 $52,288
======= =======
</TABLE>

The following table indicates the amount of the Bank's certificates
of deposit of $100,000 or more by time remaining until maturity as of
December 31, 1998 and at such date represented 7.79% of total deposits and
had a weighted average rate of 5.90%. The Bank's certificates of deposit
in excess of $100,000 primarily consist of deposits from individual retail
customers. To the extent the Bank is unable to replace maturing deposits,
it may sell investment securities classified as available for sale.

<TABLE>
<CAPTION>
CERTIFICATES
MATURITY PERIOD OF DEPOSITS
- --------------- ------------
(IN THOUSANDS)
<S> <C>
Three months or less $ 755
Over three months through six months 868
Over six months through 12 months 486
Over 12 month 1,898
------
Total $4,007
======
</TABLE>

Borrowings. Savings deposits historically have been the primary
source of funds for the Bank's lending, investments and general operating
activities. The Bank is authorized, however, to use advances from the FHLB
of Chicago to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The FHLB of Chicago functions as a central reserve
bank providing credit for savings institutions and certain other member
financial institutions. As a member of the FHLB System, the Bank is
required to own stock in the FHLB of Chicago and is authorized to apply for
advances. Advances are made pursuant to several different

- 47 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

programs, each of which has its own interest rate and range of maturities.
There were no FHLB advances outstanding at December 31, 1998.

The following table sets forth certain information regarding short-
term borrowings by the Bank at the dates and for the periods indicated.

<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1998 1997
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Amounts outstanding at end of period:
FHLB advances $ -- $ 750

Rate paid on:
FHLB advances --% 5.86%

Maximum amount of borrowings outstanding
at end of any month end:
FHLB advances $ 750 $1,750

Approximate average short-term borrowings
outstanding with respect to:
FHLB advances 45 1,375

Rate paid on:
FHLB advances 5.86% 5.69%

<FN>
-----
<F1> Based on month-end balances.
</TABLE>

SUBSIDIARY ACTIVITIES

The Bank has one subsidiary service corporation, Herrin First
Service Corporation. Herrin First Service Corporation was formed in 1971
by the Bank for the purpose of developing a residential subdivision located
in Herrin. Such development was completed and all lots were subsequently
sold. No further development activities have been undertaken or are
planned, and the subsidiary is inactive. Its assets consist of various
liquid assets totaling $243,000.

PERFORMANCE RATIOS

The table below sets forth certain performance ratios of the Company
at or for the years indicated.

<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
PERFORMANCE RATIOS:
Return on assets (net income divided by average
total assets) -.21% 0.24%
Return on average shareholders' equity (net income
divided by average shareholders' equity) -1.14 1.33
Interest rate spread (combined weighted average
interest rate earned less combined weighted
average interest rate cost) 2.34 2.41
Ratio of average interest-earning assets to average
interest-bearing liabilities 118.60 119.63
Ratio of noninterest expense to average total assets 3.43 2.84
</TABLE>

- 48 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

COMPETITION

The Bank faces strong competition both in originating real estate,
agriculture, automobile, consumer and other loans and in attracting
deposits. The Bank competes for real estate and other loans principally
on the basis of interest rates, the types of loans it originates and the
quality of services it provides to borrowers. Its competition in
originating real estate loans comes primarily from other savings
institutions, commercial banks and mortgage bankers making loans secured by
real estate located in the Bank's market area. Commercial banks, credit
unions and finance companies provide vigorous competition in consumer
lending. Competition may increase as a result of the continuing reduction
of restrictions on the interstate operations of financial institutions.

EMPLOYEES

As of December 31, 1998, the Bank had 22 full-time employees and
2 part-time employees, none of whom was represented by a collective
bargaining agreement, and management considers the Bank's relationships
with its employees to be good.

PROPERTIES

The following table sets forth the location and certain additional
information regarding the Bank's offices at December 31, 1998.

<TABLE>
<CAPTION>
BOOK VALUE AT DEPOSITS AT
YEAR OWNED OR DECEMBER 31, APPROXIMATE DECEMBER 31,
OPENED LEASED 1998 SQUARE FOOTAGE 1998
------ ------ ---- -------------- ----
MAIN OFFICE: (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
318 South Park Avenue
Herrin, Illinois 62948 1949 Owned $362 4,678 $45,173

BRANCH OFFICE:

New Route 13 East
Carterville, Illinois 62918 1975 Owned 124 1,895 6,244
</TABLE>

- 49 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
SUPERVISION AND REGULATION

GENERAL

As a bank holding company, the Company is subject to regulation
under the BHCA and its examination and reporting requirements. Under the
BHCA, a bank holding company may not directly or indirectly acquire the
ownership or control of more than 5% of the voting shares or substantially
all of the assets of any company, including a bank or savings and loan
association, without the prior approval of the Federal Reserve. In
addition, bank holding companies are generally prohibited under the BHCA
from engaging in nonbanking activities, subject to certain exceptions.

The Company and the Bank are subject to supervision and examination
by applicable federal banking agencies. The earnings of the Bank, and
therefore, the earnings of the Company, are affected by general economic
conditions, management policies and the legislative and governmental
actions of various regulatory authorities, including the Federal Reserve,
the FDIC and the OCC. In addition, there are numerous governmental
requirements and regulations that affect the activities of the Company and
the Bank.

CERTAIN TRANSACTIONS WITH AFFILIATES

There are various legal restrictions on the extent to which a bank
holding company and certain of its nonbank subsidiaries can borrow or
otherwise obtain credit from its bank subsidiaries. In general, these
restrictions require that any such extensions of credit must be on non-
preferential terms and secured by designated amounts of specified
collateral and be limited, as to the holding company or any one of such
nonbank subsidiaries, to 10% of the lending institution's capital stock and
surplus and, as to the holding company and all such nonbank subsidiaries in
the aggregate, to 20% of such capital stock and surplus.

PAYMENT OF DIVIDENDS

The Company is a legal entity separate and distinct from the Bank.
The principal source of the Company's revenues is dividends from the Bank.
Various federal statutory provisions limit the amount of dividends the Bank
can pay to the Company without regulatory approval. The approval of
federal regulatory agencies is required for any dividend if the total of
all dividends declared in any calendar year would exceed the total of the
institution's net profits, as defined by regulatory agencies, for such year
combined with its retained net profits for the preceding two years. In
addition, a national bank may not pay a dividend in an amount greater than
its net profits then on hand. The payment of dividends by the Bank also
may be affected by other factors, such as the maintenance of adequate
capital.

CAPITAL ADEQUACY

The Federal Reserve has issued standards for measuring capital
adequacy for bank holding companies. These standards are designed to
provide risk-responsive capital guidelines and to incorporate a consistent
framework for use by financial institutions operating in major
international financial markets. The banking regulators have issued
standards for banks that are similar to, but not identical with, the
standards for bank holding companies.

In general, the risk-related standards require financial
institutions and financial institution holding companies to maintain
certain capital levels based on "risk-adjusted" assets, so that categories
of assets with potentially higher credit risk will require more capital
backing than categories with lower credit risk. In addition, banks and
bank holding companies are required to maintain capital to support off
balance sheet activities such as loan commitments. The Company and the
Bank exceed all applicable capital adequacy standards.

- 50 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

SUPPORT OF THE BANK

Under Federal Reserve policy, the Company is expected to act as a
source of financial strength to the Bank and to commit resources to support
the Bank in circumstances where it might not choose to do so absent such a
policy. This support may be required at times when the Company may not
find itself able to provide it. In addition, any capital loans by the
Company to the Bank also would be subordinate in right of payment to
deposits and certain other indebtedness of such subsidiary.

Consistent with this policy regarding bank holding companies serving
as a source of financial strength for their subsidiary banks, the Federal
Reserve has stated that, as a matter of prudent banking, a bank holding
company generally should not maintain a rate of cash dividends unless its
net income available to common shareholders has been sufficient to fully
fund the dividends, and the prospective rate of earnings retention appears
consistent with the bank holding company's capital needs, asset quality and
overall financial condition.

FIRREA AND FDICIA

The Financial Institutions Reform, Recovery and Enforcement Act of
1989, as amended ("FIRREA"), contains a cross-guarantee provision that
could result in insured depository institutions owned by the Company being
assessed for losses incurred by the FDIC in connection with assistance
provided to, or the failure of, any other insured depository institution
owned by the Company. Under FIRREA, failure to meet the capital guidelines
could subject a banking institution to a variety of enforcement remedies
available to federal regulatory authorities, including the termination of
deposit insurance by the FDIC.

The Federal Deposit Insurance Corporation Improvement Act of 1991,
as amended ("FDICIA"), made extensive changes to the federal banking laws.
FDICIA instituted certain changes to the supervisory process, including
provisions that mandate certain regulatory agency actions against
undercapitalized institutions within specified time limits. FDICIA
contains various other provisions that may affect the operations of banks
and savings institutions.

The prompt corrective action provision of FDICIA requires the
federal banking regulators to assign each insured institution to one of
five capital categories ("well capitalized," "adequately capitalized" or
one of three "undercapitalized" categories) and to take progressively more
restrictive actions based on the capital categorization, as specified
below. Under FDICIA, capital requirements include a leverage limit, a
risk-based capital requirement and any other measure of capital deemed
appropriate by the federal banking regulators for measuring the capital
adequacy of an insured depository institution. All institutions,
regardless of their capital levels, are restricted from making any capital
distribution or paying any management fees that would cause the institution
to fail to satisfy the minimum levels for any relevant capital measure.

The FDIC and the Federal Reserve adopted capital-related regulations
under FDICIA. Under those regulations, a bank will be well capitalized if
it: (i) had a risk-based capital ratio of 10% or greater; (ii) had a ratio
of Tier I capital to risk-adjusted assets of 6% or greater; (iii) had a
ratio of Tier I capital to adjusted total assets of 5% or greater; and (iv)
was not subject to an order, written agreement, capital directive or prompt
corrective action directive to meet and maintain a specific capital level
for any capital measure. An association will be adequately capitalized if
it was not "well capitalized" and: (i) had a risk-based capital ratio of 8%
or greater; (ii) had a ratio of Tier I capital to risk-adjusted assets of
4% or greater; and (iii) had a ratio of Tier I capital to adjusted total
assets of 4% or greater (except that certain associations rated "Composite
1" under the federal banking agencies' CAMEL rating system may be
adequately capitalized if their ratios of core capital to adjusted total
assets were 3% or greater). The Bank was "well capitalized" as of December
31, 1998.

- 51 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Banking agencies have recently adopted final regulations that
mandate that regulators take into consideration concentrations of credit
risk and risks from non-traditional activities, as well as an institution's
ability to manage those risks, when determining the adequacy of an
institution's capital. This evaluation will be made as part of the
institution's regular safety and soundness examination. Banking agencies
also have recently adopted final regulations requiring regulators to
consider interest rate risk (when the interest rate sensitivity of an
institution's assets does not match the sensitivity of its liabilities or
its off-balance-sheet position) in the evaluation of a bank's capital
adequacy. Concurrently, banking agencies have proposed a methodology for
evaluating interest rate risk. After gaining experience with the proposed
measurement process, these banking agencies intend to propose further
regulations to establish an explicit risk-based capital charge for interest
rate risk.

DEPOSITOR PREFERENCE STATUTE

Legislation enacted in August 1993 provides a preference for
deposits and certain claims for administrative expenses and employee
compensation against an insured depository institution in the liquidation
or other resolution of such an institution by any receiver. Such
obligations would be afforded priority over other general unsecured claims
against such an institution, including federal funds and letters of credit,
as well as any obligation to shareholders of such an institution in their
capacity as such.

FDIC INSURANCE ASSESSMENTS

The Bank is subject to FDIC deposit insurance assessments. The FDIC
has adopted a risk-based premium schedule. Each financial institution is
assigned to one of three capital groups well-capitalized, adequately
capitalized or undercapitalized and further assigned to one of three
subgroups within a capital group, on the basis of supervisory evaluations
by the institution's primary federal and, if applicable, state supervisors,
and on the basis of other information relevant to the institution's
financial condition and the risk posed to the applicable insurance fund.
The actual assessment rate applicable to a particular institution will,
therefore, depend in part upon the risk assessment classification so
assigned to the institution by the FDIC. See "-- FIRREA and FDICIA."

INTERSTATE BANKING AND OTHER RECENT LEGISLATION

The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 ("Riegle-Neal"), enacted in 1994, facilitates the interstate expansion
and consolidation of banking organizations by permitting (i) bank holding
companies that are adequately capitalized and managed to acquire banks
located in states outside their home states regardless of whether such
acquisitions are authorized under the law of the host state, (ii) the
interstate merger of banks, except for banks located in Montana and Texas,
which states enacted legislation to "opt out" of this authority, (iii)
banks to establish new branches on an interstate basis provided that such
action is specifically authorized by the law of the host state,
(iv) foreign banks to establish, with approval of the regulators in the
United States, branches outside their home states to the same extent that
national or state banks located in the home state would be authorized to do
so and (v) banks to receive deposits, renew time deposits, close loans,
service loans and receive payments on loans and other obligations as agent
for any bank or thrift affiliate, whether the affiliate is located in the
same state or a different state.

There also have been a number of recent legislative and regulatory
proposals designed to strengthen the federal deposit insurance system and
to improve the overall financial stability of the United States banking
system and to provide for other changes in the bank regulatory structure,
including proposals to reduce regulatory burdens on banking organizations
and to expand the nature of products and services banks and bank holding
companies may offer. It is not possible to predict whether or in what form
these proposals may be adopted in the future and, if adopted, what their
effect will be on the Company.

- 52 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

GENERAL

The Company completed its initial public offering on June 28, 1996
in connection with the Conversion. A total of 876,875 shares of Common
Stock were sold which resulted in net proceeds of $7.4 million. The Company
acquired all of the capital stock of the Association (now, the Bank) in
exchange for a portion of the net proceeds.

The Bank's net income is dependent primarily on its net interest
income, which is the difference between interest income earned on its loan
and mortgage-backed and related securities portfolio and interest paid on
interest-bearing liabilities. Net interest income is determined by (i) the
difference between yields earned on interest-earning assets and rates paid
on interest-bearing liabilities ("interest rate spread") and (ii) the
relative amounts of interest-earning assets and interest-bearing
liabilities. The Bank's interest rate spread is affected by regulatory,
economic and competitive factors that influence interest rates, loan demand
and deposit flows. To a lesser extent, the Bank's net income also is
affected by the level of non-interest income, including fees and service
charges, and by the level of its operating expenses and provision for loan
losses.

The operations of the Bank are significantly affected by prevailing
economic conditions, competition and the monetary, fiscal and regulatory
policies of governmental agencies. Lending activities are influenced by the
demand for and supply of housing, competition among lenders, the level of
interest rates and the availability of funds. Deposit flows and costs of
funds are influenced by prevailing market rates of interest, primarily on
competing investments, account maturities and the levels of personal income
and savings in the Bank's market area.

ASSET/LIABILITY MANAGEMENT

The Bank has sought to reduce its exposure to changes in interest
rates by matching more closely the effective maturities or repricing
characteristics of its interest-earning assets and interest-bearing
liabilities. The matching of the Bank's assets and liabilities may be
analyzed by examining the extent to which its assets and liabilities are
interest rate sensitive.

The Company's Board of Directors reviews the maturities of the
Company's assets and liabilities and establishes policies and strategies
designed to regulate the Company's flow of funds and to coordinate the
sources, uses and pricing of such funds. The first priority in structuring
and pricing the Company's and the Bank's assets and liabilities is to
maintain an acceptable interest rate spread while reducing the net effects
of changes in interest rates.

The Bank has employed various strategies intended to minimize the
adverse effect of interest rate risk on future operations by providing a
better match between the interest rate sensitivity between its assets and
liabilities. In particular, the Bank's strategies are intended to stabilize
net interest income for the long term by protecting its interest rate
spread from increases in interest rates. Such strategies include the
origination in the loan portfolio of adjustable-rate mortgage loans secured
by one- to four-family residential real estate, and, to a lesser extent,
multi-family and commercial real estate loans and the origination of other
loans with greater interest rate sensitivities than long-term, fixed-rate,
residential mortgage loans. For the years ended December 31, 1998 and 1997,
approximately 89.29% and 40.93%, respectively, of the one- to four-family
residential loans originated by the Bank had adjustable rates. The Bank's
origination of multi-family, church and commercial real estate loans
comprised 7.78% and 17.66% of total loan originations during the same
respective periods.

- 53 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

In order to increase the interest rate sensitivity of its assets,
the Company also has maintained a consistent level of short and
intermediate term investment securities and other assets. At December 31,
1998, the Bank had $15.7 million of investment securities and interest-
bearing deposits maturing or repricing within one year and $5.2 million of
investment securities, mortgage-backed securities and interest-bearing
deposits maturing or repricing within one to five years.

INTEREST RATE SENSITIVITY ANALYSIS

The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate sensitivity
"gap." An asset or liability is said to be interest rate sensitive within a
specific period if it will mature or reprice within that period. The
interest rate sensitivity gap is defined as the difference between the
amount of interest-earning assets maturing or repricing within a specific
time period and the amount of interest-bearing liabilities maturing or
repricing within that time period. A gap is considered positive when the
amount of interest rate sensitive assets exceeds the amount of interest
rate sensitive liabilities, and is considered negative when the amount of
interest rate sensitive liabilities exceeds the amount of interest rate
sensitive assets. At December 31, 1998, the Bank had a cumulative positive
one-year interest rate sensitivity gap of 21.94%, as a result of which its
net interest income could be slightly positively affected by rising
interest rates and slightly negatively affected by falling interest rates.
Generally, during a period of rising interest rates, a negative gap would
adversely affect net interest income while a positive gap would result in
an increase in net interest income, while conversely during a period of
falling interest rates, a negative gap would result in an increase in net
interest income and a positive gap would adversely affect net interest
income.

The following table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at December 31, 1998
which are expected to mature or reprice in each of the time periods shown.
This table reflects the Bank's assets only and does not reflect the
Company's consolidated balances.

<TABLE>
<CAPTION>
OVER ONE OVER FIVE OVER TEN OVER
ONE YEAR THROUGH THROUGH THROUGH TWENTY
OR LESS FIVE YEARS TEN YEARS TWENTY YEARS YEARS TOTAL
------- ---------- --------- ------------ ----- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Single-family mortgage loans $17,662 $ 8,549 $ 1,980 $ 284 $ -- $28,475
Investment securities 3,704 1,357 225 -- -- 5,286
Mortgage-backed securities 2,475 1,975 239 83 11 4,783
Other short-term investments 11,731 198 -- -- -- 11,929
Other loans 4,057 2,975 1,122 351 -- 8,505
------- ------- ------- ------ ------ -------
Total 39,629 15,054 3,566 718 11 58,978
------- ------- ------- ------ ------ -------

Interest-bearing liabilities:
NOW accounts 1,869 3,931 1,388 408 24 7,620
Passbook/Christmas club 1,832 3,758 1,326 389 23 7,328
Time deposits 22,339 12,642 193 300 -- 35,474
Total 26,040 20,331 2,907 1,097 47 50,422
------- ------- ------- ------ ------ -------

Interest sensitivity gap $13,589 $(5,277) $ 659 $ (379) $ (36) $ 8,556
======= ======= ======= ====== ====== =======
Cumulative interest sensitivity gap $13,589 $ 8,312 $ 8,971 $8,592 $8,556 $ 8,556
======= ======= ======= ====== ====== =======
Ratio of interest-earning assets
to interest-bearing liabilities 152.19% 74.04% 122.67% 65.45% 23.40% 116.97%
======= ======= ======= ====== ====== =======
Ratio of cumulative gap to
total assets 21.94% 13.42% 14.49% 13.87% 13.82% 13.82%
======= ======= ======= ====== ====== =======
</TABLE>

The preceding table was prepared utilizing certain assumptions
regarding prepayment and decay rates provided by a private data processing
and consulting firm. While management believes that these assumptions are
reasonable, the actual interest rate sensitivity of the Bank's assets and
liabilities could vary significantly from the information set forth in the
table due to market and other factors. The following assumptions were

- 54 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

used: (i) adjustable rate mortgage-backed securities will prepay at the
rate of 41.1% per year for six month securities and 45.0% for one-year
securities; (ii) fixed rate mortgage-backed securities will prepay annually
at the rate of 11.2%; (iii) adjustable rate first mortgage loans on single-
family residential properties will prepay at the rate of 31.1% per year for
one-year loans and 45.0% for three-year loans; (iv) nonresidential mortgage
loans will prepay at the rate of 11.2% per year for fixed rate and 18.0%
per year for adjustable rate; (v) home equity loans will prepay at the rate
of 11.2% per year; (vi) consumer loans will prepay at the rate of 16.0% per
year; and (vii) fixed rate mortgage loans on single-family residential
properties will prepay annually as follows:

<TABLE>
<CAPTION>
COUPON RATE ANNUAL PREPAYMENT-RATE
<S> <C>
7.01 to 8.00% 21.4%
8.01 to 9.00% 26.2
9.01 to 10.00% 24.1
10.01 to 12.00% 25.7
</TABLE>

In addition, it is assumed that fixed maturity deposits are not
withdrawn prior to maturity and that other deposits are withdrawn or
repriced at an annual rate of 25%.

The interest rate sensitivity of the Bank's assets and liabilities
illustrated in the table above could vary substantially if different
assumptions were used or actual experience differs from the assumptions
used. If passbook and NOW accounts were assumed to mature in one year or
less (which does not reflect actual experience), the Bank's one-year gap
would have been substantially negative.

Certain shortcomings are inherent in the method of analysis
presented in the preceding table setting forth the maturing and repricing
of interest-earning assets and interest-bearing liabilities. For example,
although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in
market interest rates. The interest rates on certain types of assets and
liabilities may fluctuate in advance of change in market interest rates,
while interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as adjustable rate loans, have features
which restrict changes in interest rates on a short-term basis and over the
life of the assets. In addition, the proportion of adjustable rate loans
in the Bank's portfolio could decrease in future periods if market interest
rates remain at or decrease below current levels due to refinancing
activity. Further, in the event of a change in interest rates, prepayment
and early withdrawal levels would likely deviate significantly from those
assumed in the table. Finally, the ability of many borrowers to service
their adjustable rate debt may decrease in the event of an interest rate
increase.

AVERAGE BALANCE, INTEREST AND AVERAGE YIELDS AND RATES

The following table sets forth certain information relating to the
Company's average interest-earning assets and interest-bearing liabilities
and reflects the average yield on assets and average cost of liabilities
for the periods and at the date indicated. Such yields and costs are
derived by dividing income or expense by the average monthly balance of
assets or liabilities, respectively, for the periods presented. Average
balances are derived from month-end balances. Management does not believe
that the use of month-end balances instead of daily balances has caused any
material difference in the information presented. The table also presents
information for the periods and at the date indicated with respect to the
difference between the average yield earned on interest-earning assets and
average rate paid on interest-bearing liabilities, or "interest rate
spread," which savings institutions have traditionally used as an indicator
of profitability. Another indicator of an institution's net interest
income is its "net yield on interest-earning assets," which is its net
interest income divided by the average balance of interest-earning assets.
Net interest income is affected by the interest rate spread and by the
relative amounts of interest-earning assets and interest-bearing
liabilities. When interest-earning assets approximate or exceed interest-
bearing liabilities, any positive interest rate spread will generate net
interest income.

- 55 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997
----------------------------- --------------------------------
AVERAGE AVERAGE
YIELD/ YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------- -------- ------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $41,280 $3,355 8.13% $44,841 $3,526 7.86%
Investment securities 6,408 386 6.02 9,097 562 6.18
Mortgage-backed securities 5,865 371 6.33 8,257 539 6.53
Short-term investments and other
interest-earning assets 7,342 335 4.56 2,000 111 5.53
------- ------ ------- ------
Total interest-earning assets 60,895 4,447 7.30 64,195 4,738 7.38
------ ------
Noninterest-earning assets 3,518 2,683
------- -------
Total assets $64,413 $66,878
======= =======

Interest-bearing liabilities:
Deposits $51,302 $2,544 4.96 $52,288 $2,587 4.95
FHLB advances 45 3 6.46 1,375 78 5.69
------- ------ ------- ------
Total interest-bearing liabilities 51,347 2,547 4.96 53,663 2,665 4.97
------ ------

Noninterest-bearing liabilities 1,455 946
------- -------
Total liabilities 52,802 54,609

Shareholder's equity 11,611 12,269
------- -------
Total liabilities and
shareholder's equity $64,413 $66,878
======= =======

Net interest income $1,900 $2,073
====== ======
Interest rate spread 2.34% 2.41%
Net yield on interest-earning assets 3.12% 3.23%
Ratio of average interest-earning
assets to average interest-bearing
liabilities 118.60% 119.63%
====== ======
</TABLE>

RATE/VOLUME ANALYSIS

The table below sets forth certain information regarding changes in
interest income and interest expense of the Company for the periods
indicated. For each category of interest-earning asset and interest-bearing
liability, information is provided on changes attributable to: (i) changes
in volume (changes in volume multiplied by old rate); (ii) changes in rate
(change in rate multiplied by old volume) and (iii) changes in rate-volume
(changes in rate multiplied by the changes in volume).

- 56 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 VS. 1998
--------------------------------------
INCREASE (DECREASE)
DUE TO
--------------------------------------
RATE/
VOLUME RATE VOLUME TOTAL
------ ---- ------ -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income: $(282) $121 $(10) $(171)
Loans receivable (166) (14) 4 (176)
Investment securities (156) (17) 5 (168)
Mortgage-backed securities
Short-term investments and
other interest-earning assets 295 (19) (52) 224
----- ---- ---- -----
Total interest-earning assets (309) 71 (53) (291)
----- ---- ---- -----
Interest expense:
Deposits (49) 5 1 (43)
FHLB advances (76) 11 (10) (75)
----- ---- ---- -----
Total interest-bearing liabilities (125) 16 (9) (118)
----- ---- ---- -----

Change in net interest income $(184) $ 55 $(44) $(173)
===== ==== ==== =====
</TABLE>

COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND DECEMBER 31, 1997

The Company's total assets decreased by $4.1 million, or 6.13%, from
$67.5 million at December 31, 1997 to $63.3 million at December 31, 1998.
The decrease was due primarily to decreases of $9.9 million in loans
receivable and $3.0 million in investment and mortgage-backed securities.
These decreases were partially offset by an increase of $8.5 million in
cash, cash equivalents and certificates of deposit from December 31, 1997
to December 31, 1998.

The Company's loan portfolio decreased by $9.9 million, or 21.43%,
from $46.3 million at December 31, 1998 to $36.4 million at December 31,
1998. The decrease in loan activity during the period is attributed to the
level of repayments on existing loans exceeding new loan demand for the
year ended December 31, 1998.

The allowance for loan losses totaled $372,000 and $400,000 at
December 31, 1998 and 1997, respectively. The allowance for loan losses as
a percentage of non-performing loans was 75.46% and 64.62% as of December
31, 1998 and 1997, respectively. During 1998, net loan charge-offs
amounted to $134,000. An additional provision of $106,000 was made during
the year. The determination of the allowance for loan losses is based on
management's analysis, performed on a quarterly basis, of various factors,
including the market value of the underlying collateral, growth and
composition of the loan portfolio, the relationship of the allowance for
loan losses to outstanding loans, historical loss experience, delinquency
trends and prevailing economic conditions. Although management believes
its allowance for loan losses is adequate, there can be no assurance that
additional allowances will not be required or that losses on loans will not
be incurred.

At December 31, 1998, the ratio of non-performing loans to total
loans was 1.36%, as compared to 1.34% at December 31, 1997. The small
increase in the ratio was primarily due to the decrease in the total amount
of the loan portfolio. The effect on the ratio caused by this decrease was
largely offset by a decrease in the total amount of nonperforming loans at
December 31, 1998 as compared to December 31, 1997. At December 31, 1998,
the ratio of the allowance for loan losses to total loans was 1.02%, as
compared to 0.86% at December 31, 1997. The increase in this ratio was
again due to the decrease in the total amount of loans outstanding at
December 31, 1998 as compared to December 31, 1997.

- 57 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

At December 31, 1998, the Company's investment portfolio included
mortgage-backed and related securities classified as available-for-sale
carried at a market value of $661,000 and mortgage-backed and related
securities classified as held-to-maturity totaling $4.3 million. The
balance of the Company's investment portfolio at December 31, 1998
consisted of investment securities classified as available-for-sale
totaling $1.1 million and investment securities classified as held-to-
maturity totaling $5.3 million.

The Company's total portfolio of investment and mortgage-backed and
related securities totaled $11.3 million at December 31, 1998, a decrease
of $3.0 million from $14.3 million at December 31, 1997. This decrease was
due to maturities and sales of investment and mortgage-backed securities
totaling $3.4 million and principal payments received on mortgage-backed
securities totaling $2.3 million during 1998. This decrease was partially
offset by securities purchases of $2.7 million during 1998. During the
year ended December 31, 1998, the Company's portfolio of investment
securities and mortgage-backed and related securities classified as
available-for-sale increased capital by $12,000 (net of taxes) as a result
of an increase in the market value of such securities classified as
available-for-sale pursuant to Statement of Financial Accounting Standards
No. 115.

Total liabilities decreased by $3.3 million, or 5.94%, from $55.3
million at December 31, 1997 to $52.0 million at December 31, 1998. Total
deposits decreased by $2.6 million, or 4.82%, from $54.0 million at
December 31, 1997 to $51.4 million at December 31, 1998. The decrease in
total liabilities was primarily attributable to that decrease in deposits,
and to the $750,000 decrease in borrowings from the FHLB during 1998.
Management attributes the decrease in deposits to competition from other
local banks to attract deposit business. The decrease in deposits has
primarily affected the Bank's levels of one-year and five-year maturity
certificates of deposit.

Certificates of deposit at December 31, 1998 included approximately
$2.1 million of deposits with balances of $100,000 or more that mature
within one year. Such time deposits are inherently risky because their
continued presence in the Bank is usually dependent solely upon the rates
paid by the Bank rather than any customer relationship and, therefore, are
likely to be withdrawn upon maturity if another institution offers higher
interest rates. The Bank may be required to resort to other funding
sources such as borrowing or sales of its securities held available-for-
sale if the Bank believes that increasing its rates to maintain such
deposits would adversely affect its operating results. At this time, the
Bank does not believe that it will need to significantly increase its
deposit rates to maintain such certificates of deposit and, therefore, does
not anticipate resorting to alternative funding sources.

Historically, the Company has not made significant use of borrowings.
However, the Bank has obtained FHLB advances as needed for liquidity
purposes. At December 31, 1998, the Bank had no FHLB advances outstanding.

Total shareholders' equity at December 31, 1998 amounted to $11.3
million, a decrease of $850,000, or 7.00%, as compared to $12.1 million at
December 31, 1997. This decrease was primarily due to the $684,000
repurchase of Company stock performed by the Company during 1998, along
with dividends of $239,000 paid on Company stock and a net loss of $133,000
from operations. These decreases were offset by amortization of ESOP and
MRP expense of $194,000 and $12,000 in unrealized holding gains on
securities (net of tax). See "-- Liquidity and Capital Ratios" for a
discussion of the Bank's compliance with applicable regulatory capital
requirements.

COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
1997

Net Income. The Company incurred a net loss of $133,000 for the
year ended December 31, 1998, as compared to net income of $163,000 for the
year ended December 31, 1997. The decrease of $296,000, or 181.60%,
reflects a decrease of $173,000, or 8.35%, in net interest income. Also
contributing to the decrease in net income were an increase of $320,000, or
16.90%, in non-interest expense, and a decrease of $7,000, or

- 58 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

3.61%, in non-interest income. These changes were partially offset by a
$50,000 decrease in the provision for loan losses, and a decrease of
$154,000 in the provision for income taxes.

Net Interest Income. Net interest income decreased $173,000, or
8.35%, from $2.1 million for the year ended December 31, 1997 to $1.9
million for the year ended December 31, 1998. This decrease was primarily
due to the decrease in the ratio of average interest-earning assets to
average interest-bearing liabilities from 119.63% for the year ended
December 31, 1997 to 118.60% for the year ended December 31, 1998, while
the net yield on interest-earning assets decreased from 2.41% for the year
ended December 31, 1997 to 2.34% for the year ended December 31, 1998. The
decrease in the net yield on interest-earning assets resulted from a
decrease in interest yields on securities and short-term investments. The
average balance of interest-earning assets decreased from $64.2 million for
the year ended December 31, 1997 to $60.9 million for the year ended
December 31, 1998. The interest rate spread of the Company decreased by
seven basis points from 2.41% for the year ended December 31, 1997 to 2.34%
for the year ended December 31, 1998, as the one basis point decrease in
the average cost of interest-bearing liabilities was more than offset by
the eight basis point decrease in the average yield on interest-earning
assets.

Interest Income. Total interest income decreased by $291,000, or
6.14%, from $4.7 million for the year ended December 31, 1997 to $4.4
million for the year ended December 31, 1998. The decrease was due
primarily to a decrease of $3.3 million, or 5.14%, in average interest-
earning assets from $64.2 million for the year ended December 31, 1997 to
$60.9 million for the year ended December 31, 1998. The decrease in the
average interest-earning assets was primarily due to the decrease in the
average balance of loans receivable for the year ended December 31, 1998 as
compared to the year ended December 31, 1997. The decrease in interest
income also reflects an eight basis point decrease in the average yield on
interest-earning assets from 7.38% for the year ended December 31, 1997 to
7.30% for the year ended December 31, 1998.

Interest on loans decreased $171,000, or 4.85%, from $3.5 million
for the year ended December 31, 1997 to $3.4 million for the year ended
December 31, 1998. The decrease in interest on loans was due to a decrease
of $3.6 million, or 7.94%, in the average balance of loans from $44.8
million for the year ended December 31, 1997 to $41.3 million for the year
ended December 31, 1998. The decrease in loans reflects a decline in the
new loans being originated by the Bank compared with the level of
repayments on existing loans. The decline was primarily reflected in a
decrease in the outstanding balance of one- to four-family residential
loans in 1998 as compared with 1997.

Interest on investment securities decreased $176,000, or 31.32%,
from $562,000 for the year ended December 31, 1997 to $386,000 for the year
ended December 31, 1998. Such decrease was due to a decrease of $2.7
million, or 29.56%, in the average balance of investment securities from
$9.1 million for the year ended December 31, 1997 to $6.4 million for the
year ended December 31, 1998, coupled with a 16 basis point decrease in the
average yield on such securities during the same period. Interest on
mortgage-backed and related securities decreased $168,000, or 31.17%, from
$539,000 for the year ended December 31, 1997 to $371,000 for the year
ended December 31, 1998. This decrease was due to a decrease of $2.4
million, or 28.97%, in the average balance of mortgage-backed and related
securities from $8.3 million for the year ended December 31, 1997 to $5.9
million for the year ended December 31, 1998, along with a 20 basis point
decrease in the average yield on those securities during the same period.
Interest on short-term investments increased by $224,000, or 201.80%, from
$111,000 for the year ended December 31, 1997 to $335,000 for the year
ended December 31, 1998. Such increase was due to an increase of $5.3
million, or 267.10%, in the average balance of short-term investments and
other interest-earning assets from $2.0 million for the year ended December
31, 1997 to $7.3 million for the year ended December 31, 1998. This
increase was partially offset by a decrease of 97 basis points in the
average yield being earned on these securities for the year ended December
31, 1998 as compared to the year ended December 31, 1997. These changes
reflect proceeds from sales and maturities of securities and loan payments
being reinvested to a greater degree in interest-bearing cash and cash
equivalent accounts and other short-term investments.

- 59 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Interest Expense. Interest expense decreased by $118,000, or 4.43%,
from $2.7 million for the year ended December 31, 1997 to $2.5 million for
the year ended December 31, 1998. This decrease was primarily due to a
decrease of $2.3 million, or 4.32%, in the average balance of interest-
bearing liabilities from $53.7 million for the year ended December 31, 1997
to $51.3 million for the year ended December 31, 1998. This decrease in
the average balance of interest-bearing liabilities is the result of a $1.3
million decrease in the average balance of borrowings from the FHLB,
coupled with a decrease of $986,000, or 1.89%, in the average balance of
deposits from $52.3 million for the year ended December 31, 1997 to $51.3
million for the year ended December 31, 1998. The decrease in interest
expense also reflects a one basis point decrease in the average cost of
interest-bearing liabilities from 4.97% for the year ended December 31,
1997 to 4.96% for the year ended December 31, 1998.

Provision for Loan Losses. The allowance for loan losses is
established through a provision for loan losses based on management's
evaluation of the risk inherent in its loan portfolio and the general
economy. Such evaluation is based on an analysis of various factors,
including the market value of the underlying collateral, growth and
composition of the loan portfolio, the relationship of the allowance for
loan losses to outstanding loans, historical loss experience, delinquency
trends and prevailing and projected economic conditions. The Bank
established a provision for loan losses of $106,000 for the year ended
December 31, 1998, a decrease of $50,000 from the $156,000 provision for
loan losses made during the year ended December 31, 1997. The 1998
provision was deemed necessary due to net charged-off loans of $134,000
during the year ended December 31, 1998. Although the Company believes
that the present level of the allowance for loan losses is adequate to
reflect the risks inherent in its loan portfolio, there can be no assurance
that the Company will not experience increases in its nonperforming assets,
that it will not increase the level of the allowance for loan losses in the
future or that significant provisions for losses will not be required based
on factors such as deterioration in market conditions, changes in
borrowers' financial conditions, delinquencies and defaults.

Non-Interest Income. Non-interest income decreased $7,000, or
3.61%, from $194,000 for the year ended December 31, 1997 to $187,000 for
the year ended December 31, 1998. The largest components of non-interest
income for the years ended December 31, 1998 and 1997 included $45,000 and
$50,000, respectively, in loan and other service fees and $134,000 and
$121,000, respectively, in other service charges and other miscellaneous
operating income. In addition, the Company realized $8,000 of realized
gains on the sale of real estate owned during the year ended December 31,
1998, as compared with $23,000 of realized gains on the sale of investments
and real estate owned during the year ended December 31, 1997.

Non-Interest Expense. Non-interest expense increased $320,000, or
16.90%, from $1.9 million for the year ended December 31, 1997 to $2.2
million for the year ended December 31, 1998. The components of this net
increase included increases of $215,000 in legal and professional fees and
an additional expense adjustment for mortgage loan rebates of $148,000.
These increases were partially offset by decreases of $5,000 in
compensation and employee benefits expense and net decreases of $38,000 in
other expense items.

The increase in legal and professional services was attributed to
fees connected with ongoing litigation, expenses incurred during 1998
resulting from proxy contests involving the Company and payments for
consulting and other professional services. The rebate adjustment is a
result of a review of interest rate adjustments made in the past relating
to adjustable rate mortgages. This review was conducted in the fourth
quarter of 1998 by the Bank. Based upon this review, the Bank has
determined that it is probable that rebates of excess interest income
should be made to a portion of the Bank's adjustable rate loan customers.
The Bank currently estimates the amount of these potential rebates at
$148,300. This amount has been recorded as a liability on the December 31,
1998 consolidated statement of financial condition, and has been recorded
as a charge to current period operations on the consolidated statement of
income for the year ended December 31, 1998.

- 60 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Income Tax Expense. The provision for income taxes was $(99,000)
for the year ended December 31, 1998 as compared with $55,000 for the year
ended December 31, 1997. The $154,000 decrease was primarily due to the
decrease in income before income taxes from $218,000 for the year ended
December 31, 1997 to a loss of $232,000 for the year ended December 31,
1998. The negative tax expense (or tax benefit) of $99,000 for the year
ended December 31, 1998 also reflects the effect of items such as tax-
exempt interest income upon the Company's income tax computation.

YEAR 2000 COMPLIANCE MATTERS

As with all providers of financial services, the Bank's operations
are heavily dependent on information technology systems. The Bank is
addressing the potential problems associated with the possibility that the
computers that control or operate the Bank's information technology systems
and infrastructure may not be programmed to read four-digit date codes and,
upon arrival of the year 2000, may recognize the two-digit code "00" as the
year 1900, causing systems to fail to function or to generate erroneous
data.

As part of the awareness, inventory and assessment phases of its
action plan related to the Year 2000 problem, the Bank has identified the
operating systems which are considered critical to the ongoing operations
of the Bank and the Company. The Bank is working with companies that
supply or service its information technology systems to remedy any
perceived Year 2000 problems. As a part of the implementation of its Year
2000 action plan, the Bank has purchased a number of new computers which
have been determined to be Year 2000 compliant.

Of the systems that the Bank has identified as mission critical, the
most significant is the on-line account processing system that is performed
by a third party service provider, NCR. As of December 31, 1998, NCR has
substantially completed its testing of internal systems, and has completed
its proxy testing by user participants and its on-line testing. The Bank's
review of this proxy test indicates that the transactions performed, the
hardware specifications and other factors used in the proxy test closely
match the Bank's own operational environment and available hardware. The
Bank intends to continue its own program of appropriate testing of this and
other mission critical systems.

The Bank is in the process of evaluating its non-technological
systems to determine whether such systems have embedded technology that
could be affected by the Year 2000 problem. As of the date hereof, the
Bank does not anticipate that any disruption relating to such systems will
have a material adverse effect on the Bank's operations.

During 1998, the Bank developed a contingency plan in the event the
mission-critical systems are not successfully renovated in a timely manner
or such systems were to actually fail at Year 2000 critical dates. Among
other issues, that plan addresses the possibility that NCR, the current
data service provider, could fail to operate on January 1, 2000. A
business resumption plan was formed to deal with this possibility. With
respect to a short-term remedy for business disruptions potentially caused
by the Year 2000 problem, the Bank's Board and management have determined
that a manual system is the most reasonable approach to allow the Bank to
continue to effectively serve its customer base. The business resumption
plan addresses preparation, logistics, departmental requirements and
guidelines for the potential handling of specific types of banking
transactions on such a manual basis.

- 61 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

systems, programs and equipment, or if the Bank is required to incur
substantial additional expense to make the Bank's current systems, programs
and equipment Year 2000 compliant, the Bank's net earnings and financial
condition could be adversely affected.

In addition to possible expense related to its own systems, the Bank
could incur losses if loan payments are delayed due to Year 2000 problems
affecting any major borrowers in the Bank's primary market area. Because
the Bank's loan portfolio is highly diversified with regard to individual
borrowers and types of businesses, and the Bank's primary market area is
not significantly dependent upon one employer or industry, the Bank does
not expect any significant or prolonged difficulties that will affect net
earnings or cash flow.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity refers to the ability of the Company to convert assets
into cash or cash equivalents without significant loss. Liquidity
management involves evaluating the Company's and the Bank's daily cash flow
requirements to meet customer demands, whether they are depositors wishing
to withdraw funds or borrowers requiring funds to meet their credit needs.
Without proper liquidity management, the Company would not be able to
perform the primary function of a financial intermediary and would,
therefore, not be able to meet the production and growth needs of the
communities it serves.

The Bank's primary sources of funds are deposits and proceeds from
maturing investment securities, mortgage-backed and related securities and
principal and interest payments on loans, investment securities and
mortgage-backed and related securities. While maturities and scheduled
amortization of investment securities, mortgage-backed and related
securities and loans are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates,
economic conditions, competition and other factors.

The primary investing activity of the Bank is the origination of
loans, the purchase of investment securities and certificates of deposit,
and the purchase of mortgage-backed and related securities. During the
years ended December 31, 1998 and 1997, the Bank originated loans totaling
$5.7 million and $16.5 million, respectively. The primary financing
activity of the Bank is accepting savings deposits.

The Bank has other sources of liquidity if there is a need for
funds. As stated earlier, the Company has a portfolio of investment
securities and mortgage-backed and related securities with an aggregate
market value of $1.8 million at December 31, 1998 classified as available-
for-sale. Another source of liquidity is the Bank's ability to obtain
advances from the FHLB of Chicago. In addition, the Bank maintains a
significant portion of its investments in interest-bearing deposits at
other financial institutions that will be available when needed.

A strong capital position is important to the continued
profitability of the Bank because it promotes depositor and investor
confidence and provides a solid foundation for future growth. Under
regulatory guidelines, the Bank's capital strength is measured in two tiers
which are used in conjunction with risk-adjusted assets to calculate the
risk-based capital ratios. The Bank's Tier 1 risk-based capital ratio and
total risk-based capital ratio were 30.4% and 31.6%, respectively, at
December 31, 1998. These levels currently exceed the minimum ratios of 4%
and 8%, respectively. Another important indicator of capital adequacy in
the banking industry is the leverage ratio, which is a measure of the ratio
of the Bank's Tier 1 capital to total average assets. The Bank's leverage
ratio was 15.7% at December 31, 1998, which exceeded regulatory minimum
guidelines.

IMPACT OF INFLATION AND CHANGING PRICES

The Consolidated Financial Statements and Notes thereto presented
herein 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 the
change in the relative purchasing power of money over time and due to
inflation. The impact of inflation is reflected in the increased cost of
the

- 62 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Company's operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Bank are monetary in nature. As a result,
interest rates have a greater impact on the Company's performance than do
the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the price
of goods and services.

IMPACT OF NEW ACCOUNTING STANDARDS

Accounting for Stock-Based Compensation. SFAS No. 123, "Accounting
for Stock Based Compensation" was issued by the Financial Accounting
Standards Board ("FASB") in October, 1995. SFAS No. 123 establishes a fair
value-based method of accounting for stock options and other equity
instruments. It requires the use of that method for transactions with
other than employees and encourages its use for transactions with
employees. It permits entities to continue to use the intrinsic value
method included in Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", but regardless of the method used to
account for the compensation cost associated with stock option and similar
plans, it requires employers to disclose information in accordance with
SFAS No. 123. The general principle underlying SFAS No. 123 is that equity
instruments are recognized at the fair value of the consideration received
for them. If the fair value of the consideration received cannot be
reasonably determined, the fair value of the equity instrument itself may
be used. The fair value method of accounting for stock options and other
instruments applies this general principle measuring compensation cost for
employers as the excess of the fair value of the equity instrument over the
amount paid by the employee. The definition of fair value in SFAS No. 123
is the same as that included in SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of."

SFAS No. 123 requires significantly expanded disclosures, including
disclosure of the pro forma amount of net income (and earnings per share
for public entities) as if the fair value-based method were used to account
for stock-based compensation if the intrinsic value method of APB-25 is
retained.

The recognition requirements for transactions with other than
employees apply for transactions entered into, after December 15, 1995.
The recognition alternative of the fair value-based method for transactions
with employees may be implemented immediately upon issuance of SFAS No.
123. The disclosure requirements, which apply regardless of the
recognition method chosen, are applicable for financial statements for
fiscal years beginning after December 15, 1995.

With the adoption in 1997 of stock-based compensation plans (See
Note 12 of Notes to Consolidated Financial Statements), the Company is
accounting for the plan according to the disclosure requirements of SFAS
No. 123.

Accounting for Transfers and Servicing of Financial Assets. In June
1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
establishes accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based on the
consistent application of the financial components approach. This approach
requires the recognition of financial assets and servicing assets that are
controlled by the reporting entity, the derecognition of financial assets
when control is surrendered, and the derecognition of liabilities when they
are extinguished. Specific criteria are established for determining when
control has been surrendered in the transfer of financial assets. SFAS No.
125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996.
Subsequent to the issuance of SFAS No. 125, the FASB issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement No.
125." This statement defers for one year the effective date of SFAS No.
125 as applies to secured borrowings and collateral and certain other
transactions. The Company has adopted the relevant provisions of the
statement. The provisions of the statement adopted in 1997 did not have a
material effect on the Company's financial position or operating results.

- 63 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Earnings per Share. In February 1997, the FASB issued SFAS No. 128,
"Earnings per Share". SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly
held common stock or potential common stock. The statement simplifies the
standards for computing earnings per share previously found in APB Opinion
No. 15, "Earnings per Share", and makes them comparable to international
EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities with
complex capital structures, and requires a reconciliation of the two
computations. This statement is effective for financial statements issued
for periods ending after December 15, 1997, with earlier application not
permitted. The Company has adopted SFAS No. 128 effective for the year
ended December 31, 1997.

Comprehensive Income. In June 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. This statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same
prominence as other financial statements.

This statement requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of a statement of financial position. This statement is effective for
fiscal years beginning after December 15, 1997. The management of the
Company adopted the provisions of the statement in January, 1998, and
has presented comprehensive income information in the consolidated
statements of financial condition and statements of shareholders' equity.

Disclosures about Segments of an Enterprise and Related Information.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards
for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. It also establishes standards
for related disclosures about products and services, geographic areas, and
major customers. This statement is effective for financial statements for
periods beginning after December 15, 1997. The management of the Company
adopted the appropriate provisions of the statement at January 1, 1998.

Employers' Disclosure about Pensions and Other Postretirement
Benefits. In February 1998, the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." SFAS No.
132 standardizes the disclosure requirements for pensions and other
postretirement benefits. This statement is effective for financial
statements for periods beginning after December 15, 1997. The management
of the Company adopted the appropriate provisions of the statements at
January 1, 1998.

Accounting for Derivative Instruments and Hedging Activities. In
June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133
establishes a new model for accounting for existing standards. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999, but
earlier application is permitted as of the beginning of any fiscal quarters
subsequent to June 15, 1998. Upon the statement's initial application, all
derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. In
addition, all hedging relationships must be designated, reassessed and
documented pursuant to the provisions of SFAS No. 133. Adoption of SFAS
No. 133 is not expected to have a material effect on the Company's
financial position or operating results.

- 64 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Accounting for Mortgage-Backed Securities. In October 1998, the
FASB issued SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a
Mortgage Banking Enterprise" ("SFAS No. 134"). SFAS No. 134 amends the
earlier SFAS No. 65, "Accounting for Certain Mortgage Banking Activities."
SFAS No. 134 requires that, after the securitization of mortgage loans held
for sale, an entity engaged in mortgage banking activities should classify
the resulting mortgage-backed securities or other retained interests based
on its ability and intent to sell or hold those investments. The statement
is effective for the first fiscal quarter beginning after December 15,
1998. The management of the Company does not currently believe that its
activities meet the definition of "mortgage banking activities," and
therefore does not anticipate that this statement will have a material
effect on the Company's financial position or operating results.

- 65 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The following table sets forth, as of the Record Date, certain
information as to those persons who were beneficial owners of more than
five percent (5%) of the Common Stock and as to the shares of the Common
Stock beneficially owned by each of the Company's directors and executive
officers and by all executive officers and directors of the Company as a
group. Persons and groups owning in excess of 5% of the Common Stock are
required to file certain reports regarding such ownership pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based
upon such reports, management knows of no persons, other than those set
forth below, who owned more than 5% of the outstanding shares of the Common
Stock as of the Record Date.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF OUTSTANDING
NAME AND ADDRESS <F1> BENEFICIALLY OWNED <F2> COMMON STOCK <F3>
--------------------- ----------------------- -----------------
<S> <C> <C>
Roger O. Hileman 40,333<F4> %
Charles E. Stevens 27,452<F5>
James C. Walker 24,452<F5>
Randall A. Youngblood 27,452<F5>
Paul R. Calcaterra 27,452<F5>
B. D. Cross 27,452<F5>
James L. Cripps 15,092<F6>
D. Burns 5,000
Barrett R. Rochman 80,312
Heartland Bancshares, Inc. Employee Stock Ownership Plan 68,939
Tontine Financial Partners, L.P. 80,800<F7>
Tontine Overseas Associates, L.L.C. 6,800<F7>
Directors and executive officers as a group (9 persons) _____<F8>

<FN>
- -----------
<F*> less than one percent

<F1> Unless otherwise indicated, the address for each person is 318 South
Park Avenue, Herrin, Illinois 62948-3604.

<F2> Includes the following: stock held in joint tenancy; stock owned as
tenants in common; stock owned or held by a spouse or other member
of the individual's household; stock allocated through certain
employee benefit plans of the Company; stock in which the individual
either has or shares voting and/or investment power; and shares that
the individual has the right to acquire at any time within 60 days
of the Record Date. Each person or relative of such person whose
shares are included herein exercises sole or shared voting and
dispositive power as to the shares reported. Does not include
shares with respect to which directors Walker, Stevens, Youngblood,
Cross and Calcaterra have "voting power" by virtue of their
positions as trustees of the trust holding 68,939 shares under the
Company's ESOP. The ESOP trustees must vote all allocated shares
held in the ESOP in accordance with the instructions of the
participants. Unallocated shares and allocated shares for which no
timely direction is received are voted by the ESOP trustees in
proportion to the participant-directed voting of allocated shares.

<F3> The percentage calculations for beneficial ownership are based upon
_________ shares of Common Stock that were issued and outstanding as
of March ____, 1999. In calculating the percentage ownership by
each named individual, the number of shares outstanding is deemed to
include any shares of Common Stock that the individual has the right
to acquire within 60 days of the Record Date.

<F4> Includes 8,768 shares that Mr. Hileman has the right to acquire
within 60 days after the Record Date upon the exercise of stock
options. Also includes 4,059 shares under the ESOP and 3,506 shares
under the MRP that have vested or are subject to vesting within 60
days after the Record Date.

<F5> Includes 1,752 shares that each of Messrs. Stevens, Walker,
Youngblood, Calcaterra and Cross has the right to acquire within 60
days after the Record Date upon the exercise of stock options and
700 shares under the MRP for each such individual that have vested
or are subject to vesting within 60 days after the Record Date.

<F6> Includes 876 shares under the MRP held by Mr. Cripps' spouse that
have vested or are subject to vesting within 60 days after the
Record Date. Also includes 1,715 shares under the ESOP owned by Mr.
Cripps' spouse.

- 66 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

<F7> The information is based on a Schedule 13D (Amendment No. 1), dated
May 14, 1998, of Tontine Financial Partners, L.P., Tontine
Management, L.L.C., Tontine Overseas Associates, L.L.C. and Jeffrey
L. Gendell (collectively, the "Tontine Group"). The information in
the Schedule 13D indicates that Tontine Financial Partners, L.P.,
Tontine Management, L.L.C. and Jeffrey L. Gendell share voting and
dispositive power with respect to 80,800 shares and that Tontine
Overseas Associates, L.L.C. and Jeffrey L. Gendell share voting and
dispositive power with respect to 6,800 shares. The address for the
Tontine Group is 31 West 52nd Street, 17th Floor, New York, New York
10017.

<F8> Includes 17,528 shares that all directors and executive officers as
a group have the right to acquire within 60 days after the Record
Date upon the exercise of stock options. Also includes 4,059 shares
under the ESOP and 7,882 shares under the MRP that have vested or
are subject to vesting within 60 days after the Record Date.
</TABLE>

- 67 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

MARKET FOR THE COMMON STOCK AND DIVIDENDS

The Common Stock is listed over the counter through the National
Daily Quotation System "Pink Sheets" published by the National Quotation
Bureau, Inc. As of the Record Date, there were approximately ____
shareholders of record.

The following table sets forth the reported high and low sale prices
of shares of the Common Stock for the past two fiscal years, and the
quarterly cash dividends per share declared for the periods indicated.

<TABLE>
<CAPTION>
MARKET PRICE
------------------ CASH
1997 HIGH LOW DIVIDENDS
---- ---- --- ---------
<S> <C> <C> <C>
First Quarter $15.25 $14.00 $.10
Second Quarter 17.0625 15.25 .10
Third Quarter 16.25 14.75 .10
Fourth Quarter 16.25 15.00 .10

1998
----

First Quarter $15.50 $15.00 $.10
Second Quarter 15.75 14.8125 .10
Third Quarter 14.8125 12.00 .10
Fourth Quarter 14.75 9.00 --
</TABLE>

The last reported sale price for the Common Stock on 2,000 shares on
December 18, 1998, the last business day on which a sale occurred prior to
the announcement of the signing of the Agreement, was $12.25. The last
reported sale price of the Common Stock on ______________, 1999, the last
practicable date prior to the mailing of this Proxy Statement was
$_________ per share.

INDEPENDENT ACCOUNTANTS

Gray Hunter Stenn, LLP served as the Company's independent auditors
for the 1998 fiscal year and continues to serve in such capacity. A
representative of Gray Hunter Stenn, LLP is expected to be present at the
Special Meeting to respond to appropriate shareholders' questions and will
have the opportunity to make a statement if he or she so desires.

OTHER MATTERS

The Board of Directors is not aware of any business to be presented
at the Special Meeting other than those matters referred to in the Notice
of Special Meeting and described herein. If any other matter should
properly come before the Special Meeting, the persons named as proxies will
have discretionary authority to vote the shares represented by proxies in
accordance with their discretion and judgment as to the best interests of
the Company.

SHAREHOLDER PROPOSALS

It is not currently anticipated that the Company will hold a 1999
Annual Meeting of Shareholders unless the Merger is not consummated. In the
event the Merger is not consummated and the 1999 Annual Meeting of
Shareholders is held, any shareholder proposal intended for inclusion in
the Company's proxy statement and proxy relating to the 1999 Annual Meeting
of Shareholders must be received at the Company's main office at 318 South
Park Avenue, Herrin, Illinois, no later than ________, 1999 for inclusion
in the Company's Proxy Statement and proxy relating to that meeting. Upon
receipt of any such proposal, the Company will determine whether or not to
include such proposal in the Proxy Statement and proxy in accordance with
regulations

- 68 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

governing the solicitation of proxies. Under the Company's Articles of
Incorporation, shareholder proposals, including nominations of directors,
which do not appear in the Proxy Statement may be considered at a meeting
of shareholders only if they involve a matter proper for shareholder action
and written notice of the proposal is received by the Secretary of the
Company not less than thirty days nor more than sixty days prior to the
date of the meeting; provided, however, that if less than forty days'
notice of the meeting is given to shareholders, such notice shall be
delivered to the Secretary of the Company not later than the close of
business of the tenth day following the day on which notice of the meeting
was mailed to shareholders.

Each such notice given by a shareholder with respect to nominations
for the election of directors shall set forth the following: (i) the name,
age, business address and, if known, residence address of each nominee
proposed in such notice; (ii) the principal occupation or employment of
each such nominee; and (iii) the number of shares of stock of the Company
which are beneficially owned by each such nominee. In addition, the
shareholder making such nomination shall promptly provide any other
information reasonably requested by the Company. Each such notice given by
a shareholder to the Secretary with respect to business proposals to be
brought before a meeting shall set forth in writing as to each matter the
following: (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the
meeting; (ii) the name and address, as they appear on the Company's books,
of the shareholder proposing such business; (iii) the class and number of
shares of the Company which are beneficially owned by the shareholder; and
(iv) any material interest of the shareholder in such business.

- 69 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Independent Auditors' Report F-1

Consolidated Statements of Financial Condition
as of December 31, 1998 and 1997 F-2

Consolidated Statements of Income for the Years Ended
December 31, 1998 and 1997 F-3

Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1998 and 1997 F-4

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 F-5

Notes to Consolidated Financial Statements F-6

- 70 -
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

INDEPENDENT AUDITORS' REPORT
----------------------------

The Board of Directors
Heartland Bancshares, Inc.
Herrin, Illinois

We have audited the accompanying consolidated statements of financial
condition of Heartland Bancshares, Inc. and Subsidiary (the Company) as of
December 31, 1998 and 1997, and the related consolidated statements of
income, stockholders' equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

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

/s/ Gray Hunter Stenn, LLP

Marion, Illinois
January 22, 1999

F-1
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
<TABLE>
HEARTLAND BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
------
Cash and cash equivalents
Interest-bearing $10,220 $ 3,319
Noninterest-bearing 1,982 1,651
Certificates of deposit 1,379 95
Investment securities available-for-sale at
estimated market value (amortized cost of $1,122
and $1,692, respectively) 1,145 1,714
Investment securities held-to-maturity (estimated
market value of $5,320 and $5,651, respectively) 5,287 5,627
Mortgage-backed and related securities available-for-
sale at estimated market value (amortized cost of
$663 and $1,269, respectively) 661 1,249
Mortgage-backed and related securities held-to-
maturity (estimated market value of $4,285 and
$5,694, respectively) 4,251 5,737
Loans receivable, net 36,382 46,307
Investments required by law 539 577
Property, equipment, and property held
for investment, net 486 461
Accrued interest receivable 229 292
Prepaid expenses and other assets 60 32
Prepaid income taxes 173 --
Foreclosed real estate 293 239
Deferred tax asset 238 161
------- -------
TOTAL ASSETS $63,325 $67,461
- ------------ ======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------

Liabilities
- -----------
Deposits $51,417 $54,022
Accrued interest on deposits 49 63
Advances from borrowers for taxes and insurance 205 228
Other liabilities 359 127
Accrued income taxes -- 126
Short-term borrowings -- 750
------- -------
Total Liabilities $52,030 $55,316
----------------- ------- -------

Commitments and Contingencies
- -----------------------------

Stockholders' Equity
- --------------------
Preferred stock, $.01 par value per share: 1,000,000
shares authorized, - 0 - issued $ -- $ --
Common stock, $.01 par value per share: 4,000,000
shares authorized; 876,875 shares issued; 832,833 and
876,875 outstanding at December 31, 1998 and
December 31, 1997, respectively 9 9
Additional paid-in capital 8,255 8,212
Unearned employee stock ownership plan (ESOP) shares (429) (519)
Management recognition plan (MRP) shares (435) (496)
Treasury stock (44,042 shares at cost) (684) --
Retained earnings - substantially restricted 4,566 4,938
Accumulated other comprehensive income 13 1
------- -------

Total Stockholders' Equity $11,295 $12,145
-------------------------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $63,325 $67,461
- ------------------------------------------ ======= =======

See accompanying notes to consolidated financial statements.
</TABLE>

F-2
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

<PAGE>
<PAGE>
<TABLE>
HEARTLAND BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
<CAPTION>
Year Ended
---------------------
December 31,
1998 1997
------ ------
<S> <C> <C>
Interest Income
- ---------------
Interest on first mortgage loans $3,136 $3,338
Interest on other loans 219 188
Interest on investments, securities and
deposits with banks 721 673
Interest on mortgage-backed securities 371 539
------ ------
Total Interest Income $4,447 $4,738
---------------------

Interest Expense
- ----------------
Interest on deposits $2,544 $2,587
Interest on other borrowed funds 3 78
------ ------
Total Interest Expense $2,547 $2,665
---------------------- ------ ------

Net Interest Income $1,900 $2,073
- -------------------

Provision for Loan Losses 106 156
- ------------------------- ------ ------

Net Interest Income After Provision
- -----------------------------------
for Loan Losses $1,794 $1,917
--------------- ------ ------

Non-Interest Income
- -------------------
Initial service charges and other loan fees $ 45 $ 50
Gain on sale of investment securities -- 4
Gain on sale of mortgage-backed securities -- 7
Gain on sale of other real estate 8 12
Other 134 121
------ ------
Total Non-Interest Income $ 187 $ 194
------------------------- ------ ------

Non-Interest Expense
- --------------------
Compensation to directors, officers, and
employees $ 763 $ 750
Pension expense and other employee benefits 134 152
Office properties and equipment expense
including depreciation 143 129
Advertising 24 44
Federal insurance premiums 48 42
Stationery, postage, and office supplies 66 69
Checking account expense 20 132
Service bureau expense 155 102
Legal and professional services 482 248
Adjustment for mortgage loan rebates 148 --
Other 223 212
Loss on sale of other real estate 6 13
Loss on sale of investment securities 1 --
------ ------
Total Non-Interest Expense $2,213 $1,893
-------------------------- ------ ------

Income Before Income Taxes $ (232) $ 218
- --------------------------

Income Tax Expense (Benefit) (99) 55
------ ------

Net Income (Loss) $ (133) $ 163
- ----------------- ====== ======

Earnings (Loss) per Common Share - Basic
- ----------------------------------------
Net income $(.17) $.20
====== ======

Earnings (Loss) per Common Share - Assuming Dilution
- ----------------------------------------------------
Net income $(.17) $.20
====== ======

See accompanying notes to consolidated financial statements.
</TABLE>
F-3
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
<TABLE>
HEARTLAND BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<CAPTION>
Accumulated
Additional Unearned Other
Common Paid-In ESOP MRP Treasury Retained Comprehensive
Stock Capital Shares Shares Stock Earnings Income Total
------ ---------- -------- ------ -------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 9 $8,153 $(632) $ -- $ -- $5,101 $(15) $12,616
- ----------------------------
Comprehensive income (loss):
Net income (loss) $-- $ -- $ -- $ -- $ -- $ 163 $ -- $ 163
Other comprehensive income,
net of tax:
Unrealized gains (losses) on
securities:
Gain arising during year
(net of tax of $14) -- -- -- -- -- -- 20 20
Reclassification adjustment
(net of tax of $3) -- -- -- -- -- (4) (4)
--- ------ ----- ----- ----- ------ ---- -------
Total comprehensive income (loss) $-- $ -- $ -- $ -- $ -- $ 163 $ 16 $ 179
Purchase of shares for MRP (552) (552)
Amortization of MRP 56 56
Cash dividends paid -- -- -- -- -- (326) -- (326)
Amortization of ESOP expense -- 59 113 -- -- -- -- 172
--- ------ ----- ----- ----- ------ ---- -------

Balance at December 31, 1997 $9 $8,212 $(519) $(496) $ -- $4,938 $ 1 $12,145
- ----------------------------
Comprehensive income (loss):
Net income (loss) $-- $ -- $ -- $ -- $ -- $ (133) $ -- $ (133)
Other comprehensive income,
net of tax:
Unrealized gains (losses) on
securities:
Gain arising during year
(net of tax of $8) -- -- -- -- -- -- 14 14
Reclassification adjustment
(net of tax of $1) -- -- -- -- -- -- (2) (2)
--- ------ ----- ----- ----- ------ ---- -------
Total comprehensive income (loss) $-- $ -- $ -- $ -- $ -- $ (133) $ 12 $ (121)
Purchase of treasury stock
(44,042 shares at cost) -- -- -- -- (684) -- -- (684)
Amortization of MRP 61 61
Cash dividends paid -- -- -- -- -- (239) -- (239)
Amortization of ESOP expense -- 43 90 -- -- -- -- 133
--- ------ ----- ----- ----- ------ ---- -------
Balance at December 31, 1998 $ 9 $8,255 $(429) $(435) $(684) $4,566 $ 13 $11,295
- ---------------------------- === ====== ===== ===== ===== ====== ==== =======

See accompanying notes to consolidated financial statements.
</TABLE>

F-4
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
<TABLE>
HEARTLAND BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
Year Ended
----------------------
December 31,
1998 1997
------- -------
<S> <C> <C>
Cash Flows From Operating Activities
- ------------------------------------
Net income (loss) $ (133) $ 163
------- -------
Adjustments to reconcile net income to net
cash provided (used) by operating activities
Depreciation $ 65 $ 55
Discount accretion/premium amortization-securities, net (32) (2)
Amortization of deferred loan origination fees (30) (11)
Amortization of ESOP expense 133 172
Amortization of MRP expense 61 56
Provision for loan losses 106 156
(Gain) loss on sale of investments 1 (11)
(Gain) loss on sale of other real estate (2) 1
(Increase) decrease in accrued interest receivable 63 24
(Increase) decrease in prepaid expenses/other assets (28) 24
(Increase) decrease in prepaid income taxes (173) 73
(Increase) decrease in deferred income taxes (84) (107)
Increase (decrease) in accrued interest payable (14) 14
Increase (decrease) in other liabilities 232 20
Increase (decrease) in accrued income taxes (126) 126
Total Adjustments $ 172 $ 590
----------------- ------- -------

Net Cash Provided by Operating Activities $ 39 $ 753
- ----------------------------------------- ------- -------

Cash Flows From Investing Activities
- ------------------------------------
Net (increase) decrease in certificates of deposit $(1,284) $ 198
Proceeds from maturities of investment securities
and mortgage-backed securities held-to-maturity 2,420 3,660
Proceeds from maturities of investment securities and
mortgage-backed securities available-for-sale 450 350
Principal payments on mortgage-backed securities 2,341 1,433
Net (increase) decrease in loans receivable 9,639 (5,122)
Purchases of property and equipment (90) (37)
Purchase of investment securities held-to-maturity (2,450) (251)
Purchase of mortgage-backed securities held-to-maturity (227) --
Purchase of investment securities available-for-sale -- (200)
Proceeds from sale of investment securities available-for-sale 374 251
Proceeds from sale of mortgage-backed securities
available-for-sale -- 1,084
Proceeds from sale of investment securities held-to-maturity 125 --
Purchase of Federal Home Loan Bank stock (8) (88)
Proceeds from the redemption of Federal Home Loan bank stock 46 --
Proceeds from sale of other real estate 158 29
------- -------
Net Cash Provided by Investing Activities $11,494 $ 1,307
----------------------------------------- ------- -------

Cash Flows From Financing Activities
- ------------------------------------
Net increase (decrease) in deposits $(2,605) $ 1,190
Net increase (decrease) in mortgage escrow funds (23) (24)
Dividends on common stock (239) (326)
Net increase (decrease) in short term borrowings (750) 750
Shares acquired by MRP -- (552)
Purchase of treasury stock (684) --
------- -------

Net Cash Provided by (Used in) Financing Activities $(4,301) $ 1,038
--------------------------------------------------- ------- -------

Net Increase (Decrease) in Cash and Cash Equivalents $ 7,232 $ 3,098
- ----------------------------------------------------

Cash and Cash Equivalents at Beginning of Year 4,970 1,872
------- -------

Cash and Cash Equivalents at End of Year $12,202 $ 4,970
- ---------------------------------------- ======= =======

<PAGE>
Supplemental Disclosures
- ------------------------
Cash Paid During the Period for:
Interest $ 2,561 $ 2,651
Income taxes paid (refunded) $ 285 $ (37)
Loans Transferred to Foreclosed Real Estate During Period $ 276 $ 220
Proceeds From Sales of Foreclosed Real Estate Financed
Through Loans $ 19 $ 84

See accompanying notes to consolidated financial statements.
</TABLE>

F-5
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

HEARTLAND BANCSHARES, INC.
--------------------------

AND SUBSIDIARY
--------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

DECEMBER 31, 1998 AND 1997
--------------------------

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of Heartland Bancshares, Inc.
(the "Company") and its subsidiary, Heartland National Bank (the
"Bank"), are in accordance with generally accepted accounting
principles and conform to general practices within the financial
institution industry. The more significant of the principles used
in preparing the financial statements are briefly described below.

BUSINESS

The Company (through the Bank) provides a full range of financial
services to individual and corporate customers from two office
locations in Herrin and Carterville, Illinois. The Company is
subject to competition from other financial institutions in the
area, is subject to the regulations of certain federal agencies and
undergoes periodic examinations by those regulatory authorities.

On June 28, 1996, First Federal Savings and Loan Association of
Herrin (the "Association") completed its conversion from a federal
mutual savings and loan association to a federal stock savings and
loan association and then from a stock association to a national
bank known as Heartland National Bank. Simultaneously, Heartland
National Bank was acquired by Heartland Bancshares, Inc. which was
formed to act as the holding company of the Bank. At the date of
the conversion, the Company completed the sale of 876,875 shares of
$.01 par value common stock (the "Common Stock") at $10.00 per
share. Net proceeds from the above transactions, after deducting
offering expenses, underwriting fees and amounts retained to fund
the Company's employee stock ownership plan (the "ESOP"), totaled
approximately $7.4 million.

The Company is primarily engaged in the business of directing,
planning and coordinating the business activities of the Bank.
These activities primarily consist of accepting deposits from the
general public and investing these funds in loans in the Bank's
market area and in investment securities and mortgage-backed
securities.

BASIS OF PRESENTATION

The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the year. Actual results could
differ significantly from those estimates.

Material estimates that are particularly susceptible to significant
change in the near-term relate to the determination of the allowance
for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans.

F-6
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

Management believes that the allowances for losses on loans and real
estate acquired by foreclosures or in satisfaction of loans are
adequate. While management uses available information to provide
for such allowances, future additions to the allowances may be
necessary based upon changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowances
for losses. Such agencies may require the Company to recognize
additions to the allowances based upon their judgments about
information available to them at the time of their examination.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the
accounts of Heartland Bancshares, Inc., Heartland National Bank and
Herrin First Service Corporation, a wholly-owned subsidiary of
Heartland National Bank. All significant intercompany balances and
transactions are eliminated in consolidation.

Herrin First Service Corporation was formed in 1971 by the
Association for the purpose of developing a residential subdivision.
Such development was completed and all lots were subsequently sold.
No further development activities have been undertaken or are
currently planned, although the corporation, with regulatory
approval, recently purchased and subsequently sold one residential
real estate property.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents were $12,202,000 and $4,970,000 at
December 31, 1998 and December 31, 1997, respectively. For purposes
of reporting cash flows, cash and cash equivalents include cash on
hand, amounts of cash due from banks, short-term investment accounts
and the Bank's Regulation D reserve and all highly liquid
instruments with original maturities of 3 months or less. The Bank
has a reserve requirement pass-thru deposit for its deposits at the
Federal Home Loan Bank of Chicago. This requirement was $5,000 at
December 31, 1998 and December 31, 1997.

INVESTMENT SECURITIES

The Company accounts for its security holdings in accordance with
Statement of Financial Accounting Standards No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS No. 115").
At acquisition, SFAS No. 115 requires that securities be classified
into one of three categories: trading;, available-for-sale; or
held-to-maturity. Trading securities are bought and held
principally with the intention of selling them in the near-term.
The Company has no trading securities. Investment securities that
management has the ability and intent to hold to maturity are
classified as held-to-maturity and carried at cost, adjusted for
amortization of premium and accretion of discounts using the level-
yield method over their contractual lives. Other marketable
securities are classified as available-for-sale and are carried at
fair value. Realized and unrealized gains and losses on trading
securities are included in net income. Unrealized gains and losses
on securities available-for-sale are recognized as other
comprehensive income, net of related tax. Cost of securities sold
is recognized using the specific identification method.

Securities available-for-sale are stated at fair value for
December 31, 1998 and December 31, 1997. Fair value is based on
market prices quoted in financial publications or other independent
sources. Pursuant to SFAS No. 115, net unrealized gains or losses
are excluded from earnings and reported, net of deferred income
taxes, as a separate component of stockholders' equity until
realized. The adjusted cost of the specific security available-for-
sale that is sold is used to compute any gain or loss upon sale.

F-7
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

MORTGAGE-BACKED SECURITIES

Mortgage-backed securities represent participating interests in
pools of long-term first mortgage loans originated and serviced by
issuers of the securities. Mortgage-backed securities classified as
held-to-maturity are carried at unpaid principal balances, adjusted
for unamortized premiums and unearned discounts.

Premiums and discounts are amortized using methods approximating the
level-yield method over the remaining period to contractual
maturity, adjusted for anticipated prepayments. Mortgage-backed
securities classified as available-for-sale are stated at fair value
at December 31, 1998 and December 31, 1997. Adjustments for
unrealized gains and losses on mortgage-backed securities are
recorded in the same manner as those on investment securities. In
the event any securities are sold, the cost of securities sold is
determined using the specific identification method.

REAL ESTATE OWNED

Real estate properties acquired through loan foreclosure are
recorded at the lower of cost (outstanding principal balance of the
related mortgage loan at the date of foreclosure, adjusted for any
escrow balance) or estimated fair value, less estimated selling
expenses. Costs of holding real estate acquired in settlement of
loans are reflected in income currently, except for significant
property improvements, which are capitalized to the extent that
carrying value does not exceed estimated fair value, net of
estimated selling cost.

Valuations are periodically performed by management and an allowance
for losses is established by a charge to operations if the carrying
value of a property exceeds its estimated fair value.

PROPERTY, EQUIPMENT AND RELATED DEPRECIATION

Land is carried at cost. Properties and equipment are carried at
cost, less accumulated depreciation. Depreciation of properties and
equipment is being determined by the straight-line method over the
estimated useful lives of the related assets. The estimated useful
lives are ten to forty years for buildings and improvements and
three to thirty-three years for equipment.

LOANS RECEIVABLE

Loans are considered a held-to-maturity asset and, accordingly, are
carried at historical cost. Loans receivable are stated at unpaid
principal balances, less the allowance for loan losses and net
deferred loan origination fees and discounts. Interest on loans is
accrued and credited to operations based upon the principal amount
outstanding. Unearned discount on home improvement loans is
amortized over the estimated lives of the related loans using
various methods which approximate the effective interest method.

The Company adopted SFAS No. 114 "Accounting by Creditors for
Impairment of a Loan" ("SFAS No. 114") and SFAS No. 118 "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures," ("SFAS No. 118"), an amendment of SFAS No. 114,
effective January 1, 1995. These statements address the accounting
by creditors for impairment of certain loans. They apply to all
creditors and to all loans, uncollateralized as well as
collateralized, except for large groups of smaller-balance
homogeneous loans that are collectively evaluated for impairment,
loans measured at fair value or at lower of cost or fair value,
leases and debt securities. The Company considers all one- to four-
family residential mortgage loans, construction loans and all
consumer loans (as presented in Note 4) to

F-8
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

be smaller-balance homogeneous loans. These statements apply to all
loans that are restructured involving a modification of terms.
Loans within the scope of these statements are considered impaired
when, based on current information and events, it is probable that
all principal and interest will not be collected in accordance with
the contractual terms of the loans. Management determines the
impairment of loans based on knowledge of the borrower's ability to
repay the loan according to the contractual agreement and the
borrower's repayment history. Pursuant to SFAS No. 114, management
does not consider an insignificant delay or insignificant shortfall
to impair a loan. Management has determined that a delay less than
90 days will be considered an insignificant delay and that an amount
less than $15,000 will be considered an insignificant shortfall.
The Company does not apply SFAS No. 114 using major risk
classifications, but applies SFAS No. 114 on a loan by loan basis.
Impaired loans are charged off when management determines that
principal and interest are not collectible. Any excess of the
Company's recorded investment for impairment in the loans over the
measured value of the loans is provided for in the allowance for
loan losses.

Loans are placed on nonaccrual when a loan is specifically
determined to be impaired. Any unpaid interest previously accrued
on those loans is reversed from income. Interest income generally
is not recognized on specific impaired loans unless the likelihood
of further loss is remote. Income is subsequently recognized only
to the extent that cash payments are received until, in management's
judgment, the borrower's ability to make periodic interest and
principal payments is back to normal, in which case the loan is
returned to accrual status.

Loan fees are deferred and amortized using the level-yield method
over the estimated life of the individual loans, adjusted for actual
prepayments. Amortization of deferred loan fees are suspended
during periods in which the related loan is in nonaccrual status.

VALUATION ALLOWANCE FOR LOANS AND REAL ESTATE OWNED

The Company's allowance for loan losses is maintained at a level
which, in management's judgment, is adequate to absorb probable
losses inherent in the loan portfolio. The amount of the allowance
is based on management's evaluation of the collectibility of the
loan portfolio, including the nature of the portfolio, credit
concentrations, trends in historical loss experience, specific
impaired loans and economic conditions. The Company's allowance is
increased by a provision for loan losses which is charged to expense
and reduced by charge-offs, net of recoveries. Changes in the
allowance relating to impaired loans are charged or credited to the
provision for loan losses.

INCOME TAXES

Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision for income
taxes.

EARNINGS PER SHARE

In accordance with Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS No. 128"), earnings per common
share are being computed and presented on both a basic and diluted
basis. Basic earnings per share are computed based on the weighted
average number of shares actually outstanding during the period in
question. In addition to using the weighted average number of
outstanding shares, diluted earnings per share computations also
consider the dilutive effect of stock options. The number of shares
that would be issued from the exercise of stock options has been
reduced

F-9
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

by the number of shares that could have been purchased from the
proceeds at the average market price of the Company's stock. In
accordance with Statement of Position 93-6, "Employers' Accounting
for Employee Stock Ownership Plans" ("SOP 93-6"), only employee
stock ownership plan shares that have been committed to be released
are considered outstanding shares. The number of shares outstanding
has also been reduced by shares repurchased by the Company and held
as treasury stock (see Note 23).

DIVIDENDS PER SHARE

In accordance with the provisions of SOP 93-6, dividends paid on
unallocated employee stock ownership plan shares are not considered
dividends for financial reporting purposes.

ADVERTISING COSTS

Advertising costs are charged to operations when incurred.

IMPACT OF NEW ACCOUNTING STANDARDS

Accounting for Stock-Based Compensation. SFAS No. 123, "Accounting
for Stock Based Compensation" ("SFAS No. 123") was issued by the
Financial Accounting Standards Board ("FASB") in October, 1995.
SFAS No. 123 establishes a fair value-based method of accounting for
stock options and other equity instruments. It requires the use of
that method for transactions with other than employees and
encourages its use for transactions with employees. It permits
entities to continue to use the intrinsic value method included in
Accounting Principles Board ("APB") Opinion No. 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 and similar plans, it requires employers to disclose
information in accordance with SFAS No. 123. The general principle
underlying SFAS No. 123 is that equity instruments are recognized at
the fair value of the consideration received for them. If the fair
value of the consideration received cannot be reasonably determined,
the fair value of the equity instrument itself may be used. The
fair value method of accounting for stock options and other
instruments applies this general principle measuring compensation
cost for employers as the excess of the fair value of the equity
instrument over the amount paid by the employee. The definition of
fair value in SFAS No. 123 is the same as that included in SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of."

SFAS No. 123 requires significantly expanded disclosures, including
disclosure of the pro forma amount of net income (and earnings per
share for public entities) as if the fair value-based method were
used to account for stock-based compensation if the intrinsic value
method of APB-25 is retained.

The recognition requirements for transactions with other than
employees apply for transactions entered into after December 15,
1995. The recognition alternative of the fair value-based method
for transactions with employees may be implemented immediately upon
issuance of SFAS No. 123. The disclosure requirements, which apply
regardless of the recognition method chosen, are applicable for
financial statements for fiscal years beginning after December 15,
1995.

The Company accounts for the stock-based compensation plans (see
Note 12) according to the disclosure requirements of SFAS No. 123.

Accounting for Transfers and Servicing of Financial Assets. In
June, 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities"

F-10
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

("SFAS No. 125"). SFAS No. 125 establishes accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities based on the consistent application
of the financial components approach. This approach requires the
recognition of financial assets and servicing assets that are
controlled by the reporting entity, the derecognition of financial
assets when control is surrendered and the derecognition of
liabilities when they are extinguished. Specific criteria are
established for determining when control has been surrendered in the
transfer of financial assets. SFAS No. 125 is effective for
transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. Subsequent to the
issuance of SFAS No. 125, the FASB issued SFAS No. 127, "Deferral of
the Effective Date of Certain Provisions of FASB Statement No. 125"
("SFAS No. 127"). SFAS No. 127 defers for one year the effective
date of SFAS No. 125 as applies to secured borrowings and collateral
and certain other transactions. The Company has adopted the
relevant provisions of the statement. The provisions of the
statement did not have a material effect on the Company's financial
position or operating results.

Earnings per Share. In February, 1997, the FASB issued SFAS No.
128. SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with
publicly held common stock or potential common stock. The statement
simplifies the standards for computing earnings per share previously
found in APB Opinion No. 15, "Earnings per Share," and makes them
comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face
of the income statement for all entities with complex capital
structures, and requires a reconciliation of the two computations.
This statement is effective for financial statements issued for
periods ending after December 15, 1997, with earlier application not
permitted. The Company has adopted SFAS No. 128 effective for the
year ended December 31, 1997.

Comprehensive Income. In June, 1997, the FASB issued SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in
a full set of general purpose financial statements. This statement
requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements.

This statement requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement
and (b) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.
This statement is effective for fiscal years beginning after
December 15, 1997. The Company has adopted the provisions of the
statement in 1998 and has presented comprehensive income information
in the consolidated statements of financial condition and statements
of stockholders' equity.

Disclosures about Segments of an Enterprise and Related Information.
In June, 1997, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS No. 131").
SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas
and major customers. This statement is effective for financial
statements for periods beginning after December 15, 1997. The
management of the Company has adopted the appropriate provisions of
the statement for 1998.

F-11
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Employers' Disclosure about Pensions and Other Postretirement
Benefits. In February, 1998, the FASB issued SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits" ("SFAS No. 132"). SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement
benefits. This statement is effective for financial statements for
periods beginning after December 15, 1997. The management of the
Company has adopted the appropriate provisions of the statements at
January 1, 1998.

Accounting for Derivative Instruments and Hedging Activities. In
June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133
establishes a new model for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards.
SFAS No. 133 is effective for fiscal years beginning after June 15,
1999, but earlier application is permitted as of the beginning of
any fiscal quarters subsequent to June 15, 1998. Upon the
statement's initial application, all derivatives are required to be
recognized in the statement of financial position as either assets
or liabilities and measured at fair value. In addition, all hedging
relationships must be designated, reassessed and documented pursuant
to the provisions of SFAS No. 133. Adoption of SFAS No. 133 is not
expected to have a material effect on the Company's financial
position or operating results.

Accounting for Mortgage-Backed Securities. In October, 1998, the
FASB issued SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise" ("SFAS No. 134"). SFAS No. 134
amends the earlier SFAS No. 65, "Accounting for Certain Mortgage
Banking Activities." The new statement requires that, after the
securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities should classify the resulting mortgage-
backed securities or other retained interests based on its ability
and intent to sell or hold those investments. The statement is
effective for the first fiscal quarter beginning after December 15,
1998. The management of the Company does not currently believe that
its activities meet the definition of "mortgage banking activities,"
and therefore does not anticipate that this statement will have a
material effect on the Company's financial position or operating
results.

RECLASSIFICATIONS

Certain reclassifications have been made for 1997 to conform with
the 1998 financial statement presentation. The reclassifications
had no effect on previously reported net income or retained
earnings.

F-12
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

2. INVESTMENT SECURITIES

Securities held-to-maturity and available-for-sale consist of the
following:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(1,000'S)
-----------------------------------------------
<S> <C> <C> <C> <C>
Held-to-Maturity:

December 31, 1998
-----------------

U. S. government and
federal agencies $4,897 $37 $4 $4,930
Municipal securities *<F*> 390 -- -- 390
------ --- --- ------

Total $5,287 $37 $4 $5,320
----- ====== === == ======

<FN>
<F*>Local issues with no actively traded markets to establish fair
market value different from amortized cost.

<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(1,000'S)
-----------------------------------------------
<S> <C> <C> <C> <C>
Held-to-Maturity:

December 31, 1997
-----------------

U. S. government and
federal agencies $4,842 $33 $9 $4,866
Municipal securities <F*> 785 -- -- 785
------ --- --- ------

Total $5,627 $33 $9 $5,651
----- ====== === == ======

<FN>
<F*>Local issues with no actively traded markets to establish fair
market value different from amortized cost.

F-13
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(1,000'S)
-----------------------------------------------
<S> <C> <C> <C> <C>
Available-for-Sale:

December 31, 1998
-----------------

U. S. government and
federal agencies $ 997 $21 $-- $1,018
Municipal securities 125 2 -- 127
------ --- --- ------

Total $1,122 $23 $-- $1,145
----- ====== === === ======

U. S. government and
federal agencies $1,692 $22 $-- $1,714
Municipal securities -- -- -- --
------ --- --- ------

Total $1,692 $22 $-- $1,714
----- ====== === === ======
</TABLE>

The amortized cost and estimated market value of debt securities at
December 31, 1998 and December 31, 1997, by contractual maturity,
are shown below. Expected maturities will differ from contractual
maturities because issuers may have the right to call or prepay
obligations without call or prepayment penalties.

Amounts maturing in:

<TABLE>
<CAPTION>
SECURITIES SECURITIES
HELD-TO-MATURITY AVAILABLE-FOR-SALE
--------------------- ---------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
(1,000'S)
----------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1998
-----------------
One year or less $3,704 $3,709 $ 250 $ 252
After one year through
five years 1,358 1,386 872 893
After five years through
ten years 225 225 -- --
After ten years -- -- -- --
------ ------ ------ ------

Total $5,287 $5,320 $1,122 $1,145
----- ====== ====== ====== ======
</TABLE>

F-14
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SECURITIES SECURITIES
HELD-TO-MATURITY AVAILABLE-FOR-SALE
--------------------- ---------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
(1,000'S)
----------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997
-----------------
One year or less $2,042 $2,041 $ 100 $ 100
After one year through
five years 3,360 3,385 1,592 1,614
After five years through
ten years 225 225 -- --
After ten years -- -- -- --
------ ------ ------ ------
Total $5,627 $5,651 $1,692 $1,714
----- ====== ====== ====== ======
</TABLE>

No securities were pledged at December 31, 1998 or December 31, 1997
to secure deposits in excess of $100,000.

For the years ended December 31, 1998 and 1997, the Company sold
investment securities resulting in net realized losses of $1,000 and
net realized gains of $4,000, respectively. These sales had
approximate net after-tax effects of $(600) and $2,500,
respectively. These securities were sold for total proceeds of
$499,000 and $251,000, respectively. These totals include the sale
of the held-to-maturity securities described below.

During the second quarter of 1998, the holding company (Heartland
Bancshares, Inc.) sold a municipal security which had been
classified as held-to-maturity for total proceeds of $124,909,
resulting in a net loss of $91. As a result of this transaction,
the other securities of that issue held by the holding company
(which comprise all of the held-to-maturity securities held by the
holding company) were transferred to the available-for-sale
category. These securities are currently shown at estimated market
value as required by SFAS No. 115. These securities had an
amortized cost of approximately $250,000, with an unrealized gain of
approximately $2,199 at transfer.

F-15
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

3. MORTGAGE-BACKED AND RELATED SECURITIES

Mortgage-backed and related securities consist of the following:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(1,000'S)
-----------------------------------------------
<S> <C> <C> <C> <C>
Held-to-Maturity:

December 31, 1998
-----------------

FNMA $1,921 $34 $10 $1,945
GNMA 629 11 -- 640
FHLMC 1,701 5 6 1,700
------ --- --- ------

Total $4,251 $50 $16 $4,285
----- ====== === === ======

December 31, 1997
-----------------

FNMA $2,352 $12 $19 $2,345
GNMA 871 21 -- 892
FHLMC 2,514 4 61 2,457
------ --- --- ------

Total $5,737 $37 $80 $5,694
----- ====== === === ======

Available-for-Sale:

December 31, 1998
-----------------

FNMA $199 $-- $-- $199
GNMA -- -- -- --
FHLMC 464 1 3 462
---- --- --- ----

Total $663 $ 1 $ 3 $661
----- ==== === === ====

F-16
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

<PAGE>
<PAGE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(1,000'S)
-----------------------------------------------
<S> <C> <C> <C> <C>

December 31, 1997
-----------------

FNMA $ 433 $-- $ 7 $ 426
GNMA -- -- -- --
FHLMC 836 1 14 823
------ --- --- ------

Total $1,269 $ 1 $21 $1,249
----- ====== === === ======
</TABLE>

The above securities are issued, guaranteed or collateralized by one
of the following: the Government National Mortgage Association
(GNMA), the Federal National Mortgage Association (FNMA) or the
Federal Home Loan Mortgage Corporation (FHLMC).

A summary of maturities, by contractual maturity, of mortgage-backed
and related securities held-to-maturity and available-for-sale as of
December 31, 1998 is shown below.

<TABLE>
<CAPTION>
SECURITIES SECURITIES
HELD-TO-MATURITY AVAILABLE-FOR-SALE
--------------------- ---------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
(1,000'S)
----------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
In one year or less $ - $ - $535 $532
After one year through
five years 2,649 2,662 128 129
After five years through
ten years 548 550 - -
After ten years 1,054 1,073 - -
------ ------ ---- ----

Total $4,251 $4,285 $663 $661
----- ====== ====== ==== ====
</TABLE>

F-17
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

A summary of maturities, by contractual maturity, of mortgage-backed
and related securities held-to-maturity and available-for-sale as of
December 31, 1997 is shown below.

<TABLE>
<CAPTION>
SECURITIES SECURITIES
HELD-TO-MATURITY AVAILABLE-FOR-SALE
--------------------- ---------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
--------- --------- --------- ---------
(1,000'S)
----------------------------------------------
<S> <C> <C> <C> <C>
Mortgage-backed securities:
In one year or less $ - $ - $ - $ -
After one year through
five years 3,366 3,305 1,269 1,249
After five years through
ten years 761 753 - -
After ten years 1,610 1,636 - -
------ ------ ------ ------

Total $5,737 $5,694 $1,269 $1,249
----- ====== ====== ====== ======
</TABLE>

For the year ended December 31, 1997, the Company sold mortgage-
backed securities resulting in net realized gains of $7,000 having a
net after-tax effect of $4,300. These securities were sold for
total proceeds of $1,084,000. No mortgage-backed securities were
sold during 1998.

F-18
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

4. LOANS RECEIVABLE, NET

A comparative summary of loans receivable follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---- ----
(1,000'S)
---------------------
<S> <C> <C>
Type of Loan:
------------
Real estate loans:
One- to four-family residential $28,475 $37,546
Multi-family residential 1,028 1,433
Construction 653 381
Church 1,671 1,735
Commercial 3,171 3,140
------- -------
Total Real Estate Loans $34,998 $44,235
------- -------

Consumer loans: (Net of unearned
Discount of $4,000 at December 31,
1998 and $8,000 at December 31, 1997)
Automobiles $ 466 $ 508
Savings account 384 477
Home improvement 848 779
Other 284 1,157
------- -------

Total Consumer Loans $ 1,982 $ 2,921
------- -------

Total Gross Loans $36,980 $47,156
------- -------

Less:
Loans in process $ 182 $ 375
Deferred service charge 44 74
Allowance for loan losses 372 400
------- -------

Total $36,382 $46,307
----- ======= =======
</TABLE>

A summary of impaired loans at December 31, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---- ----
(1,000'S)
---------------------
<S> <C> <C>

Nonaccrual loans $478 $619
==== ====

Allowance for loan losses on
impaired loans $ 72 $ 62
==== ====

Average balance of impaired loans
During the year $559 $618
==== ====
</TABLE>

F-19
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

Additional gross interest income of approximately $13,000 and
$23,000 for the years ended December 31, 1998 and 1997,
respectively, would have been recorded on nonaccrual loans if
interest income had been recognized throughout the periods. None of
this income was actually recognized during these periods.

5. INVESTMENTS REQUIRED BY LAW

Investments available-for-sale required by law consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---- ----
(1,000'S)
---------------------
<S> <C> <C>

Federal Home Loan Bank stock $416 $454
Federal Reserve Bank stock 123 123
---- ----

Total $539 $577
----- ==== ====
</TABLE>
The above investments are valued at cost, which represents
redemption value and approximates fair value. Redemption proceeds
of $46,000 was received during the year ended December 31, 1998
resulting in no net realized gain or loss.

6. ALLOWANCE FOR LOAN LOSSES

A summary of the changes in the allowance for loan losses for the
years ended December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---- ----
(1,000'S)
---------------------
<S> <C> <C>

Balance at beginning of period $ 400 $300

Write offs (141) (60)
Recoveries 7 4
Provision for loan loss 106 156
---- ----

Balance at end of period $372 $400
==== ====
</TABLE>

F-20
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

7. ALLOWANCE FOR OTHER REAL ESTATE

A summary of the changes in the allowance for other real estate for
the years ended December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---- ----
(1,000'S)
---------------------
<S> <C> <C>
Balance at beginning of period $ 3 $ 5

Provision for other real estate loss - 10
Sales of other real estate (3) (12)
--- ----

Balance at end of period $ - $ 3
=== ====
</TABLE>

8. ACCRUED INTEREST RECEIVABLE

Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---- ----
(1,000'S)
---------------------
<S> <C> <C>
Investment securities $ 75 $110

Mortgage-backed securities 26 36
Accrued dividends - FHLB stock 7 8
Loans 121 138
---- ----

Total $229 $292
----- ==== ====
</TABLE>

F-21
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

9. PROPERTY, EQUIPMENT AND PROPERTY HELD FOR INVESTMENT

Property, equipment and property held for investment are summarized
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---- ----
(1,000'S)
---------------------
<S> <C> <C>
Land and land improvements $164 $164
Office buildings and improvements 286 282
Furniture property and real estate held 434 348
Rental property and real estate held
For development 81 81
---- ----

$965 $875
Less - Accumulated depreciation 479 414
---- ---- ----

Total $486 $461
----- ==== ====
</TABLE>

Depreciation expense for the years ended December 31, 1998 and 1997
was $65,000 and $55,000, respectively.

F-22
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

10. DEPOSITS

Deposit accounts and interest rates at December 31, 1998 and 1997
were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------- ----------------------------------
PERCENT PERCENT
INTEREST OF INTEREST OF
RATE AMOUNT ACCOUNTS RATE AMOUNT ACCOUNTS
-------- ------ -------- -------- ------ --------
(1,000'S)

<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
accounts N/A $ 1,042 2.03% N/A $ 667 1.23%

NOW accounts 2.83%-3.33% $ 7,669 14.92% 2.93% $ 8,868 16.42%

Passbook 3.84%-4.23% $ 7,222 14.04% 3.84%-4.98% $ 7,055 13.05%

Christmas Club 4.08% $10 .02% 4.08% $ 8 0.01%

Certificate of Deposit
91 day 4.30%-4.32% $ 441 .86% 4.80%-4.81% $ 433 .80%
6 month 4.74%-4.82% 3,708 7.21% 5.30%-5.35% 3,962 7.33%
12 month 5.30%-5.37% 7,413 14.42% 5.60%-5.74% 9,508 17.60%
18 month 5.73%-5.77% 5,822 11.32% 5.68%-5.75% 2,107 3.90%
30 month 5.86%-5.91% 6,364 12.28% 5.86%-5.96% 6,238 11.55%
3 year 5.60%-5.98% 923 1.80% 5.70%-6.98% 2,047 3.79%
4 year 5.95%-6.05% 402 .78% 5.94%-6.05% 551 1.02%
5 year 5.43%-5.79% 614 1.19% 6.00%-6.08% 2,488 4.61%
6 year 6.04%-6.26% 1,095 2.13% 6.03%-6.30% 1,151 2.13%
8 year 6.49%-6.85% 1,393 2.71% 6.53%-6.85% 1,355 2.51%
Jumbo 4.29%-5.97% 4,007 7.79% 5.33%-6.25% 4.136 7.66%
---------- ------- ------ ---------- ------- ------

$32,182 62.59% $33,976 62.90%
------- ------ ------- ------

Individual retirement
Accounts 5.80%-5.93% $3,292 6.40% 5.75%-5.92% $ 3,448 6.38%
---------- ------- ------ ---------- ------- ------

Total $51,417 100.00% $54,022 100.00%
======= ====== ======= ======
</TABLE>

The following schedule sets forth the amount and maturities of time
deposits at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
------- -------
(1,000'S)
-------------------------
<S> <C> <C>
Maturing in - Less than one year $21,605 $25,571
- From one to two years 8,681 6,766
- From two to three years 3,571 2,268
- From three to four years 775 1,732
- From four to five years 326 529
- Over five years 516 558
------- -------

Total $35,474 $37,424
----- ======= =======
</TABLE>

F-23
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

<PAGE>
<PAGE>
The aggregate amount of time deposits with a minimum denomination of
$100,000 was approximately $4,007,000 at December 31, 1998 and
$4,136,000 at December 31, 1997.

The Bank did not have brokered deposits at December 31, 1998 and
1997. Deposits in excess of $100,000 are not federally insured.

Deposits by officers, directors and employees were $748,000 at
December 31, 1998 and $734,000 at December 31, 1997.

Interest expense on deposits for the years ended December 31, 1998
and 1997 is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---- ----
(1,000'S)
---------------------
<S> <C> <C>
Interest on passbooks $ 283 $ 266
Interest on NOW accounts 221 260
Interest on time deposits 2,049 2,074
Early withdrawal penalties (9) (13)
------ ------

Total $2,544 $2,587
----- ====== ======
</TABLE>

11. INCOME TAXES

The Company and the Bank file consolidated federal income tax
returns on a calendar year basis.

Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---- ----
(1,000'S)
---------------------
<S> <C> <C>
Current Tax Expense (Benefit)
-----------------------------
Federal $ (2) $ 151
State (10) 11
---- -----

Total Current $(12) $ 162
------------- ---- -----
Deferred Tax Expense (Benefit)
------------------------------
Federal $(75) $ (87)
State (12) (20)
---- -----

Total Deferred $(87) $(107)
-------------- ---- -----

Total Expense (Benefit) $(99) $ 55
- ----------------------- ==== =====
</TABLE>

F-24
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

A reconciliation of income taxes at the federal statutory rates to
the income tax expense in the financial statements is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---- ----
(1,000'S)
---------------------
<S> <C> <C>
Income tax at statutory rates $ (79) $ 74

State income tax - Net of federal tax
Effect (6) (7)
Tax exempt income (11) (14)
Other (3) 2
----- -----

Income tax expense (benefit) $ (99) $ 55
===== =====

Effective tax rates 42.67% 25.23%
===== =====
</TABLE>

The Tax Reform Act of 1986 set the statutory rate at 34% effective
July 1, 1987. For the periods presented, deferred tax expense
results from timing differences in the recognition of income and
expense for tax and financial reporting purposes.

The tax effects of temporary differences that give rise to the
deferred tax assets and deferred tax liabilities at December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---- ----
(1,000'S)
---------------------
<S> <C> <C>
Deferred tax assets:

Allowance for loan losses $144 $155
Deferred loan fees 12 19
Benefits not currently deductible 123 87
Mortgage adjustment not currently
deductible 57 -
Other (2) -
---- ----

Total Deferred Tax Assets $334 $261
------------------------- ---- ----
</TABLE>

F-25
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
---- ----
(1,000'S)
---------------------
<S> <C> <C>
Deferred tax liabilities:
Federal Home Loan Bank
Stock dividends $ 18 $ 18
Allowance for unrealized gains
on securities available-for-sale 8 1
Tax basis bad debt reserve 38 51
Difference between book and tax
Depreciation 32 30
---- ----

Total Deferred Tax Liabilities $ 96 $100
---- ----

Net Deferred Tax Asset (Liability) $238 $161
==== ====
</TABLE>

The net deferred tax asset shown for the year ended December 31,
1998 has been reduced by a valuation allowance of $3,000. This
allowance has been provided to reduce the estimated net realizable
value of the Company's 1998 Illinois net operating loss to the
amount of tax benefit management believes it will realize.

No valuation allowance was required for the net deferred tax asset
at December 31, 1997.

There was no material tax effect relating to gains or losses on
security sales for the year ended December 31, 1998.

Taxes relating to gains on security sales were approximately $4,000
for the year ending December 31, 1997.

12. PENSION PLAN, BENEFIT PLANS AND AGREEMENTS

Financial Institutions Retirement Fund

The Bank participates in an industry-wide tax qualified pension
trust administered by the Financial Institutions Retirement Fund
(the "Fund"). An employee will be eligible for membership in the
Comprehensive Retirement Program on the first day of the month
following the employee's first year of service and attainment of age
21. A member will be considered active or inactive depending on
whether or not he or she completes 1,000 hours of service each
calendar year.

For the plan year beginning July 1, 1998, the full funding
limitation will continue to be applied on an employer-by-employer
basis. Each employer in an overfunded position will use its excess
designated "Future Employer Contribution Offset" to absorb future
contribution requirements. Employers who are in an unfunded
position are billed by the Fund for their required contributions.

The actuarial cost method used to value all benefits except pre-
retirement death and disability benefits is the projected unit
credit cost method. For the pre-retirement death and disability
benefits, a one year term cost method is used to determine the
employer contribution. In the actuarial valuation, assumptions are
made as to future compensation levels, mortality and turnover, among
other things. Unfunded accrued liabilities and actuarial experience
gains and losses are amortized over various

F-26
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

periods prescribed by law. Actuarial gains and losses are spread as
a part of the valuation method. The market value of the net assets
of the Fund exceeds the liabilities for the present value of accrued
benefits.

Separate actuarial valuations are not made with respect to each
employer, nor are the plan assets so segregated. The Bank's
(formerly the Association's) prior service costs have been funded
and are being amortized over a ten-year period. Current funding
costs are charged to operations. Total pension expense for the
years ended December 31, 1998 and 1997 was $0 for both years.

EMPLOYEE STOCK OWNERSHIP PLAN

The Company has established a tax qualified ESOP for employees of
the Company and its subsidiary. Employees who have attained age 21
and completed one year of service are eligible to participate in the
ESOP. On June 28, 1996, the Company loaned the ESOP $701,500 to
finance the plan's initial purchase of 70,150 shares. The loan is
due and payable in ten (10) annual payments of principal and
interest beginning December 31, 1996. The principal is to be repaid
in equal installments with interest at a variable rate of 1% above
prime. The Company intends to contribute sufficient funds to the
ESOP to enable it to repay the loan plus such other amounts as the
Company's Board of Directors may determine in its discretion. The
Company accounts for its ESOP in accordance with SOP 93-6. As
shares are committed to be released to participants, the Company
reports employee benefits expense based on the average market price
of the shares during the period and the shares become outstanding
for earnings per share computations. Dividends on allocated ESOP
shares are recorded as a reduction of retained earnings; dividends
on unallocated ESOP shares are recorded as a reduction of debt.
ESOP benefits expense recorded during the years ended December 31,
1998 and 1997 was $128,378 and $153,762, respectively.

The ESOP shares were as follows:

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Allocated shares 18,239 8,418
Shares ratably released for allocation 8,985 9,821
Unallocated shares 42,926 51,911
Shares distributed (1,211) -
------ ------

Total ESOP Shares 68,939 70,150
----------------- ====== ======
</TABLE>

Fair value of unreleased shares at December 31, 1998 and 1997 was
$633,000 and $811,000, respectively.

DIRECTOR RETIREMENT PLAN

In connection with the stock conversion of the Association to the
Bank, the Board of Directors of the Association (now the Bank) has
adopted a director retirement plan (the "Director Retirement Plan"),
effective December 31, 1995, for its directors who are members of
the Board of Directors at some time on or after the Director
Retirement Plan's effective date. Under the Director Retirement
Plan, a bookkeeping account in each participant's name is credited
with "Performance Units" according to the following formula: (i) 70
Performance Units for each full year of service as a director prior
to 1996 plus (ii) 100 Performance Units for each full year of
service as a director after 1995 with the value of each Performance
Unit equal to the average fair market value of one share of the
Company's Common Stock as of December 31st of each of the three
years preceding the determination date (or such shorter period as to
which trading information is available). Additional Performance
Units are to be credited at the end

F-27
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

of each year after 1995 based upon the amount of dividends paid on
the Company's Common Stock. A participant's interest in Performance
Units credited on the effective date of the Director Retirement Plan
becomes 50% vested if the participant serves on the Board for less
than a year after 1995, 75% vested after the second year and 100%
vested after the third year. In the event a participant's service
on the Board is terminated due to death or disability, the vested
percentage becomes 100% regardless of the number of years of
service. Performance Units credited after the Director Retirement
Plan's effective date are fully vested at all times.

As of December 31, 1998 and 1997, liabilities in the amounts of
$120,709 and $82,657, respectively, have been recognized in the
financial statements based on the vested value of the interests in
the director retirement plan as of these dates. The amount of
expense recognized in the financial statements for the years ended
December 31, 1998 and 1997 was $38,052 and $38,738, respectively.

MANAGEMENT RECOGNITION PLAN

On January 28, 1997, the shareholders of the Company approved a
management recognition plan ("MRP"). With funds contributed by the
Company, the MRP has purchased, in the aggregate, 35,075 shares of
the Company's Common Stock (the maximum number of shares allowed to
be purchased). Such shares were purchased in the open market. In
June, 1997, the MRP's administrative committee voted to grant awards
of Common Stock totaling 21,917 shares to certain executive officers
and directors of the Company and the Bank. These awards are deemed
to be effective as of the date of shareholder approval of the MRP.
Common Stock granted under the MRP vests over a five year period at
twenty percent per year. Under current accounting standards, when
MRP awards are granted, the Company will recognize compensation
expense based on the fair market value of the Common Stock on the
date the awards are granted with such amount being amortized over
the expected vesting period for the award. As of December 31, 1997,
35,075 shares had been purchased on the open market by the MRP to
fund the plan at a total cost of approximately $552,000. This
amount has been recorded in the consolidated financial statements as
an increase in a contra equity account. This contra equity account
will be amortized to expense over the period over which the MRP
awards become vested. The amount of expense recognized in the
financial statements for the year ended December 31, 1998 and 1997
was $61,368 and $56,254, respectively.

STOCK OPTION AND INCENTIVE PLAN

Also on January 28, 1997, the shareholders of the Company approved a
stock option and incentive plan (the "Option Plan"). The Option
Plan provides for the granting of stock options and stock
appreciation rights to certain employees and directors of the
Company and the Bank and has a term of ten years from the effective
date of the Option Plan after which no awards may be granted. The
Option Plan intends to reserve 87,687 authorized, but unissued
shares (or treasury shares) of Common Stock for issuance upon the
future exercise of options or stock appreciation rights. At the
effective date of the plan, certain executive officers and directors
of the Company and the Bank will receive a grant of an option under
the plan to purchase up to 87,683 shares of Common Stock at an
exercise price per share equal to its fair market value on that
date. The plan provides for one-fifth of the options granted to be
exercisable on each of the first five anniversaries of the date the
option was granted. The Company applies APB-25 in accounting for the
Option Plan. Recognition of compensation expense for stock options
is not required when options are granted at an exercise price equal
to or exceeding the fair market value of the Company's Common Stock
on the date the option is granted. Therefore, no expense related to
the Option Plan is reflected on the accompanying financial
statements.

F-28
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

Had compensation cost been determined on the basis of fair value
pursuant to FASB Statement No. 123, net income and earnings per
share would have been reduced as follows:

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net Income
----------
As reported $(133,000) $163,000
========= ========
Pro forma $(171,000) $113,000
========= ========

Basic earnings per share
------------------------
As reported $ (.17) $ .20
========= ========
Pro forma $ (.21) $ .14
========= ========

Diluted earnings per share
--------------------------
As reported $ (.17) $ .20
========= ========
Pro forma $ (.21) $ .14
========= ========
</TABLE>

The following is a summary of the status of the stock option plan during
1998 and 1997:

<TABLE>
<CAPTION>
1998 1997
-------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE SHARES PRICE
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Outstanding at January 87,683 $1,227,618 - $ -
Granted - - 87,683 1,227,618
Exercised - - - -
Forfeited - - - -
====== ========== ====== ==========

Outstanding at December 31 87,683 $1,227,618 87,683 $1,227,618
====== ========== ====== ==========

Options exercisable at
December 31 17,537 $ 245,518 - $ -
====== ========== ====== ==========

Weighted average fair value of
options granted during the year $ - $1,227,618
========== ==========
</TABLE>

The following is a summary of the status of options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
-------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICE NUMBER LIFE PRICE NUMBER PRICE
-------- ------ ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$14.00 87,683 8 years $14.00 17,537 $14.00
</TABLE>

F-29
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

EMPLOYMENT AGREEMENTS

The Company and the Bank have entered into separate employment
agreements with certain officers of the Company and the Bank. These
agreements provide for salary terms, potential severance benefits
and potential benefits which could be due to these officers in the
event of a change in control of the Company.

13. REGULATORY MATTERS

The Company is regulated by the Board of Governors of the Federal
Reserve System ("FRB") and is subject to securities registration and
public reporting regulations of the Securities and Exchange
Commission. The Bank is regulated by the Federal Deposit Insurance
Corporation ("FDIC") and the Office of the Comptroller of the
Currency ("OCC").

The Bank is subject to the capital requirements of the FDIC and the
OCC. The FDIC requires the Bank to maintain minimum ratios of Tier
1 capital to total risk-weighted assets and total capital to risk-
weighted assets of 4% and 8%, respectively. Tier 1 capital consists
of total shareholders' equity calculated in accordance with
generally accepted accounting principles less intangible assets, and
total capital is comprised of Tier 1 capital plus certain
adjustments, the only one of which is applicable to the Bank is the
allowance for possible loan losses. Risk-weighted assets refer to
the on- and off-balance sheet exposures of the Bank adjusted for
relative risk levels using formulas set forth in FDIC regulations.
The Bank is also subject to an FDIC leverage capital requirement,
which calls for a minimum ratio of Tier 1 capital to quarterly
average total assets of 3% to 5%, depending on the institution's
composite ratings as determined by its regulators.

At December 31, 1998 and 1997, the Bank was in compliance with all
of the aforementioned capital requirements as summarized below.

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---- ----
(1,000'S)
-----------------------
<S> <C> <C>
Tier I Capital:
Common stockholders' equity $ 9,585 $ 9,543
Unrealized holding loss (gain) on
securities available-for-sale 2 13
------- -------

Total Tier I Capital $ 9,587 $ 9,556
-------------------- ======= =======

Tier II Capital:
Total Tier I capital $ 9,587 $ 9,556
Qualifying allowance for loan losses 372 400
------- -------

Total Capital $ 9,959 $ 9,956
------------- ======= =======

Risk-weighted assets $31,561 $35,404
Average assets $61,255 $65,988

</TABLE>

F-30
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER THE
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
----------- -------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Risk-Based Capital
(to Risk-Weighted Assets) $9,959 31.55% $2,525 > or = 8.0% $3,156 > or = 10.0%
Tier I Capital
(to Risk-Weighted Assets) 9,587 30.38% 1,262 > or = 4.0% 1,894 > or = 6.0%
Tier I Capital
(to Average Assets) 9,587 15.65% 2,450 > or = 4.0% 3,063 > or = 5.0%

As of December 31, 1997:
Total Risk-Based Capital
(to Risk-Weighted Assets) $9,956 28.12% $2,833 > or = 8.0% $3,541 > or = 10.0%
Tier I Capital
(to Risk-Weighted Assets) 9,556 26.99% 1,416 > or = 4.0% 2,125 > or = 6.0%
Tier I Capital
(to Average Assets) 9,556 14.48% 2,640 > or = 4.0% 3,299 > or = 5.0%

</TABLE>

Subject to applicable law, the Boards of Directors of the Company
and the Bank may each provide for the payment of dividends. Future
declarations of cash dividends, if any, by the Company may depend
upon dividend payments by the Bank to the Company. Subject to
regulations of the OCC, the Bank may not declare or pay a cash
dividend if its stockholder's equity would thereby be reduced below
either the aggregate amount then required for the liquidation
account of the minimum regulatory capital requirements imposed by
federal regulations. The Bank may not declare or pay a cash
dividend to the Company in excess of 100% of its net income to date,
less dividends paid, during the current calendar year plus the
preceding year's net income, less any dividends paid or declared
during that year without prior regulatory approval.

Retained earnings at December 31, 1998 include approximately
$1,200,000 for which federal income tax has not been provided. The
Bank was allowed a special bad debt deduction limited generally to 8
percent of otherwise taxable income and subject to certain
limitations based on aggregate loans and savings account balances at
the end of the year. If the amounts that qualify as deductions for
federal income tax purposes are later used for purposes other than
for bad debt losses, they will be subject to federal income tax at
the then current corporate rate. The unrecorded deferred tax
liability on the above amount is approximately $450,000.

On June 3, 1998, the Bank entered into a formal agreement with the
OCC. The agreement requires that the Bank adopt a formal strategic
plan, including a written plan with timetables to ensure that all of
its information systems are Year 2000 compliant, and to take certain
other actions with respect to the internal audit and compliance
functions and its policies and procedures. The Bank does not expect
that such written agreement will have a material adverse effect on
its operations.

F-31
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

14. OTHER NONINTEREST INCOME AND EXPENSE

Other noninterest income and expense amounts are summarized as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
---- ----
(1,000'S)
-----------------
<S> <C> <C>
Other Noninterest Income
------------------------
Service charges $102 $103
Other 32 18
---- ----

Total $134 $121
----- ==== ====

<CAPTION>
DECEMBER 31,
-----------------
1998 1997
---- ----
(1,000'S)
-----------------
<S> <C> <C>
Other Noninterest Expense
-------------------------
Contributions $ 8 $ 6
Dues and subscriptions 11 10
General assessment 37 28
Insurance and surety bond 22 19
Payroll taxes 41 41
Real estate owned expense 37 10
Other 42 46
Filing fees 8 9
Printing -- 28
Conventions and meetings 2 8
Employee education and seminars 10 2
Miscellaneous fees 5 5
---- ----

Total $223 $212
----- ==== ====

</TABLE>

F-32
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

15. RELATED PARTY TRANSACTIONS

Officers and directors of the Company and the Bank, and individuals
related to such individuals, incurred indebtedness in the form of
loans as customers. These loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with other customers and did
not involve more than the normal risk of collectibility. The
balance of these loans at December 31, 1998 and 1997, totaled
approximately $270,000 and $585,000, respectively.

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
---- ----
(1,000'S)
-----------------
<S> <C> <C>
Balance at January 1 $585 $542

New Loans 8 112
Payments (323) (69)
---- ----

Balance at December 31 $270 $585
==== ====

</TABLE>

16. DEFERRED COMPENSATION

The Company has an agreement with certain directors to invest a part
of current directors fees. These fees are held in Company accounts
at the Bank's highest certificate rate until the permanent
disability, resignation or removal from office of the director, at
which time the fees are payable in either a lump sum or on a monthly
installment basis as directed by an election made by the director.

The total liability is $67,000 and $65,000 for the years ended
December 31, 1998 and 1997, respectively. A $4,000 payment was made
from the accounts during 1998. Deferred compensation contributions
charged to income for the years ended December 31, 1998 and 1997
were $3,000 and $0, respectively.

17. COMMITMENTS AND CONTINGENCIES

The Bank is, in the normal course of business, a party to certain
off-balance-sheet financial instruments with inherent credit risk.
These instruments, which include commitments to extend credit and
standby letters of credit, are used by the Bank to meet the
financing needs of its customers. These instruments involve, to
varying degrees, credit risk in excess of the amount recognized in
the Company's statements of financial condition.

F-33
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Financial instruments with off-balance-sheet credit risk for which
the contract amounts represent potential risk were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1998 1997
---- ----
(1,000'S)
-----------------------------------------
INTEREST INTEREST
AMOUNT RATE AMOUNT RATE
------ ---- ------ ----
<S> <C> <C> <C> <C>
Commitments to extend credit - Fixed $189 7.75%-9.50% $113 8.75%-9.50%
- Variable 292 7.25%-7.875% 45 7.88%
Letters of credit 20 N/A -- N/A
---- ----

Total $501 $158
==== ====
</TABLE>

The Company's maximum exposure to credit loss under commitments to
extend credit and standby letters of credit is the equivalent of the
contractual amount of those instruments. The same credit policies
are used by the Company in granting commitments and conditional
obligations as are used in the extension of credit.

The commitments noted above consist of loans approved by the Bank
with the funds not yet being disbursed. Commitments to extend
credit are legally binding agreements to lend to a borrower as long
as the borrower performs in accordance with the terms of the
contract. Commitments generally have fixed expiration dates or
other termination clauses. As a portion of the commitments may
expire without being drawn upon, the total commitment amount does
not necessarily represent future cash requirements.

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

Collateral may be required by both commitments and standby letters
of credit in accordance with the normal credit evaluation process
based upon the creditworthiness of the customer and the credit risk
associated with the particular transaction. Collateral held varies
but may include residential and commercial real estate, accounts
receivable, inventory and equipment.

The Company is a defendant in lawsuits filed by three former
employees asking for damages in excess of $240,000. Outside counsel
for the Company has advised the Company that, at this stage in the
proceedings, they cannot offer an opinion as to the probable
outcome. The Company is vigorously defending its position. No
amounts have been recorded in the financial statements for these
matters.

18. CONCENTRATION OF CREDIT RISK

Most of the Bank's business activity is with customers located
within Williamson, Jackson and Franklin counties in Illinois. At
December 31, 1998 and 1997, the Bank was considered to have a
significant concentration of credit risk for loans made to various
local churches. Loans made to various churches total $1,671,000 and
$1,735,000 at December 31, 1998 and 1997, respectively. This
comprises 5% of the total loan portfolio and 15% of tangible capital
at December 31, 1998.

F-34
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

At December 31, 1998, the Company had cash balances in excess of the
FDIC limits at other institutions of approximately $12,098,000.

19. LIQUIDATION ACCOUNT

At the time of the conversion from mutual to stock form, the Bank
established a liquidation account for the benefit of eligible
savings account holders who continue to maintain their savings
accounts with the Bank after conversion. In the event of a complete
liquidation of the Bank (and only in such event), eligible savings
account holders who continue to maintain their accounts with the
Bank shall be entitled to receive a distribution from the
liquidation account after payment to all creditors but before any
liquidation distribution with respect to common stock. The initial
liquidation account will be proportionately reduced for any
subsequent reduction in the eligible holder's deposit accounts. The
creation and maintenance of the liquidation account will not
restrict the use or application of any of the capital accounts of
the Company, except that the Company may not declare or pay a cash
dividend on, or repurchase any of, its capital stock if the effect
of such dividend or repurchase would be to cause the Company's
equity to be reduced below the aggregate amount then required for
the liquidation account or the amount required by federal or state
law.

20. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as disclosed herein:

Cash and cash equivalents and certificates of deposit - The carrying
amount of cash and short-term instruments approximate their fair
value.

Securities held-to-maturity and securities available-for-sale - Fair
values for investment securities, excluding restricted equity
securities, are based on quoted market prices. The carrying values
of restricted equity securities approximate fair values.

Loans receivable and loan commitments - For variable-rate loans that
reprice frequently and have no significant change in credit risk,
fair values are based on carrying values. Fair values for certain
mortgage loans (e.g., one-to-four family residential), other
consumer loans, commercial real estate and commercial loans are
estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality. Fair values for impaired loans are
estimated using discounted cash flow analyses or underlying
collateral values, where applicable.

The fair value of commitments to extend credit is estimated using
fees currently charged to enter into similar agreements and the
creditworthiness of the customers. The fair value of letters of
credit is based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the
obligations with the counterparties at the reporting date.

Investments required by law - Stock in Federal Home Loan Bank and
stock in Federal Reserve Bank are valued at cost which represents
redemption value and approximates fair value.

Deposit liability - The fair values disclosed for demand deposits
are, by definition, equal to the amount payable on demand at the
reporting date (that is, their carrying amounts). The carrying
amounts of

F-35
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

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.

Accrued interest - The carrying amounts of accrued interest
approximate their fair values.

Short-term borrowings - As a result of the short-term nature of
these instruments, the carrying amount approximates their fair
value.

The Company, in accordance with SFAS No. 107, has estimated fair
values of the financial instruments as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------------------ -----------------------
(1,000'S) (1,000'S)
------------------------ -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $12,202 $12,202 $ 4,970 $ 4,970

Certificates of deposit 1,379 1,379 95 95

Investment securities and
mortgage-backed and related
securities 11,344 11,411 14,327 14,308

Loans 36,754 38,392 46,707 45,839
Allowance for loan losses (372) -- (400) --
------- ------- ------- -------

Loans, net of allowance 36,382 38,392 46,307 45,839

Investments required by law 539 539 577 577

Accrued interest receivable 229 229 292 292

Financial Liabilities:
Deposits 51,417 51,699 54,022 54,145

Escrow accounts 205 205 228 228

Accrued interest on deposits 49 49 63 63

Short-term borrowings -- -- 750 750

Off Balance Sheet Financial
Instruments:
Loan Commitments -- -- -- --
Letters of Credit -- -- -- --

</TABLE>

F-36
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

21. PARENT COMPANY FINANCIAL INFORMATION

The following are condensed balance sheets as of December 31, 1998
and 1997 and condensed statements of income and cash flows for the
periods ended December 31, 1998 and 1997 for Heartland Bancshares,
Inc. (parent company only):

<TABLE>
CONDENSED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
------------------
1998 1997
---- ----
(1,000'S)
------------------
<S> <C> <C>
Assets:
Cash $ 268 $ 439
Investment securities and mortgage-
backed securities 1,275 2,104
Investment in subsidiary 4,735 4,694
Other assets 219 233
------ ------

Total Assets $6,497 $7,470
====== ======

Liabilities and Stockholders' Equity:
Other liabilities $ 52 $ 175
Stockholders' equity 6,445 7,295
------ ------

Total Liabilities and Stockholders'
Equity $6,497 $7,470
====== ======

</TABLE>

F-37
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>
<TABLE>

CONDENSED STATEMENTS OF INCOME
<CAPTION>
DECEMBER 31,
------------------
1998 1997
---- ----
(1,000'S)
------------------
<S> <C> <C>
Interest income $157 $245
Other (1) 4
----- ----

$156 $249
Operating expenses 433 337
----- ----

Income (loss) before income taxes and equity
in undistributed earnings of subsidiary $(277) $(88)

Income tax expense (benefit) (113) (46)
----- ----

Income (loss) before equity in undistributed
earnings of subsidiary $(164) $(42)

Equity in undistributed earnings of subsidiary 31 205
----- ----

Net Income $(133) $163
===== ====
</TABLE>
F-38
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
DECEMBER 31,
------------------
1998 1997
---- ----
(1,000'S)
------------------
<S> <C> <C>
Operating activities:
Net income $(133) $ 163
Equity in undistributed earnings of
subsidiary (31) (205)
Other, net 87 271
----- -----

Net Cash Used in Operating Activities $ (77) $ 229
----- -----

Investing activities:
Net (increase) decrease in investment
securities $ 829 $ 641
----- -----

Net Cash Used in Investing Activities $ 829 $ 641
----- -----

Financing activities:
Dividends paid $(239) $(326)
Shares acquired by MRP -- (552)
Purchase of treasury stock (684) --
----- -----

Net Cash Provided by Financing Activities $(923) $(878)
----- -----

Net Change in Cash and Cash Equivalents $(171) $ (8)

Cash and Cash Equivalents at Beginning of Year 439 447
----- -----

Cash and Cash Equivalents at End of Year $ 268 $ 439
===== =====

</TABLE>

F-39
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

22. SHORT-TERM BORROWINGS

The following information relates to the short-term borrowings of the
Company for the years ended December 31, 1998 and 1997.

<TABLE>
DECEMBER 31,
------------------
1998 1997
---- ----
(1,000'S)
------------------
<S> <C> <C>

Federal Home Loan Bank borrowings:
Balance at year end $ -- $ 750

Weighted average interest rate
at year end --% 5.86%

Average amount outstanding during
the year $ 45 $1,375

Maximum amount outstanding at
any month $750 $1,750

Weighted average interest rate
during the year 5.86% 5.69%
</TABLE>

Short-term borrowings consisted of borrowings from the Federal Home
Loan Bank with maturities greater than one business day.

F-40
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

23. EARNINGS PER SHARE

The following data shows the amounts used in computing earnings per
share and the effect on income and the weighted average number of
shares of dilutive potential common stock.

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Income (loss) available to common stockholders
used in basic EPS $(133,000) $163,000
========= ========

Income (loss) available to common stockholders
after assumed conversions of dilutive
securities $(133,000) $163,000
========= ========

Weighted average number of common shares
used in basic EPS 800,174 819,736

Effect of dilutive securities:
Stock options 1,767 7,784
--------- --------

Weighted number of common shares and
dilutive potential common stock used
in diluted EPS 801,941 827,520
========= ========
</TABLE>

24. SEGMENT INFORMATION

As discussed in Note 1, during 1998, the Company adopted the
appropriate provisions of SFAS No. 131. The principal business of
the Company is overseeing the business of the Bank and investing the
portion of the net proceeds from its initial public offering
retained by it. The Company has no significant assets other than
its investment in the Bank, a loan to the ESOP plan and certain
investment securities and cash and cash equivalents. The Bank's
principal business consists of attracting deposits from the general
public and investing these deposits in loans to its customers. The
Bank's operating facilities are contained in Williamson County,
Illinois, and its lending is concentrated within the counties of
Williamson, Jackson and Franklin located in southeastern Illinois.
The Bank has no customer from which it derives 10% or more of its
revenue. With these facts in mind, the Company's management
believes that the Company is comprised of only one reportable
operating segment, and that the consolidated financial statements
adequately reflect the financial condition and operations of that
segment.

25. PROPOSED MERGER

On December 23, 1998, an Agreement and Plan of Merger (the
"Agreement") was entered into by the following parties: (1) the
Company; (2) Banterra Corp. ("Banterra"); and (3) Banterra
Acquisitionco, Inc. ("Acquisitionco"), a wholly owned subsidiary of
Banterra. The Agreement provides for the acquisition of the Company
by Banterra by means of a merger (the "Merger"), with the Company
surviving the Merger and becoming a wholly owned subsidiary of
Banterra. The Agreement provides that the Merger is subject to the
approval of all applicable regulatory agencies, the approval by the
holders of the Company's Common Stock and the satisfaction or waiver
of a number of other conditions. Subject to these conditions, the
Agreement provides that each outstanding share of the

F-41
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

Company's Common Stock will be cancelled and converted into the
right to receive $15.75 in cash. Also, under conditions specified
in the Agreement, each holder of an option to acquire the Company's
Common Stock that is outstanding and fully vested will be cancelled
and converted into the right to receive $1.75 in cash multiplied by
the number of shares covered by the option. Approval of the
Agreement and the Merger will require the affirmative vote of at
least two-thirds of all votes entitled to be cast by the Company's
shareholders. The Agreement has been approved and adopted by the
Board of Directors of the Company and Banterra. A special meeting
of the Company's shareholders is scheduled to be held in the first
half of 1999 to vote on the proposed Merger.

26. STOCK REPURCHASE PLAN AND TREASURY STOCK

During 1998, the Board of Directors of the Company adopted a program
to repurchase 43,843 shares, or 5%, of the Company's outstanding
Common Stock. It is management's current intention that all
repurchased shares will be held as treasury stock and will be used
for general corporate purposes, including the exercise of stock
options. As of December 31, 1998, the repurchase program has been
completed, with 43,843 shares being repurchased under the Stock
Repurchase Plan. During the third quarter of 1998, the Company
acquired another 199 shares of treasury stock in a transaction
unrelated to the Stock Repurchase Plan.

27. MORTGAGE RATE ADJUSTMENT

During the fourth quarter of 1998, the Bank conducted a review of
interest rate adjustments made in the past relating to adjustable
rate mortgages. Based upon this review, the Bank has determined
that it is probable that rebates of excess interest income should be
made to a portion of the Bank's adjustable rate loan customers. The
Bank currently estimates the amount of these potential rebates at
$148,300. This amount has been recorded as a liability on the
December 31, 1998 consolidated statement of financial condition, and
has been recorded as a charge to current period operations on the
consolidated statements of income. The after-tax effect of this
charge is approximately $87,000.

28. YEAR 2000 COMPLIANCE MATTERS

As with all providers of financial services, the Bank's operations
are heavily dependent on information technology systems. The bank
is addressing the potential problems associated with the possibility
that the computers that control or operate the Bank's information
technology systems and infrastructure may not be programmed to read
four-digit date codes and, upon arrival of the year 2000, may
recognize the two-digit code "00" as the year 1900, causing systems
to fail to function or to generate erroneous data.

As part of the awareness, inventory and assessment phases of its
action plan related to the Year 2000 problem, the Bank has
identified the operating systems which are considered critical to
the ongoing operations of the Bank and the Company. The Bank is
working with companies that supply or service its information
technology systems to remedy any perceived Year 2000 problems. As a
part of the implementation of its Year 2000 action plan, the Bank
has purchased a number of new computers which have been determined
to be Year 2000 compliant.

F-42
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

user participants and its on-line testing. The Bank's review of
this proxy test indicates that the transactions performed, the
hardware specifications and other factors used in the proxy test
closely match the Bank's own operational environment and available
hardware. The Bank intends to continue its own program of
appropriate testing of this and other mission critical systems.

The Bank is in the process of evaluating its non-technological
systems to determine whether such systems have embedded technology
that could be affected by the Year 2000 problem. As of the date
hereof, the Bank does not anticipate that any disruption relating to
such systems will have a material adverse effect on the Bank's
operations.

During 1998, the Bank developed a contingency plan in the event the
mission-critical systems are not successfully renovated in a timely
manner or such systems were to actually fail at Year 2000 critical
dates. Among other issues, that plan addresses the possibility that
NCR, the current data service provider, could fail to operate on
January 1, 2000. A business resumption plan was formed to deal with
this possibility. With respect to a short-term remedy for business
disruptions potentially caused by the Year 2000 problem, the Bank's
Board and management have determined that a manual system is the
most reasonable approach to allow the Bank to continue to
effectively serve its customer base. The business resumption plan
addresses preparation, logistics, departmental requirements and
guidelines for the potential handling of specific types of banking
transactions on such a manual basis.

Management has indicated that, as of December 31, 1998,
approximately $43,000 of expenditures have been incurred resulting
from the Bank's efforts to make its systems Year 2000 compliant.
Management is currently estimating that approximately $8,000 of
additional expenditures will be incurred during 1999 in connection
with this issue. No assurance can be given, however, that
significant expense will not be incurred in future periods. In the
event that the Bank is ultimately required to purchase additional
replacement computer systems, programs and equipment, or if the Bank
is required to incur substantial additional expense to make the
Bank's current systems, programs and equipment Year 2000 compliant,
the Bank's net earnings and financial condition could be adversely
affected.

In addition to possible expense related to its own systems, the Bank
could incur losses if loan payments are delayed due to Year 2000
problems affecting any major borrowers in the Bank's primary market
area. Because the Bank's loan portfolio is highly diversified with
regard to individual borrowers and types of businesses, and the
Bank's primary market area is not significantly dependent upon one
employer or industry, the Bank does not expect any significant or
prolonged difficulties that will affect net earnings or cash flow.

F-43
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

<PAGE>
<PAGE>
ANNEX A
-------

_________________, 1999

Board of Directors
Heartland Bancshares, Inc.
318 Park Avenue
Herrin, Illinois 62948

Members of the Board:

You have requested our opinion as to the fairness, from a financial
point of view, to the holders of common stock (the "Heartland Common
Stock") of Heartland Bancshares, Inc. ("Heartland") of the consideration to
be received by such shareholders in a merger (the "Merger") of Heartland
with Banterra Corp., Eldorado, Illinois ("Banterra"), pursuant to the
Agreement and Plan of Merger dated December 23, 1998 (the "Agreement").
Unless otherwise noted, all terms used herein will have the same meaning as
defined in the Agreement.

As more specifically set forth in the Agreement, and subject to a
number of conditions and procedures described in the Agreement, in the
Merger each of the issued and outstanding shares of Heartland Common Stock
shall be exchanged for $15.75 of cash. All outstanding and vested options
for the right to purchase Heartland Common Stock will be cancelled and
automatically converted into the right to receive $1.75 in cash.

Trident Financial Corporation ("Trident") is a financial consulting
and investment banking firm experienced in the valuation of business
enterprises with considerable experience in the valuation of thrift
institutions. In the past, Trident and its affiliates have provided
financial advisory services for Heartland and have received fees for the
rendering of these services. In addition, in the ordinary course of our
business we may trade the securities of Heartland for our own account and
for the accounts of our customers and, accordingly, may at any one time
hold a long or short position in such securities. Trident is not
affiliated with Heartland or Banterra.

In connection with rendering our opinion, we have reviewed and
analyzed, among other things, the following: (i) the Agreement; (ii)
certain publicly available information concerning Heartland, including the
audited financial statements for each year in the three year period ended
December 31, 1998; (iii) certain other internal information, primarily
financial in nature, concerning the business and operations of Heartland
furnished to us by Heartland for purposes of our analysis; (iv) information
with respect to the trading market for Heartland Common Stock; (v) certain
publicly available information with respect to other companies that we
believe to be comparable to Heartland and the trading markets for such
other companies' securities; and (vi) certain publicly available
information concerning the nature and terms of other transactions that we
believe relevant to our inquiry. We met with certain officers and
employees of Heartland to discuss the foregoing. We have also taken into
account our assessment of general economic, market, financial and
regulatory conditions and trends, as well as our knowledge of the thrift
industry, experience in connection with similar transactions and general
knowledge of securities valuation.

In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the
financial and other information provided to us or publicly available. We
have not attempted independently to verify any such information. We have
not conducted a physical inspection of the properties or facilities of
Heartland, nor have we made or obtained any independent evaluations or
appraisals of

A-1
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

any such properties or facilities. We did not specifically evaluate
Heartland's loan portfolio or the adequacy of reserves for possible loan
losses.

Based upon and subject to the foregoing, we are of the opinion that
the consideration to be received by the holders of Heartland Common Stock
in the Merger is fair, as of the date hereof, from a financial point of
view, to such holders. The standard employed by us in reaching our judgment
as to fairness of such consideration from a financial point of view was
whether our estimation of the economic value of such consideration is
within the range of estimated economic values within which companies having
the characteristics of Heartland and Banterra might negotiate a merger
transaction at arm's length and not whether such consideration is at or
approaching the higher end of such range.

Our opinion necessarily is based upon conditions as they exist and
can be evaluated on the date hereof and does not address Heartland's
underlying business decision to effect the Merger. Finally, our opinion
does not constitute a recommendation to any shareholder of Heartland as to
how such shareholder should vote at the shareholders' meeting held in
connection with the Merger.

This opinion is being delivered to the Board of Directors of
Heartland and may not be summarized, excerpted from, reproduced,
disseminated or delivered to any third party without the express written
consent of Trident. Our opinion is as of the date set forth above, and
events or circumstances occurring after this date may adversely impact the
validity of the bases of our opinion and/or such opinion.

Very truly yours,

TRIDENT FINANCIAL CORPORATION

A-2
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY

ANNEX B
-------

Following is the text of the dissenters' rights provisions set forth
at Sections 11.65 and 11.70, respectively, of the Illinois Business
Corporation Act of 1983, as amended:

Section 11.65. Right to Dissent. (a) A shareholder of a
corporation is entitled to dissent from, and obtain payment for his or her
shares in the event of any of the following corporate actions: (1)
consummation of a plan of merger or consolidation or a plan of share
exchange to which the corporation is a party if (i) shareholder
authorization is required for the merger or consolidation or the share
exchange by Section 11.20 or the articles of incorporation or (ii) the
corporation is a subsidiary that is merged with its parent or another
subsidiary under Section 11.30; (2) consummation of sale, lease or exchange
of all, or substantially all, of the property and assets of the corporation
other than in the usual and regular course of business; (3) an amendment of
the articles of incorporation that materially and adversely affects rights
in respect of a dissenter's shares because it: (i) alters or abolishes a
preferential right of such shares; (ii) alters or abolishes a right in
respect of redemption, including a provision respecting a sinking fund for
the redemption or repurchase, of such shares; (iii) in the case of a
corporation incorporated prior to January 1, 1982, limits or eliminates
cumulative voting rights with respect to such shares; or (4) any other
corporate action taken pursuant to a shareholder vote if the articles of
incorporation, by-laws, or a resolution of the board of directors provide
that shareholders are entitled to dissent and obtain payment for their
shares in accordance with the procedures set forth in Section 11.70 or as
may be otherwise provided in the articles, by-laws or resolution.

(b) A shareholder entitled to dissent and obtain payment for his or
her shares under this Section may not challenge the corporate action
creating his or her entitlement unless the action is fraudulent with
respect to the shareholder or the corporation or constitutes a breach of a
fiduciary duty owed to the shareholder.

(c) A record owner of shares may assert dissenters' rights as to
fewer than all the shares recorded in such person's name only if such
person dissents with respect to all shares beneficially owned by any one
person and notifies the corporation in writing of the name and address of
each person on whose behalf the record owner asserts dissenters' rights.
The rights of a partial dissenter are determined as if the shares as to
which dissent is made and the other shares were recorded in the names of
different shareholders. A beneficial owner of shares who is not the record
owner may assert dissenters' rights as to shares held on such person's
behalf only if the beneficial owner submits to the corporation the record
owner's written consent to the dissent before or at the same time the
beneficial owner asserts dissenters' rights.

Section 11.70. Procedure to Dissent. (a) If the corporate action
giving rise to the right to dissent is to be approved at a meeting of
shareholders, the notice of meeting shall inform the shareholders of their
right to dissent and the procedure to dissent. If, prior to the meeting,
the corporation furnishes to the shareholders material information with
respect to the transaction that will objectively enable a shareholder to
vote on the transaction and to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter' rights only if the
shareholder delivers to the corporation before the vote is taken a written
demand for payment for his or her shares if the proposed action is
consummated, and the shareholder does not vote in favor of the proposed
action.

(b) If the corporate action giving rise to the right to dissent is
not to be approved at a meeting of shareholders, the notice to shareholders
describing the action taken under Section 11.30 or Section 7.10 shall
inform the shareholders of their right to dissent and the procedure to
dissent. If, prior to or concurrently with the notice, the corporation
furnishes to the shareholders material information with respect to the
transaction that will objectively enable a shareholder to determine whether
or not to exercise dissenters' rights, a shareholder may assert dissenter's
rights only if he or she delivers to the corporation within 30 days from
the date of mailing the notice a written demand for payment for his or her
shares.

B-1
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

(c) Within 10 days after the date on which the corporate action
giving rise to the right to dissent is effective or 30 days after the
shareholder delivers to the corporation the written demand for payment,
whichever is later, the corporation shall send each shareholder who has
delivered a written demand for payment a statement setting forth the
opinion of the corporation as to the estimated fair value of the shares,
the corporation's latest balance sheet as of the end of a fiscal year
ending not earlier than 16 months before the delivery of the statement,
together with the statement of income for that year and the latest
available interim financial statements, and either a commitment to pay for
the shares of the dissenting shareholder at the estimated fair value
thereof upon transmittal to the corporation of the certificate or
certificates, or other evidence of ownership, with respect to the shares,
or instructions to the dissenting shareholder to sell his or her shares
within 10 days after delivery of the corporation's statement to the
shareholder. The corporation may instruct the shareholder to sell only if
there is a public market for the shares at which the shares may be readily
sold. If the shareholder does not sell within that 10 day period after
being so instructed by the corporation, for purposes of this Section the
shareholder shall be deemed to have sold his or her shares at the average
closing price of the shares, if listed on a national exchange, or the
average of the bid and asked price with respect to the shares quoted by a
principal market maker, if not listed on a national exchange, during that
10 day period.

(d) A shareholder who makes written demand for payment under this
Section retains all other rights of a shareholder until those rights are
canceled or modified by the consummation of the proposed corporate action.
Upon consummation of that action, the corporation shall pay to each
dissenter who transmits to the corporation the certificate or other
evidence of ownership of the shares the amount the corporation estimates to
be the fair value of the shares, plus accrued interest, accompanied by a
written explanation of how the interest was calculated.

(e) If the shareholder does not agree with the opinion of the
corporation as to the estimated fair value of the shares or the amount of
interest due, the shareholder, within 30 days from the delivery of the
corporation's statement of value, shall notify the corporation in writing
of the shareholder's estimated fair value and amount of interest due and
demand payment for the difference between the shareholder's estimate of
fair value and interest due and the amount of the payment by the
corporation or the proceeds of sale by the shareholder, whichever is
applicable because of the procedure for which the corporation opted
pursuant to subsection (c).

(f) If, within 60 days from delivery to the corporation of the
shareholder notification of estimate of fair value of the shares and
interest due, the corporation and the dissenting shareholder have not
agreed in writing upon the fair value of the shares and interest due, the
corporation shall either pay the difference in value demanded by the
shareholder, with interest, or file a petition in the circuit court of the
county in which either the registered office or the principal office of the
corporation is located, requesting the court to determine the fair value of
the shares and interest due. The corporation shall make all dissenters,
whether or not residents of this State, whose demands remain unsettled
parties to the proceeding as an action against their shares and all parties
shall be served with a copy of the petition. Nonresidents may be served by
registered or certified mail or by publication as provided by law. Failure
of the corporation to commence an action pursuant to this Section shall not
limit or affect the right of the dissenting shareholders to otherwise
commence an action as permitted by law.

(g) The jurisdiction of the court in which the proceeding is
commenced under subsection (f) by a corporation is plenary and exclusive.
The court may appoint one or more persons as appraisers to receive evidence
and recommend decision on the question of fair value. The appraisers have
the power described in the order appointing them, or in any amendment to
it.

(h) Each dissenter made a party to the proceeding is entitled to
judgment for the amount, if any, by which the court finds that the fair
value of his or her shares, plus interest, exceeds the amount paid by the
corporation or the proceeds of sale by the shareholder, whichever amount is
applicable.

B-2
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

(i) The court, in a proceeding commenced under subsection (f),
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of the appraisers, if any, appointed by the court
under subsection (g), but shall exclude the fees and expenses of counsel
and experts for the respective parties. If the fair value of the shares as
determined by the court materially exceeds the amount which the corporation
estimated to be the fair value of the shares or if no estimate was made in
accordance with subsection (c), then all or any part of the costs may be
assessed against the corporation. If the amount which any dissenter
estimated to be the fair value of the shares materially exceeds the fair
value of the shares as determined by the court, then all or any part of the
costs may be assessed against that dissenter. The court may also assess
the fees and expenses of counsel and experts for the respective parties, in
amounts the court finds equitable, as follows:

(1) Against the corporation and in favor of any or all
dissenters if the court finds that the corporation did not
substantially comply with the requirements of subsections (a), (b),
(c), (d), or (f).

(2) Against either the corporation or a dissenter and in
favor of any other party if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by this Section.

If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated and that
the fees for those services should not be assessed against the corporation,
the court may award to that counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who are benefited. Except as otherwise
provided in this Section, the practice, procedure, judgment and costs shall
be governed by the Code of Civil Procedure.

(j) As used in this Section:

(1) "Fair value", with respect to a dissenter's shares,
means the value of the shares immediately before the consummation of
the corporate action to which the dissenter objects excluding any
appreciation or depreciation in anticipation of the corporate
action, unless exclusion would be inequitable.

(2) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate
currently paid by the corporation on its principal bank loans or, if
none, at a rate that is fair and equitable under all the
circumstances.

B-3
PRELIMINARY PROXY MATERIALS
CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY
<PAGE>
<PAGE>

HEARTLAND BANCSHARES, INC.
318 SOUTH PARK AVENUE
HERRIN, ILLINOIS 62948-3604

For the Special Meeting of Shareholders to be held _______________, 1999

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS

The undersigned shareholder(s) of HEARTLAND BANCSHARES, INC. (the
"Company"), does hereby nominate, constitute and appoint __________ and
___________ or each of them (with full power to act alone), true and lawful
proxies and attorneys-in-fact, with full power of substitution, for the
undersigned and in the name, place and stead of the undersigned to vote all
of the shares of common stock, $0.01 par value (the "Common Stock") of the
Company standing in the name of the undersigned on its books at the close
of business on ______________, 1999 at the Special Meeting of shareholders
to be held at _________________________________, on ______________, 1999,
at _________ _.m. Central Time, and at any adjournments or postponements
thereof, with all of the powers the undersigned would possess if personally
present, as follows:

1. To consider and vote upon the approval of the Agreement and Plan of
Merger, dated as of December 23, 1998 (the "Agreement"), pursuant to which
the Company will be acquired by Banterra Corp. ("Banterra") by means of a
merger of Banterra Acquisitionco., Inc., a wholly owned subsidiary of
Banterra, with and into the Company with the Company as the surviving
corporation, whereby, upon consummation of the merger, each share of Common
Stock of the Company will be converted into the right to receive $15.75 in
cash and each holder of an option to acquire Common Stock will be entitled
to receive $1.75 in cash multiplied by the number of shares covered by the
option, as set forth in detail in the accompanying Proxy Statement.

/ / FOR / / AGAINST / / ABSTAIN

To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" APPROVAL OF THE AGREEMENT.

The undersigned hereby revokes any other proxies to vote at such
meeting and hereby ratifies and confirms all that the proxies and
attorneys-in-fact, or each of them, appointed hereunder may lawfully do by
virtue hereof. Said proxies and attorneys-in-fact, without limiting their
general authority, are specifically authorized to vote in accordance with
their best judgment with respect to all matters incident to the conduct of
the Special Meeting.

THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO DIRECTION IS
GIVEN HEREIN, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL LISTED ABOVE.

PLEASE PROMPTLY COMPLETE, DATE, SIGN AND MAIL THIS PROXY.
RETURN USING THE ENVELOPE PROVIDED

HEARTLAND BANCSHARES, INC. SPECIAL MEETING

Check appropriate box Date______________ NO. OF SHARES
Indicate changes below:
Address Change? / / Name Change? / /

_____________________________________

_____________________________________
When signing as attorney, executor,
administrator, trustee or guardian,
please give your full title. If
more than one person holds the power
to vote the same shares, all must
sign. All joint owners must sign.
The undersigned hereby acknowledges
receipt of the notice of Special
Meeting and the Proxy Statement
(with all enclosures and attachments),
dated _______, 1999, relating to the
Special Meeting.

<PAGE>

AGREEMENT AND PLAN OF MERGER

by and between

BANTERRA CORP.
an Illinois corporation,

and

BANTERRA ACQUISITIONCO, INC.
an Illinois corporation,

and

HEARTLAND BANCSHARES, INC.
an Illinois corporation

Dated December 23, 1998

<PAGE>
<PAGE>
TABLE OF CONTENTS

Page
ARTICLE ONE. TERMS OF MERGER AND CLOSING. . . . . . . . . .1

Section 1.01 Merger . . . . . . . . . . . . . . . . . . . .1
Section 1.02 Merging Corporation. . . . . . . . . . . . . .1
Section 1.03 Surviving Corporation. . . . . . . . . . . . .1
Section 1.04 Effect of Merger . . . . . . . . . . . . . . .1
Section 1.05 Conversion of Heartland Common . . . . . . . .2
Section 1.06 Conversion of Heartland Options. . . . . . . .3
Section 1.07 Share and Option Adjustments . . . . . . . . .3
Section 1.08 Closing. . . . . . . . . . . . . . . . . . . .4
Section 1.09 Exchange Procedures; Surrender of
Certificates. . . . . . . . . . . . . . . . .4
Section 1.10 Closing Date . . . . . . . . . . . . . . . . .4
Section 1.11 Closing Deliveries . . . . . . . . . . . . . .5
Section 1.12 Disclosure Schedule; Standard. . . . . . . . .6

ARTICLE TWO. REPRESENTATIONS AND WARRANTIES OF HEARTLAND. .7

Section 2.01 Organization and Capital Stock . . . . . . . .7
Section 2.02 Authorization; No Defaults . . . . . . . . . .8
Section 2.03 Subsidiaries . . . . . . . . . . . . . . . . .8
Section 2.04 Financial Information. . . . . . . . . . . . .8
Section 2.05 Absence of Changes . . . . . . . . . . . . . .9
Section 2.06 Regulatory Enforcement Matters . . . . . . . .9
Section 2.07 Tax Matters. . . . . . . . . . . . . . . . . .9
Section 2.08 Litigation and Related Matters . . . . . . . 10
Section 2.09 Employment Agreements. . . . . . . . . . . . 10
Section 2.10 Reports. . . . . . . . . . . . . . . . . . . 11
Section 2.11 Employee Matters and ERISA . . . . . . . . . 11
Section 2.12 Title to Properties; Insurance . . . . . . . 12
Section 2.13 Environmental Matters. . . . . . . . . . . . 13
Section 2.14 Compliance with Law. . . . . . . . . . . . . 13
Section 2.15 Brokerage. . . . . . . . . . . . . . . . . . 14
Section 2.16 Non-Banking Activities of Heartland and
Subsidiaries. . . . . . . . . . . . . . . . 14
Section 2.17 Trust Administration . . . . . . . . . . . . 14
Section 2.18 Year 2000. . . . . . . . . . . . . . . . . . 14
Section 2.19 Material Contracts and Agreements. . . . . . 14
Section 2.20 No Undisclosed Liabilities . . . . . . . . . 14
Section 2.21 Statements True and Correct. . . . . . . . . 15
Section 2.22 State Takeover Laws. . . . . . . . . . . . . 15
Section 2.23 Fair Lending; Community Reinvestment Act . . 15
Section 2.24 Loan Portfolio . . . . . . . . . . . . . . . 15
Section 2.25 Interest Rate Risk Management Instruments. . 15
Section 2.26 Interim Events . . . . . . . . . . . . . . . 16
Section 2.27 Closing Matters. . . . . . . . . . . . . . . 16

i
<PAGE>
<PAGE>

ARTICLE THREE. REPRESENTATIONS AND WARRANTIES OF BANTERRA
AND ACQUISITIONCO . . . . . . . . . . . . . 16

Section 3.01 Organization and Capital Stock . . . . . . . 16
Section 3.02 Authorization. . . . . . . . . . . . . . . . 16
Section 3.03 Subsidiaries . . . . . . . . . . . . . . . . 17
Section 3.04 Financial Information. . . . . . . . . . . . 17
Section 3.05 Absence of Changes . . . . . . . . . . . . . 17
Section 3.06 Litigation . . . . . . . . . . . . . . . . . 17
Section 3.07 Reports. . . . . . . . . . . . . . . . . . . 17
Section 3.08 Compliance With Law. . . . . . . . . . . . . 17
Section 3.09 Statements True and Correct. . . . . . . . . 18
Section 3.10 Regulatory Enforcement Matters . . . . . . . 18
Section 3.11 State Takeover Laws. . . . . . . . . . . . . 18
Section 3.12 No Undisclosed Liabilities . . . . . . . . . 18
Section 3.13 Community Reinvestment Act . . . . . . . . . 18
Section 3.14 Closing Matters. . . . . . . . . . . . . . . 18
Section 3.15 Fund Availability. . . . . . . . . . . . . . 18
Section 3.16 Compliance with Capital Adequacy Guidelines. 18

ARTICLE FOUR. AGREEMENTS OF HEARTLAND. . . . . . . . . . . 19

Section 4.01 Business in Ordinary Course. . . . . . . . . 19
Section 4.02 Breaches . . . . . . . . . . . . . . . . . . 21
Section 4.03 Submission to Shareholders . . . . . . . . . 21
Section 4.04 Consents to Contracts and Leases . . . . . . 21
Section 4.05 Consummation of Agreement. . . . . . . . . . 21
Section 4.06 Environmental Reports. . . . . . . . . . . . 22
Section 4.07 Access to Information. . . . . . . . . . . . 22
Section 4.08 Subsidiary Bank Merger . . . . . . . . . . . 22
Section 4.09 Plan of Merger . . . . . . . . . . . . . . . 23
Section 4.10 Voting Agreements. . . . . . . . . . . . . . 23
Section 4.11 Meeting with Heartland Auditors. . . . . . . 23
Section 4.12 Merger Expenses and Related Matters. . . . . 23
Section 4.13 Heartland Option Consideration Agreements. . 24
Section 4.14 Pending Legal Matters. . . . . . . . . . . . 24
Section 4.15 Recovery of Attorneys' Fees. . . . . . . . . 24

ARTICLE FIVE. AGREEMENTS OF BANTERRA AND ACQUISITIONCO . . 24

Section 5.01 Regulatory Approvals; Other Agreements . . . 24
Section 5.02 Breaches . . . . . . . . . . . . . . . . . . 24
Section 5.03 Consummation of Agreement. . . . . . . . . . 24
Section 5.04 Directors and Officers' Liability Insurance. 24
Section 5.05 Employee Benefits. . . . . . . . . . . . . . 26
Section 5.06 Contract of Roger O. Hileman . . . . . . . . 27

ARTICLE SIX. CONDITIONS PRECEDENT TO MERGER . . . . . . . 27

Section 6.01 Conditions to Banterra's Obligations . . . . 27

ii
<PAGE>
<PAGE>
Section 6.02 Conditions to Heartland's Obligations. . . . 28

ARTICLE SEVEN. TERMINATION OR ABANDONMENT. . . . . . . . . 29

Section 7.01 Mutual Agreement . . . . . . . . . . . . . . 29
Section 7.02 Breach of Agreements . . . . . . . . . . . . 29
Section 7.03 Environmental Reports. . . . . . . . . . . . 29
Section 7.04 Failure of Conditions. . . . . . . . . . . . 29
Section 7.05 Regulatory Approval Denial; Burdensome
Condition . . . . . . . . . . . . . . . . . 29
Section 7.06 Shareholder Approval Denial; Withdrawal/
Modification of Board Recommendation. . . . 30
Section 7.07 Regulatory Enforcement Matters . . . . . . . 30
Section 7.08 Fall-Apart Date. . . . . . . . . . . . . . . 30
Section 7.09 Third Party Transactions . . . . . . . . . . 30
Section 7.10 Heartland Termination Fee. . . . . . . . . . 30

ARTICLE EIGHT. GENERAL . . . . . . . . . . . . . . . . . .31

Section 8.01 Confidential Information . . . . . . . . . . 31
Section 8.02 Publicity. . . . . . . . . . . . . . . . . . 31
Section 8.03 Return of Documents. . . . . . . . . . . . . 31
Section 8.04 Notices. . . . . . . . . . . . . . . . . . . 31
Section 8.05 Liabilities and Expenses . . . . . . . . . . 32
Section 8.06 Nonsurvival of Representations, Warranties
and Agreements . . . . . . . . . . . . . . 33
Section 8.07 Entire Agreement . . . . . . . . . . . . . . 33
Section 8.08 Headings and Captions. . . . . . . . . . . . 33
Section 8.09 Waiver, Amendment or Modification. . . . . . 33
Section 8.10 Rules of Construction. . . . . . . . . . . . 33
Section 8.11 Counterparts . . . . . . . . . . . . . . . . 33
Section 8.12 Successors and Assigns . . . . . . . . . . . 34
Section 8.13 Severability . . . . . . . . . . . . . . . . 34
Section 8.14 Governing Law; Assignment. . . . . . . . . . 34
Section 8.15 Enforcement of Agreement . . . . . . . . . . 34
Section 8.16 Fees and Expenses. . . . . . . . . . . . . . 34

SCHEDULE 2.01(b)-1 - Heartland Options
SCHEDULE 2.01(b)-2 - Heartland MRP Shares
EXHIBIT 1.11(a) - Heartland's Legal Opinion Matters
EXHIBIT 1.11(b) - Banterra's Legal Opinion Matters

iii

<PAGE>
<PAGE>
AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and
entered into as of December 23, 1998, by and between BANTERRA CORP., an
Illinois corporation ("Banterra"), BANTERRA ACQUISITIONCO, INC., an
Illinois corporation ("AcquisitionCo"), and HEARTLAND BANCSHARES, INC.,
an Illinois corporation ("Heartland").

RECITALS

A. The Boards of Directors of Banterra, AcquisitionCo and
Heartland have approved and deem it advisable and in the best interests of
Banterra, AcquisitionCo and Heartland and their respective shareholders to
consummate the business combination transaction provided for herein in
which AcquisitionCo shall, subject to the terms and conditions set forth
herein, merge with and into Heartland (the "Merger").

B. The Boards of Directors of Banterra, AcquisitionCo and
Heartland have each determined that the Merger and the other transactions
contemplated by this Agreement are consistent with, and in furtherance of,
their respective business strategies and goals.

C. Banterra, AcquisitionCo and Heartland desire to make certain
representations, warranties and agreements in connection with the Merger
and also to prescribe certain conditions to the Merger.

D. In consideration of the foregoing and the respective
representations, warranties, covenants, and agreements set forth herein,
Banterra, AcquisitionCo and Heartland hereby agree as follows:

ARTICLE ONE
TERMS OF MERGER AND CLOSING

SECTION 1.01. MERGER. Pursuant to the terms and provisions set
forth herein and the Illinois Business Corporation Act of 1983, as
amended (the "Illinois Corporate Law"), AcquisitionCo shall merge with
and into Heartland.

SECTION 1.02. MERGING CORPORATION. AcquisitionCo shall be the
merging corporation in the Merger and its corporate identity and
existence, separate and apart from Heartland, shall cease upon
consummation of the Merger.

SECTION 1.03. SURVIVING CORPORATION. Heartland shall be the
surviving corporation in the Merger. No changes in the Articles of
Incorporation of Heartland shall be effected by the Merger. All of the
officers and directors of Heartland immediately prior the Effective Time
(as defined in Section 1.10 hereof) shall resign as officers and
directors of Heartland as of the Effective Time, and all of the officers
and directors of AcquisitionCo immediately prior to the Effective Time
shall become the officers and directors of Heartland at the Effective
Time.

SECTION 1.04. EFFECT OF MERGER. The Merger shall have all of the
effects provided for herein and under the Illinois Corporate Law.

SECTION 1.05. CONVERSION OF HEARTLAND COMMON.

(a) At the Effective Time, by virtue of the Merger and without
any action on the part of Banterra, AcquisitionCo, Heartland or their
respective shareholders, each share of common stock, par value $.01 per
share, of Heartland ("Heartland Common") issued and outstanding
immediately prior to the Effective Time (other than shares of Heartland
Common held in the treasury of Heartland or by any direct or indirect
subsidiary of Heartland or not vested, fully earned and nonforfeitable
or Dissenting Shares (as defined in Section 1.05(f) hereof)) shall be
converted into the right to receive $15.75 in cash (the "Stock
Consideration").

(b) For purposes of determining those shares of Heartland Common
that are issued and outstanding immediately prior to the Effective Time,
and not held in the treasury of Heartland or by any direct or indirect
subsidiary of Heartland or not vested, fully earned and nonforfeitable,
and entitled to the Stock Consideration, each share of Heartland Common
issued to any individual pursuant to the Heartland Bancshares, Inc.
Management Recognition Plan (the "Heartland MRP") and currently
scheduled to vest on January 28, 1999 pursuant to the Heartland MRP
shall be deemed to constitute an issued and outstanding share of
Heartland Common entitled to receive the Stock Consideration in the
event that the Effective Time occurs prior to January 28, 1999.
Notwithstanding anything to the contrary contained herein, all shares of
Heartland Common issued to any individual pursuant to the Heartland MRP
but not vested on or prior to January 28, 1999 shall not be entitled to
the Stock Consideration, and any shares of Heartland Common owned by the
Heartland MRP but unawarded under the Heartland MRP shall not be
entitled to the Stock Consideration.

(c) At the Effective Time, all of the shares of Heartland
Common, except for Dissenting Shares, by virtue of the Merger and
without any action on the part of the holders thereof, shall no longer
be outstanding and shall be canceled and retired and shall cease to
exist, and each holder of any certificate or certificates which
immediately prior to the Effective Time represented outstanding shares
of Heartland Common (the "Stock Certificates") shall thereafter cease to
have any rights with respect to such shares, except the right of such
holders to receive, without interest, the Stock Consideration upon the
surrender of such Stock Certificate or Stock Certificates in accordance
with Section 1.09 hereof.

(d) At the Effective Time, each share of Heartland Common, if
any, held in the treasury of Heartland or by any direct or indirect
subsidiary of Heartland (other than shares held in trust accounts for
the benefit of others or in other fiduciary, nominee or similar
capacities and shares held by Heartland or any of its subsidiaries in
respect to a debt previously contracted or Dissenting Shares)
immediately prior to the Effective Time shall be canceled.

(e) Each share of common stock, par value $1.00 per share, of
AcquisitionCo ("AcquisitionCo Common") outstanding immediately prior to
the Effective Time shall be converted into and become one share of
Heartland Common.

(f) If any holder of shares of Heartland Common dissents from
this Agreement and the Merger in accordance with the Illinois Corporate
Law, any issued and outstanding shares of Heartland Common held by any
such dissenting holder ("Dissenting Shares") shall not be converted as
described in this Section 1.05 but from and after the Effective Time
shall represent only the right to receive such consideration as may be
determined to be due to such dissenting holder pursuant to the Illinois
Corporate Law; provided, however, that each share of Heartland Common
outstanding immediately prior to the Effective Time and held by a
dissenting holder who shall, after the Effective Time, either withdraw
his or her demand for appraisal or lose his or her right to dissent
shall have only such rights as are provided for under the Illinois
Corporate Law.

SECTION 1.06. CONVERSION OF HEARTLAND OPTIONS.

(a) At the Effective Time, by virtue of the Merger and without
any action on the part of Banterra, Heartland or their respective
shareholders, each outstanding option to purchase a share of Heartland
Common (a "Heartland Option") granted pursuant to the Heartland
Bancshares, Inc. 1996 Stock Option and Incentive Plan (the "Heartland
Stock Option Plan") which is outstanding and vested immediately prior to
the Effective Time (a "Vested Heartland Option") shall be cancelled and
shall cease to represent a right to acquire a share of Heartland Common
and shall be converted automatically into the right to receive $1.75 in
cash (the "Option Consideration") pursuant to those certain agreements
entered into by and between Banterra and all of the holders of Vested
Heartland Options contemporaneously with the execution of this Agreement
(the "Heartland Option Consideration Agreements").

(b) For purposes of determining those Heartland Options that
constitute Vested Heartland Options entitled to the Option
Consideration, each outstanding Heartland Option granted to any
individual pursuant to the Heartland Stock Option Plan and currently
scheduled to vest on January 28, 1999 pursuant to the Heartland Stock
Option Plan shall be deemed to constitute a Vested Heartland Option
entitled to receive the Option Consideration in the event that the
Effective Time occurs prior to January 28, 1999.

(c) At the Effective Time, all of the Heartland Options, by
virtue of the Merger and without any action on the part of the holders
thereof and pursuant to the Heartland Option Consideration Agreements,
shall no longer be outstanding and shall be canceled and retired and
shall cease to exist, and each holder of any document, agreement, grant,
award, certificate or other evidence which immediately prior to the
Effective Time represented Vested Heartland Options (the "Option
Certificates") shall thereafter cease to have any rights with respect to
such options, except the right of such holders to receive, without
interest, the Option Consideration upon the surrender of such Option
Certificate or Option Certificates in accordance with Section 1.09
hereof.

SECTION 1.07. SHARE AND OPTION ADJUSTMENTS. Between the date
hereof and the Effective Time, no shares of Heartland Common shall be
changed into a different number of shares of Heartland Common or a
different class of shares by reason of reclassification,
recapitalization, splitup, exchange of shares, readjustment, stock
dividend, stock split, exercise of Heartland Options or otherwise. If
between the date hereof and the Effective Time any Heartland Options
shall become vested for any reason whatsoever (an "Option Adjustment"),
then the Option Consideration into which a Vested Heartland Option shall
be converted pursuant to Section 1.06(a) hereof shall be appropriately
and proportionately adjusted so that each option holder of Heartland
shall be entitled to receive consideration as such option holder would
have received pursuant to such Option Adjustment had the vesting been
immediately following the Effective Time. In the event that the sum of
(i) the number of shares of Heartland Common (including those shares of
Heartland Common scheduled to vest on January 28, 1999 pursuant to the
Heartland MRP) presented for exchange pursuant to Section 1.09 hereof or
otherwise issued and outstanding at the Effective Time, or (ii) the
number of Vested Heartland Options (including those Heartland Options
scheduled to vest on January 28, 1999 pursuant to the Heartland Stock
Option Plan) presented for exchange pursuant to Section 1.09 hereof,
shall be greater than the sum of (x) the number of shares of Heartland
Common represented in Section 2.01(b) hereof as being outstanding as of
the date hereof and scheduled to vest on January 28, 1999, or (y) the
number of Vested Heartland Options represented in Section 2.01(b) hereof
as being outstanding as of the date hereof and scheduled to vest on
January 28, 1999, as the case may be, then the Stock Consideration or
the Option Consideration, as the case may be, shall be appropriately and
proportionately decreased to take into account such additional issued
and outstanding shares of Heartland Common or Vested Heartland Options.

SECTION 1.08. CLOSING. The closing of the Merger (the "Closing")
shall take place at a location mutually agreeable to the parties at
10:00 a.m., Central Time, on the Closing Date described in Section 1.10
hereof.

SECTION 1.09. EXCHANGE PROCEDURES; SURRENDER OF CERTIFICATES.

(a) Mercantile Bank shall act as Exchange Agent in the Merger
(the "Exchange Agent"). At or before the Effective Time, Banterra
shall deposit, or shall cause to be deposited, with the Exchange Agent a
sum of cash equal to the aggregate Stock Consideration and the aggregate
Option Consideration.

(b) As soon as reasonably practicable after the Effective Time,
but in no event later than five (5) business days after the Closing
Date, the Exchange Agent shall mail to each record holder of any Stock
Certificate or Option Certificate whose shares or options were converted
into the right to receive the Stock Consideration or the Option
Consideration, as the case may be, a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to
the Stock Certificates or Option Certificates shall pass, only upon
proper delivery of the Stock Certificates or Option Certificates to the
Exchange Agent and shall be in such form and have such other provisions
as Banterra may reasonably specify) (each such letter, the "Merger
Letter of Transmittal") and instructions for use in effecting the
surrender of the Stock Certificates or Option Certificates in exchange
for the Stock Consideration or Option Consideration, as the case may be.
Upon surrender to the Exchange Agent of a Stock Certificate or Option
Certificate, together with a Merger Letter of Transmittal duly executed
and any other required documents, the holder of such Stock Certificate
or Option Certificate shall be entitled to receive in exchange therefor
solely the Stock Consideration or the Option Consideration, as the case
may be. No interest on the Stock Consideration or Option Consideration
issuable upon the surrender of the Stock Certificates or Option
Certificates shall be paid or accrued for the benefit of holders of
Stock Certificates or Option Certificates. If the Stock Consideration
is to be issued to a person other than a person in whose name a
surrendered Stock Certificate is registered, it shall be a condition of
issuance that the surrendered Stock Certificate shall be properly
endorsed or otherwise in proper form for transfer and that the person
requesting such issuance shall pay to the Exchange Agent any required
transfer taxes or other taxes or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable.

(c) In the event that any Stock Certificate or Option
Certificate shall have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming such Stock
Certificate or Option Certificate to be lost, stolen or destroyed and,
if required by Banterra in its sole discretion, the posting by such
person of a bond in such amount as Banterra may determine is reasonably
necessary as indemnity against any claim that may be made against it
with respect to such Stock Certificate or Option Certificate, the
Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificate the Stock Consideration or Option Consideration
deliverable in respect thereof pursuant hereto.

(d) At or after the Effective Time there shall be no transfers
on the stock transfer books of Heartland of any shares of Heartland
Common. If, after the Effective Time, Stock Certificates are presented
for transfer, they shall be cancelled and exchanged for the Stock
Consideration as provided in, and subject to the provisions of, this
Section 1.09.

SECTION 1.10. CLOSING DATE. Subject to Section 7.08 hereof, the
Closing shall take place on a date specified by Banterra within thirty
(30) days following the date after which each of the conditions in
Sections 6.01 and 6.02 hereof shall have been satisfied or waived by the
appropriate party (the "Closing Date"). The Merger shall be effective
upon the issuance of a Certificate of Merger by the Secretary of State
of the State of Illinois (the "Effective Time"), which the parties shall
use their best efforts to cause to occur on the Closing Date.

SECTION 1.11. CLOSING DELIVERIES.

(a) At the Closing, Heartland shall deliver to Banterra and
AcquisitionCo:

(i) a certified copy of the Articles of Incorporation and Bylaws
of Heartland, the Subsidiary Bank (as defined in Section 2.04 hereof)
and Herrin First Service Corporation; and

(ii) a Certificate signed by an appropriate officer of Heartland
stating that, to the best knowledge and belief of such officer, (A) each
of the representations and warranties contained in Article Two hereof
(subject to the standard in Section 1.12 hereof) is true and correct at
the time of the Closing with the same force and effect as if such
representations and warranties had been made at Closing, and (B) all of
the conditions set forth in Section 6.01(b) hereof have been satisfied
or waived as provided therein; and

(iii) a certified copy of the resolutions of Heartland's Board of
Directors and shareholders as required for valid approval of the
execution of this Agreement and the consummation of the Merger and the
other transactions contemplated by this Agreement; and

(iv) a Certificate of the Secretary of State of the State of
Illinois, dated a recent date, stating that Heartland is in good
standing; and

(v) a Certificate of Merger executed by Heartland, reflecting
the terms and provisions hereof and in proper form for filing with the
Secretary of State of the State of Illinois in order to cause the Merger
to become effective pursuant to the Illinois Corporate Law; and

(vi) a legal opinion from counsel for Heartland, in form
reasonably acceptable to Banterra's and AcquisitionCo's counsel, opining
with respect to the matters listed on Exhibit 1.11(a) hereto.

(b) At the Closing, Banterra and AcquisitionCo shall deliver to
Heartland:

(i) a certified copy of the Articles of Incorporation and Bylaws
of each of Banterra and AcquisitionCo; and

(ii) a Certificate signed by an appropriate officer of each of
Banterra and AcquisitionCo stating that, to the best knowledge and
belief of such officer, (A) each of the representations and warranties
contained in Article Three hereof (subject to the standard in
Section 1.12 hereof) is true and correct at the time of the Closing with
the same force and effect as if such representations and warranties had
been made at Closing, and (B) all of the conditions set forth in
Section 6.02(b) and 6.02(d) hereof (but excluding the approval of
Heartland's shareholders) have been satisfied or waived as provided
therein; and

(iii) a certified copy of the resolutions of each of Banterra's
and AcquisitionCo's Board of Directors as required for valid approval of
the execution of this Agreement and the consummation of the transactions
contemplated by this Agreement; and

(iv) a Certificate of the Secretary of State of the State of
Illinois, dated a recent date, stating that Banterra is in good
standing; and

(v) a Certificate of the Secretary of State of the State of
Illinois, dated a recent date, stating that AcquisitionCo is in good
standing; and

(vi) a Certificate of Merger executed by AcquisitionCo,
reflecting the terms and provisions hereof and in proper form for filing
with the Secretary of State of the State of Illinois in order to cause
the Merger to become effective pursuant to the Illinois Corporate Law;
and

(vii) a legal opinion from counsel for Banterra and AcquisitionCo,
in form reasonable acceptable to Heartland's counsel, opining with
respect to the matters listed on Exhibit 1.11(b) hereto.

SECTION 1.12. DISCLOSURE SCHEDULE; STANDARD.

(a) Heartland has delivered to Banterra and AcquisitionCo a
confidential schedule (the "Disclosure Schedule"), executed by
Heartland, Banterra and AcquisitionCo concurrently with the delivery and
execution hereof, setting forth, among other things, items the
disclosure of which shall be necessary or appropriate either in response
to an express disclosure requirement contained in a provision hereof or
as an exception to one or more representations or warranties contained
in Article Two hereof; provided, that (a) no such item shall be required
to be set forth in the Disclosure Schedule as an exception to a
representation or warranty if its absence would not be reasonably likely
to result in the related representation or warranty being deemed untrue
or incorrect under the standard established by Section 1.12(b) hereof,
and (b) the mere inclusion of an item in the Disclosure Schedule as an
exception to a representation or warranty shall not be deemed an
admission by Heartland that such item represents a material exception or
fact, event or circumstance or that such item is reasonably likely to
result in a Material Adverse Effect (as defined in Section 1.12(b)
herein).

(b) No representation or warranty of Heartland contained in
Article Two hereof or of Banterra or AcquisitionCo contained in Article
Three hereof shall be deemed untrue or incorrect, and Heartland,
Banterra or AcquisitionCo, as the case may be, shall not be deemed to
have breached a representation or warranty, as a consequence of the
existence of any fact, event or circumstance unless such fact,
circumstance or event, individually or taken together with all other
facts, events or circumstances inconsistent with any representation or
warranty contained in Article Two hereof, in the case of Heartland, or
Article Three hereof, in the case of Banterra or AcquisitionCo, has had
or is reasonably likely to have a Material Adverse Effect on the party
making such representation or warranty. As used herein, the term
"Material Adverse Effect" means, with respect to Heartland, Banterra or
AcquisitionCo, any effect that (i) is, or is reasonably expected to be,
material and adverse to the financial position, results of operations or
business of Heartland and its subsidiaries taken as a whole, or Banterra
and its subsidiaries taken as a whole, respectively, or (ii) would
materially impair the ability of either Heartland, Banterra or
AcquisitionCo to perform its obligations under this Agreement or
otherwise materially threaten or materially impede the consummation of
the Merger and the other transactions contemplated by this Agreement;
provided, however, that Material Adverse Effect shall not be deemed to
include the impact of (a) changes in banking and similar laws of general
applicability or interpretations thereof by courts or governmental
authorities, (b) changes in generally accepted accounting principles or
regulatory accounting requirements applicable to banks and their holding
companies generally and (c) changes in general economic conditions,
including changes in interest rates.

(c) Heartland shall be permitted to update and supplement the
Disclosure Schedule so as to disclose exceptions to one or more
representations or warranties contained in Article Two hereof which
shall have arisen between the date hereof and the Closing Date;
provided, however, that, anything herein to the contrary
notwithstanding, the exceptions and other information set forth on any
such updated or
6

supplemented Disclosure Schedule shall not be taken into consideration
in determining, for purposes of this Agreement, whether the condition
set forth in Section 6.01(a) hereof shall have been satisfied.

ARTICLE TWO
REPRESENTATIONS AND WARRANTIES OF HEARTLAND

Subject to Section 1.12 hereof and except as disclosed in a
Section of the Disclosure Schedule corresponding to the relevant Section
in this Article Two, Heartland hereby makes the following
representations and warranties:

SECTION 2.01. ORGANIZATION AND CAPITAL STOCK.

(a) Heartland is a corporation duly organized, validly existing
and in good standing under the laws of the State of Illinois and has the
corporate power and authority to own all of its property and assets, to
incur all of its liabilities and to carry on its business as now being
conducted. Heartland is a bank holding company registered with the
Board of Governors of the Federal Reserve System (the "Federal Reserve
Board") under the Bank Holding Company Act of 1956, as amended (the
"B.H.C.A."). Section 2.01(a) of the Disclosure Schedule contains true,
complete and correct copies of the Articles of Incorporation and Bylaws
of Heartland as in effect on the date of this Agreement.

(b) The issued and outstanding capital stock of Heartland
consists only of shares of Heartland Common, of which, as of the date
hereof, 832,833 shares are issued and outstanding. All of the issued
and outstanding shares of Heartland Common are duly and validly issued
and outstanding and are fully paid and non-assessable and free of
preemptive rights. None of the outstanding shares of Heartland Common
have been issued in violation of any preemptive rights of the current or
past shareholders of Heartland. As of the date hereof, Heartland had
outstanding Heartland Options representing the right to acquire not more
than 43,841 shares of Heartland Common. To the best knowledge of
Heartland, each Stock Certificate issued by Heartland in replacement of
any Stock Certificate theretofore issued by it which was claimed by the
record holder thereof to have been lost, stolen or destroyed was issued
by Heartland only upon receipt of an affidavit of lost stock certificate
and indemnity agreement of such shareholder indemnifying Heartland
against any claim that may be made against it on account of the alleged
loss, theft or destruction of any such Stock Certificate or the issuance
of such replacement Stock Certificate. Schedule 2.01(b) - 1 hereto sets
forth correct and accurate information concerning the Heartland Options.
Schedule 2.01(b) - 2 hereto sets forth correct and accurate information
concerning the shares of Heartland Common issued pursuant to the
Heartland MRP.

(c) Except as set forth in subsection 2.01(b) and
Section 2.01(c) of the Disclosure Schedule, (i) there are no shares of
capital stock or other equity securities of Heartland outstanding and no
outstanding options, warrants, rights to subscribe for, calls, or
commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, shares of Heartland Common
or other capital stock of Heartland or contracts, commitments,
understandings or arrangements by which Heartland is or may be obligated
to issue additional shares of its capital stock or options, warrants or
rights to purchase or acquire any additional shares of its capital
stock, and (ii) there are no outstanding stock appreciation, phantom
stock or similar rights.

(d) The minute books of Heartland accurately reflect all
corporate actions held or taken by its shareholders and Board of
Directors (including committees of the Board of Directors) since its
incorporation. True, complete and correct copies of the minute book
have been made available to Banterra by Heartland.

SECTION 2.02. AUTHORIZATION; NO DEFAULTS. Heartland's Board of
Directors has, by all appropriate action, approved this Agreement and
the Merger and authorized the execution hereof and thereof on its behalf
by its duly authorized officers and the performance by Heartland of its
obligations hereunder. Heartland's Board of Directors has directed that
the plan of merger (within the meaning of the Illinois Corporate Law)
contained in this Agreement and the transactions contemplated by this
Agreement, including the Merger, be submitted to the shareholders of
Heartland for approval at the Heartland Shareholders' Meeting (as
defined in Section 4.03 hereof), and, except for the adoption and
approval of this Agreement by the affirmative vote of the holders of
two-thirds of the outstanding shares of Heartland Common, no other
corporate proceedings on the part of Heartland are necessary to approve
this Agreement or to consummate the transactions contemplated by this
Agreement, including the Merger. Nothing in the Articles of
Incorporation or Bylaws of Heartland, or any other agreement,
instrument, decree, proceeding, law or regulation (except as
specifically referred to in or contemplated by this Agreement including
certain laws and regulations of the Office of Thrift Supervision (the
"O.T.S.") by or to which it or any of its subsidiaries are bound or
subject would prohibit or inhibit Heartland from consummating this
Agreement and the Merger on the terms and conditions herein contained.
This Agreement has been duly and validly executed and delivered by
Heartland and constitutes a legal, valid and binding obligation of
Heartland, enforceable against Heartland in accordance with its
respective terms. Heartland and its subsidiaries are neither in default
under nor in violation of any provision of their Articles or Certificate
of Incorporation or Association, as the case may be, Bylaws, or any
promissory note, indenture or any evidence of indebtedness or security
therefor, lease, contract, insurance policy, purchase or other
commitment or any other agreement or arrangement (however evidenced),
whether written or oral, and there has not occurred any event that, with
the lapse of time or giving of notice or both, would constitute such a
default or violation.

SECTION 2.03. SUBSIDIARIES. Each of Heartland's banking
subsidiaries and its other direct or indirect subsidiaries, and each of
their predecessors (collectively, the "subsidiaries"), the name and
jurisdiction of incorporation of which is disclosed in Section 2.03 of
the Disclosure Schedule, is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has
the corporate power to own its respective properties and assets, to
incur its respective liabilities and to carry on its respective business
as now being conducted. The deposits of Subsidiary Bank are insured by
the Federal Deposit Insurance Corporation (the "F.D.I.C.") in accordance
with the Federal Deposit Insurance Act, as amended, up to applicable
limits. The number of issued and outstanding shares of capital stock of
each subsidiary is disclosed in Section 2.03 of the Disclosure Schedule,
all of which shares are owned by Heartland or Heartland's subsidiaries
free and clear of all liens, encumbrances, rights of first refusal,
options or other restrictions of any nature whatsoever, except for
directors' qualifying shares, accessibility under 12 U.S.C. Section 55
and comparable state laws, if applicable. There are no options,
warrants or rights outstanding to acquire any capital stock of
Subsidiary Bank, and no person or entity has any other right to purchase
or acquire any unissued shares of stock of Subsidiary Bank, nor does
Subsidiary Bank have any obligation of any nature with respect to its
unissued shares of stock. Except as set forth in Section 2.03 of the
Disclosure Schedule, neither Heartland nor any of its subsidiaries is a
party to any partnership or joint venture or owns an equity interest in
any other business or enterprise.

SECTION 2.04. FINANCIAL INFORMATION. The (i) audited
consolidated balance sheets of Heartland and its subsidiaries as of
December 31, 1997 and 1996, and related consolidated income statements
and statements of changes in shareholders' equity and of cash flows for
the three (3) years ended December 31, 1997, together with the notes
thereto, included in Heartland's Annual Report on Form 10-KSB for the
year ended December 31, 1997, as currently on file with the Securities
and Exchange Commission (the "S.E.C."), and the unaudited consolidated
balance sheets of Heartland and its subsidiaries as of September 30,
1998, and the related unaudited consolidated income statements and

statements of changes in shareholders' equity and cash flows for the
nine (9) months then ended included in Heartland's Quarterly Reports on
Form 10-QSB for the quarters then ended, as currently on file with the
Office of the Comptroller of the Currency ("O.C.C."), and (ii) the year-
end and quarterly Reports of Condition and Reports of Income of
Heartland National Bank (the "Subsidiary Bank") for 1997 and September
30, 1998, as currently on file with the F.D.I.C., (together, the
"Heartland Financial Statements"), have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
(except as may be disclosed therein and except for regulatory reporting
differences required by the Subsidiary Bank's reports) and fairly
present in all material respects the financial position and the results
of operations and changes in shareholders' equity of the respective
entity and its respective subsidiary as of the dates and for the persons
indicated (subject, in the case of interim financial statements, none of
which shall be material). The books and records of Heartland and its
subsidiaries have been, and are being, maintained in accordance with
generally accepted accounting principles and any other applicable legal
and accounting requirements and reflect only actual transactions.

SECTION 2.05. ABSENCE OF CHANGES. Since December 31, 1997, and
to the date hereof, there has not been any change in the financial
condition, the results of operations or the business of Heartland and
its subsidiaries taken as a whole which would have a Material Adverse
Effect on Heartland, except as disclosed by Heartland since December 31,
1997 in its periodic reports filed with the S.E.C. under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").

SECTION 2.06. REGULATORY ENFORCEMENT MATTERS. Except as set
forth in Section 2.06 of the Disclosure Schedule, neither Heartland nor
any of its subsidiaries are subject or are party to, or have received
any notice or advice that it may become subject or party to, any
investigation with respect to, any cease-and-desist order, agreement,
consent agreement, memorandum of understanding or other regulatory
enforcement action, proceeding or order with or by, or is a party to any
commitment letter or similar undertaking to, or is subject to any
directive by, or has been a recipient of any supervisory letter from, or
has adopted any board resolutions at the request of, any Regulatory
Agency (as defined below in this Section 2.06) that currently restricts
the conduct of its business or that currently affects its capital
adequacy, its credit policies, its management or its business (each, a
"Regulatory Agreement"), nor has Heartland nor any of its subsidiaries
been advised by any Regulatory Agency that it is considering issuing or
requesting any such Regulatory Agreement. Except as set forth in
Section 2.06 of the Disclosure Schedule, there is no unresolved
violation, criticism or exception by any Regulatory Agency with respect
to any report or statement relating to any examinations of Heartland or
Subsidiary Bank. As used herein, the term "Regulatory Agency" means any
federal or state agency charged with the supervision or regulation of
banks or bank holding companies, or engaged in the insurance of bank
deposits, or any court, administrative agency or commission or other
governmental agency, authority or instrumentality having supervisory or
regulatory authority with respect to Heartland or any of its
subsidiaries.

SECTION 2.07. TAX MATTERS.

(a) Each of Heartland and its subsidiaries have filed with the
appropriate governmental agencies all foreign, federal, state and local
Tax (as defined below in this Section 2.07) returns, declarations,
estimates, information returns, statements and reports (collectively,
"Tax Returns") required to be filed by it. Except as set forth in
Section 2.07 of the Disclosure Schedule, neither Heartland nor its
subsidiaries are (a) delinquent in the payment of any Taxes shown on
such Tax Returns or on any assessments received by it for such Taxes,
(b) subject to any agreement extending the period for assessment or

collection of any Tax, or (c) a party to any action or proceeding with,
nor has any claim been asserted or threatened against any of them by,
any governmental authority for assessment or collection of Taxes or for
the refund of Taxes previously paid. The income Tax Returns of
Heartland and its subsidiaries, as applicable, have been audited by the
Internal Revenue Service (the "I.R.S.") and comparable state agencies
and any liability with respect thereto has been satisfied for all years
to and including 1994, and either no deficiencies were asserted as a
result of such examination for which Heartland does not have adequate
reserves or all such deficiencies have been satisfied. The reserve for
Taxes in the financial statements of Heartland for the year ended
December 31, 1997, is adequate to cover all of the liabilities for Taxes
of Heartland and its subsidiaries that may become payable in future
years with respect to any transactions consummated prior to December 31,
1997. As used herein, the term "Taxes" means any federal, state, local,
or foreign income, gross receipts, license, payroll, employment, excise,
severance, stamp, occupation, premium, windfall profits, environmental,
customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative
or add-on minimum, estimated or other tax of any kind whatsoever,
including any interest, penalty or addition thereto, whether disputed or
undisputed.

(b) Any amount that could be received (whether in cash or
property or the vesting of property) as a result of any of the
transactions contemplated by this Agreement by any employee, officer or
director of Heartland or any of its affiliates who is a "Disqualified
Individual" (as such term is defined in proposed Treasury Regulation
Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Heartland Employee Plan (as
defined in Section 2.11(c) hereof) currently in effect would not be
characterized as an "excess parachute payment" (as such term is defined
in Section 280G(b)(1) of the Internal Revenue Code of 1986, as amended
(the "Code").

(c) Heartland has not been subject to any disallowance of a
deduction under Section 162(m) of the Code nor does Heartland reasonably
believe that such a disallowance is reasonably likely to be applicable
for any tax year of Heartland ended on or before the Closing Date.

SECTION 2.08. LITIGATION AND RELATED MATTERS. Section 2.08 of
the Disclosure Schedule describes all litigation, claims or other
proceedings or investigations of any nature pending or, to the knowledge
of Heartland, threatened, against Heartland or any of its subsidiaries,
or of which the property of Heartland or any of its subsidiaries is or
would be subject. There is no injunction, order, judgment, decree or
regulatory restriction imposed upon Heartland or any of its subsidiaries
or the assets of Heartland or any of its subsidiaries. Since January 1,
1993, Heartland and its subsidiaries have continuously maintained
fidelity bonds insuring them against acts of dishonesty in such amounts
as are customary, usual and prudent for organizations of their size and
business. Except as set forth in Section 2.08 of the Disclosure
Schedule, there are no facts which would form the basis of a claim or
claims under such bonds. Neither Heartland nor any of its subsidiaries
has reason to believe that its respective fidelity coverage would not be
renewed by the carrier on substantially the same terms as the existing
coverage, except for possible premium increases unrelated to Heartland's
and its subsidiaries' past claim experience.

SECTION 2.09. EMPLOYMENT AGREEMENTS. Section 2.09 of the
Disclosure Schedule lists each agreement, arrangement, commitment or
contract (whether written or oral) for the employment, election,
retention or engagement, or with respect to the severance, of any
present or former officer, employee, agent, consultant or other person
or entity to which Heartland or any of its subsidiaries is a party to or
bound by and which, by its terms, is not terminable by Heartland or any
of its subsidiaries on thirty (30) days written notice or less without
the payment of any amount by reason of such termination. Copies of each
written (and summaries of each oral) agreement, arrangement, commitment
or contract listed in Section 2.09 of the Disclosure Schedule have been
previously made available to Banterra by Heartland.

10
<PAGE>
<PAGE>

SECTION 2.10. REPORTS. Except as set forth in Section 2.10 of
the Disclosure Schedule, since January 1, 1993, Heartland and its
subsidiaries have filed all reports and statements, together with any
amendments required to be made with respect thereto, if any, that it was
required to file with (i) the Federal Reserve Board, (ii) the O.C.C,
(iii) the O.T.S., (iv) the S.E.C., (v) any state securities authorities,
and (vi) any other Regulatory Agency with jurisdiction over Heartland or
its subsidiaries at such time, and have paid all fees and assessments
due and payable in connection therewith. As of their respective dates,
each of such reports and documents, as amended, including any financial
statements, exhibits and schedules thereto, complied with the relevant
statutes, rules and regulations enforced or promulgated by the
regulatory authority with which they were filed, and did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading.

SECTION 2.11. EMPLOYEE MATTERS AND ERISA.

(a) Neither Heartland nor any of its subsidiaries has entered
into any collective bargaining agreement with any labor organization
with respect to any group of employees of Heartland or any of its
subsidiaries and to the knowledge of Heartland there is no present
effort nor existing proposal to attempt to unionize any group of
employees of Heartland or any of its subsidiaries.

(b) Except as set forth in Section 2.11(b) of the Disclosure
Schedule, (i) Heartland and its subsidiaries are and have been in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours,
including, without limitation, any such laws respecting employment
discrimination and occupational safety and health requirements, and
neither Heartland nor any of its subsidiaries is engaged in any unfair
labor practice, (ii) there is no unfair labor practice complaint against
Heartland or any of its subsidiaries pending or, to the knowledge of
Heartland, threatened before the National Labor Relations Board,
(iii) there is no labor dispute, strike, slowdown or stoppage actually
pending or, to the knowledge of Heartland, threatened against or
directly affecting Heartland or any of its subsidiaries, and
(iv) neither Heartland nor any of its subsidiaries has experienced any
work stoppage or other labor difficulty during the past five (5) years.

(c) Section 2.11(c) of the Disclosure Schedule describes each
employee benefit plan, as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and each
nonqualified employee benefit plan, deferred compensation, bonus, stock
and incentive plan, and each other employee benefit and fringe benefit
program for the benefit of former or current employees of Heartland or
its subsidiaries (the "Heartland Employee Plans") which Heartland and
its subsidiaries maintain, contribute to or participate in or have any
liability under. No present or former employee of Heartland or any of
its subsidiaries has been charged with breaching, or to the knowledge of
Heartland has breached, a fiduciary duty under any of the Heartland
Employee Plans. Except as set forth in Section 2.11(c) of the
Disclosure Schedule, neither Heartland nor any of its subsidiaries
participates in, nor has it in the past five (5) years participated in,
nor has it any present or future obligation or liability under, any
multiemployer plan (as defined at Section 3(37) of ERISA).
Section 2.11(c) of the Disclosure Schedule describes all plans that
provide health, major medical, disability or life insurance benefits to
former employees of Heartland or its subsidiaries that Heartland and its
subsidiaries maintain, contribute to, or participate in.

(d) Neither Heartland nor any of its subsidiaries maintain, nor
have any of them maintained for the past ten years, any Heartland
Employee Plans subject to Title IV of ERISA or Section 412 of the Code.
No reportable event (as defined in Section 4043 of ERISA) has occurred
with respect to any Heartland Employee Plans as to which a notice would
be required to be filed with the Pension Benefit Guaranty Corporation.
No claim is pending, and Heartland has not received notice of any
threatened or

imminent claim with respect to any Heartland Employee Plan (other than a
routine claim for benefits for which plan administrative review
procedures have not been exhausted) for which Heartland or its
subsidiaries would be liable after December 31, 1997, except as
reflected on the Heartland Financial Statements. All liabilities of the
Heartland Employee Plans have been funded on the basis of consistent
methods in accordance with sound actuarial assumptions and practices,
and no Heartland Employee Plan, at the end of any plan year, or at
December 31, 1997, had or has had an accumulated funding deficiency. No
actuarial assumptions have been changed since the last written report of
actuaries on such Heartland Employee Plans. All insurance premiums
(including premiums to the Pension Benefit Guaranty Corporation) have
been paid in full, subject only to normal retrospective adjustments in
the ordinary course. Heartland and its subsidiaries have no contingent
or actual liabilities under Title IV of ERISA. No accumulated funding
deficiency (within the meaning of Section 302 of ERISA or Section 412 of
the Code) has been incurred with respect to any of the Heartland
Employee Plans, whether or not waived. After December 31, 1997,
Heartland and its subsidiaries do not have any liabilities for excise
taxes under Sections 4971, 4975, 4976, 4977, 4979 or 4980B of the Code
or for a fine under Section 502 of ERISA with respect to any Heartland
Employee Plan. Except as set forth in Section 2.11(d) of the Disclosure
Schedule, all Heartland Employee Plans have been operated, administered
and maintained in accordance with the terms thereof and in compliance
with the requirements of all applicable laws, including, without
limitation, ERISA and the Code.

(e) Except as set forth in Section 2.11(e) of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this Agreement (either
alone or upon the occurrence of any additional acts or events) would
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute or otherwise) becoming due
to any director, officer or employee of Heartland or any of its
affiliates from Heartland or any of its affiliates under any Heartland
Employee Plan or otherwise, (ii) increase any benefits otherwise payable
under any Heartland Employee Plan, or (iii) result in any acceleration
of the time of payment or vesting of any such benefits.

(f) Copies of each Heartland Employee Plan described in
Section 2.11(c) of the Disclosure Schedule, and all amendments or
supplements thereto, have been previously made available to Banterra by
Heartland. Section 2.11(f) of the Disclosure Schedule lists, for each
Heartland Employee Plan, all of the following with respect thereto:
(i) summary plan descriptions, (ii) lists of all current participants
and all participants with benefit entitlements, (iii) contracts relating
to plan documents, (iv) actuarial valuations for any defined benefit
plan, (v) valuations for any plan as of the most recent date,
(vi) determination letters from the I.R.S., (vii) the most recent annual
report filed with the I.R.S., (viii) registration statements and
prospectuses, and (ix) trust agreements. Copies of each of the
documents described in the preceding sentence have been previously made
available to Banterra by Heartland.

SECTION 2.12. TITLE TO PROPERTIES; INSURANCE. (i) Heartland and
its subsidiaries have marketable title, insurable at standard rates,
free and clear of all liens, charges and encumbrances (except Taxes
which are a lien but not yet payable and liens, charges or encumbrances
reflected in the Heartland Financial Statements and easements, rights-
of-way, and other restrictions and imperfections not material in nature,
and further excepting in the case of Other Real Estate Owned (as such
real estate is internally classified on the books of Heartland or its
subsidiaries) rights of redemption under applicable law) to all of their
owned real properties, (ii) all leasehold interests for real property
and personal property used by Heartland and its subsidiaries in their
businesses are held pursuant to lease agreements which are valid and
enforceable in accordance with their terms, (iii) all such properties
comply with all applicable private agreements, zoning requirements and
other governmental laws and regulations relating thereto and there are
no condemnation proceedings pending or, to the knowledge of Heartland,
threatened with respect to

such properties, (iv) Heartland and its subsidiaries have valid title or
other ownership rights under licenses to all intangible personal or
intellectual property necessary to conduct the business and operations
of Heartland and its subsidiaries as presently conducted, free and clear
of any claim, defense or right of any other person or entity, subject
only to rights of the licensors pursuant to applicable license
agreements, which rights do not adversely interfere with the use of such
property, (v) all insurable properties owned or held by Heartland and
its subsidiaries are adequately insured by financially sound and
reputable insurers in such amounts and against fire and other risks
insured against by extended coverage and public liability insurance, as
is customary with bank holding companies of similar size, and there are
presently no claims pending under such policies of insurance and no
notices have been given by Heartland or any of its subsidiaries under
such policies, and (vi) all tangible properties used in the businesses
of Heartland and its subsidiaries are in good condition, reasonable wear
and tear excepted, and are useable in the ordinary course of business
consistent with past practices. Section 2.12 of the Disclosure Schedule
sets forth, for each policy of insurance maintained by Heartland and its
subsidiaries, the amount and type of insurance, the name of the insurer
and the amount of the annual premium.

SECTION 2.13. ENVIRONMENTAL MATTERS.

(a) As used herein, the term "Environmental Laws" shall mean all
local, state and federal environmental, health and safety laws and
regulations and common law standards in all jurisdictions in which
Heartland and its subsidiaries have done business or owned, leased or
operated property, including, without limitation, the Federal Resource
Conservation and Recovery Act, the Federal Comprehensive Environmental
Response, Compensation and Liability Act, the Federal Clean Water Act,
the Federal Clean Air Act, and the Federal Occupational Safety and
Health Act.

(b) Neither the conduct nor operation of Heartland or its
subsidiaries nor any condition of any property presently or previously
owned, leased or operated by any of them violates or violated or, to the
knowledge of Heartland, may violate, Environmental Laws in a manner or
to any extent exposing Heartland or its subsidiaries to liability or
potential liability, and, to the knowledge of Heartland, no condition
has existed or event has occurred with respect to any of them or any
such property that, with notice or the passage of time, or both, would
constitute or, to the knowledge of Heartland, may constitute, a
violation of Environmental Laws in a manner or to any extent that would
obligate (or potentially obligate) Heartland or its subsidiaries to
remedy, stabilize, neutralize or otherwise alter the environmental
condition of any such property. Neither Heartland nor its subsidiaries
has received any notice from any person or entity that Heartland or its
subsidiaries or the operation or condition of any property ever owned,
leased or operated by any of them are or were in violation of any
Environmental Laws in a manner or to any extent exposing Heartland or
its subsidiaries to liability or potential liability or that any of them
are responsible (or potentially responsible) for the cleanup or other
remediation of any pollutants, contaminants, or hazardous or toxic
wastes, substances or materials at, on or beneath any such property and,
to the knowledge of Heartland, Heartland and its subsidiaries and the
operation and condition of any property ever owned, leased or operated
by any of them are not and were not in violation of any Environmental
Laws in a manner or to any extent exposing Heartland or its subsidiaries
to liability or potential liability and none of them are responsible (or
potentially responsible) for the cleanup or other remediation of any
pollutants, contaminants, or hazardous or toxic wastes, substances or
materials at, on or beneath any such property. Section 2.13(b) of the
Disclosure Schedule lists each property presently owned, leased or
operated by Heartland or its subsidiaries which, to the knowledge of
Heartland, contains any pollutants, contaminants, or hazardous or toxic
wastes, substances or materials at, on or beneath any such property or
which otherwise violates any Environmental Laws.

SECTION 2.14. COMPLIANCE WITH LAW. Except as set forth in
Section 2.14 of the Disclosure Schedule with respect to certain
regulatory actions of the O.C.C. and the Federal Reserve Board,

Heartland and its subsidiaries have all licenses, franchises, permits
and other governmental authorizations that are legally required to
enable them to conduct their respective businesses and are in compliance
with all applicable laws and regulations.

SECTION 2.15. BROKERAGE. Except as set forth in Section 2.15 of
the Disclosure Schedule, there are no existing claims or agreements for
brokerage commissions, finders' fees, or similar compensation in
connection with the transactions contemplated by this Agreement payable
by Heartland or its subsidiaries.

SECTION 2.16. NON-BANKING ACTIVITIES OF HEARTLAND AND
SUBSIDIARIES. Neither Heartland nor its subsidiaries that are neither a
bank, a bank operating subsidiary or a bank service corporation,
directly or indirectly, engages in any activity prohibited by the
Federal Reserve Board or the B.H.C.A. or which is not listed at 12
C.F.R. Section 225.25. Without limiting the generality of the
foregoing, any equity investment of Heartland and each of its
subsidiaries is not prohibited by the Federal Reserve Board, the
B.H.C.A. or the O.C.C.

SECTION 2.17. TRUST ADMINISTRATION. Neither Heartland nor any of
it subsidiaries acts or serves as a trust company or otherwise acts or
serves in a fiduciary capacity, whether as trustee, agent, custodian,
personal representative, guardian, conservator or investment advisor.

SECTION 2.18. YEAR 2000. Section 2.18 of the Disclosure Schedule
contains a complete and accurate copy of Heartland's plan, including an
estimate of the anticipated costs, for implementing modifications to
Heartland's and its subsidiaries' hardware, software and computer
systems, chips and microprocessors, to ensure proper execution and
accurate processing of all date-related data, whether from years in the
same century or in different centuries.

SECTION 2.19. MATERIAL CONTRACTS AND AGREEMENTS. Neither
Heartland nor any subsidiary of Heartland is a party to, or is bound by,
any material contract (as defined in Item 601(b)(10) of Regulation S-K
of the S.E.C.) or any other material contract or similar arrangement
whether or not made in the ordinary course of business (other than loans
or loan commitments and funding transactions in the ordinary course of
business of Subsidiary Bank) that has not been filed or incorporated by
reference in periodic reports filed by Heartland with the S.E.C. under
the Exchange Act or is not otherwise listed in Section 2.19 of the
Disclosure Schedule. Section 2.19 of the Disclosure Schedule lists
(i) each agreement restricting the nature or geographic scope of any
line of business or activity of Heartland or its subsidiaries, and
(ii) each agreement, indenture or other instrument relating to the
borrowing of money by Heartland or its subsidiaries or the guarantee by
Heartland or its subsidiaries of any such obligation, other than
instruments relating to transactions entered into in the ordinary course
of business. Copies of each of the contracts and agreements listed in
Section 2.19 of the Disclosure Schedule have been previously furnished
to Banterra by Heartland.

SECTION 2.20. NO UNDISCLOSED LIABILITIES. Except as set forth in
Section 2.20 of the Disclosure Schedule, Heartland and its subsidiaries
do not have any liability, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether
due or to become due, including any liability for Taxes (and there is no
past or present fact, situation, circumstance, condition or other basis
for any present or future action, suit or proceeding, hearing, charge,
complaint, claim or demand against Heartland or its subsidiaries giving
rise to any such liability), except (i) for liabilities set forth in the
Heartland Financial Statements, and (ii) normal fluctuation in the
amount of the liabilities referred to in clause (i) above occurring in
the ordinary course of business of Heartland and its subsidiaries since
the date of the September 30, 1998 balance sheet included in the
Heartland Financial Statements.

SECTION 2.21. STATEMENTS TRUE AND CORRECT. None of the
information supplied or to be supplied by Heartland or its subsidiaries
for inclusion in (i) the Proxy Statement (as defined in Section 4.03
hereof), and (ii) any other documents to be filed with the S.E.C. or any
other Regulatory Agency in connection with the transactions contemplated
by this Agreement shall, at the respective times such documents are
filed, and, with respect to the Proxy Statement, when first mailed to
the shareholders of Heartland and at the time of the Heartland
Shareholders' Meeting, contain any untrue statement of a material fact,
or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they
are made, not misleading. All documents that Heartland shall be
responsible for filing with the S.E.C. or any other Regulatory Agency in
connection with the transactions contemplated by this Agreement shall
comply as to form in all material respects with the provisions of
applicable law and the applicable rules and regulations thereunder.

SECTION 2.22. STATE TAKEOVER LAWS. The Board of Directors of
Heartland has taken all such action required to be taken by it to
provide that this Agreement and the transactions contemplated by this
Agreement shall be exempt from the requirements of any "moratorium,"
"control share," "fair price" or other anti-takeover laws or regulations
of any state.

SECTION 2.23. FAIR LENDING; COMMUNITY REINVESTMENT ACT. With the
exception of routine investigation of consumer complaints, neither
Heartland nor any of its subsidiaries have been advised by any
Regulatory Agency that it is or may be in violation of the Equal Credit
Opportunity Act or the Fair Housing Act or any similar federal or state
statute. Subsidiary Bank received a Community Reinvestment Act ("CRA")
rating of "Outstanding" or "Satisfactory" in its most recent CRA
examination.

SECTION 2.24. LOAN PORTFOLIO. Except as disclosed in
Section 2.24 of the Disclosure Schedule, (i) all loans and discounts
shown on the Heartland Financial Statements or which were entered into
after the date of the most recent balance sheet included in the
Heartland Financial Statements were and shall be made in all material
respects for good, valuable and adequate consideration in the ordinary
course of the business of Heartland and its subsidiaries, and are not
subject to any material known defenses, setoffs or counterclaims,
including without limitation any such as are afforded by usury or truth
in lending laws, except as may be provided by bankruptcy, insolvency or
similar laws or by general principles of equity, (ii) the notes or other
evidences of indebtedness evidencing such loans and all forms of
pledges, mortgages and other collateral documents and security
agreements are and shall be, in all material respects, enforceable,
valid, true and genuine and what they purport to be, and (iii) Heartland
and its subsidiaries have complied and shall prior to the Closing Date
comply in all material respects with all laws and regulations relating
to such loans, or to the extent there has not been such compliance, such
failure to comply shall not materially interfere with the collection of
any such loan. The reserve for possible loan losses shown on the most
recent consolidated balance sheet included in the Heartland Financial
Statements is adequate, and the reserve for possible loan losses shown
on the consolidated balance sheet as of the end of the Heartland fiscal
quarter immediately preceding the Effective Time shall be adequate, in
all material respects under the requirements of generally accepted
accounting principles to provide for possible losses, net of recoveries
relating to loans previously charged-off, on loans outstanding
(including, without limitation, accrued interest receivable) as of the
date of each such consolidated balance sheet.

SECTION 2.25. INTEREST RATE RISK MANAGEMENT INSTRUMENTS. Except
with respect to adjustable rate mortgage loans made by Subsidiary Bank
or as may be otherwise specifically disclosed in Section 2.25 of the
Disclosure Schedule, there are no interest rate swaps, caps, floors,
option agreements or other interest rate risk management arrangements or
agreements, whether entered into for the account of Heartland or its
subsidiaries or for the account of a customer of Heartland or one of its
subsidiaries.

15<PAGE>
<PAGE>

SECTION 2.26. INTERIM EVENTS. Except as may be disclosed in
Section 2.26 of the Disclosure Schedule, since September 30, 1998,
neither Heartland nor its subsidiaries has paid or declared any dividend
or made any other distribution to their shareholders.

SECTION 2.27. CLOSING MATTERS. As of the date hereof and as of
the Closing Date, Heartland has no knowledge of any fact or circumstance
that is reasonably likely to prevent any of the transactions
contemplated herein, including the Merger, from being consummated
pursuant to the terms hereof.

ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF BANTERRA AND ACQUISITIONCO

Subject to Section 1.12 hereof, Banterra and AcquisitionCo hereby
make the following representations and warranties:

SECTION 3.01. ORGANIZATION AND CAPITAL STOCK.

(a) Banterra is a corporation duly organized, validly existing
and in good standing under the laws of the State of Illinois and has the
corporate power and authority to own all of its property and assets, to
incur all of its liabilities and to carry on its business as now being
conducted. Banterra is a bank holding company registered with the
Federal Reserve Board under the B.H.C.A. AcquisitionCo is a corporation
duly organized, validly existing, and in good standing under the laws of
the State of Illinois with full corporate power and authority to carry
on its business as now being conducted.

(b) The authorized capital stock of Banterra consists of 500,000
shares of common stock, par value $.25 per share ("Banterra Common"), of
which, as of November 30, 1998, 259,686 shares were issued and
outstanding. All of the issued and outstanding shares of Banterra
Common are duly and validly issued and outstanding and are fully paid
and non-assessable and free of preemptive rights.

(c) The authorized capital stock of AcquisitionCo consists of
100 shares of AcquisitionCo Common, of which, as of the date hereof, 100
shares were issued and outstanding. All of the issued and outstanding
shares of AcquisitionCo Common are duly and validly issued and
outstanding and are fully paid and non-assessable and free of preemptive
rights.

SECTION 3.02. AUTHORIZATION. The Board of Directors of Banterra
and the Board of Directors of AcquisitionCo have, by all appropriate
action, approved this Agreement and the Merger and authorized the
execution hereof on their behalf by their duly authorized officers and
the performance by Banterra and AcquisitionCo of their obligations
hereunder. Nothing in the Articles of Incorporation or Bylaws of
Banterra or AcquisitionCo or any other agreement, instrument, decree,
proceeding, law or regulation (except as specifically referred to in or
contemplated by this Agreement) by or to which Banterra or AcquisitionCo
or any of their subsidiaries are bound or subject would prohibit or
inhibit Banterra or AcquisitionCo from entering into and consummating
this Agreement and the Merger on the terms and conditions herein
contained. This Agreement has been duly and validly executed and
delivered by Banterra and AcquisitionCo and constitutes a legal, valid
and binding obligation of Banterra and AcquisitionCo, enforceable
against Banterra and AcquisitionCo in accordance with its terms, and no
other corporate acts or proceedings are required to be taken by Banterra
or AcquisitionCo to authorize the execution, delivery and performance of
this Agreement.

16
<PAGE>
<PAGE>

SECTION 3.03. SUBSIDIARIES. Each of Banterra's subsidiaries is
duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation and has the corporate power to own
its respective properties and assets, to incur its respective
liabilities and to carry on its respective business as now being
conducted.

SECTION 3.04. FINANCIAL INFORMATION. The consolidated balance
sheets of Banterra and its subsidiaries as of December 31, 1997 and
1996, and related consolidated statements of income, changes in
shareholders' equity and cash flows for the three (3) years ended
December 31, 1997, together with the notes thereto, as currently on
file with the applicable Regulatory Agency, and the unaudited
consolidated balance sheets of Banterra and its subsidiaries as of
September 30, 1998, and the related unaudited consolidated income
statements and statement of changes in shareholders' equity for the
nine (9) months then ended, as currently on file with the applicable
Regulatory Agency (together, the "Banterra Financial Statements"), have
been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be disclosed
therein and except for regulatory reporting differences required by the
reports) and fairly present in all material respects the consolidated
financial position and the consolidated results of operations, changes
in shareholders' equity and cash flows of Banterra and its consolidated
subsidiaries as of the dates and for the periods indicated (subject, in
the case of interim financial statements, to normal recurring year-end
adjustments, none of which shall be material). The deposits of
Banterra's depository institution subsidiaries are insured by the
F.D.I.C. in accordance with the Federal Deposit Insurance Act, as
amended, up to applicable limits. The books and records of Banterra and
its subsidiaries have been, and are being, maintained in accordance with
generally accepted accounting principles and any other applicable legal
and accounting requirements and reflect only actual transactions.

SECTION 3.05. ABSENCE OF CHANGES. Since December 31, 1997, there
has not been any change in the financial condition, the results of
operations or the business of Banterra and its subsidiaries which would
have a Material Adverse Effect on Banterra, except as disclosed by
Banterra since December 31, 1997 in its periodic reports filed with the
appropriate Regulatory Agency.

SECTION 3.06. LITIGATION. There is no litigation, claim or other
proceeding pending or, to the knowledge of Banterra, threatened, against
Banterra or any of its subsidiaries, or of which the property of
Banterra or any of its subsidiaries is or would be subject, and there is
no injunction, order, judgment, decree or regulatory restriction imposed
upon Banterra, or any of its subsidiaries or the assets of Banterra of
any of its subsidiaries, which would have a Material Adverse Effect on
Banterra.

SECTION 3.07. REPORTS. Banterra and each of its subsidiaries has
filed all material reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file
with (i) the Federal Reserve Board, (ii) the F.D.I.C. and (iii) any
other Regulatory Agency with jurisdiction over Banterra or any of its
significant subsidiaries, and have paid all fees and assessments due and
payable in connection therewith. As of their respective dates, each of
such reports and documents, as amended, including any financial
statements, exhibits and schedules thereto, complied with the relevant
statutes, rules and regulations enforced or promulgated by the
regulatory authority with which they were filed and did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading.

SECTION 3.08. COMPLIANCE WITH LAW. Banterra and its subsidiaries
have all licenses, franchises, permits and other governmental
authorizations that are legally required to enable them to conduct their
respective businesses and are in compliance with all applicable laws and
regulations.

17
<PAGE>
<PAGE>

SECTION 3.09. STATEMENTS TRUE AND CORRECT. None of the
information supplied or to be supplied by Banterra or AcquisitionCo for
inclusion in (i) the Proxy Statement, and (ii) any other documents to be
filed with the S.E.C. or any other Regulatory Agency in connection with
the transactions contemplated by this Agreement shall, at the respective
times such documents are filed, and with respect to the Proxy Statement,
when first mailed to the shareholders of Heartland and at the time of
the Heartland Shareholders' Meeting, contain any untrue statement of a
material fact, or omit to state any material fact necessary in order to
make the statements made therein, in light of the circumstances under
which they are made, not misleading. All documents that Banterra or
AcquisitionCo shall be responsible for filing with any Regulatory Agency
in connection with the transactions contemplated by this Agreement shall
comply as to form in all material respects with the provisions of
applicable law and the applicable rules and regulations thereunder.

SECTION 3.10. REGULATORY ENFORCEMENT MATTERS. Neither Banterra
nor any of its subsidiaries is subject or is party to, or has received
any notice or advice that it may become subject or party to, any
Regulatory Agreement, nor has Banterra or any of its subsidiaries been
advised by any Regulatory Agency that it is considering issuing or
requesting any such Regulatory Agreement.

SECTION 3.11. STATE TAKEOVER LAWS. The Board of Directors of
AcquisitionCo has taken all such action required to be taken by it to
provide that this Agreement and the transactions contemplated by this
Agreement shall be exempt from the requirements of any "moratorium,"
"control share," "fair price" or other anti-takeover laws or regulations
of any state.

SECTION 3.12. NO UNDISCLOSED LIABILITIES. As of the date hereof,
Banterra and its subsidiaries do not have any liability, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due, including any
liability for Taxes (and there is no past or present fact, situation,
circumstance, condition or other basis for any present or future action,
suit or proceeding, hearing, charge, complaint, claim or demand against
Banterra or its subsidiaries giving rise to any such liability) which
would have a material adverse effect on Banterra's ability to consummate
the Merger, except (i) for liabilities set forth in the Banterra
Financial Statements, and (ii) normal fluctuation in the amount of the
liabilities referred to in clause (i) above occurring in the ordinary
course of business of Banterra and its subsidiaries since the date of
the September 30, 1998 balance sheet included in the Banterra Financial
Statements.

SECTION 3.13. COMMUNITY REINVESTMENT ACT. Prior to December 15,
1998, each of Banterra's depository institution subsidiaries received a
CRA rating of "Outstanding" or "Satisfactory" in its most recent CRA
examination.

SECTION 3.14. CLOSING MATTERS. As of the date hereof and as of
the Closing Date, Banterra has no knowledge of any fact or circumstance
that is reasonably likely to prevent any of the transactions
contemplated herein, including the Merger, from being consummated
pursuant to the terms hereof.

SECTION 3.15. FUND AVAILABILITY. Banterra has sufficient funds
to pay the Stock Consideration and the Option Consideration.

SECTION 3.16. COMPLIANCE WITH CAPITAL ADEQUACY GUIDELINES.
Banterra meets or exceeds all applicable capital adequacy regulatory
standards as of September 30, 1998 and as of the date hereof, and
Banterra meets or exceeds all applicable capital adequacy regulatory
standards on a pro forma basis reflecting the Merger (including payment
of the Stock Consideration and the Option Consideration) as of the date
hereof and (on a pro forma basis) at the Effective Time.

18<PAGE>
<PAGE>

ARTICLE FOUR
AGREEMENTS OF HEARTLAND

SECTION 4.01. BUSINESS IN ORDINARY COURSE.

(a) Heartland shall not declare or pay any dividend or make any
other distribution to shareholders, whether in cash, stock or other
property, after the date hereof.

(b) Heartland shall, and shall cause each of its subsidiaries
to, (1) continue to carry on after the date hereof its respective
business and the discharge or incurrence of obligations and liabilities,
only in the usual, regular and ordinary course of business, as
heretofore conducted, (2) use reasonable best efforts to maintain and
preserve intact its respective business organization, employees and
advantageous business relationships and retain the services of its
officers and key employees, and (3) by way of amplification and not
limitation, Heartland and each of its subsidiaries shall not, except
with respect to the exercise of vested stock options as disclosed in
Schedule 2.01(b)-1, without the prior written consent of Banterra:

(i) issue any shares of Heartland Common or other capital
stock or any options, warrants, or other rights to subscribe for
or purchase shares of Heartland Common or any other capital stock
or any securities convertible into or exchangeable for any capital
stock of Heartland or any of its subsidiaries; or

(ii) directly or indirectly redeem, purchase or otherwise
acquire any shares of Heartland Common or any other capital stock
of Heartland or effect a reclassification, recapitalization,
splitup, exchange of shares, readjustment or other similar change
in or to any capital stock or otherwise reorganize or recapitalize
Heartland; or

(iii) directly or indirectly redeem, purchase or otherwise
acquire any shares of capital stock of or effect a reclassification,
recapitalization, splitup, exchange of shares, readjustment or other
similar change in or to any capital stock or otherwise reorganize or
recapitalize any subsidiary of Heartland; or

(iv) change its Articles of Incorporation or Bylaws; or

(v) grant any increase, other than ordinary and normal
increases consistent with past practices, in the compensation
payable or to become payable to officers or salaried employees,
grant any Heartland Options or, except as required by law or as
required by existing contractual obligations which shall have been
described in Section 2.11 of the Disclosure Schedule, adopt or
make any change in any bonus, insurance, pension, or other
Heartland Employee Plan, agreement, payment or arrangement made
to, for or with any of such officers or employees; or

(vi) borrow or agree to borrow any amount of funds except
in the ordinary course of business, or directly or indirectly
guarantee or agree to guarantee any obligations of others, except
in the ordinary course of business; or

(vii) make or commit to make any new loan or letter of
credit or any new or additional discretionary advance under any
existing line of credit in principal amounts in excess of $150,000
or that would increase the aggregate credit outstanding to any one
borrower (or group of affiliated borrowers) to more than $150,000
(excluding for this purpose any accrued interest or overdrafts)
unless the amount of any additional loan, letter of credit or
advance is no greater than

19
<PAGE>
<PAGE>

$50,000, and is made to an existing borrower whose indebtedness
currently exceeds $150,000, provided that such borrower is not on
a watchlist of Heartland or its subsidiaries or has any credit
classified for regulatory purposes, without the prior written
consent of Banterra; or

(viii) purchase or otherwise acquire any investment
security for its own account, except in a manner and pursuant to
policies consistent with past practice; or

(ix) increase or decrease the rate of interest paid on time
deposits, or on certificates of deposit, except in a manner and
pursuant to policies consistent with past practices; or

(x) enter into any agreement, contract or commitment out
of the ordinary course of business that requires an annual payment
in excess of Ten Thousand Dollars ($10,000); or

(xi) except in the ordinary course of business, place on
any of its assets or properties any mortgage, pledge, lien,
charge, or other encumbrance; or

(xii) except in the ordinary course of business, cancel or
accelerate any material indebtedness owing to Heartland or any of
its subsidiaries or any claims which Heartland or any of its
subsidiaries may possess or waive any material rights with respect
thereto; or

(xiii) sell or otherwise dispose of any real property or any
material amount of any tangible or intangible personal property
other than in the ordinary course of business and other than
properties acquired in foreclosure or otherwise in the ordinary
collection of indebtedness to Heartland or any of its
subsidiaries; or

(xiv) foreclose upon or otherwise take title to or
possession or control of any real property without first obtaining
a phase one environmental report thereon which indicates that the
property is free of pollutants, contaminants or hazardous or toxic
waste materials; provided, however, that Heartland and its
subsidiaries shall not be required to obtain such a report with
respect to single family, non-agricultural residential property of
one acre or less to be foreclosed upon unless it has reason to
believe that such property might contain any such waste materials
or otherwise might be contaminated; or

(xv) commit any act or fail to do any act which would cause
a breach of any agreement, contract or commitment and which would
have a Material Adverse Effect on Heartland; or

(xvi) except as may be necessary to comply with Year 2000
requirements in an amount not to exceed Ten Thousand Dollars
($10,000) or as may otherwise be approved in writing by Banterra,
purchase any real or personal property or make any other capital
expenditure, except in a manner and pursuant to policies
consistent with past practice; or

(xvii) take any action which would materially and adversely
effect or delay the ability of either Banterra or Heartland to
obtain any necessary approvals of any Regulatory Agency or other
governmental authority required for the transactions contemplated
by this Agreement or to perform its covenants and agreements under
this Agreement; or

(xviii) violate any law, statute, rule, governmental
regulation or order, which violation would have a Material Adverse
Effect on Heartland; or

20
<PAGE>
<PAGE>

(xix) change accounting principles or practices, or the
method of applying such principles or practices, except as
required by generally accepted accounting principles.

(c) Heartland and its subsidiaries shall not engage in any
transaction or take any action that would render untrue (under the
standard of Section 1.12 hereof) any of the representations and
warranties of Heartland contained in Article Two hereof, except as
otherwise required herein, if such representations and warranties were
given as of the date of such transaction or action.

(d) Heartland shall promptly notify Banterra in writing of the
occurrence of any matter or event known to and directly involving
Heartland, which would not include any changes in conditions that affect
the banking industry generally, that would have, either individually or
in the aggregate, a Material Adverse Effect on Heartland.

(e) Heartland and its subsidiaries shall not, and shall not
authorize or permit any of their respective officers, directors,
employees or agents to, on or before the earlier of the Closing Date or
the date of termination of this Agreement, directly or indirectly
solicit, initiate or encourage or (subject to the fiduciary duties of
its directors as advised by counsel) hold discussions or negotiations
with or provide any information to any person in connection with any
proposal from any person for the acquisition of all or any substantial
portion of the business, assets, shares of Heartland Common or other
securities of Heartland or Subsidiary Bank or any merger of Heartland or
Subsidiary Bank with any person. Heartland shall promptly (which for
this purpose shall mean within twenty-four (24) hours) advise Banterra
of its receipt of any such proposal or inquiry concerning any possible
such proposal, the substance of such proposal or inquiry, and the
identity of such person.

SECTION 4.02. BREACHES. Heartland shall, in the event it has
knowledge of the occurrence, or impending or threatened occurrence, of
any event or condition which would cause or constitute a breach (or
would have caused or constituted a breach had such event occurred or
been known prior to the date hereof) of any of its representations or
agreements contained or referred to herein, give prompt written notice
thereof to Banterra and use its best efforts to prevent or promptly
remedy the same.

SECTION 4.03. SUBMISSION TO SHAREHOLDERS. Heartland shall cause
to be duly called and held, on a date selected by Heartland with the
approval of Banterra, a special meeting of its shareholders (the
"Heartland Shareholders' Meeting") for submission of this Agreement and
the Merger for approval of such Heartland shareholders as required by
the Illinois Corporate Law. In connection with the Heartland
Shareholders' Meeting, (i) Banterra and AcquisitionCo shall cooperate
and assist Heartland in preparing and filing a Proxy Statement (the
"Proxy Statement") with the S.E.C., and Heartland shall mail the Proxy
Statement to its shareholders, (ii) Banterra and AcquisitionCo shall
furnish Heartland all information concerning themselves that Heartland
may reasonably request in connection with such Proxy Statement, and
(iii) the Board of Directors of Heartland (subject to compliance with
its fiduciary duties as advised by counsel) shall recommend to its
shareholders the approval of this Agreement and the Merger contemplated
by this Agreement and use its best efforts to obtain such shareholder
approval.

SECTION 4.04. CONSENTS TO CONTRACTS AND LEASES. Heartland shall
use its best efforts to obtain all necessary consents with respect to
all interests of Heartland and its subsidiaries in any material leases,
licenses, contracts, instruments and rights which require the consent of
another person for their transfer or assumption pursuant to the Merger,
if any.

SECTION 4.05. CONSUMMATION OF AGREEMENT. Heartland shall use its
best efforts to perform and fulfill all conditions and obligations on
its part to be performed or fulfilled under this Agreement and to effect
the Merger and the other transactions contemplated hereby in accordance
with the terms and
21
<PAGE>
<PAGE>

provisions hereof and to effect the transition and integration of the
business and operations of Heartland and its subsidiaries with the
business and operations of Banterra and its subsidiaries. Heartland
shall furnish to Banterra in a timely manner all information, data and
documents in the possession of Heartland or its subsidiaries requested
by Banterra as may be required to obtain any necessary regulatory or
other approvals of the Merger and shall otherwise cooperate fully with
Banterra to carry out the purpose and intent of this Agreement.

SECTION 4.06. ENVIRONMENTAL REPORTS. Heartland shall provide to
Banterra, as soon as reasonably practical, but not later than sixty (60)
days after the date hereof, a report of a phase one environmental
investigation on all real property owned (including, without limitation,
Other Real Estate Owned and property leased or operated by Heartland or
any of its subsidiaries as of the date hereof (other than space in
retail and similar establishments leased by Heartland or any of its
subsidiaries for automatic teller machines)) and within ten (10) days
after the acquisition or lease of any real property acquired or leased
by Heartland or its subsidiaries after the date hereof (but excluding
space in office or retail and similar establishments leased by Heartland
or its subsidiaries for automatic teller machines), except as otherwise
provided in Section 4.01(b)(xiv) hereof. If required by the phase one
investigation in Banterra's reasonable opinion, Heartland shall provide
to Banterra, within sixty (60) days of the receipt by Heartland of the
request of Banterra therefor, a report of a phase two investigation on
properties requiring such additional study. Banterra shall have fifteen
(15) business days from the receipt of any such phase two investigation
report to notify Heartland of any dissatisfaction with the contents of
such report. Should the cost of taking all remedial or other corrective
actions and measures (i) required by applicable law or reasonably likely
to be required by applicable law, or (ii) recommended or suggested by
such report or reports or prudent in light of serious life, health or
safety concerns, in the aggregate, exceed the sum of One Hundred
Thousand Dollars ($100,000) as reasonably estimated by an environmental
expert retained for such purpose by Banterra and reasonably acceptable
to Heartland, or if the cost of such actions and measures cannot be so
reasonably estimated by such expert to be such amount or less with any
reasonable degree of certainty, then Banterra shall have the right
pursuant to Section 7.03 hereof, for a period of fifteen (15) business
days following receipt of such estimate or indication that the cost of
such actions and measures can not be so reasonably estimated, to
terminate this Agreement, which shall be Banterra's sole remedy in such
event.

SECTION 4.07. ACCESS TO INFORMATION. Heartland shall permit
Banterra and its accountants, attorneys and other representatives
reasonable access in a manner which shall avoid undue disruption or
interference with Heartland's normal operations to its properties and
shall disclose and make available to Banterra all books, documents,
papers, records and computer systems documentation and files relating to
its assets, stock ownership, properties, operations, obligations and
liabilities, including, but not limited to, all books of account
(including the general ledger), tax records, minute books of directors'
and shareholders' meetings, organizational documents, material contracts
and agreements, loan files, filings with any regulatory authority,
accountants' workpapers (if available and subject to the respective
independent accountants' consent), litigation files (but only to the
extent that such review would not result in a waiver of the attorney-
client or attorney work product privileges under the rules of evidence),
Employee Benefit Plans, and any other business activities or prospects
in which Banterra may have a reasonable and legitimate interest in
furtherance of the transactions contemplated by this Agreement.
Banterra shall hold any such information which is nonpublic in
confidence in accordance with the provisions of Section 8.01 hereof.

SECTION 4.08. SUBSIDIARY BANK MERGER. Upon the request of
Banterra, Heartland shall cause the Subsidiary Bank to enter into a
merger agreement, subject to the conditions of this Agreement with
Banterra Bank and take all other actions and cooperate with Banterra in
causing such merger (the "Subsidiary Bank Merger") to be effected. Such
subsidiary bank merger agreement shall provide, in

22
<PAGE>
<PAGE>

addition to customary terms for the combination of subsidiary bank
operations in transactions such as this: (i) for consummation of any
such merger on a date on or after the Closing Date, as may be selected
by Banterra, and (ii) that the obligations of the Subsidiary Bank
thereunder are conditioned on the prior or simultaneous consummation of
the Merger pursuant to this Agreement.

SECTION 4.09. PLAN OF MERGER. At the request of Banterra,
Heartland shall enter into a separate plan of merger or certificate of
merger reflecting the terms hereof for purposes of any filing
requirement of the Illinois Corporate Law.

SECTION 4.10. VOTING AGREEMENTS. Heartland shall cause all of
the directors of Heartland as of the date hereof and each of their
respective spouses, except for Christy L. Cripps, to enter into voting
agreements as of the date hereof obligating all of the directors of
Heartland and each of their respective spouses to vote all shares of
Heartland Common beneficially owned or controlled by them in favor of
the Agreement and the Merger.

SECTION 4.11. MEETING WITH HEARTLAND AUDITORS. If requested by
Banterra, Heartland shall arrange for a meeting between Banterra and
Gray Hunter Stenn LLP, Heartland's independent auditors, to review and
discuss the Heartland Financial Statements.

SECTION 4.12. MERGER EXPENSES AND RELATED MATTERS.

(a) Banterra and Heartland shall consult and reasonably
cooperate with each other with respect to determining, as specified in a
written notice from Banterra to Heartland, based upon such consultation
and as hereinafter provided, the amount of, and timing for recognizing
for financial accounting purposes the expenses of the Merger and the
restructuring charges related to or to be incurred in connection with
the Merger provided that in no event shall such adjustments be made any
earlier than the day prior to Closing and provided further that
Heartland shall be under no obligation to take any such action unless
Banterra and AcquisitionCo provide a written waiver of any right they
may have to terminate this Agreement and acknowledge and agree that all
conditions precedent to the obligations of Banterra and AcquisitionCo in
this Agreement have either been satisfied or waived. No such
recognition of expenses or restructuring charges shall be deemed to be a
breach or violation of any representation, warranty, covenant,
condition or other provision of this Agreement.

(b) From and after the date of this Agreement to the Effective
Time, Heartland and its subsidiaries shall maintain and keep all of the
Heartland Employee Plans fully funded, and shall, to the extent any such
benefit plan may not be fully or adequately funded, make such
contributions as are necessary to fully fund any such inadequately
funded benefit plan, including payments to Heartland's Employee Stock
Ownership Plan, as may be required.

(c) From December 1, 1998 forward, Heartland's attorneys' fees
incurred in connection with this Agreement and the transactions
contemplated herein shall not exceed the sum of $80,000. Heartland's
investment bankers' fees incurred in connection with this Agreement and
the transactions contemplated herein shall not exceed the sum of
$275,000. Heartland's accountants' fees incurred in connection with
this Agreement and the transactions contemplated herein shall not exceed
the sum of $100,000. In the event that Heartland's attorneys' fees,
investment bankers' fees and/or accountants' fees in the aggregate
exceed the sum of $455,000, the aggregate amount of the Stock
Consideration payable by Banterra hereunder shall be reduced on a dollar
for dollar basis by the amount by which such attorneys' fees, investment
bankers' fees and/or accountants' fees in the aggregate exceed the sum
of $455,000.

23
<PAGE>
<PAGE>

SECTION 4.13. HEARTLAND OPTION CONSIDERATION AGREEMENTS.
Heartland shall cause all of the holders of Vested Heartland Options to
enter into the Heartland Option Consideration Agreements.

SECTION 4.14. PENDING LEGAL MATTERS. Heartland shall pursue
resolution or settlement of the lawsuits styled Christy Cripps v.
Heartland National Bank and Ronald D. Maddox v. Heartland National Bank,
each currently pending in the Illinois Circuit Court of the First
Judicial Circuit, Williamson County, Illinois, on terms most favorable
to Heartland, and shall fully inform Banterra as to the ongoing status
of these lawsuits. Resolution or settlement of either of these lawsuits
shall only occur, or be made, after full consultation with Banterra, and
only after consent is obtained from Banterra, which consent shall not be
unreasonably withheld.

SECTION 4.15. RECOVERY OF ATTORNEYS' FEES. From and after the date
hereof, Heartland shall use its best efforts to promptly recover the
maximum amount that it can recover from its insurer for any legal fees
and expenses or other fees and expenses incurred in connection with the
lawsuit styled Rochman v. Heartland Bancshares, Inc. et al., Cause No.
98-CH-32, filed in the Illinois Circuit Court of the First Judicial
Circuit, Williamson County, Illinois.

ARTICLE FIVE
AGREEMENTS OF BANTERRA AND ACQUISITIONCO

SECTION 5.01. REGULATORY APPROVALS; OTHER AGREEMENTS.

(a) Within sixty (60) days after the date hereof, Banterra shall
file all regulatory applications required in order to consummate the
Merger, including but not limited to the necessary applications for the
prior approval of the Federal Reserve Board and the O.T.S. Banterra
shall keep Heartland reasonably informed as to the status of such
applications. At least five (5) business days prior to filing, Banterra
shall provide copies of such applications to Heartland and its counsel
for review and comment.

(b) Banterra shall not, without the prior written consent of
Heartland, engage in any transaction or take any action that would
render untrue (under the standard of Section 1.12 hereof) any of the
representations and warranties of Banterra contained in Article Three
hereof (except for any such representations and warranties made only as
of a specified date), if such representations and warranties were given
as of the date of such transaction or action.

SECTION 5.02. BREACHES. Banterra shall, in the event it has
knowledge of the occurrence, or impending or threatened occurrence, of
any event or condition which would cause or constitute a breach (or
would have caused or constituted a breach had such event occurred or
been known prior to the date hereof) of any of its representations or
agreements contained or referred to herein, give prompt written notice
thereof to Heartland and use its best efforts to prevent or promptly
remedy the same.

SECTION 5.03. CONSUMMATION OF AGREEMENT. Banterra and
AcquisitionCo shall use their best efforts to perform and fulfill all
conditions and obligations on their part to be performed or fulfilled
under this Agreement and to effect the Merger in accordance with the
terms and conditions of this Agreement.

SECTION 5.04. DIRECTORS AND OFFICERS' LIABILITY INSURANCE.

(a) For a period of three (3) years after the Effective Time,
Banterra shall use its reasonable best efforts to cause to be maintained
in effect the current policies of directors' and officers' liability

24
<PAGE>
<PAGE>

insurance maintained by Heartland (provided that Banterra may
substitute therefor policies of comparable coverage with respect to
claims arising from facts or events which occurred before the Effective
Time); provided, however, that in no event shall Banterra be obligated
to expend a total amount in excess of $53,100 in order to maintain or
provide insurance coverage pursuant to this Section 5.04 (the "Maximum
Amount"). If the amount of the annual premiums necessary to maintain or
procure such insurance coverage exceeds the Maximum Amount, Banterra
shall use all reasonable efforts to maintain the most advantageous
policies of directors' and officers' insurance obtainable but in no
event shall the cost of such insurance exceed the Maximum Amount.
Notwithstanding the foregoing, prior to the Effective Time, Banterra may
request Heartland to, and Heartland shall, purchase insurance coverage,
on such terms and conditions as shall be acceptable to Banterra,
extending for a period of three (3) years Heartland's directors' and
officers' liability insurance coverage in effect as of the date hereof
(covering past or future claims with respect to periods before the
Effective Time) and such coverage shall satisfy Banterra's obligations
under this Section 5.04.

(b) For a period of six (6) years after the Effective Time,
Banterra shall, or shall cause Banterra Bank to, indemnify, defend and
hold harmless each person who is now, or who has been at any time before
the date hereof or who becomes before the Effective Time, an officer or
director of Heartland, Heartland National Bank or any of their
respective subsidiaries (the "Indemnified Parties") against all losses,
claims, damages, costs, expenses (including attorney's fees),
liabilities or judgments or amounts that are paid in settlement (which
settlement shall require the prior written consent of Banterra, which
consent shall not be unreasonably withheld) of or in connection with any
claim, action, suit, proceeding or investigation, whether civil,
criminal, or administrative (each a "Claim"), in which an Indemnified
Party is, or is threatened to be made, a party or witness in whole or in
part on or arising in whole or in part out of the fact that such person
is or was a director, officer or employee of Heartland, Heartland
National Bank or any of their subsidiaries if such Claim pertains to any
matter of fact arising, existing or occurring before the Effective Time
(including, without limitation, the Merger and the other transactions
contemplated hereby), regardless of whether such Claim is asserted or
claimed before, or at or after, the Effective Time (the "Indemnified
Liabilities"), to the fullest extent permitted under applicable state or
federal law in effect as of the date hereof or as amended applicable to
a time before the Effective Time and under Heartland's and Heartland
National Bank's Articles or Articles and By-Laws. Banterra shall pay
expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent permitted by
applicable state or federal law in effect as of the date hereof or as
amended applicable to a time before the Effective Time upon receipt of
an undertaking to repay such advance payments if he shall be adjudicated
or determined to be not entitled to indemnification in the manner set
forth below. Any Indemnified Party wishing to claim indemnification
under this Section 5.04(b) upon learning of any Claim, shall notify
Banterra (but the failure so to notify Banterra shall not relieve it
from any liability which it may have under this Section 5.04(b), except
to the extent such failure materially prejudices Banterra) and shall
deliver to Banterra the undertaking referred to in the previous
sentence. In the event of any such Claim (whether arising before or
after the Effective Time) (1) Banterra shall have the right to assume
the defense thereof (in which event the Indemnified Parties will
cooperate in the defense of any such matter) and upon such assumption
Banterra shall not be liable to any Indemnified Party for any legal
expenses of other counsel or any other expenses subsequently incurred by
any Indemnified Party in connection with the defense thereof, except
that if Banterra elects not to assume such defense, or counsel for the
Indemnified Parties reasonably advises the Indemnified Parties that
there are or may be (whether or not any have yet actually arisen) issues
which raise conflicts of interest between Banterra and the Indemnified
Parties, the Indemnified Parties may retain counsel reasonably
satisfactory to them, and Banterra shall pay the reasonable fees and
expenses of such counsel for the Indemnified Parties, (2) Banterra shall
be obligated pursuant to this paragraph to pay for only one firm of
counsel for all Indemnified Parties whose reasonable fees and expenses
shall be paid promptly as statements are received, (3) Banterra shall
not be liable for any settlement effected without

25
<PAGE>
<PAGE>

its prior written consent (which consent shall not be unreasonably
withheld) and (4) no Indemnified Party shall be entitled to
indemnification hereunder with respect to a matter as to which (x) he
shall have been adjudicated in any proceeding not to have acted in good
faith in the reasonable belief that his action was in the best interests
of Heartland, Heartland National Bank or any Subsidiary, or (y) in the
event that a proceeding is compromised or settled so as to impose any
liability or obligation upon an Indemnified Party, if there is a
determination that with respect to said matter said Indemnified Party
did not act in good faith in the reasonable belief that his action was
in the best interests of Heartland, Heartland National Bank or any
Subsidiary. In the event that either Banterra or Banterra Bank or any
of its successors or assigns (i) consolidates with or merges into any
other person and shall not be the continuing or surviving bank or entity
of such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person, then, and in each such
case, proper provision shall be made so that the successors and assigns
of Banterra shall assume the obligations set forth in this Section 5.04(b).
The obligations of Banterra provided under this Section 5.04(b) are
intended to be enforceable against Banterra directly by the Indemnified
Parties and shall be binding on all respective successors and permitted
assigns of Banterra.

SECTION 5.05. EMPLOYEE BENEFITS.

(a) Banterra shall, with respect to each employee of Heartland
or its subsidiaries at the Effective Time who shall continue in
employment with Banterra or its subsidiaries (each a "Continued
Employee"), provide the benefits described in this Section 5.05.
Subject to the right of subsequent amendment, modification or
termination of Banterra's Employee Plans, as defined below, in
Banterra's sole discretion which applies to all employees of Banterra or
its subsidiaries, each Continued Employee shall be entitled, as a new
employee of a subsidiary of Banterra, to participate in such employee
benefit plans, as defined in Section 3(3) of ERISA, or any non-qualified
employee benefit plans or deferred compensation, stock option, bonus or
incentive plans, or other employee benefit or fringe benefit programs
that may be in effect generally for employees of all of Banterra's
subsidiaries (the "Banterra Employee Plans"), if and as a Continued
Employee shall be eligible and, if required, selected for participation
therein under the terms thereof. Continued Employees shall be eligible
to participate on the same basis as similarly situated employees of
other Banterra subsidiaries. All such participation shall be subject to
such terms of such Banterra Employee Plans as may be in effect from time
to time and this Section 5.05 is not intended to give Continued
Employees any rights or privileges superior to those of other employees
of Banterra's subsidiaries (except as provided in the following sentence
with respect to credit for past service). For purposes of determining
credit for past service, and eligibility for and vesting of such
employee benefits with respect to the Banterra Employee Plans, service
with Heartland, Heartland National Bank, or any subsidiary thereof prior
to the Effective Time shall be treated as service with an "employer" as
if such persons had been employees of Banterra, or its subsidiaries.
The Banterra Employee Plans shall cover pre-existing medical conditions
to the extent provided therein. Upon request, Banterra shall provide a
copy of the Banterra Employee Plans to those Continued Employees
entitled to participate thereunder.

(b) At the Effective Time, the Heartland Employee Plans shall
terminate and be of no further force and effect, and all employees of
Heartland or its subsidiaries shall receive all benefits to which they
are entitled to thereunder. Banterra shall provide customary out
placement assistance, in an amount not to exceed $500 per employee, and
continued health insurance (as required by COBRA) to any employee of
Heartland or its subsidiaries who shall not be a Continued Employee.
Banterra shall pay severance pay in an amount equal to one week's salary
for each full year of employment by Heartland or its subsidiaries, with
a minimum of four (4) weeks severance pay and a maximum of ten (10)
weeks severance pay, plus any accrued vacation pay, to any employee of
Heartland or its subsidiaries who (i) shall not be a Continued Employee,
provided that such employee was never offered employment by

26
<PAGE>
<PAGE>

Banterra or its subsidiaries or such employee was offered employment
with Banterra or its subsidiaries but such employment involved such
employee changing his or her place of employment to a location other
than Marion, Illinois or Carbondale, Illinois, or (ii) shall be a
Continued Employee but shall be terminated by Banterra or its
subsidiaries within six (6) months of becoming a Continued Employee.
Banterra shall not pay any severance pay to any employee of Heartland
or its subsidiaries who shall not be a Continued Employee if such
employee, other than Roger O. Hileman, was offered employment by
Banterra or its subsidiaries that involved such employee's place of
employment being their current place of employment, Marion, Illinois, or
Carbondale, Illinois, and that is at a comparable compensation level and
level of responsibility to their previous position with Heartland or its
subsidiaries.

SECTION 5.06. CONTRACT OF ROGER O. HILEMAN. Banterra agrees that
(i) the consummation of the transactions contemplated hereby constitutes
a "Change in Control" as defined in the Employment Agreements of
Roger O. Hileman with both Heartland and Heartland National Bank, and
that Mr. Hileman will be deemed to have suffered a material change in
his responsibilities and supervision as of the Effective Time, it being
understood that Mr. Hileman's employment with both Heartland and
Heartland National Bank shall terminate as of the Effective Time, and
that Mr. Hileman shall receive, without duplication, the payments called
for under Section 11(a) of his Employment Agreements at such time.

ARTICLE SIX
CONDITIONS PRECEDENT TO MERGER

SECTION 6.01. CONDITIONS TO BANTERRA'S OBLIGATIONS. The
obligations of Banterra and AcquisitionCo to effect the Merger shall be
subject to the satisfaction (or waiver by Banterra) prior to or on the
Closing Date of the following conditions:

(a) The representations and warranties made by Heartland in this
Agreement shall be true and correct (subject to the standard in
Section 1.12 hereof) on and as of the Closing Date with the same effect
as though such representations and warranties had been made or given on
and as of the Closing Date (except for any such representations and
warranties made only as of a specified date which shall be true and
correct (subject to the standard in Section 1.12 hereof) as of such
date); and

(b) Heartland shall have performed and complied in all material
respects with all of its obligations and agreements required to be
performed on or prior to the Closing Date under this Agreement; and

(c) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction
or other legal restraint or prohibition (an "Injunction") preventing the
consummation of the Merger shall be in effect, nor shall any proceeding
by any Regulatory Agency or other person seeking any of the foregoing be
pending. There shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to
the Merger which makes the consummation of the Merger illegal; and

(d) All necessary regulatory approvals, consents, authorizations
and other approvals, including the requisite approval of this Agreement
and the Merger by the shareholders of Heartland, required by law for
consummation of the Merger shall have been obtained and all waiting
periods required by law shall have expired, and no regulatory approval
shall have imposed any condition, requirement or restriction that the
Board of Directors of Banterra reasonably determines in good faith would
so materially adversely impact the economic or business benefits of the
transactions contemplated

27
<PAGE>
<PAGE>

by this Agreement to Banterra and its shareholders as to render
inadvisable the consummation of the Merger (any such condition,
requirement or restriction, a "Burdensome Condition"); and

(e) Banterra shall have received the environmental reports
required by Section 4.06 hereof, and shall not have elected, pursuant to
Section 4.06 hereof, to terminate and cancel this Agreement; and

(f) Banterra shall have received all documents required to be
received from Heartland on or prior to the Closing Date, all in form and
substance reasonably satisfactory to Banterra; and

(g) Banterra shall have received a legal opinion substantially
in the form of Exhibit 1.11(a) hereto; and

(h) The Subsidiary Bank Merger shall be consummated if the
subsidiary bank merger agreement, if any, provides for consummation of
the Subsidiary Bank Merger on the Closing Date; and

(i) Banterra shall have reasonably determined, in good faith,
that there has not been any change in the financial condition, the
results of operations or the business of Heartland and its subsidiaries
that would have, or has had, since the date of this Agreement, a
Material Adverse Effect on Heartland; and

(j) All of the Heartland Option Consideration Agreements shall
be in full force and effect; and

(k) Banterra shall have received information from Foley &
Lardner concerning the matters upon which Foley & Lardner currently
represents Heartland in form and substance acceptable to Banterra, which
information shall be included in Section 2.24 of the Disclosure
Schedule.

SECTION 6.02. CONDITIONS TO HEARTLAND'S OBLIGATIONS. The
obligations of Heartland to effect the Merger shall be subject to the
satisfaction (or waiver by Heartland) prior to or on the Closing Date of
the following conditions:

(a) The representations and warranties made by Banterra and
AcquisitionCo in this Agreement shall be true and correct (subject to
the standard in Section 1.12 hereof) on and as of the Closing Date with
the same effect as though such representations and warranties had been
made or given on and as of the Closing Date (except for any such
representations and warranties made only as of a specified date which
shall be true and correct (subject to the standard in Section 1.12
hereof) as of such date); and

(b) Banterra and AcquisitionCo shall have performed and complied
in all material respects with all of their obligations and agreements
hereunder required to be performed on or prior to the Closing Date under
this Agreement; and

(c) No Injunction preventing the consummation of the Merger
shall be in effect, nor shall any proceeding by any Regulatory Agency or
any other person seeking any of the foregoing be pending. There shall
not be any action taken, or any statute, rule, regulation or order
enacted, entered, enforced or deemed applicable to the Merger which
makes the consummation of the Merger illegal; and

(d) All necessary regulatory approvals, consents, authorizations
and other approvals, including the requisite approval of this Agreement
and the Merger by the shareholders of Heartland,

28
<PAGE>
<PAGE>

required by law for consummation of the Merger shall have been obtained
and all waiting periods required by law shall have expired; and

(e) Heartland shall have received all documents required to be
received from Banterra or AcquisitionCo on or prior to the Closing Date,
all in form and substance reasonably satisfactory to Heartland; and

(f) Heartland shall have received, on or before the date of the
mailing of the Proxy Statement, from its investment banker, Trident
Securities, Inc., the reaffirmation of the opinion of such investment
banker, originally rendered and delivered to Heartland at the meeting of
the Board of Directors of Heartland at which this Agreement was approved
by such Board of Directors, to the effect that the transactions
contemplated by this Agreement, including the Merger, are fair to
Heartland and its shareholders from a financial point of view; and

(g) Heartland shall have received a legal opinion substantially
in the form of Exhibit 1.11(b) hereto; and

(h) Banterra shall have deposited, or cause to be deposited, the
Stock Consideration and the Option Consideration with the Exchange
Agent.

ARTICLE SEVEN
TERMINATION OR ABANDONMENT

SECTION 7.01. MUTUAL AGREEMENT. This Agreement may be terminated
by the mutual written agreement of Banterra and Heartland at any time
prior to the Closing Date, regardless of whether approval of this
Agreement and the Merger by the shareholders of Heartland shall have
been previously obtained.

SECTION 7.02. BREACH OF AGREEMENTS. In the event that there is a
breach in any of the representations and warranties (subject to the
standard in Section 1.12 hereof) or a material breach of any of the
agreements of Banterra or Heartland, which breach is not cured within
thirty (30) days after written notice to cure such breach is given to
the breaching party by the non-breaching party, then the non-breaching
party, regardless of whether shareholder approval of this Agreement and
the Merger shall have been previously obtained, may terminate and cancel
this Agreement by providing written notice of such action to the other
party hereto.

SECTION 7.03. ENVIRONMENTAL REPORTS. Banterra may terminate this
Agreement to the extent provided by Section 4.06 hereof and this
Section 7.03 by giving timely written notice thereof to Heartland.

SECTION 7.04. FAILURE OF CONDITIONS. In the event any of the
conditions to the obligations of either party are not satisfied or
waived on or prior to the Closing Date, and if any applicable cure
period provided in Section 7.02 hereof has lapsed, then such party may,
regardless of whether approval of this Agreement and the Merger by the
shareholders of Heartland has been previously obtained, terminate and
cancel this Agreement by delivery of written notice of such action to
the other party on such date.

SECTION 7.05. REGULATORY APPROVAL DENIAL; BURDENSOME CONDITION.
If any regulatory application filed pursuant to Section 5.01(a) hereof
should be finally denied or disapproved by the respective regulatory
authority, or not obtained from the respective regulatory authority on
or before the

29
<PAGE>
<PAGE>

date which is nine (9) months following the date hereof, then this
Agreement thereupon shall be deemed terminated and canceled; provided,
however, that a request for additional information or undertaking by
Banterra, as a condition for approval, shall not be deemed to be a
denial or disapproval so long as Banterra diligently provides the
requested information or undertaking. In the event that an application
is denied pending an appeal, petition for review, or similar such act on
the part of Banterra (hereinafter referred to as the "appeal") then the
application shall be deemed denied unless Banterra prepares and timely
files such appeal and continues the appellate process for purposes of
obtaining the necessary approval. Banterra may terminate this Agreement
if its Board of Directors shall have reasonably determined in good faith
that any of the requisite regulatory approvals imposes a Burdensome
Condition, and Banterra shall deliver written notice of such determination
to Heartland not later than five (5) days after receipt by Banterra of
notice of the imposition of such Burdensome Condition from the applicable
Regulatory Agency (unless an appeal of such determination is being pursued
by Banterra, in which event the foregoing notice shall be given within
thirty (30) days of the termination of any such appeal by Banterra or the
denial of such appeal by the appropriate Regulatory Agency).

SECTION 7.06. SHAREHOLDER APPROVAL DENIAL; WITHDRAWAL/MODIFICATION
OF BOARD RECOMMENDATION. If this Agreement and the relevant transactions
contemplated by this Agreement, including the Merger, are not approved by
the requisite vote of the shareholders of Heartland at the Heartland
Shareholders' Meeting, then either party may terminate this Agreement.
Banterra may terminate this Agreement if Heartland's Board of Directors
shall have failed to approve or recommend this Agreement or the Merger, or
shall have withdrawn or modified in any manner adverse to Banterra its
approval or recommendation of this Agreement or the Merger, or shall have
resolved or publicly announced an intention to do either of the foregoing.

SECTION 7.07. REGULATORY ENFORCEMENT MATTERS. In the event that
Heartland or any of its subsidiaries shall, after the date hereof,
become a party or subject to any new or amended written agreement,
memorandum of understanding, cease and desist order, imposition of civil
money penalties or other regulatory enforcement action or proceeding
with a Regulatory Agency, which would have a Material Adverse Effect on
Heartland, then Banterra may terminate this Agreement. In the event
that Banterra or any of its subsidiaries shall, after the date hereof,
become a party or subject to any new or amended written agreement,
memorandum of understanding, cease and desist order, imposition of civil
money penalties or other regulatory enforcement action or proceeding
with a Regulatory Agency, which would have a Material Adverse Effect on
Banterra, then Heartland may terminate this Agreement.

SECTION 7.08. FALL-APART DATE. If the Closing Date does not
occur on or prior to nine (9) months from the date hereof, then this
Agreement may be terminated by either party by giving written notice
thereof to the other, unless the failure of the Closing to occur by such
date shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe the covenants and agreements of such
party set forth in this Agreement.

SECTION 7.09 THIRD PARTY TRANSACTIONS. Banterra may terminate
this Agreement in the event that any of the events set forth in Section
7.10(b) hereof occur.

SECTION 7.10. HEARTLAND TERMINATION FEE. (a) Heartland shall pay
to Banterra, within ten (10) business days of Heartland's receipt of
written demand thereof, the sum of One Hundred Fifty Thousand Dollars
($150,000) as an agreed upon termination fee and as liquidated damages,
in lieu of all remedies at law or in equity and in full satisfaction of
all obligations or liabilities of Heartland hereunder, upon the
termination of this Agreement by Banterra due to (i) a material breach
of this Agreement by Heartland that has not been cured as provided in
Section 7.02 hereof; or (ii) the failure of the shareholders of
Heartland to approve this Agreement and the Merger at the Heartland
Shareholders' Meeting.

30
<PAGE>
<PAGE>

(b) Heartland shall pay to Banterra, within ten (10) business
days of Heartland's receipt of written demand thereof, the sum of Four
Hundred Fifty Thousand Dollars ($450,000) as an agreed upon termination
fee and as liquidated damages, in lieu of all remedies at law or in
equity and in full satisfaction of all obligations or liability of
Heartland hereunder, upon termination of this Agreement by Banterra due
to the following events: (i) any person or group of persons (other than
Banterra and/or its affiliates) shall acquire, or have the right to
acquire, thirty-five percent (35%) or more of the outstanding shares of
Heartland Common; (ii) the expiration date of a tender or exchange offer
by any person or group of persons (other than Banterra and/or its
affiliates) to purchase or acquire securities of Heartland if upon
consummation of such offer, such person or group of person would own,
control or acquire the right to acquire more than thirty-five percent
(35%) of the issued and outstanding shares of Heartland Common; or
(iii) the entry by Heartland into a definitive agreement with a person
or group of persons (other than Banterra and/or its affiliates) for such
person or group of persons to acquire, merge or consolidate with
Heartland or to acquire all or substantially all of Heartland's assets
or more than thirty-five percent (35%) of the outstanding shares of
Heartland Common.

ARTICLE EIGHT
GENERAL

SECTION 8.01. CONFIDENTIAL INFORMATION. The parties acknowledge
the confidential and proprietary nature of the "Information" (as described
below in this Section 8.01) which has heretofore been exchanged and which
shall be received from each other hereunder and agree to hold and keep the
same confidential. Such Information shall include any and all financial,
technical, commercial, marketing, customer or other information concerning
the business, operations and affairs of a party that may be provided to the
other, irrespective of the form of the communications, by such party's
employees or agents. Such Information shall not include information which is
or becomes generally available to the public other than as a result of a
disclosure by a party or its representatives in violation of this Agreement.
The parties agree that the Information shall be used solely for the purposes
contemplated by this Agreement and that such Information shall not be
disclosed to any person other than employees and agents of a party who
are directly involved in evaluating the transaction. The Information
shall not be used in any way detrimental to a party, including use
directly or indirectly in the conduct of the other party's business or
any business or enterprise in which such party may have an interest, now
or in the future, and whether or not now in competition with such other
party.

SECTION 8.02. PUBLICITY. Banterra and Heartland shall cooperate
with each other in the development and distribution of all news releases
and other public disclosures concerning this Agreement and the Merger
and shall not issue any news release or make any other public disclosure
without the prior consent of the other party, unless it reasonably
believes such is required by law upon the advice of counsel or is in
response to published newspaper or other mass media reports regarding
the transactions contemplated by this Agreement, in which such latter
event the parties shall give reasonable notice, and to the extent
practicable, consult with each other regarding such responsive public
disclosure.

SECTION 8.03. RETURN OF DOCUMENTS. Upon termination of this
Agreement without the Merger becoming effective, each party (i) shall
deliver to the other originals and all copies of all Information made
available to such party, (ii) shall not retain any copies, extracts or
other reproductions in whole or in part of such Information, and
(iii) shall destroy all memoranda, notes and other writings prepared by
any party based on the Information.

SECTION 8.04. NOTICES. Any notice or other communication shall
be in writing and shall be deemed to have been given or made on the date
of delivery, in the case of hand delivery, or three (3)

31
<PAGE>
<PAGE>

business days after deposit in the United States Registered Mail,
postage prepaid, or upon receipt if transmitted by facsimile telecopy or
any other means, addressed (in any case) as follows:

(a) if to Banterra:

Everett D. Knight
Chairman
Banterra Corp.
1404 South U.S. Route 45
P. O. Box 291
Eldorado, Illinois 62930
Facsimile: (618) 273-5617

(b) with a copy to:

John K. Pruellage, Esq.
Lewis, Rice & Fingersh, L.C.
500 N. Broadway, Ste. 2000
St. Louis, Missouri 63102
Facsimile: (314) 444-7788

and

Randall A. Youngblood
Heartland Bancshares, Inc.
305 N. 16th Street
Herrin, Illinois 62948
Facsimile: (618) 942-3260

with a copy to:

Howard J. Parris, Esq.
Housely Kantarian & Bronstein, P.C.
Suite 700
1220 19th Street, N.W.
Washington, D.C. 20036
Facsimile: (202) 822-0140

or to such other address as any party may from time to time designate by
notice to the others.

SECTION 8.05. LIABILITIES AND EXPENSES. Except as provided in
Section 7.10 hereof, in the event that this Agreement is terminated
pursuant to the provisions of Article Seven hereof, no party hereto
shall have any liability to any other party for costs, expenses, damages
or otherwise; provided, however, that, notwithstanding the foregoing, in
the event that this Agreement is terminated pursuant to Article Seven
hereof on account of a willful breach of any of the representations and
warranties set forth herein or any willful breach of any of the
agreements set forth herein, then the non-breaching party shall be
entitled to recover appropriate damages from the breaching party,
including, without limitation, reimbursement to

32
<PAGE>
<PAGE>

the non-breaching party of its costs, fees and expenses (including
attorneys', accountants' and advisors' fees and expenses) incident to
the negotiation, preparation, execution and performance of this
Agreement and related documentation; provided, however, that nothing in
this proviso shall be deemed to constitute liquidated damages for the
willful breach by a party of the terms of this Agreement or otherwise
limit the rights of the non-breaching party.

SECTION 8.06. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. Except for as provided in this Section 8.06, no
representation, warranty or agreement contained herein shall survive the
Effective Time or the earlier termination of this Agreement; provided,
however, that no such representation, warranty or covenant shall be
deemed to be terminated or extinguished so as to deprive Banterra or
Heartland (or any director, officer or controlling person thereof) of
any defense in law or equity which otherwise would be available against
the claims of any person, including, without limitation, any shareholder
or former shareholder of either Banterra or Heartland, the aforesaid
representations, warranties and covenants being material inducements to
the consummation by Banterra and Heartland of the transactions
contemplated herein. The agreements set forth in Sections 5.04, 5.05,
and 5.06 hereof shall survive the Effective Time and the agreements set
forth in Sections 7.10, 8.01, 8.02, 8.03 and 8.05 hereof and this
Section 8.06 shall survive the Effective Time or the earlier termination
of this Agreement.

SECTION 8.07. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement between the parties and supersede and cancel any and
all prior discussions, negotiations, undertakings, agreements in
principle or other agreements between the parties relating to the
subject matter hereof.

SECTION 8.08. HEADINGS AND CAPTIONS. The captions of Articles
and Sections hereof are for convenience only and shall not control or
affect the meaning or construction of any of the provisions of this
Agreement.

SECTION 8.09. WAIVER, AMENDMENT OR MODIFICATION. The conditions
of this Agreement which may be waived may only be waived by notice to
the other party waiving such condition. The failure of any party at any
time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. This
Agreement may be amended or modified by the parties hereto, at any time
before or after shareholder approval of the Agreement; provided,
however, that after any such approval no such amendment or modification
shall alter the amount or change the form of the Stock Consideration or
Option Consideration contemplated by this Agreement to be received by
shareholders and option holders of Heartland. This Agreement not be
amended or modified except by a written document duly executed by the
parties hereto.

SECTION 8.10. RULES OF CONSTRUCTION. Unless the context
otherwise requires: (i) a term has the meaning assigned to it, (ii) an
accounting term not otherwise defined has the meaning assigned to it in
accordance with generally accepted accounting principles, (iii) "or" is
not exclusive, (iv) words in the singular may include the plural and in
the plural include the singular, and (v) "knowledge" of a party means
the actual or constructive knowledge of any director or executive
officer of such party or any of its subsidiaries.

SECTION 8.11. COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original and
all of which shall be deemed one and the same instrument. For purposes
of executing this Agreement, a document (or signature page thereto)
signed and transmitted by facsimile machine or telecopier is to be
treated as an original document. The signature of any party thereon,
for purposes hereof, is to be considered as an original signature, and
the document transmitted is to be considered to have the same binding
effect as an original signature on an original document. At the

33
<PAGE>
<PAGE>

request of any party, any facsimile or telecopy document shall be re-
executed in original form by the parties who executed the facsimile or
telecopy document. No party may raise the use of a facsimile machine or
telecopier or the fact that any signature was transmitted through the
use of a facsimile or telecopier machine as a defense to the enforcement
of this Agreement or any amendment or other document executed in
compliance with this Section 8.11.

SECTION 8.12. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors. There shall be no third party beneficiaries
hereof, except as provided for herein.

SECTION 8.13. SEVERABILITY. In the event that any provisions of
this Agreement or any portion thereof shall be finally determined to be
unlawful or unenforceable, such provision or portion thereof shall be
deemed to be severed from this Agreement, and every other provision, and
any portion of a provision, that is not invalidated by such
determination, shall remain in full force and effect. To the extent
that a provision is deemed unenforceable by virtue of its scope but may
be made enforceable by limitation thereof, such provision shall be
enforceable to the fullest extent permitted under the laws and public
policies of the State whose laws are deemed to govern enforceability.
It is declared to be the intention of the parties that they would have
executed the remaining provisions without including any that may be
declared unenforceable.

SECTION 8.14. GOVERNING LAW; ASSIGNMENT. This Agreement shall be
governed by the laws of the State of Illinois and applicable federal
laws and regulations. This Agreement may not be assigned by either of
the parties hereto.

SECTION 8.15. ENFORCEMENT OF AGREEMENT. The parties hereto agree
that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed
that the parties hereto shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction and such right shall be in
addition to any other remedy to which they shall be entitled at law or
in equity.

SECTION 8.16. FEES AND EXPENSES. Except as provided in to
Section 8.05 hereof, each of the parties to this Agreement shall bear
their respective costs, fees and expenses incurred in connection with
this Agreement, the Merger and any other transactions contemplated
hereby.

IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.

BANTERRA CORP.

By:
--------------------------
Name:
------------------------
Title:
-----------------------

BANTERRA ACQUISITIONCO, INC.

34
<PAGE>
<PAGE>

By:
--------------------------
Name:
------------------------
Title:
-----------------------

HEARTLAND BANCSHARES, INC.

By:
--------------------------
Name:
------------------------
Title:
-----------------------

EXHIBIT 1.11(a)

HEARTLAND'S LEGAL OPINION MATTERS

1. The due incorporation, valid existence and good standing of
Heartland under the laws of the State of Illinois, its power and
authority to own and operate its properties and to carry on its business
as now conducted and as described in Heartland's Form 10-KSB, and its
power and authority to enter into the Agreement, to merge with
AcquisitionCo in accordance with the terms of the Agreement and to
consummate the transactions contemplated by the Agreement.

2. The due incorporation or organization, valid existence and
good standing of the Subsidiary Bank and its power and authority to own
and operate its properties.

3. The due and proper performance of all corporate acts and
other proceedings necessary or required to be taken by Heartland to
authorize the execution, delivery and performance of the Agreement, the
due execution and delivery of the Agreement by Heartland, and the
Agreement as a valid and binding obligation of Heartland, enforceable
against Heartland in accordance with its terms (subject to the
provisions of bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or similar laws affecting the enforceability
of creditors' rights generally from time to time in effect, and
equitable principles relating to the granting of specific performance
and other equitable remedies as a matter of judicial discretion).

4. The execution of the Agreement by Heartland, and the
consummation of the Merger, does not violate or cause a default under
Heartland's Articles of Incorporation or Bylaws, or, to the actual
knowledge of counsel, any federal banking or Illinois banking statute,
regulation or rule or any judgment, order or decree.

5. To the actual knowledge of such counsel, the receipt of all
required consents, approvals (including the requisite approval of the
shareholders of Heartland), orders or authorizations of, or
registrations, declarations or filings with or notices to, any court,
administrative agency or commission or other federal banking
governmental authority or instrumentality, domestic or foreign, or any
other person or entity required to be obtained or made by Heartland or
its subsidiaries in connection with the execution and delivery of the
Agreement or the consummation of the transactions contemplated therein.

6. To the actual knowledge of counsel, the nonexistence of any
material actions, suits, proceedings, orders, or investigations or
claims pending against Heartland or its subsidiaries which, if adversely
determined, would have a material adverse effect upon their respective
properties or assets or the transactions contemplated by the Agreement.

EXHIBIT 1.11(b)

BANTERRA'S LEGAL OPINION MATTERS

1. The due incorporation, valid existence and good standing of
Banterra and AcquisitionCo under the laws of the State of Illinois,
their power and authority to own and operate their properties and to
carry on their businesses presently conducted and their power and
authority to enter into the Agreement, to merge with Heartland in
accordance with the terms of the Agreement and to consummate the
transactions contemplated by the Agreement.

2. The due and proper performance of all corporate acts and
other proceedings necessary or required to be taken by Banterra and
AcquisitionCo to authorize the execution, delivery and performance of
the Agreement, the due execution and delivery of the Agreement by
Banterra and AcquisitionCo, and the Agreement as a valid and binding
obligation of Banterra and AcquisitionCo, enforceable against Banterra
and AcquisitionCo in accordance with its terms (subject to the
provisions of bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforceability of creditors' rights generally
from time to time in effect, and equitable principles relating to the
granting of specific performance and other equitable remedies as a
matter of judicial discretion).

3. The execution and delivery of the Agreement by Banterra and
AcquisitionCo and the consummation of the transactions contemplated
therein, as neither conflicting with, in breach of or in default under,
resulting in the acceleration of, creating in any party the right to
accelerate, terminate, modify or cancel, or violate, any provision of
Banterra's or AcquisitionCo's Articles of Incorporation or Bylaws, or
any federal banking or Illinois banking statute, regulation, rule,
judgment, order or decree binding upon Banterra or AcquisitionCo which
would be materially adverse to the business of Banterra or AcquisitionCo
and their subsidiaries taken as a whole.

4. To the actual knowledge of such counsel, the receipt of all
required consents, approvals, orders or authorizations of, or
registrations, declarations or filings with or without notices to, any
court, administrative agency or commission or other federal banking
governmental authority or instrumentality, domestic or foreign, or any
other person or entity required to be obtained or made by or with
respect to Banterra or AcquisitionCo in connection with the execution
and delivery of the Agreement or the consummation of the transactions
contemplated therein.

5. To the actual knowledge of counsel, the nonexistence of any
material actions, suits, proceedings, orders, or investigations or
claims pending against Banterra or AcquisitionCo or any of their
significant subsidiaries which, if adversely determined, would have a
material adverse effect upon their respective properties or assets or
the transactions contemplated by the Agreement.