CASTLE BANCGROUP INC
DEF 14A, 1997-03-24
STATE COMMERCIAL BANKS
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<PAGE>

                               SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant /x/
Filed by a Party other than the Registrant / /

Check the appropriate box:
/ /  Preliminary Proxy Statement            / /   Confidential, for use of the
/x/  Definitive Proxy Statement                   Commission Only (as permitted
/ /  Definitive Additional Materials              by Rule 14a-6(e)(2))
/ /  Soliciting Material Pursuant to Rule
     14a-11(c) or Rule 14a-12

                                CASTLE BANCGROUP, INC.
                   (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                CASTLE BANCGROUP, INC.
                      (NAME OF PERSON(S) FILING PROXY STATEMENT)

Payment of filing fee (check the appropriate box):

/x/  No fee required.
/ /  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:

    2)   Aggregate number of securities to which transaction applies:

    3)   Per unit price or other underlying value of transaction computed
         pursuant to Exchange Act Rule 0-11:

    4)   Proposed maximum aggregate value of transaction:

    5)   Total fee paid:

/ / 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>

                                CASTLE BANCGROUP, INC.

                                        NOTICE

                                          of

               ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 23, 1997


    NOTICE IS HEREBY GIVEN, that the Annual Meeting of Stockholders of Castle
BancGroup, Inc., a Delaware corporation (the "Corporation"), will be held in the
community room of First National Bank in DeKalb/Sycamore, 511 West State Street,
Sycamore, Illinois 60178, on Wednesday, April 23, 1997 at 2:00 p.m., for the
following purposes:

    (1)  To elect eight directors to serve for terms ranging form one to three
         years if Proposal No. 2 is adopted, or, in the alternative, to elect
         eight directors to serve until the next annual meeting of stockholders;

    (2)  To consider and vote upon a proposal to amend the Certificate of
         Incorporation of the Corporation to classify the Board of Directors,
         as more fully described in the accompanying Proxy Statement; and

    (3)  To consider and vote upon a proposal to amend the Certificate of 
         Incorporation of the Corporation to adopt a supermajority voting 
         requirement to alter, amend, or repeal the classified board provisions
         set forth in Proposal No. 2; and

    (4)  To transact such other business as may properly come before the
         meeting or any adjournment thereof.

    Stockholders of record at the close of business on March 14, 1997 are
entitled to notice of and to vote at the meeting or any adjournment thereof.

    IMPORTANT!  TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL
MEETING, PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED PROXY CARD IN THE
ENVELOPE PROVIDED.

    NO POSTAGE IS REQUIRED IF THE PROXY IS MAILED IN THE UNITED STATES.

By Order of the Board of Directors



David B. Castle
SECRETARY

DeKalb, Illinois
March 21, 1997

<PAGE>

- --------------------------------------------------------------------------------
                                   PROXY STATEMENT
                                          OF
                                CASTLE BANCGROUP, INC.
                                208 WEST LOCUST STREET
                                DEKALB, ILLINOIS 60115
                                    (815) 758-7007

                            ANNUAL MEETING OF STOCKHOLDERS
                                    APRIL 23, 1997

- --------------------------------------------------------------------------------
                                 GENERAL INFORMATION
- --------------------------------------------------------------------------------

    This Proxy Statement and the accompanying proxy card are being furnished in
connection with the solicitation of proxies by the Board of Directors of Castle
BancGroup, Inc. (the "Corporation") from holders of the Corporation's
outstanding shares of common stock, par value $.33 1/3 per share ("Common
Stock"), for use at the 1997 Annual Meeting of Stockholders (the "Annual
Meeting") to be held on Wednesday, April 23, 1997 at 2:00 p.m. in the community
room of First National Bank in DeKalb/Sycamore, 511 West State Street, Sycamore,
Illinois 60178, or at any adjournment thereof, for the purposes set forth in the
accompanying Notice of Meeting and in this Proxy Statement.

    The Corporation will bear the costs of soliciting proxies from its
stockholders.  In addition to soliciting proxies by mail, directors, officers
and employees of the Corporation, without receiving additional compensation
therefor, may solicit proxies in person, by telephone or by facsimile.  The
Corporation may also reimburse brokers, nominees and other fiduciaries for their
reasonable expenses in forwarding proxy solicitation materials to beneficial
owners.  The accompanying Notice of Annual Meeting, this Proxy Statement and
form of proxy are first being mailed to the Corporation's stockholders on or
about March 21, 1997.


- --------------------------------------------------------------------------------
                             VOTING AT THE ANNUAL MEETING
- --------------------------------------------------------------------------------

    The close of business on March 14, 1997, has been fixed as the record date
for the determination of stockholders of the Corporation entitled to notice of
and to vote at the Annual Meeting.  As of the close of business on March 3,
1997, the Corporation had 2,074,454 shares of Common Stock issued and
outstanding.

    Each proxy that is properly signed and received prior to the Annual 
Meeting will, unless such proxy has been revoked, be voted in accordance with 
the instructions on such proxy.  If no instructions are indicated, proxies 
will be voted "for" the election of all nominees named in the proxy, "for" 
the approval of the amendments to the Corporation's Certificate of 
Incorporation in Proposal Nos. 2 and 3, and in the discretion of the persons 
named in the proxy on such other matters as may properly come before the 
Annual Meeting.  Any stockholder has the right to revoke a proxy at any time 
prior to its exercise at the Annual Meeting.  A proxy may be revoked by 
properly executing and submitting to the Corporation a later-dated proxy or 
by mailing written notice of revocation to Castle BancGroup, Inc., 208 West 
Locust Street, DeKalb, Illinois 60115, Attention: David B. Castle, Secretary. 

<PAGE>

A stockholder may also revoke a proxy by appearing at the Annual Meeting and
voting in person.  Proxies are valid only for the meeting specified therein or
any adjournments of such meeting.

    A quorum of stockholders is necessary to take action at the Annual Meeting.
A majority of the outstanding shares of Common Stock, represented in person or
by proxy, shall constitute a quorum for the transaction of business at the
Annual Meeting.  Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the inspectors of election appointed for the Annual Meeting.  The
inspectors will determine whether a quorum is present and will treat abstentions
as shares that are present and entitled to vote for purposes of determining the
presence of a quorum.  If a broker indicates on a proxy that it does not have
discretionary authority as to certain shares of Common Stock to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter even though such shares will be considered
present for the purpose of determining the presence of a quorum.

    Stockholders have the right to cumulative voting in the election of
directors.  Under cumulative voting, each stockholder is entitled to a number of
votes equal to the number of his or her shares multiplied by the number of
directors to be elected.  Each stockholder may cast all of those votes for a
single nominee or may distribute the votes among as many of the nominees as such
stockholder deems appropriate.  Cumulative votes for which a proxy is given will
be divided equally among all director nominees for whom authority has been
given.  NOTWITHSTANDING THE FOREGOING, THE PROXY HOLDERS RESERVE THE RIGHT,
EXERCISABLE IN THEIR SOLE DISCRETION, TO VOTE PROXIES CUMULATIVELY SO AS TO
ELECT ALL OR AS MANY AS POSSIBLE OF SUCH DIRECTOR NOMINEES DEPENDING UPON THE
CIRCUMSTANCES AT THE ANNUAL MEETING.

    In voting on approval of the amendments to the Corporation's Certificate 
of Incorporation in Proposal Nos. 2 and 3 and all other matters that may 
properly come before the Annual Meeting, each stockholder is entitled to one 
vote for each share of Common Stock held.

    A plurality of the votes of the shares of Common Stock present in person 
or represented by proxy at the Annual Meeting is required to elect a 
director.  A majority of the outstanding shares of Common Stock is required 
to approve the amendments to the Certificate of Incorporation in Proposal 
Nos. 2 and 3.  In all other matters, the affirmative vote of the majority of 
the shares of Common Stock present in person or represented by proxy at the 
Annual Meeting is required.  For purposes of determining the approval of any 
matter submitted to the stockholders for a vote, other than the election of 
directors, abstentions and broker non-votes will have the same effect as 
votes against such matters.

- --------------------------------------------------------------------------------
                       PROPOSAL NO.  1 - ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------


    The Corporation's Board of Directors is currently composed of eleven (11) 
directors.  Three of the current directors, Larry D. Beaty, Louis P. Brady 
and Nancy D. Castle, have indicated their desire not to stand for reelection 
as directors of the Corporation.  Accordingly, the Board of Directors has 
amended its Bylaws to provide that the number of directors of the 
Corporation, effective as of the 1997 Annual Meeting of Stockholders, shall 
be eight (8).  The Corporation's Board of Directors has nominated the 
following eight persons, who are current directors of the Corporation, for 
election to the Board of

                                          2

<PAGE>

Directors of the Corporation:  Bruce P. Bickner, Robert T. Boey, John W. 
Castle, Peter H. Henning, John B. Hiatt, Donald E. Kieso, James N. McInnes 
and William R. Monat.

    If Proposal No. 2 to amend the Certificate of Incorporation to provide 
for a classified Board of Directors is adopted at the Annual Meeting, John B. 
Hiatt and William R. Monat will be elected for a one-year term expiring in 
1998; Robert T. Boey, Donald E. Kieso, and James N. McInnes will be elected 
for a two-year term expiring in 1999; and Bruce P. Bickner, John W. Castle 
and Peter H. Henning will be elected for a three-year term expiring in 2000.  
If Proposal No. 2 is not adopted, the eight nominees will serve until the 
1998 Annual Meeting of Stockholders or until their respective successors have 
been elected and qualified.

    All of the nominees are currently serving as directors of the Corporation.
Each of the nominees has agreed to serve as a director if elected, and the
Corporation has no reason to believe that any nominee will be unable to serve.
In the event of the refusal or inability of any nominee for director of the
Corporation to serve as director, the persons named in the accompanying form of
proxy shall vote such proxies for such other person or persons as may be
nominated as directors by the Board of Directors of the Corporation, unless the
number of directors shall have been reduced by the Board.

    THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE ELECTION OF THE EIGHT (8) NOMINEES LISTED ABOVE.

INFORMATION FOR NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS

The following information is furnished with respect to each person who has been
nominated for election as a director, each of whom is currently a director of
the Corporation, the two existing directors not standing for reelection and each
person who is an executive officer of the Corporation.


                            DIRECTOR OR
            NAME       AGE  OFFICER SINCE         POSITION
            ----       ---  -------------         --------

DIRECTOR NOMINEES:
  Bruce P. Bickner      53     1991         Director
  Robert T. Boey        57     1992         Director
  John W. Castle        63     1984         Director and Chairman of the
                                             Board of the Corporation
  Peter H. Henning      49     1988         Director
  John B. Hiatt         75     1990         Director
  Donald E. Kieso       60     1993         Director

                                          3

<PAGE>

  James N. McInnes      71     1984         Director and President
                                             of the Corporation
  William R. Monat      72     1993         Director

DIRECTORS NOT STANDING FOR
REELECTION:
  Larry D. Beaty        52     1990         Director, Executive Vice President
                                             and Treasurer of the Corporation

  Louis P. Brady        74     1984         Director and Vice Chairman
                                             of the Corporation
  Nancy D. Castle       61     1984         Director

EXECUTIVE OFFICERS:
  James V. Bowers       59     1992         President of First
                                             National Bank in DeKalb
  Lawrence M. Budnik    37     1995         President of Castle Mortgage, Inc.
  David B. Castle       29     1996         Secretary of the Corporation and
                                             Executive Vice President of
                                             Castle Finance Company
  Gerald D. Engelhart   54     1996         Interim President of Castle Finance
                                             Company and Senior Vice President 
                                             of Sandwich State Bank
  Stan J. Free          36     1993         President of The Bank of Yorkville
  James H. Hall         55     1993         Chairman of The Bank of Yorkville
  A. Gene Shumway       49     1996         President of Sandwich State Bank
  David A. Stearns      50     1995         President of First State Bank of 
                                             Harvard
  Patrick J. Wise       41     1995         Vice President - Operations
                                             of the Corporation
  Jea Nae B. Wood       33     1996         Controller of the Corporation
  Thomas D. Young       51     1995         Vice President - Marketing
                                             of the Corporation

DIRECTORS:

BRUCE P. BICKNER is Chairman and Chief Executive Officer of DeKalb Genetics
Corp., an agricultural genetics company.  Mr. Bickner has held such position
since 1988.  Mr. Bickner is also a director of DeKalb Genetics Corp.

                                          4

<PAGE>

ROBERT T. BOEY is President of American Bare Conductor, Inc., a manufacturer of
electrical copper wire and cable products.  He has held such position since
1985.  Mr. Boey also has been a director of FNB since 1988.

JOHN W. CASTLE is Chairman of the Board and Chief Executive Officer of the
Corporation and has held such offices since 1984.  Mr. Castle has been a
director of FNB, SSB and CFC since 1984, a director of SBI and FSB since 1990, a
director of BOY since 1993 and a director of CMI since 1995.  Mr. Castle is also
the owner, director and an officer of Castle Communications, Inc., a commercial
printer, and is the father of David B. Castle.

PETER H. HENNING is Chairman and Chief Executive Officer of Plano Molding Co., a
manufacturer of proprietary and custom plastic injection molded products.  Mr.
Henning has been a director of SSB since 1988.

JOHN B. HIATT is retired from Hiatt Brothers, a commercial construction company.
Mr. Hiatt has been a director of FNB since 1984.

DONALD E. KIESO is the KPMG Peat Marwick Emeritus Professor of Accountancy at
Northern Illinois University.  He has been a director of SSB since 1993.

JAMES N. MCINNES is President and Chief Operating Officer of the Corporation and
has held such offices since 1984 and 1992, respectively.  Mr. McInnes has been
director and President of SBI since 1990, Chairman of SSB since 1992, director
of FNB since 1984, director of FSB since 1990, director of CFC since 1985,
director of BOY since 1993 and director of CMI since 1995.  He is also a
director of Plano Molding Co.

WILLIAM R. MONAT is a Regency Professor Emeritus at Northern Illinois
University.  Mr. Monat has been a director of FNB since 1982, Secretary and
director of CMI since 1995 and director of CFC since 1996.

DIRECTORS NOT STANDING FOR REELECTION:

LARRY D. BEATY is Executive Vice President, Chief Financial Officer and 
Treasurer of the Corporation.  On March 14, 1997, Mr. Beaty notified the 
Corporation that he will resign his director and officer positions with the 
Corporation and its subsidiaries effective April 30, 1997. Mr. Beaty has been 
Treasurer since 1984 and Executive Vice President and Chief Financial Officer 
since 1992.  With respect to the subsidiaries of the Corporation, he has been 
a director of First National Bank in DeKalb ("FNB") since 1982, Treasurer and 
director of SBI Illinois, Inc. ("SBI") since 1990, director of First State 
Bank of Harvard ("FSB") since 1990, director of The Bank of Yorkville ("BOY") 
since 1993, Assistant Secretary and director of Castle Mortgage, Inc. ("CMI") 
since 1995 and director of Castle Finance Company, Inc. ("CFC") since 1996.

LOUIS P. BRADY is a retired insurance and real estate broker.  He has been Vice
Chairman of Sandwich State Bank ("SSB") since 1984.

NANCY D. CASTLE is President and Chief Executive Officer of Horizons Unlimited
Foundation, a private foundation.  She is also a director and officer of Castle
Communications, Inc., a commercial printer, and is the mother of David B.
Castle.

EXECUTIVE OFFICERS:

JAMES V. BOWERS is President of FNB.  He was President of FSB from 1990 to 1992.

                                          5

<PAGE>

LAWRENCE M. BUDNIK is President of CMI.  He was President of Premier Home
Financing, Inc. prior to its acquisition by the Corporation in 1995.

DAVID B. CASTLE is Secretary of the Corporation.  He has been Executive Vice
President of CFC since 1995.  He was Senior Vice President of CFC in 1994 and
Assistant Cashier at SSB from 1990 to 1994.  He is the son of Nancy D. Castle
and John W. Castle.

GERALD D. ENGLEHART is Interim President of CFC.  He has also been Senior Vice
President of SSB since 1994 and has been with SSB since 1974.

STAN J. FREE is President of BOY.  During 1993 he was Vice President of FNB and
from 1987 to 1993 he was Vice President of 1st National Bank of St. Charles.

JAMES H. HALL is Chairman of BOY.  He was President of BOY from 1971 to 1993.

A. GENE SHUMWAY is President of SSB.  From 1994 to 1996 he was Senior Vice
President of SSB and from 1982 to 1994 he was Vice President of SSB.

DAVID A. STEARNS is President of FSB.  From 1992 to 1995 he was President of
Harris Bank of Woodstock and from 1982 to 1992 was President of Belvidere
National Bank & Trust Company.

PATRICK J. WISE is Vice President - Operations of the Corporation.  From 1994 to
1995 he was Vice President of Northern Trust Company and from 1989 to 1994 was
President of Suburban Information System.

JEA NAE B. WOOD is Controller of the Corporation.  From 1994 to 1996 she was
General Auditor of the Corporation.  From 1992 to 1994 she was Assistant Vice
President of AMCORE Financial, Inc.  From 1991 to 1992 she was Internal Auditor
for Homebanc.

THOMAS D. YOUNG is Vice President - Marketing of the Corporation.  From 1992 to
1995 he was a mortgage banker for Premier Home Financing, Inc. and from 1989 to
1992 was Vice President of First Nationwide Bank.



- --------------------------------------------------------------------------------
                  MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------

     The Board of Directors held six meetings during 1996.  The Board of
Directors has an Audit and Compensation Committee and the Board of Directors as
a whole operates as a committee to nominate directors for election.  Each of the
directors attended at least 75% of the meetings of the Board of Directors.
Except for Bruce P. Bickner, who attended two of the five meetings of the
Compensation Committee, each of the directors serving on the Audit and

                                          6

<PAGE>

Compensation Committees attended at least 75% of the meetings of the committees
on which that director served.

     The Audit Committee is composed of Louis P. Brady, Nancy D. Castle, Donald
E. Kieso and William R. Monat.  Mr. Brady is Chairman of the Committee.  The
Audit Committee's duties include reviewing the scope of internal and external
accounting controls and audit procedures, the Corporation's accounting
principles, policies and practices and financial reporting, and the results of
internal and external audits conducted with respect to the Corporation and its
subsidiaries.  The Committee also recommends to the Board of Directors the
selection of the Corporation's independent auditors.  The Audit Committee met
five times during 1996.

     The Compensation Committee is composed of John B. Hiatt (Chairman), Bruce
P. Bickner, Robert T. Boey, Louis P. Brady and Peter H. Henning.  The
Compensation Committee annually reviews all aspects of the compensation for the
Chief Executive Officer, President and Executive Vice President of the
Corporation and reviews the appropriateness of executive compensation and
benefit programs.  The Compensation Committee also recommends salary levels for
subsidiary senior management which are adopted by the subsidiary Boards of
Directors.  The Committee is also responsible for recommending to the Board of
Directors, the specific individual annual goals and objectives of the Chairman
of the Board (Chief Executive Officer), the President (Chief Operating Officer),
and the Executive Vice President (Chief Financial Officer).  The Compensation
Committee met five times during 1996.

- --------------------------------------------------------------------------------
                               DIRECTORS' COMPENSATION
- --------------------------------------------------------------------------------

     Each non-employee director of the Corporation received an annual retainer
of $7,200.  In addition, each non-employee director received a fee of $200 for
each Board or committee meeting attended as a member or $300 for each committee
meeting attended as chairman of the committee.  If a non-employee director is
also a director of any bank subsidiary of the Corporation, such non-employee
director receives an identical annual retainer and identical fees for meetings
attended as a director of the bank subsidiary.  If a non-employee director is
also a director of a non-bank  subsidiary of the Corporation, such non-employee
director receives a $250 fee for meetings attended as a director of the non-bank
subsidiary.  Pursuant to the Corporation's Stock Benefit Plan, when a
non-employee becomes a new director of the Corporation, such new non-employee
director is automatically granted an option to purchase 1,500 shares of Common
Stock.  Directors who are employees of the Corporation or its subsidiaries do
not receive additional compensation for serving as directors of the Corporation
or any of its subsidiaries.

                                          7

<PAGE>

- --------------------------------------------------------------------------------
                    PROPOSAL NO. 2 - APPROVAL  OF AMENDMENT TO
                    CERTIFICATE OF INCORPORATION TO ESTABLISH
              A CLASSIFIED BOARD OF DIRECTORS AND RELATED PROVISIONS
- --------------------------------------------------------------------------------

ESTABLISHMENT OF A CLASSIFIED BOARD

     Under the Corporation's existing Certificate of Incorporation and 
Bylaws, the entire board of directors is elected at each annual meeting of 
the stockholders to serve until the next annual meeting or until their 
respective successors are elected and qualified.  If adopted, the proposed 
new Sections 1, 2 and 3 of Subpart C of Article Sixth of the Certificate of 
Incorporation (the "Classified Board Provisions") would divide the Board of 
Directors into three classes, with each class to be as nearly equal as 
possible in number and to hold office for a staggered term of three years.  
The following summary of the proposed amendment is qualified in its entirety 
by reference to the full text of the proposed amendment attached hereto as 
EXHIBIT A.

     The stockholders will elect a total of eight directors at the Annual 
Meeting. If this Proposal No. 2 is approved by the stockholders, the 
Corporation will file an amendment to the Certificate of Incorporation with 
the Secretary of State of the State of Delaware amending Article Sixth, and 
upon the effectiveness of such filing the eight directors will be divided 
into three classes of directors.  The two directors of the first class will 
hold office for a one-year term expiring at the 1998 annual meeting, the 
three directors of the second class will hold office for a two-year term 
expiring at the 1999 annual meeting and the three directors of the third 
class will hold office for a three-year term expiring at the 2000 annual 
meeting.  For information regarding the Board nominees and the classes in 
which each will serve if Proposal No. 2 is adopted, see "Proposal No. 
1--Election of Directors" and the full text of the proposed amendment 
attached as EXHIBIT A to this Proxy Statement.  At each annual meeting 
beginning with the meeting to be held in 1998, the class whose term expires 
at such annual meeting will be elected for a three-year term.  The 
requirement of a staggered election of directors will apply to every election 
thereafter.

     Under the Corporation's existing Certificate of Incorporation, holders 
of a majority of the Corporation's stock can change the composition of a 
majority of the directors on the Board at a single annual meeting.  Such 
holders also have the power to remove a majority of the directors, with or 
without cause, and to elect their replacements.  If Classified Board 
Provisions are adopted, at least two annual meetings normally will be 
required to effect a change in the composition of a majority of the Board.

     The Board of Directors believes that a staggered election of directors will
promote continuity and stability in the Corporation's management and policies.
Directors will serve for longer terms and, at any given time, two-thirds of the
directors will normally have had prior experience on the Board.  Although the
Corporation has not experienced any problems with continuity and stability of
management in the past, the Board believes that the establishment of

                                          8

<PAGE>

a staggered board will enable the Corporation to continue to enjoy such
continuity and stability in the future.  The Board also believes that the
existence of a staggered board will encourage a substantial stockholder to
negotiate with the existing Board before attempting to take over the Corporation
because, without the cooperation of the existing Board, it may take such a
stockholder up to two years to acquire control of the Board.  The Board believes
that an arms-length negotiation of the terms of an attempt to acquire control of
the Corporation is likely to result in more favorable terms for all stockholders
than are the terms likely to be offered in a takeover that is initiated without
advance negotiations.

     On the other hand, the additional time required to obtain control of a
staggered board may discourage takeover bids which a majority of the
stockholders might deem desirable.  The adoption of the Classified Board 
Provisions will also increase the time required to change the management of
the Corporation, even if a majority of the stockholders are dissatisfied with
the management and believe such a change would be beneficial.

     The Board of Directors is not presently aware of any attempt to take 
control of the Corporation or to change its management.  The Board believes, 
however, that the number of negotiated and non-negotiated attempts to acquire 
Illinois bank holding companies, such as the Corporation, are increasing.  
The Board further believes that the stockholders will be better able to make 
an objective determination on the advisability of the proposed amendments to 
the Certificate of Incorporation if the amendments are considered at a time 
when no takeover attempt is imminent.  The Certificate of Incorporation of 
the Corporation does not currently contain any provisions that may be deemed 
to have an "antitakeover" effect.

     Stockholders of the Corporation have cumulative voting rights in the
election of directors pursuant to which each stockholder may cast a number of
votes equal to the number of shares the stockholder owns multiplied by the
number of directors to be elected.  Votes may be distributed among one or more
nominees.  Cumulative voting provides an opportunity for persons holding less
than a majority of the stock to elect one or more directors.  While directors of
the Corporation will continue to be elected by cumulative voting, the creation
of a classified Board will substantially increase the number of shares required
to elect one director.  Currently, with eight directors being elected annually,
a stockholder owning 100 shares could combine all 800 votes (100 shares x 8
nominees) for one nominee.  If the proposed amendment is approved, only three
directors will be elected annually so a stockholder with 100 shares will only
have the ability to accumulate 300 votes (100 shares x 3 nominees).  As a
result, a classified Board of Directors will make it more difficult for minority
stockholders to gain representation on the Board.

     Nonetheless, the Board of Directors believes that, on balance, the proposed
amendment to the Certificate of Incorporation is advantageous to the Corporation
and its stockholders.

VACANCIES

     The Corporation's Bylaws currently provide that a majority of the directors
in office, although less than a quorum, may fill any vacancies in the Board of
Directors and such new directors would serve until the next annual meeting of
stockholders.  The proposed amendment to the Corporation's Certificate of
Incorporation also provides that a majority vote of the directors then in office
may fill any vacancies on the Board.  However, under the proposal, any directors
so chosen will hold office until the annual meeting of stockholders at which the
term of the class of directors to which such person is chosen expires.
Accordingly, if a Class III director, whose term expires in 2000, resigns in
1998, the majority of directors then in office could elect an individual to fill
such open directorship and such individual would serve as a Class III director
of the Corporation until the annual meeting of stockholders in the year 2000.

                                          9

<PAGE>

REMOVAL OF DIRECTORS

     As permitted by the Delaware General Corporation Law, the Corporation's 
Bylaws permit any director or the entire Board of Directors to be removed by 
a majority vote of the stockholders, with or without cause, subject to 
certain procedural protections relating to cumulative voting.  The Delaware 
General Corporation Law explicitly provides, however, that if a corporation's 
Board of Directors is classified, a director or the entire Board of Directors 
may be removed by a majority vote of stockholders only for cause, unless the 
Certificate of Incorporation provides otherwise.  Section 3 of the Classified 
Board Provisions tracks Delaware law by providing that, subject to the 
rights, if any, of the holders of any other class or series of preferred 
stock, any director or the entire Board of Directors of the Corporation may 
be removed from office at any time, but only for cause and by the affirmative 
vote of the holders of a majority of the outstanding shares then entitled to 
vote in an election of directors.  "Cause" is not defined in either the 
Classified Board Provisions or the section of the Delaware General 
Corporation Law which establishes the removal standards.  The circumstances 
under which directors may be removed will be therefore judicially determined 
and are likely to be limited to circumstances involving fraud, criminal 
conduct or gross abuse of office amounting to a breach of fiduciary duty to 
the Corporation.

     The requirement that directors be removed only for cause is intended to
prevent a substantial stockholder from circumventing the purposes of a
classified board by removing incumbent directors without cause and then
attempting to fill the vacancies with its own nominees.  Such a requirement may,
however, make it more difficult to remove a director even when the only reason
for the removal is the performance of the director.  The burden of having to
prove cause will make such removal more difficult than at present.

     THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
THE ADOPTION OF PROPOSAL NO. 2, THE FULL TEXT OF WHICH IS SET FORTH IN EXHIBIT A
ATTACHED HERETO AND INCORPORATED HEREIN BY REFERENCE.

- --------------------------------------------------------------------------------
           PROPOSAL NO. 3 - APPROVAL OF AMENDMENT TO CERTIFICATE OF
         INCORPORATION TO ESTABLISH A SUPERMAJORITY VOTE REQUIREMENT 
          TO ALTER, AMEND OR REPEAL THE CLASSIFIED BOARD PROVISIONS
- --------------------------------------------------------------------------------

     Under the Corporation's Certificate of Incorporation the vote of only a 
majority of the outstanding shares of Common Stock is required to adopt the 
Classified Board Provisions set forth in Proposal No. 2.  If this Proposal 
No. 3 is adopted, the Corporation's Certificate of Incorporation would be 
amended to add a new Section 4 to Subpart C of Article Sixth providing that 
the affirmative vote of 80% of the outstanding voting stock will be required 
to alter, amend or repeal, or to adopt any provision inconsistent with the 
Classified Board Provisions.  In the absence of such 80% vote requirement, 
the stockholders would be able, at a later date, to amend or eliminate the 
Classified Board Provisions by the affirmative vote of the holders of a 
majority of the outstanding Common Stock.

     The requirement of an 80% vote will, in effect, give certain minority 
stockholders, including members of the Board of Directors in their capacity 
as stockholders, a veto power over any subsequent changes to such provisions, 
even if a majority of the stockholders favor such changes.  Members of the 
Board of Directors and executive officers of the Corporation as a group 
currently benefically own 33.5% of the Common Stock.  For purposes of 
evaluating the likelihood of achieving an 80% stockholder vote, it should be 
noted that at the 1996, 1995 and 1994 annual meetings of the stockholders, 
the holders of approximately 79.5%, 84.9% and 85.5%, respectively, of the 
outstanding Common Stock voted their shares.


                                          10

<PAGE>

     The Board also believes that the supermajority vote, along with the 
Classified Board Provisions, will encourage a substantial stockholder to 
negotiate with the existing Board before attempting a takeover of the 
Corporation because, management of the Corporation in their capacities as 
stockholders, could veto any attempt to eliminate the classified Board.  The 
Board believes that an arms-length negotiation of terms of a potential 
takeover is likely to result in more favorable terms for all stockholders 
than terms offered in a takeover without advance negotiations.  On the other 
hand, Proposal No. 3 may discourage bids which a majority of the stockholders 
might deem desirable and will increase the difficulty in changing the 
Classified Board Provisions, even if a majority of the stockholders believe 
such a change would be beneficial.  The Board is not presently aware of any 
attempt to take control of the Corporation or to change its management.

     The foregoing summary of Proposal No. 3 is qualified in its entirety by 
reference to the full text of the proposed amendment attached hereto as 
EXHIBIT B.  If this Proposal No. 3 is approved at the Annual Meeting but 
Proposal No. 2 establishing the Classified Board Provisions is not approved 
at the Annual Meeting, the amendment to the Corporation's Certificate of 
Incorporation contemplated by Proposal No. 3 will not be effected because the 
80% vote requirement is appropriate only if the Classified Board Provisions 
are adopted.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" 
THE ADOPTION OF PROPOSAL NO. 3.



- --------------------------------------------------------------------------------
                                EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------

     The following table summarizes compensation for services to the Corporation
and the Corporation's subsidiaries for the years ended December 31, 1996, 1995
and 1994 paid to or earned by the Chief Executive Officer of the Corporation and
the four other most highly compensated executive officers of the Corporation
whose salary and bonus exceeded $100,000 for the year ended December 31, 1996.

                                          11

<PAGE>

                              SUMMARY COMPENSATION TABLE

 <TABLE>
<CAPTION>

                                                                          LONG TERM
                                            ANNUAL COMPENSATION(1)       COMPENSATION
                                            ----------------------       ------------
                                                                            AWARDS
                                                                            ------
                                                                                                      ALL
                                                                           SECURITIES               OTHER
     NAME AND                                                              UNDERLYING             COMPEN-
     PRINCIPAL POSITION        YEAR        SALARY ($)     BONUS ($)      OPTIONS/SARS (#)   SATION ($)(2)
- ---------------------------   -----       -----------     ----------    ----------------    -------------
<S>                           <C>         <C>             <C>           <C>                 <C>
JOHN W. CASTLE                 1996        223,500         27,938           ---                    38,058
  Chairman of the Board        1995        216,000         93,124         30,000                   49,709
  and Chief Executive          1994        186,122         81,551           ---                    27,556
  Officer

JAMES N. MCINNES
  President and                1996        124,200         12,420           ---                    22,885
  Chief Operating Officer      1995        180,000         62,086         20,000                   39,629
                               1994        170,000         63,351           ---                    24,281

LARRY D. BEATY                 1996        186,300         18,630           ---                    28,741
  Executive Vice President,    1995        175,000         52,813         16,000                   36,114
  Treasurer and CFO            1994        165,000         56,589           ---                    24,587

JAMES V. BOWERS                1996        146,000         33,247           ---                    28,617
  President of FNB             1995        141,500         49,502          8,000                   28,060
                               1994        135,854         45,565           ---                    21,833

DAVID A. STEARNS
     President of FSB(3)       1996        135,000          9,450          3,500                    1,391
                               1995         93,314         22,535           ---                       ---

</TABLE>
 
- -------------------------------
(1) None of the named executive officers received any perquisites or other
    personal benefits, securities or property in an amount exceeding 10% of his
    salary and bonus during the last fiscal year.

(2) Consists of contributions by the Corporation under its Profit Sharing Plan
    and Supplemental Profit Sharing Plan during the last fiscal year to the
    named executive officers in the following amounts:

                   PROFIT SHARING PLAN      SUPPLEMENTAL PROFIT SHARING PLAN
                   -------------------      --------------------------------

  John W. Castle            18,030                         20,028

  James N. McInnes          18,416                          4,469

  Larry D. Beaty            18,030                         10,711

  James V. Bowers           21,643                          6,974

  David A. Stearns           1,391                           ---

(3) Mr. Stearns was not employed by the Corporation during 1994.

                                          12

<PAGE>

    The following table sets forth information regarding the individual grants
of stock options made during the last completed fiscal year to David A. Stearns.
No stock option grants were made during the last completed fiscal year to the
other named executive officers.


                             OPTION GRANTS IN FISCAL YEAR
<TABLE>
<CAPTION>

                                  INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------

                                                 PERCENT OF
                                                 TOTAL OPTIONS
                      NUMBER OF SECURITIES       GRANTED TO       EXERCISE                    GRANT DATE
                       UNDERLYING OPTIONS        EMPLOYEES IN      PRICE       EXPIRATION       PRESENT
    NAME                    GRANTED (#)          FISCAL YEAR      ($/SH)          DATE         VALUE($)(1)
    ----                -------------------     -------------     --------     ----------     -----------
<S>                     <C>                     <C>               <C>           <C>          <C>
David A. Stearns             3,500                  46.1%         $18.00         3/18/06       $18,375

</TABLE>

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

(1) The Corporation has elected to disclose the Grant Date Present Value for 
    stock options granted to the named executive officers.  The Generalized 
    Black-Scholes pricing model was used to calculate the present value for 
    each option.  The assumptions used in the model included an expected 
    volatility of 20%, a risk-free rate of return of 7.0%, an expected 
    dividend yield of 1.2% and an expected time of exercise which averaged 
    6.5 years based on the vesting period.

    The following table sets forth information regarding the fiscal year-end
values of unexercised stock options held by the named executive officers.

<TABLE>
<CAPTION>

                                                     FISCAL YEAR-END STOCK OPTION VALUES

                                                   NUMBER OF SECURITIES
                                                  UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED
                                                 STOCK OPTIONS AT FISCAL     IN-THE-MONEY STOCK OPTIONS
                                                         YEAR END           (#)AT FISCAL YEAR END ($)(1)
                                               ---------------------------  ----------------------------
                    SHARES          VALUE
                  ACQUIRED ON     REALIZED
    NAME          EXERCISE (#)       ($)       EXERCISABLE   UNEXERCISABLE  EXERCISABLE   UNEXERCISABLE
    ----          -------------   --------     ------------  -------------  -----------   -------------
<S>                <C>             <C>         <C>            <C>            <C>           <C>
John W. Castle         0              0          7,500         22,500        $58,125       $174,375

James N. McInnes       0              0          5,000         15,000         38,700        116,250

Larry D. Beaty         0              0          4,000         12,000         31,000         93,000

James V. Bowers        0              0          2,000          6,000         15,500         46,500

David A. Stearns       0              0            0            3,500           0            13,125
</TABLE>

- ---------------------------------
(1) This amount represents the difference in the market value of one share of 
    the Corporation's Common Stock on December 31, 1996 ($21.75) and the 
    exercise price times the number of shares.

- --------------------------------------------------------------------------------
             COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- --------------------------------------------------------------------------------

    The members of the Executive Compensation Committee of the Corporation
during the fiscal year ended December 31, 1996, were John B. Hiatt (Chairman),
Bruce P. Bickner, Robert

                                          13


<PAGE>

T. Boey, Louis P. Brady and Peter H. Henning.  No member of the Executive
Compensation Committee was formerly an officer or employee of the Corporation or
any of its subsidiaries.

    James N. McInnes, President of the Corporation, serves as a member of the
Board of Directors and Compensation Committee of Plano Molding Company, Plano,
Illinois.  As a member of the Compensation Committee of Plano Molding Company,
Mr. McInnes is actively involved in the determination of compensation awards to
Plano Molding's management, including Peter H. Henning.  Mr. Henning, who is
Chairman of the Board, President and CEO of Plano Molding Company, is a member
of the Corporation's Executive Compensation Committee.  As a member of such
Committee, Mr. Henning is actively involved in the determination of compensation
awards to the members of senior management of the Corporation, including Mr.
McInnes.


- --------------------------------------------------------------------------------
                     REPORT OF THE COMPENSATION COMMITTEE OF THE
                                BOARD OF DIRECTORS ON
                                EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------



    The Compensation Committee's goal in setting executives' compensation is to
attract, retain, motivate and reward highly qualified executive officers to
achieve the Corporation's business objectives.  This executive compensation
program is integrated with the Corporation's annual and long-term business plans
in order to provide a strategic link between corporate performance and
attainment of corporate goals and executive compensation.  The components of the
corporate compensation program are base salary, performance incentives (bonus),
and the Stock Benefit Plan.

    The Compensation Committee annually reviews all aspects of the compensation
for the Chief Executive Officer, President and Executive Vice President and
reviews the appropriateness of executive compensation and benefit programs.  The
Compensation Committee also recommends salary levels for subsidiary senior
management which are adopted by the subsidiary Boards of Directors.  The
Committee is also responsible for recommending to the Board of Directors, the
specific individual annual goals and objectives of the Chairman of the Board
(Chief Executive Officer), the President (Chief Operating Officer), and the
Executive Vice President (Chief Financial Officer).

    The Compensation Committee's approach in setting compensation for executive
officers is to review their compensation relative to the Corporation's financial
results, including growth in earnings, increase in share value, the rate of
return on assets and equity, and various measures of productivity and
efficiency.  Additionally, the Committee reviews performance relative to
attainment of specific corporate and individual objectives that are set prior to
each year.  The Committee also considers the Corporation's standing in the
communities it serves, ratings by regulatory authorities, and views of the
Corporation's independent auditors.

                                          14


<PAGE>

    In determining each executive officer's total compensation, the
Compensation Committee reviews studies primarily prepared by the Illinois
Bankers Association and Alex Sheshunoff & Co., among others.  The surveys
compile total compensation data based on asset size and geographic region
including salary ranges by position.  The Committee has additionally employed
the services of a nationally recognized consulting firm to review the
Corporation's total compensation programs.  The Illinois Bankers and Sheshunoff
studies have been of limited use in determining appropriate compensation at the
corporate level due to their small sample size.  The Committee has found these
studies to be more useful in setting individual bank subsidiary salary ranges.
The Committee has generally used a range of 50-75 percentile in setting base
salaries for subsidiary executives depending upon experience and performance.
The outside consultants have advised the Compensation Committee on salary ranges
for the Corporation's executive officers and the Committee has set these
salaries as they felt was appropriate.

    The Compensation Committee has also established a peer group for each bank
and for the Corporation for purposes of establishing financial objectives and
comparison thereto.  The financial objectives are return on average assets and
return on average equity.  The peer groups include companies of similar size in
appropriate geographic areas.  The Corporation's peer group includes 43 bank
holding companies between $350 million and $1.5 billion in size, located in 29
counties in an area generally described as from Milwaukee, Wisconsin on the west
side of Lake Michigan and around the lake to Kalamazoo, Michigan on the eastern
side of Lake Michigan.

    The base salaries and annual incentive objectives for the current year are
established prior to the beginning of the fiscal year.  The level of incentive
compensation is determined by the Committee after year end based upon a review
of performance against predetermined objectives.  The 1996 objectives ranged
between 0.87% and 1.50% for return on average assets and between 11.0% and 19.0%
for return on average equity.

    For the year 1996, the Committee increased Messrs. Castle and Beaty's base
salary by $7,500 and $11,300, respectively, compared to the year ended 1995.  In
recognition of Mr. McInnes' reduction to two-thirds employment, his base salary
was reduced by $55,800 compared to the year ended 1995.  Mr. McInnes is on a
phased in retirement schedule and is expected to retire from employment by
year-end 1997.  The Committee considered several factors in adjusting the base
salaries: (i) relative base salary as compared to others; (ii) successful
integration of Premier Home Financing, Inc. into the company; (iii) continued
improvement in share value relative to prior years; (iv) favorable perception by
the local community, regulators and outsourced professional consultants; (v) the
progress attained in consolidating and streamlining EDP operations, accounting,
and marketing; (vi) the successful implementation of new products and services
such as a "check card" and "telebanking"; (vii) the progress attained in
consolidating and implementing a company wide human resource program; (viii)
improved investor relations; (ix) the successful incorporation and comments of
the strategic plan, principles and ethics, objectives and strategies into the
corporate culture; and (x) consultation with other members of the Board.  The
Committee also granted incentive compensation (bonuses) to Messrs. Castle,
McInnes and Beaty in the amount of $27,938, $12,420, and $18,630, respectively.
The annual

                                          15

<PAGE>

incentive program (bonus) awards are based upon the Corporation's attainment of
the preset financial objectives stated above (70% weight) and the executive
officers' attainment of individual non-financial objectives (30% weight).  The
incentives are based upon a percentage of compensation and can be in a range of
zero to a maximum of 150% of eligible incentive compensation.  Evaluation of
non-financial individual objectives are subjective in nature.  In 1996, all
three executives were awarded 83.33% for the attainment of eligible
non-financial objectives and zero for the Corporation's failure to meet the
financial objectives.

    Submitted by the Compensation Committee of the Board of Directors:

                        John. B. Hiatt, Chairman
                        Bruce P. Bickner
                        Robert T. Boey
                        Louis P. Brady
                        Peter H. Henning


- --------------------------------------------------------------------------------
                         COMMON STOCK PRICE PERFORMANCE GRAPH
- --------------------------------------------------------------------------------


    The following graph compares on a cumulative basis the monthly percentage
changes since May 6, 1995 (the date on which the Common Stock was registered
under Section 12 of the Securities Exchange Act of 1934) in (a) the total
stockholder return on the Common Stock, (b) the total return of companies in the
NASDAQ Market Index ("NASDAQ Index"), and (c) the total return of all banking
organizations traded on the NASDAQ Market ("Bank Group").  The total return
information presented assumes the reinvestment of dividends.  The graph assumes
$100 was invested on May 6, 1995, in the Common Stock, the NASDAQ Index and the
Bank Group.

                                    [Insert graph]
<TABLE>
<CAPTION>
         ADJUSTED FOR GRAPHING:

             NASDQ     BANK      CBI
<S>          <C>       <C>       <C>
 5/31/95     1.000     1.000     1.000
 6/30/95     1.081     1.043     1.006
 7/31/95     1.155     1.090     1.040
 8/31/95     1.175     1.143     1.050
 9/30/95     1.198     1.186     1.041
10/31/95     1.192     1.183     1.053
11/30/95     1.216     1.234     1.072
12/31/95     1.210     1.256     1.121
 1/31/96     1.215     1.258     1.152
 2/28/96     1.253     1.272     1.152
 3/31/96     1.257     1.295     1.211
 4/30/96     1.340     1.290     1.294
 5/31/96     1.385     1.307     1.299
 6/30/96     1.340     1.312     1.299
 7/31/96     1.251     1.299     1.350
 8/31/96     1.307     1.370     1.375
 9/30/96     1.384     1.418     1.398
10/31/96     1.373     1.461     1.433
11/30/96     1.435     1.536     1.411
12/31/96     1.434     1.542     1.422
</TABLE>
- --------------------------------------------------------------------------------
                       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                                OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------

    As of March 3, 1997 the only persons or groups who are known to the
Corporation to be the beneficial owners of more than 5% of the Common Stock were
the following individuals (Messrs. Castle and McInnes are directors and
executive officers of the Corporation):

<TABLE>
<CAPTION>
 NAME AND ADDRESS OF BENEFICIAL OWNER   AMOUNT AND NATURE OF BENEFICIAL     PERCENT OF
                                               OWNERSHIP(1),(2)               CLASS
<S>                                              <C>                         <C>

John W. Castle                                      243,598                  11.74%
  208 Miller                                     -------------               ------
  DeKalb, Illinois 60115

James N. McInnes                                    136,231                   6.57
  25 Edgebrook Drive                             -------------               ------
  Sandwich, Illinois 60548

Ernest A. Basler                                    147,213   (3)             7.10
  518 East Sixth Street                          -------------               ------
  Sandwich, Illinois 60548

</TABLE>

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

(1) Except as otherwise indicated in the notes to this table, each person 
    named in the table has sole voting and investment power over the number 
    of shares of Common Stock listed opposite his name.

(2) The beneficially owned shares include the following shares which the 
    beneficial owner has the right to acquire within 60 days through the 
    exercise of stock options:  Mr. Castle - 15,000 shares; Mr. McInnes - 
    10,000 shares; and Mr. Basler - 8,000 shares.

(3) Includes 109,725 shares held jointly by Mr. Basler with his wife.


                                      16

<PAGE>

    The following table shows the number of shares of Common Stock beneficially
owned as of March 3, 1997, for each director and each executive officer named in
the Summary Compensation Table herein, except for the two directors and named
executive officers listed above who own more than 5% of the Common Stock, and
all directors and executive officers as a group.


                             NUMBER OF SHARES
              NAME      BENEFICIALLY OWNED(1)(2)           PERCENT OF CLASS
              ----      ------------------------           ----------------

  Larry D. Beaty                 32,850                           1.58%
                              -----------                        ------
  Bruce P. Bickner               31,042                           1.50
                              -----------                        ------
  Robert T. Boey                 10,647  (3)                       *
                              -----------  
  James V. Bowers                33,668  (4)                      1.62
                              -----------                        ------
  Louis P. Brady                 24,450  (5)                      1.18
                              -----------                        ------
  Nancy D. Castle                22,350                           1.08
                              -----------                        ------
  Peter H. Henning                3,870  (6)                       *
                              -----------    
  John B. Hiatt                   7,216                            *
                              -----------   
  Donald E. Kieso                18,167                            *
                              -----------   
  William R. Monat               14,042  (7)                       *
                              -----------  
 All Directors and Executive    714,032                          33.54
   Officers as a Group        -----------                        ------
   (22 persons)

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

*Less than one percent (1%).

(1) Except as otherwise indicated in the notes to this table, each person 
named in the table has sole voting and investment power over the number of 
shares of Common Stock listed opposite his or her name.

(2) The beneficially owned shares include the following shares which the 
beneficial owner has the right to acquire within 60 days through the exercise 
of stock options:  Mr. Beaty - 8,000 shares;  Mr. Bowers - 4,000 shares; each 
other individual listed - 6,000 shares; and all directors and executive 
officers as a group - 46,475 shares.

(3) Includes 1,965 shares held jointly by Mr. Boey and his wife.

(4) Includes 450 shares held jointly by Mr. Bowers and his wife.

(5) Includes 12,000 shares held jointly by Mr. Brady and his wife and 11,700 
shares held jointly by Mr. Brady and Gladys Brady.

(6) Includes 120 shares held jointly by Mr. Henning and his wife.

(7) Includes 5,200 shares held jointly by Dr. Monat and his wife.


- --------------------------------------------------------------------------------
                             TRANSACTIONS WITH MANAGEMENT
- --------------------------------------------------------------------------------


    Several of the Corporation's directors and their affiliates, including 
corporations and firms of which they are officers or in which they or members 
of their families have an ownership interest, are customers of the banking 
subsidiaries of the Corporation.  These persons, corporations and firms have 
had transactions in the ordinary course of business with the banking

                                          17


<PAGE>

subsidiaries of the Corporation, including borrowings of material amounts, 
all of which, in the opinion of management, were on substantially the same 
terms, including interest rates and collateral, as those prevailing at the 
time for comparable transactions with unaffiliated persons and did not 
involve more than the normal risk of collectibility or present other 
unfavorable features.

    In 1997 FNB entered into a contract with John B. Hiatt, who is a director
of both the Corporation and FNB, to assist as Construction Manager on the
remodeling of an existing building  owned by FNB, which the Corporation will
lease for offices.  The contract is standard for the industry and compensates
Mr. Hiatt 31/2% of construction costs, which costs are estimated not to exceed
$500,000 and which do not include architect, engineer, landscaping, parking lot,
and signage expenses.  Mr. Hiatt is very experienced in the construction
business and is retired from Hiatt Brothers, a commercial construction company.


- --------------------------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- --------------------------------------------------------------------------------


    Based solely upon its review of Forms 3, 4 and 5 and any amendment thereto
furnished to the Corporation pursuant to Rule 16a-3(e) of the Securities
Exchange Act of 1934, as amended, and written representations from the directors
and executive officers that no other reports were required, the Corporation is
not aware of any director, officer or beneficial holder of 10% of its Common
Stock that failed to file any such reports on a timely basis during 1996.


- --------------------------------------------------------------------------------
                            INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------


    The Board of Directors has selected KPMG Peat Marwick LLP, independent
certified public accountants, to serve as the independent auditors of the
Corporation and its subsidiaries for the fiscal year ending December 31, 1997.
KPMG Peat Marwick LLP has served as the

                                          18


<PAGE>

Corporation's independent auditors since its inception in 1984.  A
representative from KPMG Peat Marwick LLP is expected to be present at the
Annual Meeting and will have the opportunity to make a statement and to respond
to appropriate questions.


- --------------------------------------------------------------------------------
                                STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------


    In order to be eligible for inclusion in the Corporation's proxy materials
for next year's Annual Meeting of Stockholders, any stockholder proposal to take
action at such meeting must be received at the Corporation's main office no
later than November 21, 1997.  Any such proposal shall be subject to the
requirements of the proxy rules adopted under the Securities Exchange Act of
1934.


- --------------------------------------------------------------------------------
                                    OTHER MATTERS
- --------------------------------------------------------------------------------


    The Board of Directors of the Corporation does not intend to present any
other matters for action at the Annual Meeting, and the Board has not been
informed that other persons intend to present any other matters for action at
the Annual Meeting.  However, if any other matters should properly come before
the Annual Meeting, the persons named in the accompanying proxy intend to vote
thereon, pursuant to the proxy, in accordance with the recommendation of the
Board of the Corporation.

    The Corporation's Annual Report to Stockholders accompanies this Proxy
Statement.  The Annual Report is not to be treated as part of the proxy
solicitation material or as having been incorporated herein by reference.


                                  By Order of the Board of Directors,


                                       David B. Castle
                                          SECRETARY
March 21, 1997

- --------------------------------------------------------------------------------
                                      FORM 10-K
A COPY OF THE FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON
WRITTEN REQUEST TO DAVID B. CASTLE, SECRETARY,  CASTLE  BANCGROUP, INC., 208
WEST LOCUST STREET, DEKALB,  ILLINOIS 60115.
- --------------------------------------------------------------------------------

                                          19


<PAGE>


                                                                       EXHIBIT A

                                    PROPOSAL NO. 2

    BE IT RESOLVED, that Subpart C, NUMBER OF DIRECTORS, of Article Sixth of
the Certificate of Incorporation of the Corporation be amended to read in its
entirety as follows:

                                    ARTICLE SIXTH

    C.   CLASSIFIED BOARD OF DIRECTORS.

         SECTION 1.  NUMBER, ELECTION AND TERMS OF DIRECTORS.  The business and
    affairs of the Corporation shall be managed by or under the direction of a
    board of directors consisting of not less than five (5) nor more than
    fifteen (15) persons.  The exact number of directors within the minimum and
    maximum limitations specified in the preceding sentence shall be fixed from
    time to time by the board of directors pursuant to a resolution adopted by
    a majority of the  board of directors then in office.  The board of
    directors shall be divided into three classes, the number of directors in
    each class to be fixed by the board of directors.  The initial term of
    office of Class I directors shall expire at the annual meeting of
    stockholders to be held in 1998; the initial term of office of Class II
    directors shall expire at the annual meeting of stockholders to be held in
    1999; and the initial term of office of Class III directors shall expire at
    the annual meeting of stockholders to be held in 2000, and in each case
    until their respective successors are elected and qualified.  At each
    annual meeting of stockholders, directors shall be chosen to succeed those
    whose terms then expire and shall be elected for a term of office expiring
    at the third succeeding annual meeting of stockholders after their
    election, and in each case until their respective successors are elected
    and qualified.

         The names of the persons who are to serve as the initial directors of
    each class of directors of the Corporation until their successors are
    elected and qualified or until their earlier resignation or removal are as
    follows:


                           Name          Class Designation
                           ----          -----------------

                       John B. Hiatt            I
                     William R. Monat           I
                      Robert T. Boey            II
                     Donald E. Kieso            II
                     James N. McInnes           II

                                         A-1


<PAGE>

                     Bruce P. Bickner           III
                      John W. Castle            III
                     Peter H. Henning           III

         SECTION 2.  NEWLY CREATED DIRECTORSHIPS AND VACANCIES.  Newly created
    directorships resulting from any increase in the authorized number of
    directors or any vacancies in the board of directors resulting from death,
    resignation, retirement, disqualification, removal from office or other
    cause shall be filled by a majority vote of the directors then in office,
    although less than a quorum, or by a sole remaining director.  Directors so
    chosen shall hold office for a term expiring at the annual meeting of
    stockholders at which the term of the class to which they have been elected
    expires.  No decrease in the number of directors constituting the board of
    directors shall shorten the term of any incumbent director.  Newly created
    directorships shall be allocated among the classes of directors so that
    each class of directors shall consist, as nearly as possible, of one-third
    of the total number of directors.

         SECTION 3.  REMOVAL.  Subject to the rights of the holders of any
    class or series of Preferred Stock of the Corporation, any director, or the
    entire board of directors, may be removed from office at any time, but only
    for cause and only by the affirmative vote of the holders of at least
    a majority of the outstanding shares of all classes of stock of the 
    Corporation generally entitled to vote in the election of directors, 
    considered for purposes of this Section as one class.

                                                                     EXHIBIT B

                                PROPOSAL NO. 3

    BE IT RESOLVED, that Subpart C, CLASSIFIED BOARD OF DIRECTORS, of Article 
Sixth of the Certificate of Incorporation of the Corporation be amended to 
include the following Section 4:

         SECTION 4.  AMENDMENT, ALTERATION OR REPEAL.  In addition to any
    affirmative vote that may be otherwise required, the affirmative vote of
    the holders of at least eighty percent (80%) of the outstanding shares of
    all classes of stock of the Corporation generally entitled to vote in the
    election of directors, considered for purposes of this Section as one
    class, shall be required to amend, alter or repeal in any respect, or adopt
    any provision inconsistent with, this Subpart C of Article Sixth.

                                **********************

                                         A-2
<PAGE>

                                CASTLE BANCGROUP, INC.

                 PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

             FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 23, 1997

    The undersigned hereby appoints John W. Castle and James N. McInnes, each
with the power to act without the other and with full power of substitution, as
the attorneys and Proxies of the undersigned to represent and vote all shares of
common stock of Castle BancGroup, Inc. (the "Corporation"), standing in the name
of the undersigned at the close of business on March 14, 1997, at the Annual
Meeting of Stockholders of the Corporation to be held in the community room of
First National Bank in DeKalb/Sycamore, 511 West State Street, Sycamore,
Illinois 60178, at 2:00 p.m., on Wednesday, April 23, 1997 or at any adjournment
or postponement thereof, with all the powers that the undersigned would possess
if personally present on all matters coming before said meeting, as follows:

             (CONTINUED, AND TO BE SIGNED AND DATED, ON THE REVERSE SIDE)
<PAGE>

/x/ Please mark your
    votes as in this
    example

<TABLE>
<CAPTION>
<S><C>
                                                      WITHHOLD
                           FOR all nominees           AUTHORITY
                           listed at right       to vote for one or
                        (except as indicated to     more nominees
                          the contrary below)    as shown at right
1.  Election as                 / /                      / /            Nominees:   John B. Hiatt
    directors of the                                                                William R. Monat
    eight nominees                                                                   Robert T. Boey
    listed at right.                                                                Donald E. Kieso
                                                                                    James N. McInnes
                                                                                    Bruce P. Bickner
                                                                                    John W. Castle
                                                                                    Peter H. Henning

</TABLE>


INSTRUCTION: To withhold authority to vote for
any individual nominee, write the nominee's name
on the line provided below.

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


                                                  FOR    AGAINST    ABSTAIN
2.  Approval of the amendment to the             / /      / /        / /
    Certificate of Incorporation of the
    Corporation to classify the Board of
    Directors.

3.  Approval of the amendment to the             / /      / /        / /
    Certificate of Incorporation to adopt a
    supermajority voting requirement to alter,
    amend, or repeal the classified Board 
    provisions set forth in proposal No. 2.

4.  In their discretion, on such other matters that may properly come before the
    meeting and any adjournments thereof.

The shares represented by this proxy will be voted as directed.  WHERE NO 
DIRECTION IS GIVEN, THE SHARES WILL BE VOTED "FOR" MATTERS 4, 2 AND 3.

This proxy may be revoked prior to the exercise of the powers conferred by 
the proxy.

Please sign below, date and return promptly.


SIGNATURE                                                      DATED
          -----------------------------------------------------     ------------
                              SIGNATURE IF HELD JOINTLY

IMPORTANT:  Please sign exactly as name appears hereon.  When signing on 
behalf of a corporation, partnership, estate, trust or in other representative 
capacity, please sign name and title.  If executed by a Corporation, the 
proxy should be signed by a duly authorized officer.  If executed by a 
partnership, please sign in the partnership name by an authorized person.
For joint accounts, each joint owner must sign.



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