U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]  Annual report under Section 13 or 15(d) of the  Securities  Exchange Act of
     1934

                   For the fiscal year ended December 31, 1998

                                       OR

[_]  Transition  report under Section 13 or 15(d) of the Securities and Exchange
     Act of 1934

                          Commission File No.: 0-23499

                      DELAWARE FIRST FINANCIAL CORPORATION
                 (Name of Small Business Issuer in Its Charter)

           Delaware                                         52-2063973
(State of Other Jurisdiction of                  (I.R.S. Employer Identification
 Incorporation or Organization)                               Number)

400 Delaware Avenue, Wilmington, Delaware                         19801
        (Address of Principal                                  (Zip Code)
        Executive Offices)

         Issuer's Telephone Number, Including Area Code: (302) 421-9090

         Securities registered under Section 12(b) of the Exchange Act:
                                 Not Applicable

         Securities registered under Section 12(g) of the Exchange Act:

                     Common Stock (par value $.01 per share)
                                (Title of Class)

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes [X] No [_]

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]

Issuer's revenues for its most recent fiscal year: $3.0 million.

As of March 25, 1999, the aggregate value of the 1,059,143 shares of Common
Stock of the Registrant issued and outstanding on such date, which excludes
97,857 shares held by all directors and executive officers of the Registrant and
the Registrant's Employee Stock Ownership Plan ("ESOP") as a group, was
approximately $14.9 million. This figure is based on the closing sales price of
$14.062 per share of the Registrant's Common Stock on March 25, 1999. Although
directors and executive officers and the ESOP were assumed to be "affiliates" of
the Registrant for purposes of this calculation, the classification is not to be
interpreted as an admission of such status.

Number of shares of Common Stock outstanding as of March 25, 1999: 1,157,000
Transitional Small Business Disclosure Format: Yes [_] No [X]


<PAGE>


                                     PART I

Item 1. Business

General

     Delaware   First    Financial    Corporation    (the    "Company")   is   a
Delaware-chartered  savings and loan holding company and the sole stockholder of
Delaware First Bank, FSB (the "Savings Bank").  The only  significant  assets of
the Company are the capital stock of the Savings Bank, the Company's loan to the
Employee Stock Ownership Plan ("ESOP") and the portion of the proceeds  retained
by the Company in connection  with the Savings Bank's  conversion to stock form,
discussed below. The business of the Company currently  consists of the business
of the Savings Bank. At December 31, 1998, the Company had total assets of $98.8
million,  total deposits of $66.3  million,  and total  stockholders'  equity of
$16.3 million or 16.5% of total assets.

     On November 18,  1998,  the Company  entered into an Agreement  and Plan of
Reorganization   (the   "Agreement")   with  The  Crown  Group,   Inc.("Crown"),
Casselberry,  Florida,  pursuant to which Crown will acquire the Company and the
Savings Bank. The Agreement was subsequently amended and restated as of February
17, 1999. The Agreement provides for the exchange of each share of the Company's
issued and  outstanding  common stock for $15.50.  The acquisition is contingent
upon  receipt  of  approvals  from  regulatory  authorities  and  the  Company's
stockholders.   It  is  presently  anticipated  that  the  transaction  will  be
consummated in the second quarter of calendar year 1999.

     The  Savings  Bank  was  founded  in 1922 as  Ninth  Ward  Building  & Loan
Association, a Delaware chartered institution. In 1954, the Savings Bank changed
its name to Ninth Ward  Savings & Loan  Association.  In 1992,  the Savings Bank
adopted a federal  savings  association  charter,  and changed its name to Ninth
Ward Savings Bank,  FSB. The Savings Bank converted  from a  federally-chartered
mutual  savings bank to a  federally-chartered  capital  stock  savings bank and
became  a  wholly-owned   subsidiary  of  the  Company  in  December  1997  (the
"Conversion").  Subsequent to the Conversion,  in January 1998, the Savings Bank
changed its name to Delaware First Bank,  FSB. The Savings  Bank's  business has
been conducted from a single location since its inception.

     The  principal  sources  of funds for the  Savings  Bank's  activities  are
deposits,  repayments  of loans and  mortgage-backed  securities,  maturities of
investments and  interest-bearing  deposits,  funds provided from operations and
advances  from the Federal Home Loan Bank  ("FHLB") of  Pittsburgh.  The Savings
Bank's funds are used  principally for the origination of loans secured by first
mortgages  on one- to  four-family  residences  which are  located in its market
area.  Such loans totaled $70.9 million,  or 87.4 %, of the Savings Bank's total
loan  portfolio at December 31, 1998.  The Savings  Bank's  principal  source of
revenue is the  interest  received on loans,  and its  principal  expense is the
interest paid on deposits and FHLB of Pittsburgh advances.

     The Savings Bank is subject to examination and comprehensive  regulation by
the Office of Thrift Supervision ("OTS"), which is the Savings Bank's chartering
authority and primary federal


                                        1

<PAGE>

regulator.  The Savings Bank is also regulated by the Federal Deposit  Insurance
Corporation  ("FDIC"),  the administrator of the Savings  Association  Insurance
Fund ("SAIF").  The Savings Bank is also subject to certain reserve requirements
established by the Board of Governors of the Federal  Reserve System ("FRB") and
is a member of the FHLB of  Pittsburgh,  which is one of the 12  regional  banks
comprising the FHLB System.

     The Company's  and the Savings  Bank's  executive  office is located at 400
Delaware Avenue, Wilmington, Delaware 19801, and their telephone number is (302)
421-9090.

     This  Form  10-KSB   contains   certain   forward-looking   statements  and
information  relating to the Company that are based on the beliefs of management
as  well  as  assumptions  made  by  the  information   currently  available  to
management. In addition, in those and other portions of this document, the words
"anticipate,"  "believe,"  "estimate," "expect," "intend," "should," and similar
expressions,  or the  negative  thereof,  as they  related to the Company or the
Company's management, are intended to identify forward-looking  statements. Such
statements  reflect the  current  views of the  Company  with  respect to future
looking events and are subject to certain risks,  uncertainties and assumptions.
Should  one or more of  these  risks  or  uncertainties  materialize  or  should
underlying assumptions prove incorrect,  actual results may vary materially from
those  described  herein  as  anticipated,   believed,  estimated,  expected  or
intended.   The  Company  does  not  intend  to  update  these   forward-looking
statements.

Market Area

     The  Savings  Bank's  primary  market area  consists of New Castle  County,
Delaware. New Castle County, which contains the city of Wilmington,  is the site
of  incorporation  of many of the  nation's  largest  corporations.  The largest
industries are service,  nondurable goods  manufacturing and finance,  insurance
and real estate. Agriculture also plays a prominent part in the state's economy.
The Savings Bank is located approximately 15 miles from Newark,  Delaware,  site
of  the  University  of  Delaware.   Delaware  has  two  other  state  supported
institutions and four private schools awarding  post-secondary degrees. Owing to
its preferred  location as the state of  incorporation  for many of the nation's
largest  corporations,  the city has many law,  accounting and consulting firms.
The state of Delaware  has the fourth  lowest  population  in the nation but has
both high employment and higher than average income levels.

     The state of Delaware has adopted  numerous  favorable  tax laws to attract
and  retain  businesses.  Delaware  has no sales tax and a  relatively  low real
property tax. Additionally,  the state has a regressive bank franchise tax which
is favorable for large financial  institutions.  Several large banking companies
have  established  headquarters  and  other  facilities  here  for  credit  card
operations.  Delaware has also sought to augment the service-based sector of its
economy,  having recently  adopted a new trust law to facilitate the location of
trusts in Delaware.

     Economic  growth in the Savings  Bank's market area remains  dependent upon
the local economy. In addition,  the Savings Bank's deposit and loan activity is
significantly affected by


                                        2

<PAGE>


economic  conditions in the Savings  Bank's  market area.  Based on the economic
demographic  history of the Savings Bank's primary market area, the Savings Bank
expects  its market  area to be  relatively  stable in the  future.  Significant
banking  competition,  however,  will  likely  cause the cost of funds to remain
relatively high.

Supervisory Agreement

     Since May 21, 1997, the Savings Bank has been operating under a Supervisory
Agreement with the OTS. Under the  Supervisory  Agreement,  the Savings Bank has
agreed to take actions to improve its compliance with certain OTS regulations in
the area of interest rate risk,  develop a three year business  plan,  implement
and  periodically  follow up on the Savings  Bank's  interest  rate risk policy,
establish  procedures  providing for detailed  minutes of Board of Directors and
committee meetings,  establish  procedures to insure Board members are presented
with  sufficient  information  in order to make  informed  judgments and improve
regulatory compliance. With regard to interest rate risk management, the Savings
Bank has adopted and  submitted to the OTS a revised  interest  rate risk policy
and undertaken  certain actions  including the sale of fixed rate mortgage loans
to the Federal Home Loan  Mortgage  Corporation  ("FHLMC") and  lengthening  the
maturities of certain FHLB  advances.  The  Supervisory  Agreement also required
that the Savings Bank submit a three year written Business Plan to the OTS which
addresses  goals and  strategies  for improving  and  sustaining  earnings.  The
Business  Plan is  required  to identify  major  areas for  improving  operating
performance  and  achieving  and  maintaining  adequate  levels of capital while
addressing operating expenses (including management  compensation),  the Savings
Bank's  cost of funds and asset  growth.  The  Business  Plan is  required to be
updated  annually and reviewed by the Savings Bank's Board of Directors at least
quarterly.  Pursuant  to the  requirements  of the  Supervisory  Agreement,  the
Business Plan was submitted to the OTS regional  office on August 28, 1997.  The
Supervisory  Agreement  also  required  the OTS be notified 30 days before a new
director or  executive  officer is  appointed.  Further,  the Savings  Bank must
provide  notice to the OTS prior to extending,  renewing,  reviewing or entering
into any  compensation  or  benefit-related  contract  with a  senior  executive
officer or director of the Savings Bank. The  Supervisory  Agreement will remain
in effect until terminated by the OTS.

     Due to the planned  acquisition  of the Company by Crown,  the provision in
the Supervisory  Agreement  requiring  annual updates of the Company's  business
plan has been  waived as long as the  Agreement  remains  in  effect.  All other
provisions of the Supervisory Agreement remain in effect.


                                        3

<PAGE>


Lending Activities

     The following  table sets forth  information  concerning the types of loans
held by the Company:


<TABLE>
<CAPTION>
                                                              Composition of Loan Portfolio
                                             ---------------------------------------------------------------
                                                                      December 31,
                                             ---------------------------------------------------------------

                                                         1998                              1997
                                             ----------------------------      -----------------------------
                                                               Percent of                         Percent of
                                               Amount            Total           Amount              Total
                                             -----------       ----------      -----------        ----------
<S>                                          <C>                 <C>           <C>                    <C>
Real estate loans:
Residential mortgage                         $70,855,074         87.44%        $79,244,982            89.11%
                                             -----------        ------         -----------           ------
 Total real estate loans                      70,855,074         87.44          79,244,982            89.11

Other loans:
  Deposit accounts                               630,761          0.78             749,969             0.84
  Small business loans                           774,746          0.95                   0             0.00
  Home equity loans                            7,556,783          9.33           7,413,485             8.34
  Equity lines of credit                       2,551,908          3.15           2,946,938             3.31
                                             -----------        ------         -----------           ------
    Total other loans                         11,514,198         14.21          11,110,392            12.49
                                             -----------        ------         -----------           ------
    Total loans, gross                        82,369,272        101.65          90,355,374           101.60
                                             -----------        ------         -----------           ------

Less:
  Unamortized loan fees                          852,604          1.05             959,350             1.08
  Allowance for loan losses                      489,355          0.60             462,815             0.52
                                             -----------        ------         -----------           ------

Total loans, net                             $81,027,313        100.00%        $88,933,209           100. 0%
                                             ===========        ======         ===========           ======
</TABLE>

     The Company is currently  servicing  loans for the benefit of others.  Such
loans  totaled  $51.8  million,  $56.7 million and $54.3 million at December 31,
1998, 1997 and 1996, respectively. Servicing loans for others generally consists
of  collecting  mortgage  payments,   maintaining  escrow  accounts,  disbursing
payments to investors and foreclosure processing.  Loan servicing fees generated
by these  activities  were  $56,000,  $105,000  and $190,000 for the years ended
December 31, 1998, 1997 and 1996,  respectively.  Additionally,  at December 31,
1998, the Company had outstanding loan origination commitments of $1,474,000 for
fixed and  adjustable  rate loans with rates ranging from 5.50% to 9.95%.  These
commitments are expected to be funded within one year. Commitments are issued in
accordance  with the same loan  policies and  underwriting  standards as settled
loans.

     The  following  table sets forth the  estimated  maturity of the  Company's
gross loan  portfolio  at December  31, 1998.  Scheduled  contractual  principal
repayments  of loans do not reflect the actual life of such  assets.  The actual
life of the loan is  substantially  less than its  contractual  terms because of
prepayments.  In  addition,  due on sale  clauses  on loans  generally  give the
Company  the right to declare  loans  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, however, when the current mortgage loan market rates are substantially
higher



                                       4
<PAGE>


than rates on existing  mortgage loans and,  conversely,  decrease when rates on
existing  mortgage  loans are  substantially  higher than current  mortgage loan
market rates.  All mortgage loans are shown as maturing based on the date of the
last payment required by the loan agreement except as noted.

<TABLE>
<CAPTION>
                                                            Contractual Maturity of Loans
                            ---------------------------------------------------------------------------------------

                                                           More than       More than
                            Within 6        6 to 12       one year to     three years       Over 5
                             months         months        three years    to five years       years           Total
                            --------        -------       -----------    -------------      -------         -------
                                                               (In Thousands)
<S>                          <C>               <C>           <C>             <C>            <C>             <C>
Residential
  Mortgage                   $    3            $  0          $1,239          $3,016         $66,597         $70,855
Deposit accounts                630               0               0               0               0             630
Small business loans              0             177             250              77             271             775
Home equity loans                18             138           1,153           2,610           3,638           7,557
Equity lines of
  credit(1)                   2,552               0               0               0               0           2,552
                            -------         -------         -------         -------         -------         -------
  Total loans                $3,203            $315          $2,642          $5,703         $70,506         $82,369
                            =======         =======         =======         =======         =======         =======
</TABLE>

----------

(1)  Equity lines of credit are open-ended and have no stated  maturity date and
     are shown as being due when interest rates are next subject to change.

     The following table sets forth the amount of fixed rate and adjustable rate
loans at December 31, 1998 which are due after December 31, 1999:


<TABLE>
<CAPTION>
                                            Loans at 12/31/98 due after 12/31/99
                                            ------------------------------------
                                             Fixed      Adjustable       Total
                                            -------     ----------      -------
                                                      (Dollars in thousands)
<S>                                         <C>            <C>          <C>
Residential mortgage                        $63,040        $7,812       $70,852
Small business loans                              0           598           598
Deposit account loans                             0             0             0
Home equity loans                             7,401             0         7,401
Equity lines of credit                            0             0             0
                                            -------       -------       -------

     Total                                  $70,441        $8,410       $78,851
                                            =======       =======       =======

   Percent of total loans                     85.52%        10.21%        95.73%
</TABLE>


                                       5
<PAGE>

     The  following  table sets forth  certain  information  with respect to the
Company's  loan  origination,  purchase  and  sales  activity  for  the  periods
indicated:

<TABLE>
<CAPTION>

                                                         Year Ended December 31,
                                              --------------------------------------------
                                                  1998            1997            1996
                                              ------------    ------------    ------------
<S>                                           <C>             <C>             <C>
Net loans receivable at beginning of period   $ 88,933,209    $ 98,042,118    $ 78,835,306

Loans originated:
  Real estate loans:
    First mortgage loans                        13,239,365       6,220,820      31,673,585
    Home equity loans                            4,131,020       2,267,896       3,139,302
    Equity lines of credit                       1,770,042       2,103,992       2,691,392
    Small business loans                           864,505               0               0
    Collateral loans                               644,112         783,065         713,357
                                              ------------    ------------    ------------
          Total loans originated              $ 20,649,044    $ 11,375,773    $ 38,217,636

Loans purchased:
    Participations                                  67,924          57,371          18,400
                                              ------------    ------------    ------------
          Total loans purchased               $     67,924    $     57,371    $     18,400

Loans sold:
    Whole loans                               $ (5,218,213)     (6,812,130)     (2,599,494)
    Participations                                       0               0      (2,008,782)
                                              ------------    ------------    ------------
          Total loans sold                    $ (5,218,213)   $ (6,812,130)   $ (4,608,276)
                                              ------------    ------------    ------------

Principal repayments                          $(23,530,448)   $(13,618,232)   $(15,414,110)
Allowance for losses -(increase)                   (69,294)       (215,815)        (47,000)
Reclassifications-Held for Sale                          0               0       1,020,000
Other activity, net                                195,091         104,124          20,162
                                              ------------    ------------    ------------
Net loan increase (decrease)                    (7,905,896)     (9,108,909)     19,206,812
                                              ------------    ------------    ------------

Net loans receivable at end of period         $ 81,027,313    $ 88,933,209    $ 98,042,118
                                              ============    ============    ============
</TABLE>

     At December 31, 1998,  total loans amounted to $81.0 million of which $70.9
million or 87.4%  were  first  mortgage  loans  secured  by one- to  four-family
residences.  The majority of the Company's  loans have interest  rates which are
fixed for the term of the loan ("fixed  rate").  To a much lesser  extent,  when
market  conditions are  favorable,  the Company  originates  loans with rates of
interest  which may  adjust  from  period to period  during the term of the loan
("adjustable  rate").  The Company's reliance on interest income from fixed rate
loans has made it more  susceptible  to changes  in  interest  rates  and,  as a
result,  both its capital and its interest income could be adversely affected in
a rising interest rate environment.

     The Company  obtains  mortgage  loans from a variety of  sources.  The most
frequently  utilized  method of  obtaining  mortgage  loans is through  employee
originators who handle  telephone  calls,  walk-in  customers and referrals from
real estate brokers.


                                        6

<PAGE>


     An appraisal on each property  which secures a first  mortgage loan made by
the Company is obtained from an independent appraisal firm. These appraisers are
approved by the Savings Bank's Appraisal  Committee,  and certain appraisals are
reviewed  randomly by the Committee  throughout  the year.  Each  appraiser must
annually submit updated licenses and evidence of insurance  coverage to maintain
their  status as an approved  appraiser.  The  appraised  value of a property is
determined  by a physical  inspection  of the  property  and  comparison  of the
property to at least three  comparable  properties  in the immediate  area.  The
appraised value is used as a basis for  determining  loan to value ratios unless
the sale price of the property is less than the appraisal  value.  In that case,
the sale price is used.

     Certain  officers  of the  Savings  Bank  each  individually  have  lending
authority  as defined  and  approved by the Board of  Directors.  Limits of this
lending  authority  are set for the loan  amount,  loan-to-value  ratio,  credit
ratios and credit quality.  Residential  mortgage and home equity loans that fit
within these authority limits are approved by an individual officer or officers.
All other loans are reviewed by a Loan  Committee  consisting  of (1) either the
President,  the Executive  Vice  President or the Vice  President of Finance and
Administration;  (2) the Vice President of Residential Lending; and (3) the Vice
President of Retail Banking Services.  In the case of loans that are reviewed by
the Loan Committee,  a majority of the Committee is required for the approval of
a loan. The Vice President of Residential Lending is responsible for maintaining
records of all Loan Committee  meetings.  A summary report of all loans approved
is submitted to the Board of Directors each month for their ratification.

     Promptly after the Company approves a loan it provides a commitment  letter
to the borrower  which  specifies the terms and  conditions of the proposed loan
including the amount of the loan, the interest rate,  the  amortization  term, a
brief description of the required  collateral and required  insurance  coverage,
including  fire and casualty  insurance,  and flood  insurance as required.  The
Company also requires each loan to have title  insurance.  At December 31, 1998,
the Company had commitments to originate  $1,449,000 in mortgage and home equity
loans.

     The Company does not purchase whole loans.  However,  it does  occasionally
purchase participation interests in loans.  Participation interests in loans are
reviewed  and  approved  by  either  the  Board of  Directors  or the  Executive
Committee. The amount of the loan participation must be approved by the Board of
Directors.  For the year ended December 31, 1998, the Company  purchased $68,000
of loan participations  originated by Delaware Community Investment  Corporation
("DCIC").

     The Company requires private mortgage insurance on all first mortgage loans
when the  loan-to-value  ratio exceeds 80%. The Company retains servicing on all
loans originated. From time to time, the Company also sells certain of the loans
or  participation  interests in loans it originates.  The only loans the Company
sells are fixed-rate residential mortgage loans. For the year ended December 31,
1998, the Company sold $5.2 million of such loans. Such loans are sold to either
the FHLMC,  Federal National Mortgage  Association  ("FNMA"),  another financial
institution, or a state housing authority.


                                        7

<PAGE>


     All loans  collateralized  by  deposits  held by the  Savings  Bank must be
approved by the Customer Service Supervisor,  Branch Manager, or their designee.
Loans of this type in excess of  $25,000  must be  approved  by either  the Vice
President - Branch Sales Manager,  Vice President Retail Banking Services or the
Chief Operating Officer.

     Originations,  Purchases and Sales of Loans. As a federal association,  the
Savings Bank is permitted to make and/or purchase loans nationwide.  The Company
originates and purchases  participations in loans secured by real estate located
only in its market area. Recently, the Company's purchasing activities have been
limited to purchasing  participations from DCIC. The Company makes home mortgage
loans  secured  by owner  and  nonowner  occupied  dwellings  as well as  second
mortgage  loans  secured by real estate.  The Company also makes small  business
loans and loans secured by savings  accounts.  To a lesser extent,  from time to
time, the Company makes construction loans secured by residential real estate or
participates   in  permanent  or   construction   loans   originated   by  other
federally-insured  financial  institutions.  The Company  also  participates  in
permanent  mortgage loans  originated by DCIC secured by  multi-family  dwelling
units. DCIC is a community  investment  corporation  formed to provide financing
for  low  and  moderate  income  families  through  a loan  pool  formed  by the
commitment of over 30 banks. The Company purchases participations in loans based
upon its pro-rata share of the total loan pool.

     The Company's ability to originate loans is based on several factors. These
include the level of interest rates,  the needs of its customers,  its asset and
liability funding needs and the success of its marketing efforts.  The Company's
mortgage  loan  originations  for the year ended  December  31,  1998 were $13.2
million compared to $6.2 million for the year ended December 31, 1997.

     One  to  Four-Family  Residential  Loans.  The  Company's  primary  lending
activity consists of the origination of one to four-family  residential mortgage
loans  secured by  property  located in its  primary  market  area.  The Company
generally  originates  conforming one to four-family owner occupied  residential
mortgage  loans in amounts up to 95%  loan-to-value  ratio -- 97% in the case of
some first time home buyer programs -- with private mortgage  insurance required
on loans with a loan-to-value ratio in excess of 80%. The maximum  loan-to-value
ratio on mortgage  loans secured by nonowner  occupied  properties  generally is
limited to 75%. The Company primarily  originates  fixed-rate loans having terms
from five to 30 years, with principal and interest payments  calculated using up
to a 30-year amortization  period. At December 31, 1998,  approximately 11.0% of
the Company's one- to  four-family  residential  loans had  adjustable  rates of
interest.

     Home Equity.  The Company's loan portfolio  also contains  fixed-rate  home
equity loans and variable rate equity lines of credit.  These loans and lines of
credit totaled $10.1 million and comprised  12.5% of the total loan portfolio at
December 31, 1998.

     The Company  originates fixed rate home equity loans for a minimum of three
years and a maximum of 15 years in amounts ranging from $5,000 to $150,000.  The
maximum  loan-to-value ratio is 100%. However,  the Company only lends up to 90%
of loan-to-value  ratio on loans with first mortgages that have been outstanding
for one year or less. During the year ended December 31,


                                        8

<PAGE>


1998, the Company  originated $4.1 million in home equity loans. At December 31,
1998,  all of the  Company's  home equity  loans were secured by first or second
mortgages.

     The Company  also  originates  variable  rate home equity  lines of credit.
These lines of credit range in amounts from $10,000 to $100,000 and also require
a perfected  second lien on owner  occupied  real  property.  For variable  rate
equity  lines of credit,  the maximum  loan-to-value  ratio is 90%. For the year
ended December 31, 1998, the Company  advanced $1.8 million on home equity lines
of credit.

     Small Business Loans. On June 1, 1998, the Savings Bank established a Small
Business Banking Division. The purpose of the division was to expand the Savings
Bank's lending  activities,  diversify the loan  portfolio and provide  interest
earning assets that were sensitive to interest rate fluctuations. An experienced
commercial  lender  was  hired  to  develop  lending  policies  and lead the new
division in all aspects of  commercial  lending.  During the first few months of
operation,  the new department head developed a Commercial  Credit Policy Guide,
set up the operating system to properly process commercial loans and developed a
portfolio of Commercial  Lending  documents.  The Commercial Credit Policy Guide
set parameters and guidelines for credit  authority,  loan pricing,  collateral,
real estate lending and other areas of commercial lending.

     Commercial  lending  activities are limited to customers with total lending
needs of $500,000 or less. All types of loans are considered, including lines of
credit,  term loans,  time notes,  letters of credit and  commercial  mortgages.
Collateral  may  include  mortgages,   vehicles,  security  agreements  and,  on
occasion,  unsecured  loans.  Virtually all loans will have variable  rates that
adjust with the prime rate and all loans will be  guaranteed  personally  by the
principals of the businesses involved.

     During the last five  months of 1998,  17  separate  commercial  loans were
granted  aggregating  approximately  $865,000.  All of  the  loans  granted  had
variable initial interest rates ranging form 9.5% to 11.0%.

     Loans to One Borrower.  Federal law requires that, in general,  the maximum
amount of loans  which the  Savings  Bank may make to any one  borrower  may not
exceed the greater of $500,000 or 15% of its  unimpaired  capital and unimpaired
surplus.  Higher limits apply to loans to develop  domestic  housing units.  The
Savings Bank may lend an additional 10% of its unimpaired capital and unimpaired
surplus if the loan is fully  secured by readily  marketable  collateral.  Under
federal  law,  the  Savings  Bank's  maximum  loan-to-one   borrower  limit  was
approximately $2.4 million at December 31, 1998.  However,  the Savings Bank has
established  an  internal  limit on loans to one  borrower of $1.0  million.  At
December 31, 1998,  the  aggregate  loans  outstanding  to the  Company's  three
largest  borrowers and related  entities were  $390,000,  $373,000 and $347,000,
respectively.  Each of these loans was secured and performing in accordance with
their original terms as of December 31, 1998.

                                        9

<PAGE>


Nonperforming and Problem Assets

     Loan  Delinquencies.  The  Company  classifies  a loan as  delinquent  when
payment is 16 days past due.  When a mortgage  loan  becomes 16 days past due, a
computer  generated  notice of nonpayment  is sent to the borrower.  On the 21st
day,  a  personal  call is made to verify  receipt  of the first  notice  and to
request payment. A second delinquency notice is then mailed on the 30th day. If,
after 60 days,  payment is still  delinquent,  the  borrower  will be advised in
writing of the Company's intent to commence  foreclosure.  If the loan continues
in a  delinquent  status for 90 days and no  repayment  plan is in  effect,  the
delinquent  account is referred to an attorney for foreclosure.  At December 31,
1998, the Company's total delinquent  loans,  consisting of all loans 30 or more
days past due, amounted to $326,000, or .40% of its total loan portfolio.

     The following table shows the Company's total delinquent loans at the dates
indicated:


<TABLE>
<CAPTION>
                                                           December 31,
                        -----------------------------------------------------------------------------------
                                        1998                                       1997
                        ---------------------------------------    ----------------------------------------

Loans Delinquent                                    Percentage                                Percentage of
    For                  Number        Amount      of Portfolio    Number          Amount       Portfolio
-------------------     --------     ----------    ------------    ------        ----------   -------------
<S>                           <C>    <C>               <C>             <C>       <C>               <C>
30-59 days                     9        177,193        0.22%           38        $1,886,884        2.09%
60-89 days                     1         54,523        0.07             7           188,790        0.21
90 days and
  over                         3         94,317        0.11            14           774,202        0.86
                        --------     ----------        ----        ------        ----------        ----
Total delinquent
  loans                       13     $  326,033        0.40%           59        $2,849,876        3.16%
                        ========     ==========        ====        ======        ==========        ====
</TABLE>

     The following table shows the Company's delinquent loans by loan type:


<TABLE>
<CAPTION>
                                                            December 31,
                                 ------------------------------------------------------------------
                                          1998                                   1997
                                 ----------------------------         -----------------------------

                                                Percentage of                         Percentage of
                                                  Delinquent                           Delinquent
        Loan Type                 Amount            Loans               Amount            Loans
----------------------           --------       -------------         ----------      -------------
<S>                              <C>               <C>                <C>                <C>
Residential mortgage              212,688           65.23%            $2,445,396          85.81%
Small business loans                    0            0.00                      0           0.00
Deposit accounts                    6,768            2.08                 60,975           2.14
Home equity loans                 106,577           32.69                207,512           7.28
Equity lines of credit                  0            0.00                135,993           4.77
                                 --------          ------             ----------         ------
    Total                        $326,033          100.00%            $2,849,876         100.00%
                                 ========          ======             ==========         ======
</TABLE>

     Loans are  reviewed  on a quarterly  basis and are placed on a  non-accrual
status  when the loan  becomes  more  than 90 days  delinquent  or when,  in the
Company's opinion, the collection of

                                       10


<PAGE>


additional interest is doubtful.  Interest accrued and unpaid at the time a loan
is placed on nonaccrual  status is charged against interest  income.  Subsequent
interest  payments,  if any,  are either  applied to the  outstanding  principal
balance or recorded as  interest  income,  depending  on the  assessment  of the
ultimate collectibility of the loan.

     Nonperforming  Assets. The following table sets forth information regarding
nonaccrual loans and real estate owned. As of the dates  indicated,  the Company
had no loans categorized as troubled debt  restructurings  within the meaning of
SFAS 15. Interest income that would have been recorded on loans accounted for on
a  nonaccrual  basis under the  original  terms of such loans was  approximately
$4,000 and $18,000 for the years ended  December 31, 1998 and December 31, 1997,
respectively.

     The following table presents the Company's  non-performing and restructured
assets at the dates indicated.

                                                             December 31,
                                                        ---------------------
                                                        1998             1997
                                                        ----             ----
                                                        (Dollars in Thousands)

Non-accrual loans                                        $94             $774
Real estate owned                                         71                0
                                                        ----             ----
Total non-performing loans                              $165(1)          $774(2)
                                                        ====             ====


Percentage of total loan
  portfolio                                             0.20%            0.86%
Percentage of total assets                              0.17%            0.68%

----------

(1)  Consists  of  $141,000 in  residential  mortgage  loans and $24,000 in home
     equity loans.

(2)  Consists of $623,000 in residential  mortgage loans, $51,000 in home equity
     loans and $100,000 in equity lines of credit loans.

     Classification  of Assets.  OTS  regulations  provide for a  classification
system  for  loans  and  other  assets  of  savings  associations.   Under  this
classification  system, problem assets of savings associations are classified as
"substandard,"  "doubtful," or "loss." An asset is considered  substandard if it
is  inadequately  protected by the current net worth and paying  capacity of the
borrower or of the collateral pledged, if any.  Substandard assets include those
characterized by the "distinct  possibility"  that the savings  association will
sustain "some loss" if the deficiencies are not corrected.  Assets classified as
doubtful have all of the weaknesses  inherent in those  classified  substandard,
with the added  characteristic  that the weaknesses  present make "collection or
liquidation in full," on the basis of currently existing facts, conditions,  and
values, "highly questionable and improbable." Assets


                                       11
<PAGE>

classified as loss are those considered "uncollectible" and of such little value
that their  continuance as assets without the  establishment  of a specific loss
reserve is not warranted.  Assets may be designated "special mention" because of
potential  weakness that do not currently  warrant  classification in one of the
aforementioned categories.

     When a savings association  classifies problem assets as either substandard
or doubtful,  it may establish  general  allowances for loan losses in an amount
deemed prudent by management. General allowances represent loss allowances which
have been  established  to recognize the inherent risk  associated  with lending
activities,  but which, unlike specific  allowances,  have not been allocated to
particular problem assets. When a savings association  classifies problem assets
as loss,  it is required  either to  establish a specific  allowance  for losses
equal to 100% of that portion of the asset so  classified  or to charge off such
amount. A savings  association's  determination as to the  classification of its
assets and the amount of its  valuation  allowances  is subject to review by the
OTS, which may order the  establishment  of additional  general or specific loss
allowances.  A portion of general loss allowances  established to cover possible
losses  related to assets  classified as substandard or doubtful may be included
in determining a savings  association's  regulatory capital.  Specific valuation
allowances for loan losses generally do not qualify as regulatory capital.

     The following table presents the Company's  classified  assets at the dates
indicated:

                                                              December 31,
                                                        ----------------------
                                                        (Dollars in Thousands)
                                                         1998            1997
                                                         ----            ----
Classification
   Substandard                                           $861(1)         $735(2)
   Doubtful                                                 0               0
   Loss                                                     0               0
                                                         ----            ----

          Total Classified Assets                        $861            $735
                                                         ====            ====
----------

(1)  Consists  of  $779,000  in  residential   mortgage   loans   classified  as
     substandard and $82,000 in home equity loans classified as substandard.

(2)  Consists  of  $625,000  in  residential   mortgage   loans   classified  as
     substandard,  $45,000 in home equity loans  classified as  substandard  and
     $65,000 in equity line of credit loans classified as substandard.

     Allowance for Loan Losses.  The  Company's  policy is to provide for losses
based on  management's  estimate of the losses that may be incurred with respect
to its loan portfolio.  When the


                                       12
<PAGE>

Company  increases the allowance  for loan losses it does so by  establishing  a
charge against  income.  The estimate,  including a review of all loans on which
full  collectibility  of interest and principal  may not be reasonably  assured,
considers: (i) the Company's past loan loss experience,  (ii) known and inherent
risks in the Company's  portfolio,  (iii) adverse situations that may affect the
borrower's  ability  to  repay,  (iv)  the  estimated  value  of any  underlying
collateral, and (v) current economic conditions.

     The Company  monitors its allowance for loan losses and makes  additions to
the allowance as economic conditions dictate. Although the Company maintains its
allowance  for loan losses at a level that it  considers  to be adequate for the
inherent  risk  of  loss in its  loan  portfolio,  future  losses  could  exceed
estimated  amounts and additional  provisions for loan losses could be required.
In addition, the Company's  determination as to the amount of allowance for loan
losses is  subject  to review by the OTS,  as part of its  examination  process.
After  a  review  of the  information  available,  the  OTS  might  require  the
establishment of an additional  provision.  As of the latest  examination by the
OTS, which concluded in March 1998, no additional provision was required.

     The following  table sets forth an analysis of the Company's  allowance for
loan losses at the dates indicated:

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                         -----------------------------------------------
                                                          1998                1997                1996
                                                         -------             -------             -------
                                                                   (Dollars in thousands)
<S>                                                      <C>                 <C>                 <C>
Gross Loan Principal Balance Outstanding                 $82,369             $90,355             $99,353
                                                         =======             =======             =======
Average Loans Outstanding                                $83,848             $95,371             $91,061
                                                         =======             =======             =======
Allowance Balance at beginning of period                 $   463             $   247             $   200
                                                         -------             -------             -------
Loans charged off                                             43                   0                   0
Recoveries                                                     0                   0                   0
                                                         -------             -------             -------
Net loans charged-off                                         43                   0                   0
                                                         -------             -------             -------
Provision for possible loan losses                            69                 216                  47
                                                         -------             -------             -------
Allowance Balance at end of period                       $   489             $   463             $   247
                                                         =======             =======             =======

Allowance for loan losses to total loans                    0.59%               0.51%               0.25%

Allowance for loan losses to total
  non-performing loans                                    296.36%              59.82%              65.69%
Net charge-offs to average loans outstanding
   during the period                                        0.05%                 --                  --
</TABLE>


                                       13
<PAGE>


     Allocation of Allowance for Loan Losses.  The following  table  presents an
allocation   of  the   allowance   for  loan  losses   among  the  various  loan
classifications  and sets forth the percentage of loan type to total loans.  The
allowance  shown in the table should not be  interpreted  as an indication  that
charge-offs in future periods will occur in these amounts or proportions or that
the analysis indicates future charge-off trends.

<TABLE>
<CAPTION>
                                                                   December 31,
                                         ---------------------------------------------------------------
                                                     1998                            1997
                                         ----------------------------        ---------------------------
                                                        Percentage of                      Percentage of
                                         Amount          Total Loans         1997          Total Loans
                                         ------         -------------        ----          -------------
                                                              (Dollars in thousands)
<S>                                       <C>                <C>             <C>                <C>
First mortgage loans                      $284               86.02%          $236               87.70%
Small business loans                        12                0.94              0                   0
Home equity loans                          118                9.17            140                8.21
Equity lines of credit                      75                3.10             86                3.26
Collateral loans                             0                0.77              1                0.83
                                          ----              ------           ----              ------

          Total                           $489              100.00%          $463              100.00%
                                          ====              ======           ====              ======
</TABLE>

Investment Activities

     General.  The Savings Bank is permitted  under  federal law to make certain
investments,  including  investments  in  securities  issued by various  federal
agencies,  state and municipal governments,  deposits at the FHLB of Pittsburgh,
certificates  of deposit in federally  insured  institutions,  certain  bankers'
acceptances  and federal  funds.  The Savings Bank may also  invest,  subject to
certain  limitations,  in  commercial  paper  rated  in one of the  two  highest
investment  rating  categories of a nationally  recognized credit rating agency,
and certain other types of corporate debt  securities and mutual funds.  Federal
regulations require the Savings Bank to maintain an investment in FHLB stock and
a minimum  amount of liquid  assets which may be invested in cash and  specified
securities.  From time to time,  the OTS adjusts the percentage of liquid assets
which savings banks are required to maintain.

     The  goals  of  the  Company's   investment  policy  are  to  (i)  maintain
profitability; (ii) invest in relatively high quality securities; (iii) maintain
adequate  liquidity  levels for meeting cash demands;  (iv) maintain  compliance
with  regulations;  and (v) provide a short-term source of funds for the funding
of loans designated for sale.  Investment  decisions are based on these goals as
well as a review of risk- based capital established for each type of security.

     During  periods  when  mortgage  loan demand is  moderate,  the Company has
invested its funds in certain investment and  mortgage-backed  securities rather
than originating whole loans.


                                       14

<PAGE>


     The investment  securities  purchased by the Company  consist  primarily of
securities  issued or guaranteed by the U.S.  government or agencies thereof and
mortgage-backed  securities.  At  December  31,  1998,  10.3%  of the  Company's
mortgage-backed  securities were FHLMC  pass-throughs.  Investment and aggregate
investment limitations and credit quality parameters of each class of investment
are prescribed in the Company's investment policy. The Company performs analyses
on  mortgage-related  securities  prior to purchase  and on an ongoing  basis to
determine  the impact on earnings and market value under  various  interest rate
and prepayment  conditions.  Under the Company's current  investment policy, the
President and his designee(s)  have been delegated the authority by the Board of
Directors to execute agreements, transactions and any other appropriate material
in order to effectuate  investment  transactions  authorized  by the  investment
policy. The Board of Directors reviews all securities  transactions on a monthly
basis.

     Mortgage-Backed  Securities.  To  supplement  its lending  activities,  the
Company has invested in residential mortgage-backed securities.  Mortgage-backed
securities can serve as collateral for borrowings and, through repayments,  as a
source  of  liquidity.  Mortgage-backed  securities  represent  a  participation
interest in a pool of  single-family  or other type of mortgages.  Principal and
interest   payments   are  passed  from  the   mortgage   originators,   through
intermediaries (generally  quasi-governmental  agencies) that pool and repackage
the participation interests in the form of securities,  to investors such as the
Company. The quasi-governmental  agencies,  FHLMC,  Government National Mortgage
Association ("GNMA"),  and FNMA, guarantee the payment of principal and interest
to investors

     Mortgage-backed  securities  are  typically  issued with  stated  principal
amounts.  The  securities  are backed by pools of mortgages that have loans with
interest  rates that are  within a set range and have  varying  maturities.  The
underlying pool of mortgages can be composed of either  fixed-rate or adjustable
rate mortgage  loans.  Mortgage-backed  securities are generally  referred to as
mortgage participation certificates or pass-through  certificates.  The interest
rate risk characteristics of the underlying pool of mortgages (i.e.,  fixed-rate
or  adjustable-rate)  and the 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.

     Collateralized   Mortgage   Obligations.    The   Company   has   purchased
collateralized  mortgage  obligations  ("CMOs") as an alternative  investment in
order to address its interest rate risk  position.  CMOs are  securities,  which
have been collateralized by mortgage-backed  securities. The CMO will be divided
into  various  tranches  each with a separate  priority for receipt of principal
payments.  The maturity of a particular  tranche of a CMO is dependent  upon the
amount  of  repayments  and  prepayments  from the  mortgage-backed  securities.
Generally as mortgage rates exceed the rates on the mortgage-backed  securities,
prepayments will decrease and the maturity of the CMO will increase. Conversely,
when  mortgage  rates  are  below  the  rates  on  the  loans  securitizing  the
mortgage-backed security,  prepayments will increase and the maturity of the CMO
will also shorten.  The CMOs  purchased by the Savings Bank have floating  rates
tied to various market  indicies that change  monthly.  As of December 31, 1998,
the balance of CMOs outstanding was $2.6 million.


                                       15

<PAGE>


     The  following  table  sets  forth  the  carrying  value  of the  Company's
investment securities,  mortgage-backed  securities and FHLB stock, at the dates
indicated.

<TABLE>
<CAPTION>
                                                                   December 31,
                                      -------------------------------------------------------------------------
                                                    1998(1)                                 1997(1)
                                      -------------------------------           -------------------------------
                                                           Estimated                                 Estimated
                                       Carrying             Market              Carrying               Market
                                        Value                Value                Value                Value
                                      ----------           ----------           ----------           ----------
<S>                                   <C>                  <C>                  <C>                  <C>
Federal Home Loan Mortgage
  Corporation                         $        0           $        0           $1,498,750           $1,498,750
Federal National Mortgage
  Association                                  0                    0              499,390              499,390
U.S. Treasury Notes                            0                    0              501,720              501,720
                                      ----------           ----------           ----------           ----------
Total Investment securities           $        0           $        0           $2,499,860           $2,499,860
                                      ==========           ==========           ==========           ==========
Mortgage-backed securities            $2,942,264           $2,942,264           $1,900,986           $1,900,986
FHLB stock, at cost                      975,000              975,000              975,000              975,000
                                      ----------           ----------           ----------           ----------

Total                                 $3,917,264           $3,917,264           $5,375,846           $5,375,846
                                      ==========           ==========           ==========           ==========
</TABLE>
----------

(1)  All of the Company's  investment portfolio was classified as "Available for
     Sale" at December 31, 1998 and December 31, 1997 pursuant to SFAS No. 115.


                                       16

<PAGE>





          The  following  table sets forth  information  regarding the scheduled
maturities,  carrying  values,  approximate  fair market  values,  and  weighted
average yields for the Company's investment securities portfolio at December 31,
1998.  The  following  table  does not take into  consideration  the  effects of
scheduled repayments or the effects of possible prepayments.





<TABLE>
<CAPTION>
                                       One Year or Less         One to Five Years         More than Five Years
                                   ------------------------    -------------------      -------------------------


                                                   Weighted               Weighted                       Weighted
                                   Carrying        Average     Carrying   Average       Carrying         Average
                                    Value           Yield       Value      Yield          Value           Yield
                                   --------        --------    --------   --------      ----------       --------
<S>                              <C>                <C>           <C>        <C>        <C>                <C>
Obligations of U.S.
  Government agencies            $        0           --          $0         --         $        0           --

Mortgage-backed
   securities                        71,461         7.01%          0         --          2,870,803         5.62%

FHLB stock(1)                       975,000         6.50%          0         --                  0           --
                                 ----------                       --                    ----------

Total investment
  securities portfolio           $1,046,461         6.53%         $0         --         $2,870,803         5.62%
                                 ==========                       ==                    ==========

<CAPTION>
                                                   Total Investment Securities
                                     --------------------------------------------------

                                                                               Average
                                                    Approximate    Weighed    Remaining
                                     Carrying          Market      Average     Years to
                                       Value           Value        Yield      Maturity
                                     --------       -----------    -------     --------
<S>                                  <C>            <C>             <C>        <C>
Obligations of U.S.
  Government agencies                $        0     $        0        --           0

Mortgage-backed
   securities                         2,942,264      2,942,264      5.65%      15.42

FHLB stock(1)                           975,000        975,000      6.50%         --
                                     ----------     ----------

Total investment
  securities portfolio               $3,917,264     $3,917,264      5.86%         --
                                     ==========     ==========
</TABLE>

----------

(1)  FHLB stock has no stated  maturity,  but has been classified based upon its
     next stated  dividend  payment date. As a member of the FHLB of Pittsburgh,
     the Savings Bank is required to maintain an investment in stock of the FHLB
     of  Pittsburgh  equal to the greater of 1.0% of the  Company's  outstanding
     home mortgage  related assets or 5.0% of its outstanding  advances from the
     FHLB of Pittsburgh.

                                       17

<PAGE>


Sources of Funds

     Deposits  are the major  external  source of funds  for  lending  and other
investment  purposes.  Funds are also  derived  from the  receipt of payments on
loans, prepayment of loans, advances from the FHLB and, to a much lesser extent,
maturities  of  investment  securities  and  mortgage-backed   securities,   and
operations.  Scheduled loan principal  repayments are a relatively stable source
of funds,  while  deposit  inflows  and  outflows  and loan  prepayments  may be
significantly influenced by general interest rates and market conditions.

     Deposits.  Consumer  deposits  are  attracted  principally  from within the
Company's primary market area through the offering of deposit accounts including
regular  savings  accounts,  checking  accounts,  money  market  accounts,  term
certificate  accounts and IRA accounts.  Deposit account terms vary according to
the minimum balance required,  the time period the funds must remain on deposit,
and the interest rate.

     The Company  competes for deposits  with other  institutions  in its market
area by offering  competitively  priced accounts which are tailored to the needs
of its customers.  Additionally,  the Company seeks to meet its customers' needs
by  providing  personalized  customer  service  to  the  community.  To  provide
additional  convenience,  the  Company  participates  in the MAC(R) and  Plus(R)
automatic teller machine network at locations throughout Delaware and the United
States,  through which  customers can gain access to their accounts at any time.
The Company does not actively solicit certificate accounts in excess of $100,000
or use brokers to obtain deposits or solicit deposits outside its market area.

     The interest rates paid by the Company on deposits are set as needed at the
direction of the Company's senior  management  based on the Company's  liquidity
requirements,  interest  rates paid by its  competitors,  the general  levels of
interest   rates,   the  Company's   growth  goals  and  applicable   regulatory
restrictions and requirements.

     The Company's deposit base is characterized by a relatively small amount of
passbook  depositors  and a  significantly  higher  amount  of  certificates  of
deposit.  Passbook savings, money market and transaction accounts totalled $10.7
million,  or 16.2%, of the Company's  deposit portfolio at December 31, 1998. As
of December 31, 1998, certificates of deposit amounted to $55.6 million or 83.8%
of the Company's deposit portfolio.  In addition,  $11.0 million or 16.6% of the
deposit portfolio consisted of certificates of deposit with balances of $100,000
or more.

     The Company  believes  that a portion of its  depositors  are  sensitive to
changes in interest rates. Accordingly, some of the funds placed in certificates
of deposit  with the  Company  are  susceptible  to  withdrawal  if  alternative
investments  pay a higher return or the Company's rates do not adjust as rapidly
as the  competition.  These  deposits  cannot,  therefore,  be  viewed  as  core
deposits,  which is also  generally  the case for  deposits  at or in  excess of
$100,000.  However,  the  Company's  certificates  are not derived from brokered
deposits,  and the  majority  of those in excess of  $100,000  are  deposits  of
long-standing customers of the Company.

                                       18

<PAGE>


     The  following  table  sets  forth the  Company's  distribution  of deposit
accounts at the dates indicated and the weighted  average  interest rate on each
category of deposits represented.

<TABLE>
<CAPTION>
                                                    December 31, 1998                           December 31, 1997
                                        -------------------------------------------    ---------------------------------------

                                                                                                                     Weighted
                                                       Percent of        Weighted                   Percent of        Average
                                         Amount          Total         Average Rate    Amount         Total             Rate
                                        -------        ----------      ------------    ------       ----------       ---------
                                                                     (Dollars in thousands)

<S>                                     <C>             <C>               <C>         <C>             <C>               <C>
Passbook Savings                        $ 1,697           2.56%           2.50%       $ 2,494           3.24%           4.14%
Money Market Accounts                     7,044          10.62            2.79          8,532          11.10            3.40
IRA Accounts                             11,098          16.73            6.47         11,880          15.45            6.51
Certificates of deposit
  with an original term
  to maturity of:
    Less than 1 year                      8,005          12.07            4.78          7,843          10.20            5.41
    1 to 3 years                         27,275          41.11            5.58         33,891          44.09            5.93
    More than 3 years                     9,226          13.91            6.47         11,179          14.54            6.47
Checking & Other                          2,000           3.00            1.70          1,064           1.38            2.05
                                        -------         ------                        -------         ------
Total Deposits                          $66,345         100.00%           5.26%       $76,883         100.00%           5.65%
                                        =======         ======                        =======         ======
</TABLE>


                                       19

<PAGE>

     The following  table sets forth the Company's  monthly  average balance and
interest rates of deposit accounts for the periods shown.

<TABLE>
<CAPTION>
                                                                  For the Year Ended December 31,
                                             ------------------------------------------------------------------------------
                                                             1998                                      1997
                                             ------------------------------------      ------------------------------------
                                                               Monthly Weighted                        Monthly Weighted
                                              Amount        Average Interest Rate      Amount        Average Interest Rate
                                             -------        ---------------------      -------       ----------------------
<S>                                          <C>                   <C>                 <C>                   <C>
Passbook Savings                             $ 2,096               3.38%               $ 2,682               4.14%
Money Market Accounts                          7,468               3.39                  8,662               3.23
IRA Accounts                                  11,691               6.48                 12,297               6.62
Certificates of
    deposits:
    Less than 1 year                           7,895               5.12                 10,485               5.31
    1 to 3 years                              30,953               5.79                 33,363               5.96
    More than 3 years                         10,094               6.47                 12,073               6.55
Checking & Other                               1,380               1.91                    765               2.05
                                             -------                                   ------
Total Deposits                               $71,577               5.53%               $80,327               5.67%
                                             =======                                   ======
</TABLE>

     The following  table sets forth the amounts and maturities of the Company's
time deposits at the dates indicated.

<TABLE>
<CAPTION>
                                                                                    December 31,
                                             ---------------------------------------------------------------------------------------
                                                 1999               2000               2001               2002              Total
                                             -----------        -----------        -----------        -----------        -----------
<S>                                          <C>                <C>                <C>                <C>                <C>
2.00 to 4.00%                                $   777,659        $         0        $         0        $         0        $   777,659
4.01 to 6.00%                                 32,221,592          6,211,001          2,916,053          2,945,208         44,293,854
6.01 to 8.00%                                  3,504,937          6,734,375              8,010            285,602         10,532,924
8.01 to 10.00%                                         0                  0                  0                  0                  0
10.01 to 12.00%                                        0                  0                  0                  0                  0
                                             -----------        -----------        -----------        -----------        -----------

Total                                        $36,504,188        $12,945,376        $ 2,924,063        $ 3,230,810        $55,604,437
                                             ===========        ===========        ===========        ===========        ===========
</TABLE>


                                       20

<PAGE>



     The following table indicates the amount of our  certificates of deposit of
$100,000 or more by time remaining until maturity as of December 31, 1998.


                                                     Amount
                                                 --------------
                                                 (In Thousands)

         3 months or less                           $ 3,180
         Over 3 months to 6 months                    2,267
         Over 6 months to 12 months                   3,348
         Over 12 months                               2,202
                                                    -------

         Total                                      $10,997
                                                    =======

     The  following  table  sets  forth net  changes  in the  Company's  deposit
accounts for the periods shown.


<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                               -------------------------------

                                                   1998               1997
                                               ------------       ------------
<S>                                            <C>                <C>
Net (decrease) before
  interest credited                            $(13,963,915)      $ (5,308,060)
Interest credited                                 3,425,710          3,782,468
                                               ------------       ------------
Net deposit account (decrease)                 $(10,538,205)      $ (1,525,592)
                                               ============       ============
Weighted average cost of deposits
    during the period                                  5.37%              5.60%
Weighted average cost of deposits at
    end of period                                      5.26%              5.65%
</TABLE>

     Borrowings.  The Company may obtain advances  (borrowings) from the FHLB of
Pittsburgh to supplement the Company's  supply of lendable funds.  Advances from
the FHLB of Pittsburgh are typically  secured by a pledge of the Company's stock
in the FHLB of Pittsburgh,  a portion of the Company's  first mortgage loans and
other assets.  Each FHLB credit program has its own interest rate,  which may be
fixed or adjustable,  and range of maturities.  If the need arises,  the Company
may also access the Federal  Reserve  Bank  discount  window to  supplement  the
Company's supply of lendable funds and to meet deposit withdrawal  requirements.
At December 31,  1998,  borrowings  from the FHLB of  Pittsburgh  totaled  $13.7
million.


                                       21

<PAGE>


     The  following  table  sets  forth  information  concerning  the  Company's
borrowings from the FHLB of Pittsburgh.



                                          At or For the Year Ended December 31,
                                          -------------------------------------

                                                1998               1997
                                             -----------        -----------
FHLB Advances:
  Average balance(1)                         $14,798,721        $23,162,560
  Maximum balance at any
    month-end                                 15,900,000         25,700,000
  Balance at period end                       13,742,153         17,400,000
  Weighted average interest rate
    during the period                               6.58%              6.32%
  Weighted average interest rate
    at period end                                   6.43%              6.53%

----------

(1)  The average  balance was computed using an average of daily balances during
     the year.

Competition

     Competition  for deposits  and loans comes from  commercial  banks,  thrift
institutions,  credit unions,  finance companies,  credits card banks,  mortgage
bankers and  multi-state  regional banks in the Company's  market area,  many of
whom have greater resources.  Competition for deposits also includes a number of
insurance  products sold by local agents and investment  products such as mutual
funds and other securities sold by local and regional brokers.

     The Company  operates  from a single  office and until  recent years relied
extensively  on the presence of employees of several  corporations  located near
its single office for deposit growth.  The Company's  convenience  enabled it to
attract and  maintain  funds that were  reasonably  priced.  The  relocation  of
corporate  offices and the  transfer of  employees  to  suburban  locations  has
manifested  itself in a decline in the number of  downtown  Wilmington  customer
relationships  and has required the Company to seek deposits from other parts of
New Castle  County.  The  Company  has been able to  maintain  its  position  in
mortgage  loan  originations  throughout  its  market  areas  by  virtue  of the
Company's  long-standing  presence in the community,  competitive  pricing,  and
referrals from existing customers.


                                       22

<PAGE>


Employees

     At December 31, 1998, the Company had 21 full-time  employees,  0 full-time
seasonal employees and 1 part-time employee. None of the Company's employees are
represented  by a collective  bargaining  group.  The Company  believes that its
relationship with its employees is good.

Subsidiaries

     At December 31, 1998, the Company had one wholly owned subsidiary, Delaware
First Bank, FSB.

                                   REGULATION

     Set forth  below is a brief  description  of certain  laws and  regulations
which together with the descriptions of laws and regulation  contained elsewhere
herein,  are deemed  material to an  investor's  understanding  of the extent to
which the Company and the Savings Bank are regulated.  The  description of these
laws and regulations,  as well as descriptions of laws and regulations contained
elsewhere  herein,  do not  purport  to be  complete  and are  qualified  in its
entirety by reference to applicable laws and regulations.

Savings and Loan Holding Company Regulation

     General.  The Company has registered as a savings and loan holding  company
with the OTS and is  subject  to  regulation  and  examination  by the  OTS.  In
addition, the OTS has enforcement authority over the Company and any non-savings
institution subsidiaries. This allows the OTS to restrict or prohibit activities
that it  determines  to be a serious risk to the  Company.  This  regulation  is
intended  primarily for the  protection of the Company's  depositors and not for
the benefit of stockholders of the Company.

     QTL Test.  Since the Company  owns one savings  institution,  it is able to
diversify its operations  into  activities  not related to banking,  but only so
long as it satisfies  the qualified  thrift lender  ("QTL") test. If the Company
controls  more  than one  savings  institution,  it would  lose the  ability  to
diversify its operations into non-banking related activities,  unless such other
savings institutions each also qualify as a QTL or were acquired in a supervised
acquisition.

     Restrictions on Acquisitions. The Company must obtain approval from the OTS
before  acquiring  control of any other  SAIF-insured  savings  institution.  No
person may acquire control of a federally  insured savings  institution  without
providing  at least 60 days  written  notice  to the OTS and  giving  the OTS an
opportunity to disapprove the proposed acquisition.


                                       23

<PAGE>


Savings Bank Regulation

     General. As a federally  chartered,  SAIF-insured savings bank, the Savings
Bank is subject to  extensive  regulation  by the OTS and the FDIC.  The Savings
Bank's lending activities and other investments must comply with various federal
and state  statutory  and  regulatory  requirements.  The  Savings  Bank is also
subject to certain reserve requirements promulgated by the FRB.

     The OTS, in conjunction with the FDIC,  regularly examines the Savings Bank
and  prepares  reports  for the  consideration  of the Savings  Bank's  Board of
Directors  on  any  deficiencies  that  the  OTS  finds  in the  Savings  Bank's
operations. The Savings Bank's relationship with its depositors and borrowers is
also  regulated to a great extent by federal and state law,  especially  in such
matters as the  ownership  of savings  accounts  and the form and content of its
mortgage documents.

     The Savings Bank must file reports with the OTS and the FDIC concerning the
Savings  Bank's  activities  and financial  condition,  in addition to obtaining
regulatory approvals prior to entering into certain transactions such as mergers
with or  acquisitions  of other  financial  institutions.  This  regulation  and
supervision  establishes  a  comprehensive  framework of  activities in which an
institution can engage and is intended  primarily for the protection of the SAIF
and depositors.  The regulatory structure also gives the regulatory  authorities
extensive  discretion  in  connection  with their  supervisory  and  enforcement
activities  and  examination  policies,  including  policies with respect to the
classification  of assets and the  establishment  of adequate loan loss reserves
for regulatory purposes. Any change in regulations, whether by the OTS, the FDIC
or any other  government  agency,  could have a material  adverse  impact on our
operations.

     Insurance of Deposit Accounts. The FDIC is authorized to establish separate
annual  assessment rates for deposit insurance for members of the Bank Insurance
Fund  ("BIF") and the SAIF.  The FDIC may increase  assessment  rates for either
fund if necessary to restore the fund's ratio of reserves to insured deposits to
its target level within a reasonable time and may decrease such assessment rates
if such target level is met. The FDIC has  established  a risk-based  assessment
system for both SAIF and BIF  members.  Under this system,  assessments  are set
within a range, based on the risk the institution poses to its deposit insurance
fund. This risk level is determined based on the institution's capital level and
the FDIC's level of supervisory concern about the institution.

     Effective  January 1, 1997,  the premium  schedule for BIF and SAIF insured
institutions  ranges  from  0  to  27  basis  points.   However,   SAIF  insured
institutions are required to pay a Financing Corporation assessment, in order to
fund the interest on bonds issued to resolve thrift failures in the 1980s, equal
to  approximately 6 basis points for each $100 in domestic  deposits,  while BIF
insured  institutions pay an assessment equal to approximately 1 basis point for
each $100 in domestic deposits. The SAIF assessment is expected to be reduced to
about  2  basis  points  no  later  than  January  1,  2000,  when  BIF  insured
institutions fully participate in the assessment.  These assessments,  which may
be revised based upon the level of BIF and SAIF deposits will continue until the
bonds mature in the year 2017.


                                       24

<PAGE>


     Regulatory Capital  Requirements.  OTS capital  regulations require savings
institutions to meet three capital standards: (1) tangible capital equal to 1.5%
of  total  adjusted  assets,  (2)  core  capital  equal  to at least 3% of total
adjusted assets, and (3) risk-based  capital equal to 8% of total  risk-weighted
assets.

     Tangible  capital is defined as core  capital  less all  intangible  assets
(including  supervisory  goodwill),  less certain mortgage  servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including  retained  earnings),  noncumulative  perpetual  preferred  stock and
minority interests in the equity accounts of consolidated subsidiaries,  certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill,  less nonqualifying  intangible assets, certain
mortgage servicing rights and certain investments.

     The  risk-based  capital  standard  for savings  institutions  requires the
maintenance of total  risk-based  capital (which is defined as core capital plus
supplementary  capital)  of  8%  of  risk-weighted  assets.  The  components  of
supplementary capital include, among other items, cumulative perpetual preferred
stock,  perpetual  subordinated debt, mandatory  convertible  subordinated debt,
intermediate-term  preferred  stock,  and the portion of the  allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease  losses  includable  in  supplementary  capital  is  limited to a
maximum of 1.25% of  risk-weighted  assets.  Overall,  supplementary  capital is
limited  to 100% of core  capital.  A savings  association  must  calculate  its
risk-weighted  assets by multiplying  each asset and  off-balance  sheet item by
various risk factors as determined  by the OTS,  which range from 0% for cash to
100% for delinquent  loans,  property acquired through  foreclosure,  commercial
loans, and other assets.

     At December 31, 1998,  the Savings Bank exceeded its  applicable  tangible,
core and risk-based capital requirements.

     Dividend  and  Other  Capital  Distribution  Limitations.  OTS  regulations
require the Savings Bank to give the OTS 30 days advance  notice of any proposed
declaration  of dividends to the Company.  The OTS has the  authority  under its
supervisory  powers to prohibit  the payment of dividends by the Savings Bank to
the  Company.  In  addition,  the  Savings  Bank may not  declare  or pay a cash
dividend on its capital  stock if the effect  would be to reduce its  regulatory
capital below the amount required for the liquidation account established at the
time of the Conversion.

     Qualified Thrift Lender Test. In general, savings associations are required
to maintain at least 65% of their portfolio  assets in certain  qualified thrift
investments  (which consist primarily of loans and other investments  related to
residential  real estate and certain other assets).  A savings  association that
fails the qualified thrift lender test is subject to substantial restrictions on
activities and to other significant penalties. A savings association may qualify
as a qualified  thrift lender not only by maintaining 65% of portfolio assets in
qualified thrift  investments but also, in the alternative,  by qualifying under
the Code as a "domestic  building and loan  association."  The Savings Bank is a
domestic  building and loan  association as defined in the Code. At December 31,
1998, under the

                                       25

<PAGE>


expanded QTL test,  approximately  98.6% of the Savings Bank's  portfolio assets
were qualified thrift investments.

     Transactions With Affiliates.  Generally, restrictions on transactions with
affiliates  require  that  transactions  between  a savings  institution  or its
subsidiaries  and  its  affiliates  be on  terms  as  favorable  to the  savings
institution as comparable transactions with non-affiliates. In addition, certain
of these  transactions are restricted to an aggregate  percentage of the savings
institution's  capital or are  prohibited  altogether.  Collateral  in specified
amounts must usually be provided by  affiliates  in order to receive  loans from
the savings  institution.  The Savings Bank's affiliates include the Company and
any company  which would be under  common  control  with the  Savings  Bank.  In
addition,  a savings  institution may not extend credit to any affiliate engaged
in  activities  not  permissible  for a bank  holding  company  or  acquire  the
securities of any affiliate that is not a subsidiary. The OTS has the discretion
to treat  subsidiaries  of savings  institution  as affiliates on a case-by-case
basis.

     Liquidity  Requirements.  All savings institutions are required to maintain
an average daily  balance of liquid assets equal to a certain  percentage of the
sum of its  average  daily  balance of net  withdrawable  deposit  accounts  and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings  institutions.  At December  31, 1998,  the Savings  Bank's
required  liquid asset ratio was 5.0% and its actual  ratio was 11.9%.  Monetary
penalties  may  be  imposed  upon   associations  for  violations  of  liquidity
requirements.

     Federal Home Loan Bank System.  The Savings Bank is a member of the FHLB of
Pittsburgh,  which is one of 12 regional FHLBs. Each FHLB serves as a reserve or
central bank for its members within its assigned region.  It is funded primarily
from funds deposited by savings  institutions and proceeds derived from the sale
of consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the Board of
Directors of the FHLB.

     As a member, the Savings Bank is required to purchase and maintain stock in
the FHLB of Pittsburgh  in an amount equal to at least 1% of the Savings  Bank's
aggregate unpaid residential  mortgage loans, home purchase contracts or similar
obligations  at the  beginning of each year or 5% of its advances from the FHLB,
whichever is greater.  At December 31, 1998,  the Savings Bank held  $975,000 in
FHLB stock,  at cost,  which was in compliance with this  requirement.  The FHLB
imposes  various  limitations on advances such as limiting the amount of certain
types  of real  estate  related  collateral  to 30% of a  member's  capital  and
limiting total advances to a member.

     The FHLBs are  required  to provide  funds for the  resolution  of troubled
savings  institutions  and to contribute to affordable  housing programs through
direct loans or interest subsidies on advances targeted for community investment
and  low-  and  moderate-income  housing  projects.   These  contributions  have
adversely  affected the level of FHLB dividends paid and could continue to do so
in the future.


                                       26

<PAGE>


     Federal Reserve System.  The Federal Reserve System requires all depository
institutions  to maintain  non-interest  bearing  reserves at  specified  levels
against  their  transaction  accounts  (primarily  checking,  NOW and  Super NOW
checking  accounts) and non-personal time deposits.  The balances  maintained to
meet the reserve  requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity  requirements  that are imposed by the OTS. At December
31,  1998,  the Savings  Bank's  reserve met the minimum  level  required by the
Federal Reserve System.

     Savings  institutions  have  authority  to borrow from the Federal  Reserve
System "discount  window," but Federal Reserve System policy generally  requires
savings  institutions  to exhaust all other sources  before  borrowing  from the
Federal  Reserve  System.  The Savings Bank had no  borrowings  from the Federal
Reserve System at December 31, 1998.

                                    TAXATION

Federal Taxation

     The  Company  and the Savings  Bank are  subject to the  provisions  of the
Internal  Revenue  Code of 1986,  as amended (the  "Code"),  in the same general
manner  as  other  corporations.   Prior  to  August  1996,   however,   savings
institutions such as the Savings Bank, which met certain  definitional tests and
other conditions  prescribed by the Code,  could benefit from certain  favorable
provisions  regarding deductions from taxable income for annual additions to bad
debt reserve.  The amount of the bad debt  deduction  that a qualifying  savings
institution  could claim with  respect to additions to its reserve for bad debts
was subject to certain limitations. The Savings Bank reviewed the most favorable
way to  calculate  the  deduction  attributable  to an  addition to its bad debt
reserve on an annual basis.

     In August  1996,  the Code was revised to equalize  the taxation of thrifts
and banks.  Thrifts no longer have a choice  between the  percentage  of taxable
income method and the  experience  method in  determining  additions to bad debt
reserves.  Thrifts  with  $500  million  of  assets  or less may  still  use the
experience method, which is generally available to small banks currently. Larger
thrifts must use the specific charge off method regarding bad debts. Any reserve
amounts added after 1987 will be taxed over a six year period beginning in 1996;
however,  bad debt reserves set aside  through 1987 are  generally not taxed.  A
savings  institution  may delay  recapturing  into income its post-1987 bad debt
reserves for an  additional  two years if it meets a  residential-lending  test.
This law is not  expected  to have a material  impact on the  Savings  Bank.  At
December  31,  1998 the  Savings  Bank had  approximately  $220,000 of post 1987
bad-debt reserves.

     Under the  percentage  of taxable  income  method,  the bad debt  deduction
attributable to "qualifying real property loans" could not exceed the greater of
(i) the amount deductible under the experience method, or (ii) the amount which,
when added to the bad debt  deduction  for  non-qualifying  loans,  equaled  the
amount by which 12% of the sum of the total deposits and the advance payments by
borrowers  for taxes and  insurance at the end of the taxable year  exceeded the
sum of the  surplus,  undivided  profits and  reserves at the  beginning  of the
taxable year. The amount of the

                                       27

<PAGE>


bad debt deduction attributable to qualifying real property loans computed using
the  percentage of taxable  income method was permitted  only to the extent that
the  institution's  reserve for losses on qualifying  real property loans at the
close of the taxable  year did not exceed 6% of such loans  outstanding  at such
time.

     Under the experience  method,  the bad debt deduction may be based on (i) a
six-year moving average of actual losses on qualifying and non-qualifying loans,
or (ii) a fill-up to the  institution's  base year reserve amount,  which is the
tax bad debt reserve determined as of December 31, 1987.

     The  percentage  of  specially  computed  taxable  income  that was used to
compute a savings  institution's bad debt reserve deduction under the percentage
of taxable income method (the  "percentage  bad debt  deduction")  was 8% at the
time the Code was revised.  The  percentage of taxable income bad debt deduction
thus  computed  was  reduced  by  the  amount   permitted  as  a  deduction  for
non-qualifying  loans  under the  experience  method.  The  availability  of the
percentage of taxable income method permitted qualifying savings institutions to
be taxed at a lower  effective  federal income tax rate than that  applicable to
corporations generally  (approximately 31.3% assuming the maximum percentage bad
debt deduction).

     If a savings institution's  qualifying assets (generally,  loans secured by
residential  real  estate  or  deposits,  educational  loans,  cash and  certain
government  obligations)  constitute  less  than 60% of its  total  assets,  the
institution may not deduct any addition to a bad debt reserve and generally must
include  existing  reserves  in  income  over  a  specified  period,   which  is
immediately accruable for financial reporting purposes. As of December 31, 1998,
at least 60% of the Savings Bank's assets were  qualifying  assets as defined in
the Code. No assurance can be given that the Savings Bank will meet the 60% test
for subsequent taxable years.

     Earnings  appropriated  to the Savings Bank's pre-1988 bad debt reserve and
claimed as a tax deduction as well as its supplemental  reserves for losses will
not be available for the payment of cash  dividends or for  distribution  to the
Savings  Bank's  stockholders  (including  distributions  made on dissolution or
liquidation),  unless the Savings Bank includes the amount in income, along with
the amount  deemed  necessary  to pay the  resulting  federal  income tax. As of
December 31, 1998,  the Savings Bank had $1.3 million of  accumulated  earnings,
representing its base year tax reserve,  for which federal income taxes have not
been  provided.  If such  amount  is used for any  purpose  other  than bad debt
losses,  including a dividend distribution or a distribution in liquidation,  it
will be subject to federal income tax at the then current rate.

     The Code  imposes a tax  ("AMT")  on  alternative  minimum  taxable  income
("AMTI") at a rate of 20%. Only 90% of AMTI can be offset by net operating  loss
carryovers of which the Company and the Savings Bank currently has none. AMTI is
also adjusted by determining the tax treatment of certain items in a manner that
negates the deferral of income resulting from the regular tax treatment of those
items.  Thus, the Savings Bank's or the Company's AMTI is increased by an amount
equal to 75% of the amount by which its adjusted  current  earnings  exceeds its
AMTI  (determined  without regard to this  adjustment and prior to reduction for
net operating losses).


                                       28

<PAGE>


     The Company may exclude from its income 100% of dividends received from the
Savings Bank as a member of the same  affiliated  group of  corporations.  A 70%
dividends  received  deduction  generally  applies  with  respect  to  dividends
received from corporations that are not members of such affiliated group, except
that an 80% dividends  received  deduction applies if the Company owns more than
20% of the  stock  of a  corporation  paying a  dividend.  The  above  exclusion
amounts,  with the exception of the  affiliated  group  figure,  were reduced in
years in which the Savings  Bank  availed  itself of the  percentage  of taxable
income bad debt deduction method.

     The Savings  Bank's federal income tax returns have not been audited by the
IRS for at least the last five years.

Delaware State Taxation

     The State of Delaware imposes a franchise tax on financial  institutions of
8.7%  of  taxable  income.  Taxable  income,  for  this  purpose,  is 56% of net
operating income after adjustments. These taxes have not been a material expense
for the Savings Bank.

     As a Delaware  holding company  earning income in Delaware,  the Company is
required to file an annual  report with and pay an annual  franchise  tax to the
State of  Delaware.  Minimum tax is  generally  equal to $5,000 for each 100,000
shares of  authorized  capital  stock  regardless of whether such stock has been
issued.


                                       29

<PAGE>


Item 2. Properties

     The  following  table sets forth our  location and related  information  at
December 31, 1998.


<TABLE>
<CAPTION>
                                                                                                  Net Book Value at
    Location                                       Leased or Owned          Year Acquired       December 31, 1998 (1)

<S>                                                     <C>                     <C>                   <C>
MAIN OFFICE:
400 Delaware Avenue
Wilmington, Delaware  19801                             Owned                   1953                  $1,844,698
</TABLE>

----------
(1)  Net book value is calculated  by totaling the  estimated  value of land and
     buildings,  $2,344,384,  and then subtracting  accumulated  depreciation of
     $499,686.

Item 3. Legal Proceedings

     The Company is, from time to time, a party to legal proceedings  arising in
the ordinary course of its business,  including legal proceedings to enforce its
rights  against  borrowers.  The  Company is not  currently a party to any legal
proceedings  which  are  expected  to  have a  material  adverse  effect  on its
financial condition or results of operations.

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

     None

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters

     Shares of the  Company's  Common  Stock are traded on the  over-the-counter
market  under the symbol  "DFFN,"  with  quotations  available  through  the OTC
Bulletin  Board  operated  by the  NASDAQ.  At March 25,  1999,  the Company had
approximately  229  stockholders  of record.  Such  holdings  do not reflect the
number of beneficial owners of Common Stock. The Company issued its common stock
at $10.00 per share in its initial public offering on December 31, 1997.

     The Company's Board of Directors has the authority to declare  dividends on
the shares,  subject to statutory and regulatory  requirements.  The Company has
not declared or paid any cash

                                       30

<PAGE>


dividends on its Common Stock. Generally, declarations of dividends by the Board
of Directors  depends upon a number of factors,  including,  but not limited to:
(i) the amount of the net  proceeds  retained by the Company in the  Conversion,
(ii)  investment  opportunities  available,  (iii)  capital  requirements,  (iv)
regulatory limitations,  (v) results of operations and financial condition, (vi)
tax considerations,  and (vii) general economic conditions.  Upon review of such
considerations, the board may authorize dividends in the future if it deems such
payment appropriate and in compliance with applicable law and regulation.  For a
period of one year following the completion of the Conversion,  the Company will
not pay dividends that would be treated for tax purposes as a return of capital,
nor take any actions to pursue or propose such dividends.

     The Company is not subject to OTS regulatory restrictions on the payment of
dividends to its  stockholders,  although the source of such  dividends  will be
dependent  in part upon the  receipt of  dividends  from the Savings  Bank.  The
Savings Bank, like all financial  institutions  regulated by the OTS, is subject
to certain restrictions on the payment of dividends based on its net income, its
capital in excess of regulatory  capital  requirements and the amount of capital
required for the  liquidation  account  required to be established in connection
with the Conversion.  The Company is subject,  however,  to the  requirements of
Delaware  law,  which  generally  limit the payment of dividends to amounts that
will not  affect  the  ability  of the  Company,  after  the  dividend  has been
distributed, to pay its debts in the ordinary course of business.

     During the periods  indicated  the high and low sale price of the Company's
stock was:

For the quarter ended                                High              Low
---------------------------                         ------            ------

March 31, 1998                                      $14.13            $12.50
June 30, 1998                                        15.25             12.38
September 30, 1998                                   12.62              8.69
December 31, 1998                                    14.38              8.25

Item 6. Management's  Discussion and Analysis of Financial Condition and Results
        of Operation

     Management's  discussion and analysis of financial condition and results of
operations is intended to assist in  understanding  the  consolidated  financial
condition and results of operations of the Company. The following discussion and
analysis of financial  condition and results of operations of the Company should
be read in conjunction with the Company's  consolidated financial statements and
the notes thereto found in "Item 7. Financial Statements" below.

General

     The  Company's  results of  operations  depend  primarily  on net  interest
income,  which is  determined  by (i) the  difference  between rates of interest
earned  on   interest-earning   assets  and  the  rates  of  interest   paid  on
interest-bearing liabilities ("interest rate spread"), and (ii) the relative

                                       31

<PAGE>


amounts  of  interest-earning  assets  and  interest-bearing   liabilities.  The
Company's  results of operations also are affected by (i)  non-interest  income,
which  includes  income from customer  deposit  account  service  charges,  loan
servicing fee income,  gains and losses from the sale of loans,  investments and
mortgage-backed   securities  and  (ii)  non-interest  expense,  which  includes
compensation and employee benefits,  federal deposit insurance premiums,  office
occupancy  costs,  advertising  costs and data processing  costs.  The Company's
results of operations also are affected  significantly  by general  economic and
competitive   conditions,   particularly   changes  in  market  interest  rates,
government  policies  and actions of  regulatory  authorities,  all of which are
beyond the Company's control.

     The Savings Bank currently is operating under a Supervisory  Agreement with
the OTS which requires the Savings Bank to take certain actions,  including, but
not limited to,  addressing the Savings Bank's  interest rate risk profile.  The
Supervisory Agreement will remain in place until terminated by the OTS.

Asset/Liability Management

     The  Company's  assets and  liabilities  may be analyzed by  examining  the
extent to which its assets and  liabilities  are interest rate  sensitive and by
evaluating  the expected  effects of interest  rate changes on its net portfolio
value.  The  ability  to  maintain  consistent  net  interest  income is largely
dependent upon the  achievement  of a positive  interest rate spread that can be
sustained  during  fluctuations  in  prevailing  interest  rates.  Interest rate
sensitivity is a measure of the difference  between amounts of  interest-earning
assets and  interest-bearing  liabilities that either reprice or mature within a
given period of time.

     Thus,  an asset or liability is interest rate  sensitive  within a specific
time  period if it will  mature or  reprice  within  that  time  period.  If the
Company's  assets mature or reprice more quickly or to a greater extent than its
liabilities,  the Company's net  portfolio  value and net interest  income would
tend to increase  during periods of rising  interest  rates but decrease  during
periods of falling interest rates. Conversely, if the Company's assets mature or
reprice more slowly or to a lesser  extent than its  liabilities,  the Company's
net  portfolio  value and net  interest  income  would tend to  decrease  during
periods of rising interest rates but increase during periods of falling interest
rates. The difference or interest rate repricing "Gap" provides an indication of
the extent to which an  institution's  interest  rate spread will be affected by
changes in  interest  rates.  A Gap is  considered  positive  when the amount of
interest  rate  sensitive  assets  maturing or  repricing  within a given period
exceeds the amount of interest rate sensitive  liabilities maturing or repricing
within  such  period.   A  Gap  is  considered   negative  when  the  amount  of
interest-bearing liabilities repricing or maturing within a given period exceeds
the amount of interest rate sensitive  assets  repricing or maturing within such
period.

     The Company's lending  activities  historically  have emphasized  long-term
fixed rate mortgage loans secured by one-to-four family residences.  At December
31, 1998, 77.8% of all of the Company's loans were of this type. Conversely, the
Company's  deposit  accounts  mature  or  are  subject  to  repricing  within  a
relatively short period of time. These factors historically have caused

                                       32

<PAGE>


the income earned by the Company on its loan  portfolio to adjust more slowly to
changes in interest rates than the interest the Company pays on its deposits.

     In recent years the Company has sought to manage its interest  rate risk by
selling  portions  of its fixed  rate  loans to the FHLMC or  another  financial
institution (while retaining the servicing of those loans). The Company has also
sought to  manage  interest  rate  risk by  lengthening  the  maturities  of its
certificates  of deposit and through  longer  term  borrowings  from the FHLB of
Pittsburgh.   This  imbalance,   however,   between  the  Company's  assets  and
liabilities  has  caused  it to  remain  susceptible  to  significant  levels of
interest rate risk.

     The  Savings  Bank's  Supervisory  Agreement  with the OTS  identifies  the
Savings Bank's  interest rate risk level as  unacceptably  high and requires the
Savings Bank to develop and pursue strategies to reduce  interest-rate risk. The
strategies   considered   include  adjustment  of  FHLB  advances  by  replacing
short-term  variable  advances  with the  proceeds of longer  termed  fixed rate
advances.  The Savings Bank has also sold fixed rate loans to the FHLMC in order
to help manage its interest-rate  risk. The proceeds of these sales were used to
either  acquire  short  term  variable  rate  assets or to repay  short  term or
variable rate borrowings.

     On June 26, 1997,  the Savings Bank  adopted a revised  interest  rate risk
policy and also took certain  actions to implement  this policy,  including loan
sales and  lengthening the maturities of some FHLB  borrowings.  In implementing
these  strategies,  the Savings Bank will attempt to balance the need to improve
its  interest  rate risk  against  the impact  such  restructuring  will have on
profitability.  The Savings Bank has also  significantly  increased  its capital
position  through a mutual to stock  conversion.  This  additional  capital  has
mitigated the severity of the Savings Bank's  interest rate  position,  and also
increased  the  percentage  of interest  earning  assets to  interest  sensitive
liabilities.

     The following  table,  often referred to as a "Gap Table," sets forth asset
and  liability  balances at December  31, 1998 which are  expected to reprice or
mature in each of the future periods indicated.  Loans with adjustable rates are
shown as being  due in the next  adjustment  period.  Passbook  accounts,  money
market  deposit  accounts  and NOW  accounts  are not  assumed  to be subject to
immediate  repricing and are placed in repricing  periods based upon assumptions
prepared by management.


                                       33

<PAGE>


<TABLE>
<CAPTION>
                                                                   More than 1        More than 2         More than 3 
                                                 Less than 1    Month through 2    Months through 3    Months through 6
                                                    Month            Months             Months              Months
                                                 ------------   ----------------   -----------------   -----------------
                                                                                                (Dollars in thousands)
<S>                                                <C>               <C>                <C>                <C>
Interest-Earning Assets
  Cash and Interest Earning Deposits                $8,066                $0                 $0                 $0
  Investments                                            0                 0                  0                  0
  FHLB Stock                                             0                 0                975                  0
  Equity Loans/Lines                                 2,556                 0                  6                  8
  Collateral Loans                                     631                 0                  0                  0
  Mortgage-Backed Securities                         2,871                71                  0                  0
  Small Business Loans                                 775                 0                  0                  0
  Adjustable Rate Mortgages                            578               303                670              1,202
  Balloon Mortgages(1)                                  40                40                 40                120
  Fixed Rate Mortgages(2)                              786               786                786              2,363
                                                  --------          --------           --------           --------
   Total Interest-Earning Assets                   $16,303            $1,200             $2,477             $3,693
                                                  ========          ========           ========           ========
Interest-bearing liabilities
  Passbook Accounts(3)                                  25                25                 25                 75
  Checking Accounts(4)                                   0                 0                  0                  0
  Money Market Deposit Accounts(5)                     511               511                511              1,078
  Fixed Rate Fixed Term Deposits                     3,757             3,967              4,435              8,649
  FHLB Advances - Fixed Rate and Term                    0               500                  0              2,300
  Escrow Deposits                                       25                25                 25                 25
                                                  --------          --------           --------           --------
   Total Interest-Bearing Liabilities               $4,318            $5,028             $4,996            $12,127
                                                  ========          ========           ========           ========
Excess (Deficiency) of Interest-Earning Assets
   over Interest-Bearing Liabilities               $11,985           $(3,828)           $(2,519)           $(8,434)
                                                  ========          ========           ========           ========
Cumulative Excess (Deficiency) of Interest-
   Earning Assets Over Interest-Bearing
   Liabilities  at December 31, 1998               $11,985            $8,157             $5,638            $(2,796)
                                                  ========          ========           ========           ========
Cumulative Excess (Deficiency) of Interest-
   Earning Assets Over Interest-Bearing
   Liabilities as a Percent of Total Assets at
   December 31, 1998                                 12.40%             8.44%              5.83%             (2.89)%
                                                  ========          ========           ========           ========
Cumulative Excess (Deficiency) of Interest-
   Earning Assets over Interest-Bearing
   Liabilities as a  percent of Total Interest-
   Earning Assets                                    12.81%             8.72%              6.02%             (2.99)%
                                                  ========          ========           ========           ========
Cumulative Excess (Deficiency) of Interest-
   Earning  Assets over Interest-Bearing
   Liabilities as a  percent of Cumulative
   Interest-Bearing Liabilities                     277.56%            87.28%             39.31%            (10.56)%
                                                  ========          ========           ========           ========

<CAPTION>
                                                     More than 6        More than 1 
                                                    Months through    Year through 3      More than 3 
                                                        1 year             Years             Years
                                                    --------------    ---------------     ------------

<S>                                                   <C>                <C>                 <C>
Interest-Earning Assets
  Cash and Interest Earning Deposits                        $0                 $0                 $0
  Investments                                                0                  0                  0
  FHLB Stock                                                 0                  0                  0
  Equity Loans/Lines                                       138              1,153              6,248
  Collateral Loans                                           0                  0                  0
  Mortgage-Backed Securities                                 0                  0                  0
  Small Business Loans                                       0                  0                  0
  Adjustable Rate Mortgages                              4,017              1,042                  0
  Balloon Mortgages(1)                                     240              1,568                561
  Fixed Rate Mortgages(2)                                4,720             18,880             32,113
                                                      --------           --------           --------
   Total Interest-Earning Assets                        $9,115            $22,643            $38,922
                                                      ========           ========           ========
Interest-bearing liabilities
  Passbook Accounts(3)                                     150                300              2,395
  Checking Accounts(4)                                       0                  0              2,071
  Money Market Deposit Accounts(5)                         341              1,362              1,362
  Fixed Rate Fixed Term Deposits                        15,695             15,761              3,339
  FHLB Advances - Fixed Rate and Term                    4,200              4,700              2,042
  Escrow Deposits                                          574                  0                  0
                                                      --------           --------           --------
   Total Interest-Bearing Liabilities                  $20,960            $22,123            $11,209
                                                      ========           ========           ========
Excess (Deficiency) of Interest-Earning Assets
   over Interest-Bearing Liabilities                  $(11,845)              $520            $27,713
                                                      ========           ========           ========
Cumulative Excess (Deficiency) of Interest-
   Earning Assets Over Interest-Bearing
   Liabilities  at December 31, 1998                  $(14,641)          $(14,121)           $13,592
                                                      ========           ========           ========
Cumulative Excess (Deficiency) of Interest-
   Earning Assets Over Interest-Bearing
   Liabilities as a Percent of Total Assets at
   December 31, 1998                                    (15.14)%           (14.61)%            14.06%
                                                      ========           ========           ========
Cumulative Excess (Deficiency) of Interest-
   Earning Assets over Interest-Bearing
   Liabilities as a  percent of Total Interest-
   Earning Assets                                       (15.65)%           (15.09)%            14.52%
                                                      ========           ========           ========
Cumulative Excess (Deficiency) of Interest-
   Earning  Assets over Interest-Bearing
   Liabilities as a  percent of Cumulative
   Interest-Bearing Liabilities                         (30.87)%           (20.30)%            16.83%
                                                      ========           ========           ========
</TABLE>

                                       34

<PAGE>

----------


(1)  24% annual prepayment rate is based on assumptions provided by the OTS.

(2)  16% annual  prepayment rate for 30 year loans and 8% annual prepayment rate
     for 15 year loans is based on assumptions provided by the OTS.

(3)  Repricing  rate is  estimated  at 10% for year  one,  10% for  one-to-three
     years, and 80% for more than three years.

(4)  Repricing rate is estimated at 100% for more than three years.

(5)  Repricing is based on the  assumption  that  approximately  40% of accounts
     with balances  greater than $10,000 to reprice evenly over six months.  The
     remainder of accounts, assumed to be core deposits, reprice evenly over all
     time periods.

Interest Rate Sensitivity Analysis

     The Company has measured its interest  rate  sensitivity  by computing  the
"Gap"  between  the assets and  liabilities  which  were  expected  to mature or
reprice  within  certain  time  periods,  based on  assumptions  regarding  loan
prepayment and deposit  repricing  provided by the OTS and  management.  The OTS
requires the computation of the net present value of an institution's  cash flow
from assets,  liabilities  and off balance  sheet items (the  institution's  net
portfolio value or "NPV") and measures the change in NPV in the event of a range
of assumed  changes in market interest  rates.  The OTS, at its discretion,  may
impose  additional  capital  requirements to institutions  that it considers has
significant  interest rate risk. This requirement would be based on factors such
as, but not limited to, interest rate sensitivity, the total capital position of
the institution, and other risk factors associated with the institution.

     Qualitative Risk Analysis.  The OTS measures an institution's interest rate
risk by the  change in its NPV as a result  of a  hypothetical  200 basis  point
("bp") change in market rates.  The following  table estimates the effect on the
Savings Bank's NPV from  instantaneous  and permanent 1% to 4% (100 to 400 basis
points)  increases and decreases in market interest  rates.  The following table
presents  the  Savings  Bank's NPV at  December  31,  1998,  which is based upon
quarterly  information  that the Savings  Bank  provides to the OTS and which is
calculated for the Savings Bank by the OTS.

                                       35

<PAGE>


<TABLE>
<CAPTION>
                           Net Portfolio Value at December 31, 1998                        NPV as % of PV of Assets
                           ----------------------------------------                     -----------------------------

  Change in Rates          $ Amount             $ Change            % Change             NPV Ratio             Change
  ---------------          --------             --------            --------             ---------             ------
                                                      (Dollars in thousands)

<S>                        <C>                 <C>                     <C>                <C>                 <C>
  +400 bp                  $7,378              $(7,372)                (49)%               8.67%               (6.53)%
  +300 bp                   9,734               (5,375)                (36)               10.59                (4.61)
  +200 bp                  11,767               (3,343)                (22)               12.44                (2.76)
  +100 bp                  13,670               (1,439)                (10)               14.06                (1.14)
     0 bp                  15,110                    0                   0                15.20
  -100 bp                  15,683                  574                   4                15.57                 3.70
  -200 bp                  15,831                  721                   5                15.57                 3.70
  -300 bp                  16,161                1,052                   7                15.71                 5.10
  -400 bp                  16,384                1,275                   8                15.76                 5.60
</TABLE>

     Qualitative Risk Analysis. While the Company cannot predict future interest
rates or their  effects on its "Gap," NPV or net  interest  income,  the Company
does not expect current  interest rates to have a material adverse effect on its
NPV or net  interest  income in the near  future.  Computations  of  prospective
effects of hypothetical interest rate changes are based on numerous assumptions,
including  relative  levels of market  interest  rates,  prepayments and deposit
run-offs and should not be relied upon as indicative of actual results.  Certain
shortcomings  are inherent in such  computations.  Although  certain  assets and
liabilities may have similar maturity or periods of repricing, they may react at
different  times and in  different  degrees to  changes  in the market  interest
rates.  The  interest  rates on  certain  types of assets  and  liabilities  may
fluctuate in advance of changes in market interest  rates,  while rates on other
types of assets and liabilities may lag behind changes in market interest rates.
Certain assets, such as adjustable rate mortgages, generally have features which
restrict  changes in interest  rates on a short-term  basis and over the life of
the asset.  In the event of a change in interest  rates,  prepayments  and early
withdrawal  levels  could  deviate  significantly  from those  assumed in making
calculations set forth above. Additionally,  increased credit risk may result as
the ability of many borrowers to service their debt may decrease in the event of
an interest rate increase.

     Interest Risk Analysis and  Monitoring.  The Savings Bank has established a
Funds  Management  Committee  which is currently  comprised of one  non-employee
director,  Thomas  L.  Cloud,  Chairman,  as well as the  Savings  Bank's  Chief
Executive  Officer,  Ernest J. Peoples.  This committee meets  periodically  and
reviews the maturity of the Savings Bank's assets and  liabilities and discusses
and recommends  policies and  strategies  designed to regulate its flow of funds
and to  coordinate  the  sources,  uses and  pricing  of such  funds.  The first
priority in structuring and pricing of the Savings Bank's assets and liabilities
is to maintain an acceptable interest rate spread while reducing the net effects
of changes in interest rates.

                                       36

<PAGE>


     The Board of Directors  also reviews the Savings Bank's asset and liability
policies.  The Board of Directors meets monthly to review interest rate risk and
interest rate trends,  as well as liquidity and capital ratios and requirements.
Management  administers the policy and  determinations of the Board of Directors
with respect to the Savings Bank's asset and liability goals and strategies. The
Savings Bank expects that its asset and  liability  policy and  strategies  will
continue as described so long as competitive  and  regulatory  conditions in the
financial  institution  industry and market interest rates continue as they have
in recent years.

Analysis of Net Interest Income

     The  Company's  earnings  historically  have depended upon its net interest
income,  which is the  difference  between  interest  income earned on loans and
investments  (the  "interest-earning  assets") and interest paid on deposits and
any  borrowed  funds  (the  "interest-bearing  liabilities").  It is the  single
largest component of the Company's operating income.

     The  following  tables  present  an  analysis  of  certain  aspects  of the
Company's operations during the periods indicated.  The first table presents the
average  balances of and the interest and dividends earned or paid on each major
class of the Company's interest-earning assets and interest-bearing liabilities.
Average balances are daily average  balances.  The yields and costs include fees
which are considered adjustments to yields.


                                       37

<PAGE>







<TABLE>
<CAPTION>
                                                                                         For the Year ended December 31,
                                           -----------------------------------------------------------------------------------------

                                                              1998                                        1997
                                           --------------------------------------------  -----------------------------------------
                                             Average Daily     Interest &                 Average Daily    Interest &
                                               Balance         Dividends     Yield/Rate     Balance        Dividends    Yield/Rate
                                           ---------------     ----------    ----------  -------------   -------------  ----------
<S>                                          <C>               <C>            <C>         <C>             <C>              <C>
Assets:
Interest-earning assets
    Loans receivable, net (1)                 $83,848,241      $6,586,596       7.86%      $95,370,924     7,352,557         7.71%
    Investment securities(2)                    4,726,501         282,882       5.99         7,336,699       427,656         5.83
    Interest-bearing deposits                  13,082,488         693,614       5.30         4,523,787       198,227         4.38
                                             ------------                                 ------------     ---------
      Total interest-earning assets           101,657,230       7,563,092       7.44       107,231,410     7,978,440         7.44
Non-interest-earning assets                     3,793,663                                    3,777,951
                                             ------------                                 ------------
Total assets                                 $105,450,893                                 $111,009,361
                                             ============                                 ============

Liabilities and Stockholders' Equity:
   Interest-bearing liabilities
   Deposits                                   $71,397,897      $3,832,880       5.37       $78,891,620    $4,416,447         5.60
   Advances from FHLB                          14,798,721         972,949       6.58        23,162,560     1,464,357         6.32
                                             ------------                                 ------------
     Total interest-bearing
        liabilities                            86,196,618       4,805,829       5.58       102,054,180     5,880,804         5.76

Non-interest-bearing liabilities                2,871,418                                    2,598,910
                                             ------------                                 ------------

Total liabilities                             $89,068,036                                 $104,653,090
Stockholder's Equity                           16,382,857                                    6,356,271
                                             ------------                                 ------------

Total liabilities and stockholders' equity
                                             $105,450,893                                 $111,009,361
                                             ============                                 ============

Net interest income/Interest rate
  spread(3)                                                    $2,757,263       1.86%                     $2,097,636         1.68%
                                                               ==========     ======                      ==========       ======

Net interest-earning assets/net
  interest margin(4)                          $15,460,612                       2.71%     $  5,177,230                       1.96%
                                              ===========                     ======      ============                     ======

Interest-earning assets to
  interest-bearing liabilities                                                117.94%                                      105.07%
                                                                              ======                                       ======

<CAPTION>
                                               -------------------------

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

                                                Balance       Yield/Rate
                                                -------       ----------
<S>                                          <C>                     <C>
Assets:
Interest-earning assets
    Loans receivable, net (1)                $81,027,313             7.39%
    Investment securities(2)                   3,917,264             5.65
    Interest-bearing deposits                 10,374,130             4.54
                                             -----------
      Total interest-earning assets           95,318,707             7.01
Non-interest-earning assets                    3,523,655
                                             -----------
Total assets                                 $98,842,362
                                             ===========

Liabilities and Stockholders' Equity:
   Interest-bearing liabilities
   Deposits                                  $66,344,996             5.26
   Advances from FHLB                         13,742,153             6.43
                                             -----------
     Total interest-bearing
        liabilities                           80,087,149             5.46

Non-interest-bearing liabilities               2,475,316
                                             -----------

Total liabilities                            $82,562,465
Stockholder's Equity                         16,279,897
                                             -----------

Total liabilities and stockholders' equity
                                             $98,842,362
                                             ===========

Net interest income/Interest rate
  spread(3)                                                          1.55%
                                                                   ======

Net interest-earning assets/net
  interest margin(4)


Interest-earning assets to
  interest-bearing liabilities                                     119.02%
                                                                   ======
</TABLE>

----------

(1)  The inclusion of nonaccrual loans in average daily balance and loan fees in
     interest and dividends has been deemed to have an immaterial impact on this
     analysis.

(2)  Includes mortgage-backed securities.

(3)  Interest rate spread represents the difference between the average yield on
     interest-earning   assets  and  the   average   rate  on   interest-bearing
     liabilities.

(4)  Net interest margin represents net interest income before the provision for
     loan losses divided by average interest-earning assets.


                                       38

<PAGE>


     Rate/Volume Analysis

          The following table sets forth certain  information  regarding changes
in the Company's interest income and interest expense for the periods indicated.
For each category of interest-earning  assets and interest-bearing  liabilities,
information  is  provided  on changes  attributable  to:  (i)  changes in volume
(changes in volume multiplied by the old rate); (ii) changes in rate (changes in
rate multiplied by old volume);  and (iii) total change in rate and volume.  The
combined  effects  of  changes  in both  rate  and  volume  has  been  allocated
proportionately to the change due to rate and the change due to volume.

<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                                               Increase (Decrease)
                                             ---------------------------------------------------------------------------------------

                                                           1998 vs.1997                                 1997 vs. 1996
                                             -----------------------------------------    ------------------------------------------

                                               Volume          Rate            Net          Volume          Rate           Net
                                             -----------    -----------    -----------    -----------    -----------    -----------
<S>                                             <C>            <C>           <C>             <C>           <C>             <C>
Interest Income:
  Loans                                        $(902,910)      $136,949      $(765,961)      $332,995       $(72,503)      $260,492
  Investment securities                         (155,934)        11,160       (144,774)      (308,423)        26,586       (281,837)
  Interest-bearing
    deposits                                     463,595         31,792        495,387         94,141        (16,465)        77,676
                                             -----------    -----------    -----------    -----------    -----------    -----------
         Total interest income                  (595,249)       179,901       (415,348)       118,713        (62,382)        56,331
                                             -----------    -----------    -----------    -----------    -----------    -----------

Interest Expense
   Deposits                                    $(388,868)     $(194,699)     $(583,567)      $(73,173)       $(8,037)      $(81,210)
   Advances from FHLB                           (547,889)        56,481       (491,408)       152,044         59,831        211,875
                                             -----------    -----------    -----------    -----------    -----------    -----------
         Total interest
              expense                           (936,757)      (138,218)    (1,074,975)        78,871         51,794        130,665
                                             -----------    -----------    -----------    -----------    -----------    -----------
   Net interest income                          $341,508       $318,119       $659,627        $39,842      $(114,176)      $(74,334)
                                             ===========    ===========    ===========    ===========    ===========    ===========
</TABLE>

                                       39

<PAGE>


Financial Condition

     Total assets  amounted to $98.8  million at December  31, 1998  compared to
$113.3  million at December 31, 1997. The decrease of $14.5 million or 12.8% was
primarily due to a decrease of $7.9 million in net loans receivable,  a decrease
of $4.7  million in cash and cash  equivalents  and a $2.5  million  decrease in
investment  securities  available for sale, which were somewhat offset by a $1.0
million increase in mortgage-backed  securities available for sale. The decrease
in net loans receivable was primarily due to sales of long-term fixed rate loans
in the secondary  market as well as loan principal  repayments.  The decrease in
cash and cash  equivalents  was  primarily  due to  using  cash to fund  deposit
outflows and repay FHLB advances.  The decrease in investment securities was due
to  maturities  during 1998 of $2.5  million.  The  increase in  mortgage-backed
securities was due to purchases during 1998 of $2.3 million.  Total  liabilities
decreased  $14.7 million or 15.1% to $82.6 million at December 31, 1998 compared
to $97.2  million at December  31, 1997 due  primarily to a decrease in deposits
and FHLB advances. Stockholders' equity increased from $16.1 million at December
31,  1997 to $16.3  million  at  December  31,  1998 due to net  income  and the
allocation of ESOP shares committed to be released

Comparison of Operating Results for the Years Ended December 31, 1998 and 1997.

     General.  The Company had net income of $72,000 for the year ended December
31, 1998 compared to a net loss of $14,000 for the year ended December 31, 1997.
The income during 1998 was  primarily due to an increase in net interest  income
of  $660,000,  and a decrease  in the  provision  for loan  losses of  $147,000,
substantially offset by an increase in other expenses of $608,000.

     Net Interest  Income.  Net interest  income for the year ended December 31,
1998 was $2.8 million  compared to $2.1 million for the year ended  December 31,
1997.  The interest rate spread and net interest  margin  increased to 1.86% and
2.71%,  respectively,  for 1998 compared to 1.68% and 1.96%,  respectively,  for
1997.  The  ratio of  interest-earning  assets to  interest-bearing  liabilities
increased to 117.94% for 1998 compared to 105.07% for 1997.

     Interest income.  Total interest and dividend income was $7,563,000 for the
year ended  December 31, 1998 compared to $7,978,000 for the year ended December
31, 1997,  representing  a decrease of $415,000 or 5.2%.  The decrease in fiscal
1998 was due  primarily to a decrease in interest on loans from $7.4 million for
the year ended December 31, 1997 to $6.6 million for the year ended December 31,
1998, which was the result of a decrease in the average balance of the Company's
loan portfolio. This decrease was slightly offset by an increase in interest and
dividends on  investments  from $582,000 for the year ended December 31, 1997 to
$789,000 for the year ended  December 31, 1998 due to an increase in the average
balance of such assets.

     Interest  expense.  Total interest  expense,  which  consists  primarily of
interest  on savings  deposits,  decreased  from  $5,881,000  for the year ended
December 31, 1997 to $4,806,000 for the year ended December 31, 1998, which is a
decrease of  $1,075,000 or 18.3%.  This  decrease  primarily was the result of a
decrease in interest paid on deposits and FHLB advances due to a decrease in the
average balance of such liabilities.


                                       40
<PAGE>


     Provision  for Loan  Losses.  Provisions  for loan  losses  are  charged to
earnings to maintain the total  allowance for loan losses at a level  considered
adequate by the Company to provide for probable  loan losses based on prior loss
experience,  volume and type of lending conducted by the Company, available peer
group  information,  and past due loans in the  Company's  loan  portfolio.  The
Company's  policies require the review of assets on a quarterly basis. While the
Company believes it uses the best information  available to make a determination
with respect to the  allowance  for loan  losses,  the Company  recognizes  that
future  adjustments  may be  necessary.  The Company  provided  $69,000 for loan
losses for the year ended  December 31, 1998 while  providing  $216,000 for loan
losses for the year ended December 31, 1997. In  establishing  such  provisions,
the Company also  considered the levels of its  non-performing  loans which were
$165,000 and $774,000 at December 31, 1998 and 1997, respectively.

     Other income. Total other income decreased from $256,000 for the year ended
December  31,  1997 to  $207,000  for the year ended  December  31,  1998.  This
decrease  in other  income was  attributable  to a decrease  in service  fees of
$49,000  and a  decrease  in gains on sale of loans  of  $34,000,  offset  by an
increase in other income of $33,000.  The decrease in service fees was caused by
a write-down in the value of mortgage servicing rights. The decrease in gains on
sale of loans was due to a decrease in the volume of loans sold. The increase in
other income was due to the amortization of loans valued at the lower of cost or
market.  Several of these loans prepaid causing the difference  between cost and
market value to be realized.

     Other expense.  Total other expenses increased from $2,162,000 for the year
ended  December  31, 1997 to  $2,771,000  for the year ended  December 31, 1998,
which represents an increase of $608,000 or 28.1%. Such increases were primarily
due to an  increase  in  salaries  and  benefits  of  $132,000,  an  increase in
advertising   expense  of  $115,000  and  an  increase  in  other   general  and
administrative  expenses of $396,000.  The increase in salaries and benefits was
due to costs related to the  resignation of the Company's  president,  Ronald P.
Crouch.  The increase in advertising  expense was due to increased costs related
to  introducing  new products,  such as small business loans and new home equity
loan products and advertising for core deposits, particularly checking accounts.
Other general and administrative  expenses were increased  primarily due to fees
charged by professional firms in connection with reporting and other obligations
associated  with being a public  company  and costs  incurred  by the Company in
seeking an acquiror.

     Income  taxes.  The Company  experienced  a provision  for income  taxes of
$52,000 for 1998 and a benefit of $10,000 for 1997,  resulting  in an  effective
tax rate of 41.9% and (42.0%), respectively.

Comparison of Operating Results for the Years Ended December 31, 1997 and 1996.

     General.  The Company had a net loss of $14,000 for the year ended December
31, 1997 compared to a net loss of $95,000 for the year ended December 31, 1996.
The loss during 1997 was  primarily due to an increase in the provision for loan
losses and  decreases in net  interest  income and other  income,  substantially
offset by a decrease in other expenses.


                                       41

<PAGE>


     Net Interest  Income.  Net interest  income for the year ended December 31,
1997 was $2.1 million  compared to $2.2 million for the year ended  December 31,
1996.  The interest rate spread and net interest  margin  decreased to 1.68% and
1.96%,  respectively,  for 1997 compared to 1.78% and 2.05%,  respectively,  for
1996.  The  ratio of  interest-earning  assets to  interest-bearing  liabilities
remained stable at 105.07% for 1997 compared to 105.00% for 1996.

     Interest income.  Total interest and dividend income was $7,978,000 for the
year ended  December 31, 1997 compared to $7,922,000 for the year ended December
31, 1996,  representing  an increase of $56,000 or 0.7%.  The increase in fiscal
1997 was due primarily to an increase in interest on loans from $7.1 million for
the year ended December 31, 1996 to $7.4 million for the year ended December 31,
1997,  which  was the  result  of an  increase  in the  average  balance  of the
Company's  loan  portfolio.  This increase was slightly  offset by a decrease in
interest and dividends on investments  from $791,000 for the year ended December
31, 1996 to $582,000  for the year ended  December 31, 1997 due to a decrease in
the average balance of such assets.

     Interest  expense.  Total interest  expense,  which  consists  primarily of
interest  on savings  deposits,  increased  from  $5,750,000  for the year ended
December  31,  1996 to  $5,881,000  for the year ended  December  31,  1997,  an
increase of  $131,000  or 2.3%.  This  increase  primarily  was the result of an
increase in  interest  paid on FHLB  advances  due to an increase in the average
balance of and rate paid on such liabilities.  This increase in advances was due
to increased funding needs and a decrease in deposits.

     Provision  for Loan  Losses.  Provisions  for loan  losses  are  charged to
earnings to maintain the total  allowance for loan losses at a level  considered
adequate by the Company to provide for probable  loan losses based on prior loss
experience,  volume and type of lending conducted by the Company, available peer
group  information,  and past due loans in the  Company's  loan  portfolio.  The
Company's  policies require the review of assets on a quarterly basis. While the
Company believes it uses the best information  available to make a determination
with respect to the  allowance  for loan  losses,  the Company  recognizes  that
future  adjustments  may be necessary.  The Company  provided  $216,000 for loan
losses for the year ended  December  31, 1997 while  providing  $47,000 for loan
losses for the year ended December 31, 1996.  The Company  continues to increase
the provision for loan losses due to the growth in the loan portfolio during the
year and due to the  increase in  non-performing  loans.  As the loan  portfolio
continues to grow,  the Company  increases  the provision for loan losses due to
risk  inherent in the loan  portfolio.  In  establishing  such  provisions,  the
Company  also  considered  the  levels of its  non-performing  loans  which were
$774,000 and $376,000 at December 31, 1997 and 1996, respectively.

     Other income.  Total  non-interest  income  decreased from $305,000 for the
year ended  December 31, 1996 to $256,000 for the year ended  December 31, 1997.
This decrease in non-interest  income was  attributable to a decrease in service
fees of $85,000  partially offset by an increase in gains from the sale of loans
of $19,000  and an  increase  in  miscellaneous  other  income of  $17,000.  The
decrease in service fees was caused by a decrease in application  fees collected
due to fewer loan  originations  and by a  write-down  in the value of  mortgage
servicing rights.


                                       42

<PAGE>

     Other expense.  Total other expenses decreased from $2,593,000 for the year
ended  December 31, 1996 to $2,162,000  for the year ended  December 31, 1997, a
decrease  of $431,000  or 16.6%.  Such  decrease  was due to the  one-time  SAIF
special  assessment  of $492,000  in 1996.  Correspondingly,  federal  insurance
premiums  decreased $134,000 to $53,000 in 1997 compared to $187,000 in 1996 due
to a reduction in premiums upon the recapitalization of the SAIF. Such decreases
were  partially  offset by an  increase  in salaries  and  employee  benefits of
$163,000 to $1.1 million for 1997  compared to $917,000  for 1996.  Salaries and
employee benefits  increased due to expenses incurred for the ESOP at the end of
the year of  $93,000.  The  remainder  of the  increase  was caused by lower fee
income  provided  by loan  originations,  which  was due to a  lower  volume  of
originations  during the year.  In addition,  other  general and  administrative
expenses  increased $61,000 to $414,000 for 1997 due to an increase in legal and
consulting expenses.

     Income taxes. The Company experienced a benefit for income taxes of $10,000
for 1997 and $69,000 for 1996.  Such benefits were due to losses from operations
during such periods.

Liquidity and Capital Resources

     The Savings Bank is required to maintain minimum levels of liquid assets as
defined by OTS  regulations.  This  requirement,  which varies from time to time
depending upon economic conditions and deposit flows, is based upon a percentage
of the Savings  Bank's  deposits and short-term  borrowings.  The required ratio
currently is 4.0%. The Savings Bank's average  liquidity ratio was 13.2%,  13.9%
and 11.2% at December  31,  1998,  December  31,  1997,  and  December 31, 1996,
respectively.

     The Company's primary sources of funds are deposits, repayment and sales of
loans  and   mortgage-backed   securities,   maturities   of   investments   and
interest-bearing  deposits, funds provided from operations and advances from the
FHLB of  Pittsburgh.  While  scheduled  repayments of loans and  mortgage-backed
securities  and  maturities  of investment  securities  are  predictable,  other
sources of funds,  such as deposit  flows and loan  prepayments,  can be greatly
influenced  by the general  level of interest  rates,  economic  conditions  and
competition.  The  Company  uses its  liquidity  resources  principally  to fund
existing and future loan commitments,  to fund maturing  certificates of deposit
and demand deposit withdrawals,  to invest in other interest-earning  assets, to
maintain liquidity, and to meet operating expenses.

     Liquidity may be adversely affected by unexpected deposit outflows,  higher
interest rates paid by competitors,  and similar  matters.  Management  monitors
projected  liquidity needs and determines the level desirable,  based in part on
the  Company's  commitments  to make loans and  management's  assessment  of the
Company's ability to generate funds.

     The Company and the Savings  Bank are subject to federal  regulations  that
impose certain  minimum capital  requirements.  For a discussion on such capital
levels, see "Item 1. Business-Regulation."

                                       43

<PAGE>


Impact of Inflation and Changing Prices

     The Company's  financial  statements and the  accompanying  notes presented
elsewhere  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  Company's
operations.  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
prices of goods and services.

The Year 2000 Issue

     The Company is aware of the issues  associated with the programming code in
existing  computer systems as the year 2000 ("Year 2000")  approaches.  The Year
2000 issue is the result of computer  programs  being  written  using two digits
rather than four digits to define the applicable  year.  Computer  programs that
have  time-sensitive  coding  may  recognize  a date using "00" as the year 1900
rather  than  the  year  2000.  Systems  that  do not  properly  recognize  such
information could generate erroneous data or cause a system to fail.

     The Savings Bank has conducted a review of its computer systems to identify
the systems  that could be affected by the Year 2000 issue and has  developed an
implementation  plan to resolve the issue.  The  majority of the Savings  Bank's
data processing is provided by a third party service bureau.  The service bureau
is actively  involved in resolving Year 2000 issues and has provided the Savings
Bank with  frequent  updates  regarding  their  progress.  The Bank tested their
system  for Year  2000  compliance  during  the  third  quarter  of 1998 with no
material  exceptions  noted. The Savings Bank presently  believes that, based on
the progress of the Savings  Bank's service  bureau,  the Year 2000 problem will
not pose  significant  operational  problems  for the  Savings  Bank's  computer
system. Since the critical portion of the Company's Year 2000 issue involves its
third party service bureau,  and since testing of that system has been completed
with  no  significant  exceptions,   additional  costs  are  anticipated  to  be
immaterial at this time.

Recent Accounting Pronouncements

     In June 1998, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 133,  "Accounting for
Derivative  Instruments and Hedging Activities." This statement requires that an
entity  recognize  all  derivatives  as  either  assets  or  liabilities  in the
statement of financial  condition and measure those  instruments  at fair value.
The accounting for changes in fair value of a derivative depends on the intended
use of the derivative and the resulting designation. This statement is effective
for  fiscal  years  beginning  after  June 15,  1999,  and  will not be  applied
retroactively  to  financial  statements  of prior  periods.  The impact of this
statement on the Company will depend on the extent of  derivatives  and embedded
derivatives at the date this statement is adopted


                                       44

<PAGE>

Item 7. Financial Statements

     Delaware First Financial Corporation and Subsidiary

     Consolidated  Financial Statements as of December 31, 1998 and 1997 and for
     Each of the  Three  Years  in the  Period  Ended  December  31,  1998,  and
     Independent Auditors' Report







                                       45
<PAGE>


INDEPENDENT AUDITORS' REPORT


To the Board of Directors of
   Delaware First Financial Corporation:

We have audited the accompanying  consolidated statements of financial condition
of Delaware First  Financial  Corporation  and subsidiary  (the "Company") as of
December  31,  1998  and  1997,  and  the  related  consolidated  statements  of
operations,  comprehensive  income (loss),  changes in stockholders'  equity and
cash flows for each of the three years in the period  ended  December  31, 1998.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

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

In our  opinion,  such  financial  statements  present  fairly,  in all material
respects,  the  consolidated  financial  position  of Delaware  First  Financial
Corporation  and  subsidiary  at December 31, 1998 and 1997,  and the results of
their  operations and their cash flows for each of the three years in the period
ended  December  31,  1998 in  conformity  with  generally  accepted  accounting
principles.


/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
February 5, 1999




                                       46
<PAGE>


DELAWARE FIRST FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                                            December 31,
                                                                                                 -----------------------------------
ASSETS                                                                                                1998                 1997
                                                                                                 -------------        -------------
<S>                                                                                              <C>                  <C>
Cash and cash equivalents                                                                        $  10,483,297        $  15,199,726
Investment securities available for sale (amortized cost - 1997, $2,499,753)                                              2,499,860
Mortgage-backed securities available for sale (amortized cost - 1998,
  $2,950,049; 1997, $1,903,007)                                                                      2,942,264            1,900,986
Loans receivable - net                                                                              81,027,313           88,933,209
Federal Home Loan Bank stock - at cost                                                                 975,000              975,000
Accrued interest receivable:
  Loans                                                                                                714,730              823,266
  Investments                                                                                           36,550               81,353
  Mortgage-backed securities                                                                            14,393                6,902
Real estate owned                                                                                       70,645
Office property and equipment, net                                                                   1,988,371            1,956,404
Prepaid expenses and other assets                                                                       64,303              291,613
Prepaid income taxes                                                                                     8,527              115,316
Mortgage servicing rights                                                                              335,650              371,361
Deferred income taxes                                                                                  181,319              177,429
                                                                                                 -------------        -------------

TOTAL ASSETS                                                                                     $  98,842,362        $ 113,332,425
                                                                                                 =============        =============

LIABILITIES AND RETAINED EARNINGS

Liabilities:
  Deposits                                                                                       $  66,344,996        $  76,883,201
  Advances from Federal Home Loan Bank                                                              13,742,153           17,400,000
  Advances by borrowers for taxes and insurance                                                        673,655              835,417
  Accrued interest payable                                                                             254,970              358,171
  Accounts payable and accrued expenses                                                              1,546,691            1,757,825
                                                                                                 -------------        -------------

      Total liabilities                                                                             82,562,465           97,234,614

Stockholders' Equity:
  Preferred stock, $.01 par value, 500,000 shares authorized, none issued 
  Common stock, $.01 par value, 3,000,000 authorized; issued and outstanding,
     1,157,000 shares                                                                                   11,570               11,570
  Additional paid-in capital                                                                        10,988,356           10,966,430
  Common stock acquired by stock benefit plan                                                         (740,480)            (833,040)
  Accumulated other comprehensive loss                                                                  (5,622)              (1,263)
  Retained earnings - substantially restricted                                                       6,026,073            5,954,114
                                                                                                 -------------        -------------

      Total stockholders' equity                                                                    16,279,897           16,097,811
                                                                                                 -------------        -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                       $  98,842,362        $ 113,332,425
                                                                                                 =============        =============
</TABLE>

See notes to consolidated financial statements.



                                       47
<PAGE>


DELAWARE FIRST FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

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

<S>                                           <C>           <C>            <C>
INTEREST INCOME:
  Interest on loans                           $ 6,586,596   $ 7,352,557    $ 7,092,065
  Interest on mortgage-backed securities          187,565        44,057         38,982
  Interest and dividends on investments           788,931       581,826        791,062
                                              -----------   -----------    -----------

           Total interest income                7,563,092     7,978,440      7,922,109
                                              -----------   -----------    -----------

INTEREST EXPENSE:
  Deposits                                      3,832,880     4,416,447      4,497,657
  Federal Home Loan Bank advances                 972,949     1,464,357      1,252,482
                                              -----------   -----------    -----------

           Total interest expense               4,805,829     5,880,804      5,750,139
                                              -----------   -----------    -----------

NET INTEREST INCOME                             2,757,263     2,097,636      2,171,970

PROVISION FOR LOAN LOSSES                          69,294       215,815         47,000
                                              -----------   -----------    -----------

NET INTEREST INCOME AFTER PROVISION
  FOR LOAN LOSSES                               2,687,969     1,881,821      2,124,970
                                              -----------   -----------    -----------

OTHER INCOME:
  Service fees                                     55,866       104,507        189,604
  Gain on sale of loans                            54,598        88,125         68,629
  Other                                            96,093        63,389         46,543
                                              -----------   -----------    -----------

           Total other income                     206,557       256,021        304,776
                                              -----------   -----------    -----------

OTHER EXPENSES:
  Salaries and employee benefits                1,195,861     1,063,969        915,532
  Advertising                                     277,658       162,382        202,825
  Federal insurance premiums                       59,917        52,795        187,057
  SAIF special assessment                                                      491,992
  Occupancy expense                               188,405       208,727        214,968
  Data processing expense                         140,809       142,887        121,121
  Directors fees                                   98,590       117,915        106,920
  Other general and administrative expenses       809,427       413,718        352,872
                                              -----------   -----------    -----------

           Total other expenses                 2,770,667     2,162,393      2,593,287
                                              -----------   -----------    -----------

INCOME (LOSS) BEFORE PROVISION
  FOR INCOME TAXES (BENEFIT)                      123,859       (24,551)      (163,541)

PROVISION FOR INCOME TAXES (BENEFIT)               51,900       (10,300)       (69,000)
                                              -----------   -----------    -----------

NET INCOME (LOSS)                             $    71,959   $   (14,251)   $   (94,541)
                                              ===========   ===========    ===========

BASIC EARNINGS PER SHARE                      $      0.06           N/A            N/A
                                              ===========   ===========    ===========
</TABLE>


See notes to consolidated financial statements.

                                       48
<PAGE>

DELAWARE FIRST FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
--------------------------------------------------------------------------------

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

<S>                                                  <C>          <C>          <C>
NET INCOME (LOSS)                                    $  71,959    $ (14,251)   $ (94,541)

OTHER COMPREHENSIVE INCOME (LOSS)-
  Unrealized  (losses) gains on securities (net of
  of tax (benefit) - 1998 ($1,512); 1997, $5,151;
  1996, ($5,802)                                        (4,359)       9,513      (10,776)
                                                     ---------    ---------    ---------

COMPREHENSIVE INCOME (LOSS)                          $  67,600    $  (4,738)   $(105,317)
                                                     =========    =========    =========
</TABLE>


See notes to consolidated financial statements.



                                       49
<PAGE>



DELAWARE FIRST FINANCIAL CORPORATION AMD SUBSIDIARY

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                Common
                                                                                 Stock
                                                                                Acquired    Accumulated
                                                                  Additional    by Stock       Other                      Total
                                                      Common       Paid-in      Benefit    Comprehensive  Retained     Stockholders'
                                                      Stock        Capital        Plan          Loss      Earnings        Equity
                                                   -----------   ------------  ----------- ------------- -----------   ------------
<S>                                                <C>           <C>           <C>            <C>        <C>           <C>         
BALANCE, JANUARY 1, 1996                                                                                 $ 6,062,906   $ 6,062,906

  Net loss                                                                                                   (94,541)      (94,541)

  Change in unrealized losses on available for
    sale securities, net of tax                                                               $(10,776)                    (10,776)
                                                                                              --------   -----------   ------------

BALANCE, DECEMBER 31, 1996                                                                     (10,776)    5,968,365     5,957,589

  Common stock issued                              $    11,570   $ 10,966,430                                           10,978,000

  Common stock acquired by stock benefit plans                                 $  (925,600)                               (925,600)

  ESOP stock committed to be released                                               92,560                                  92,560

  Change in unrealized losses on available
    for sale securities, net of tax                                                              9,513                       9,513

  Net loss                                                                                                   (14,251)      (14,251)
                                                   -----------   ------------  -----------    --------   -----------   ------------

BALANCE, DECEMBER 31, 1997                              11,570     10,966,430     (833,040)     (1,263)    5,954,114     16,097,811

   ESOP stock committed to be released                                 21,751        92,560                                114,311

   Refund of stock conversion costs                                       175                                                  175

   Change in unrealized losses on available
     for sale securities, net of tax                                                            (4,359)                     (4,359)

   Net income                                                                                                 71,959        71,959

BALANCE, DECEMBER 31, 1998                         $    11,570   $ 10,988,356  $  (740,480)   $ (5,622)  $ 6,026,073   $ 16,279,897
                                                   ===========   ============  ===========    ========   ===========   ============
</TABLE>

See notes to consolidated financial statements.



                                       50
<PAGE>

DELAWARE FIRST FINANCIAL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

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

OPERATING ACTIVITIES:
<S>                                                                 <C>             <C>             <C>
  Net income (loss)                                                 $     71,959    $    (14,251)   $    (94,541)
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
    Depreciation                                                          91,956         126,656         121,751
    Provision for loan losses                                             69,294         215,815          47,000
    Gain on sale of investment and mortgage-backed securities                                             (6,925)
    Gain on sale of loans                                                (54,598)        (88,125)        (68,629)
    Gain on real estate acquired through foreclosure                      (9,741)
    Loss on disposal of premises and equipment                             7,635
    Allocation of ESOP shares                                            114,311          92,560
    Amortization of:
      Deferred loan fees                                                (227,525)       (100,622)       (130,226)
      Discount on investment and mortgage-backed securities               33,503          (4,193)         (8,827)
    Changes in assets and liabilities which provided (used) cash:
      Accrued interest receivable                                        145,848         158,420        (221,562)
      Mortgage servicing rights                                           35,711         (53,926)        (19,466)
      Prepaid expenses and other assets                                  227,310        (225,601)          9,153
      Accrued interest payable                                          (103,201)         92,407          45,211
      Accounts payable and accrued expenses                             (211,134)        419,322         505,430
      Income taxes                                                       106,789          51,534        (252,740)
      Deferral of loan fees                                              175,377          84,623         379,572
                                                                    ------------    ------------    ------------

           Net cash provided by operating activities                     473,494         754,619         305,201
                                                                    ------------    ------------    ------------

INVESTING ACTIVITIES:
  Proceeds from sale of investments held to maturity                                                   2,996,406
  Proceeds from maturity of investments                                2,500,000       4,000,000       6,998,205
  Principal collected on long-term loans
    and mortgage-backed securities                                    24,381,912      13,649,576      15,576,441
  Long-term loans originated                                         (20,716,968)    (11,433,144)    (38,236,036)
  Proceeds from sale of loans                                          5,218,213       6,812,130       4,407,397
  Proceeds from sale of mortgage-backed securities
    held to maturity                                                                                     346,427
  Redemption of Federal Home Loan Bank stock                                             634,800         263,200
  Purchase of Federal Home Loan Bank stock                                              (109,800)     (1,035,700)
  Purchase of investments and mortgage-backed securities              (2,327,318)     (1,739,460)     (4,996,281)
  Proceeds from sale of real estate owned                                243,435
  Purchase of premises and equipment                                    (131,558)        (62,103)        (39,244)
                                                                    ------------    ------------    ------------

           Net cash provided by (used in) investing activities         9,167,716      11,751,999     (13,719,185)
                                                                    ------------    ------------    ------------

FINANCING ACTIVITIES:
  Net decrease in deposits                                           (10,538,205)     (1,525,592)     (3,113,456)
  (Decrease) increase in advances by borrowers for taxes
    and insurance                                                       (161,762)         22,848         160,036
  Proceeds from Federal Home Loan Bank advances                        2,000,000      49,345,726      79,119,823
  Repayments of Federal Home Loan Bank advances                       (5,657,847)    (57,845,726)    (61,169,823)
  Proceeds from the sale of stock, net of conversion costs                            10,978,000
  Refund of conversion costs                                                 175
  Common stock acquired by stock benefit plan                                           (925,600)
                                                                    ------------    ------------    ------------

           Net cash (used in) provided by financing activities       (14,357,639)         49,656      14,996,580
                                                                    ------------    ------------    ------------

NET (DECREASE) INCREASE IN CASH
  AND CASH EQUIVALENTS                                                (4,716,429)     12,556,274       1,582,596

CASH AND CASH EQUIVALENTS,
  BEGINNING OF YEAR                                                   15,199,726       2,643,452       1,060,856
                                                                    ------------    ------------    ------------

CASH AND CASH EQUIVALENTS,
  END OF YEAR                                                       $ 10,483,297    $ 15,199,726    $  2,643,452
                                                                    ============    ============    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during period for:
    Interest                                                        $  4,909,030    $  5,788,397    $  5,704,928
                                                                    ============    ============    ============

    Income taxes                                                    $      6,352    $     25,956    $    310,140
                                                                    ============    ============    ============

   Transfers of loans receivable into real estate owned             $    304,339    $               $
                                                                    ============    ============    ============
</TABLE>

See notes to consolidated financial statements.



                                       51
<PAGE>


DELAWARE FIRST FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
--------------------------------------------------------------------------------


1.   NATURE OF OPERATIONS

     On June 30, 1997,  the Board of Directors of Ninth Ward Savings  Bank,  FSB
     (the  "Bank")  adopted a plan of  conversion  to convert  from a  federally
     chartered  mutual  savings  bank to a  federally  chartered  capital  stock
     savings  bank  with the  concurrent  formation  of a holding  company  (the
     "Conversion").

     The Conversion was completed on December 31, 1997, with the issuance by the
     holding company Delaware First Financial  Corporation  (the "Company"),  of
     1,157,000  shares of its common  stock in a public  offering  to the Bank's
     eligible  depositors and  borrowers,  members of the general public and the
     Bank's  Employee Stock  Ownership Plan (the "ESOP").  Net proceeds from the
     Conversion  amounted to $10,978,000 of which $8,000,000 was used to acquire
     100% of the  outstanding  capital stock of the Bank,  and $925,600 was used
     for a loan for the ESOP.  The Company  retained the  remaining  proceeds of
     $2,052,400.

     In connection with the Conversion, the Company established the ESOP for the
     benefit of eligible  employees.  The  Company  purchased  92,560  shares of
     common  stock on  behalf  of the ESOP in the  Conversion.  The ESOP loan is
     being  repaid in ten equal annual  installments  with shares of stock being
     allocated to eligible  employees in accordance  with the  provisions of the
     ESOP as principal payments are made.

     The  Company's  primary  market  is  concentrated  in  New  Castle  County,
     Delaware,  to which it offers mainly  conventional  residential real estate
     loans on new and existing properties and mortgage refinancing.  Since 1994,
     the Bank has been active in offering  equity lines of credit.  In 1998, the
     Company began  originating  secured and unsecured loans to small businesses
     in its primary market.  Effective January 5, 1998, Ninth Ward Savings Bank,
     FSB changed its name to Delaware First Bank, FSB.

     On November  18,  1998,  the Company  agreed to be acquired by Crown Group,
     Inc.,  in a cash  transaction  valued  at  approximately  $17,900,000.  The
     Agreement  and Plan of  Reorganization,  executed  by the Company and Crown
     Group,  Inc.,  provides  for the  exchange  of each share of the  Company's
     common stock for $15.50 in cash. The acquisition is contingent upon receipt
     of approvals from regulatory authorities and the Company's shareholders.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Basis of Presentation - The consolidated  financial  statements include the
     accounts of Delaware  First  Financial  Corporation as of December 31, 1998
     and 1997.  Amounts  prior to  December  31,  1997 are the  accounts  of the
     Company's wholly owned subsidiary, Ninth Ward Savings Bank, FSB.

     Principles  of  Consolidation  - The  accompanying  consolidated  financial
     statements  include  the  accounts  of the  Company  and its  wholly  owned
     subsidiary.  Intercompany accounts and transactions have been eliminated in
     consolidation.


                                       52
<PAGE>


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

     Interest on Loans - The Company  recognizes  interest on loans when earned.
     The  Company   does  not   recognize   interest  on  loans   deemed  to  be
     uncollectible,  generally  when a loan is three months or more  delinquent.
     Such interest  ultimately  collected is credited to income in the period of
     recovery.

     Investment and  Mortgage-Backed  Securities - The Company accounts for debt
     and equity securities as follows:

          Held to Maturity - Debt  securities  that  management has the positive
          intent and ability to hold until  maturity are  classified  as held to
          maturity and are carried at their remaining unpaid principal  balance,
          net of  unamortized  premiums or  unaccreted  discounts.  Premiums are
          amortized and discounts  are accreted  using the interest  method over
          the period remaining until maturity.

          Available for Sale - Debt and equity  securities that will be held for
          indefinite periods of time,  including  securities that may be sold in
          response to changes in market interest or prepayment rates,  needs for
          liquidity,  and  changes  in the  availability  of and  the  yield  of
          alternative  investments,  are classified as available for sale. These
          assets are  carried at fair  value.  Fair  value is  determined  using
          published  quotes as of the close of  business.  Unrealized  gains and
          losses are  excluded  from  earnings  and are reported net of tax as a
          separate component of retained earnings until realized.

     Office  Property and Equipment - Office  property and equipment is recorded
     at cost.  Depreciation is computed using either the straight-line method or
     an accelerated method over the expected useful lives of the assets, ranging
     from  three to fifty  years.  The  costs of  maintenance  and  repairs  are
     expensed  as  they  are  incurred,   and  renewals  and   betterments   are
     capitalized.

     Loan Fees - The Company  defers all loan fees,  net of certain  costs,  and
     accretes them into income over the  contractual  life of the loan using the
     interest method.

     Allowance  for Loan Losses - The  allowance for loan losses is increased by
     charges  to  income  and  decreased  by  charge-offs  (net of  recoveries).
     Management's  periodic evaluation of the adequacy of the allowance is based
     on the Company's past loan loss experience, known and inherent risks in the
     portfolio,  adverse  situations  that may affect the borrower's  ability to
     repay,  the  estimated  value of any  underlying  collateral,  and  current
     economic conditions.

     The  Company  has  adopted  Statement  of  Financial  Accounting  Standards
     ("SFAS") Nos. 114 and 118, Accounting by Creditors for Impairment of a Loan
     and Accounting by Creditors for  Impairment of a Loan - Income  Recognition
     and Disclosures,  respectively. SFAS No. 114 requires that certain impaired
     loans be measured based either on the present value of expected future cash
     flows  discounted  at the loan's  effective  interest  rate,  or the loan's
     observable market price, or the fair value of the collateral if the loan is
     collateral dependent.

     Federal Home Loan Bank Advances -  Periodically,  the Company  borrows from
     the  Federal  Home  Loan  Bank  of   Pittsburgh.   These   borrowings   are
     collateralized  by Federal Home Loan Bank stock and  qualified  investments
     and mortgage loans.


                                       53
<PAGE>


     Income  Taxes  -  Deferred   income  taxes  are   recognized  for  the  tax
     consequences of "temporary  differences" by applying enacted  statutory tax
     rates  applicable  to future  years to  differences  between the  financial
     statement  carrying  amounts  and the tax  bases  of  existing  assets  and
     liabilities.  The  effect  on  deferred  taxes of a change  in tax rates is
     recognized in income in the period that includes the enactment date.

     Cash and Cash Equivalents - For purposes of reporting cash flows,  cash and
     cash equivalents include cash and interest-bearing accounts.

     Interest Rate Risk - The Company is principally  engaged in the business of
     attracting  deposits  from the  general  public and using  these  deposits,
     together  with  borrowings  and other funds,  to make loans secured by real
     estate and, to a lesser extent, consumer and commercial loans.

     At  December  31,  1998,  the  Company  had   interest-earning   assets  of
     approximately  $96,840,000  having a weighted  average  effective  yield of
     7.43%  which have a weighted  average  term to  maturity  greater  than the
     interest-bearing liabilities of approximately $80,087,000 having a weighted
     average effective interest rate of 5.58%. At December 31, 1997, the Company
     had interest-earning assets of approximately $110,931,000 having a weighted
     average  effective  yield of 7.44%  which have a weighted  average  term to
     maturity  greater than the  interest-bearing  liabilities of  approximately
     $94,283,000 having a weighted average effective interest rate of 5.76%. The
     shorter duration of the  interest-sensitive  liabilities indicates that the
     Company  is  exposed  to  interest  rate  risk  because,  in a rising  rate
     environment,  liabilities will reprice faster than assets, thereby reducing
     the market value of  long-term  assets and net  interest  income.  For this
     reason,  management  regularly  monitors  the  maturity  structure  of  the
     Company's  assets and  liabilities  in order to measure this risk and enact
     measures to manage volatility of future interest rate movements.

     Mortgage  Loans Held for Sale - The Company  originates  mortgage loans for
     sale in the secondary market to provide additional funds for lending. These
     loans are carried at the lower of cost or market value, determined on a net
     aggregate basis.

     Real Estate Owned - Real estate properties acquired through, or in lieu of,
     loan foreclosure are to be sold and are initially recorded at fair value at
     the date of foreclosure  establishing a new cost basis.  After foreclosure,
     valuations are periodically  performed by management and the real estate is
     carried  at the lower of  carrying  amount or fair value less cost to sell.
     Revenue and expenses from  operations of foreclosed real estate and changes
     in the valuation allowance are included in loss on foreclosed real estate.

     Mortgage  Servicing  Rights - The Company  accounts for mortgage  servicing
     rights in  accordance  with SFAS No.  125,  Accounting  for  Transfers  and
     Servicing of Financial  Assets and  Extinguishments  of  Liabilities.  This
     statement  requires an entity to  recognize  the  financial  and  servicing
     assets  it  controls  and  the  liabilities  it has  incurred,  derecognize
     financial  assets  when  control  has  been  surrendered,  and  derecognize
     liabilities when extinguished.  It requires that servicing assets and other
     retained  interests in  transferred  assets be measured by  allocating  the
     previous  carrying  amounts  between the asset sold,  if any,  and retained
     interest,  if any,  based  on their  relative  fair  values  at the date of
     transfer. Additionally, the Company is required to assess the fair value of
     these assets at each reporting date to determine any potential impairment.

     Comprehensive  Income - During  1998,  the  Company  adopted  SFAS No. 130,
     Reporting  Comprehensive  Income, which requires an entity to present, as a
     component of comprehensive  income, the amounts from transactions and other
     events which  currently  are excluded  from the statement of income and are
     recorded directly to stockholders' equity.


                                       54
<PAGE>


     Earnings  Per Share - In  February  1998,  the FASB  issued  SFAS No.  128,
     Earnings Per Share,  which is effective for periods  ending after  December
     15, 1998. The Company adopted this statement,  effective December 31, 1998.
     Basic earnings per share for 1998 is computed by dividing income  available
     to common  shareholders  by the  weighted-average  number of common  shares
     outstanding for the period. Diluted earnings per share for 1998 is computed
     using the  weighted-average  number of common shares outstanding and common
     share  equivalents  that would arise from the  exercise  of stock  options.
     There were no stock options  outstanding on December 31, 1998. Prior period
     information is not comparative and therefore not presented.

     Accounting Principles Issued and Not Adopted -In June 1998, the FASB issued
     SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
     This statement  requires that an entity recognize all derivatives as either
     assets or liabilities  in the statement of financial  condition and measure
     those  instruments at fair value.  The accounting for changes in fair value
     of a  derivative  depends on the  intended  use of the  derivative  and the
     resulting  designation.  This  statement  is  effective  for  fiscal  years
     beginning  after June 15, 1999,  and will not be applied  retroactively  to
     financial  statements of prior  periods.  The impact of this statement will
     depend on the extent of  derivatives  and embedded  derivatives at the date
     this statement is adopted.

     Reclassifications - Certain items in the 1996 and 1997 financial statements
     have  been  reclassified  to  conform  with  the  presentation  in the 1998
     financial statements.

3.   INVESTMENT SECURITIES

     Investment securities available for sale are summarized as follows:


<TABLE>
<CAPTION>
                                                      December 31, 1997
                                      ---------------------------------------------------
                                                      Gross       Gross
                                       Amortized   Unrealized   Unrealized    Approximate
                                         Cost         Gain         Loss       Fair Value
                                      ----------   ----------   ----------    ----------
<S>                                   <C>          <C>          <C>           <C>
Debt securities -  obligations of
  U.S. Government agencies - due in
  one year or less                    $2,499,753   $    1,967   $   (1,860)   $2,499,860
                                      ----------   ----------   ----------    ----------

Total                                 $2,499,753   $    1,967   $   (1,860)   $2,499,860
                                      ==========   ==========   ==========    ==========
</TABLE>



                                       55
<PAGE>


4.   MORTGAGE-BACKED SECURITIES

     Mortgage-backed securities available for sale at December 31, 1998 and 1997
     are summarized as follows:

<TABLE>
<CAPTION>
                                                             1998
                                      ---------------------------------------------------
                                                      Gross       Gross
                                       Amortized   Unrealized   Unrealized    Approximate
                                         Cost         Gain         Loss       Fair Value
                                      ----------   ----------   ----------    ----------
<S>                                   <C>          <C>          <C>           <C>
FHLMC pass-through certificates       $  302,954   $      684   $     (993)   $  302,645
Collateralized mortgage obligations    2,647,095        4,334      (11,810)    2,639,619
                                      ----------   ----------   ----------    ----------

Total                                 $2,950,049   $    5,018   $  (12,803)   $2,942,264
                                      ==========   ==========   ==========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                             1997
                                      ---------------------------------------------------
                                                      Gross       Gross
                                       Amortized   Unrealized   Unrealized    Approximate
                                         Cost         Gain         Loss       Fair Value
                                      ----------   ----------   ----------    ----------
<S>                                   <C>          <C>          <C>           <C>

FHLMC pass-through certificates       $  168,757   $    1,687                 $  170,444
Collateralized mortgage obligations    1,734,250          640   $   (4,348)    1,730,542
                                      ----------   ----------   ----------    ----------

Total                                 $1,903,007   $    2,327   $   (4,348)   $1,900,986
                                      ==========   ==========   ==========    ==========
</TABLE>

5.   LOANS RECEIVABLE

     Loans receivable consist of the following:

                                                             December 31,
                                                     ---------------------------
                                                         1998            1997
                                                     -----------     -----------

First mortgage loans (primarily one-
  to four-family residential)                        $70,855,074     $79,244,982
Loans on savings accounts                                630,761         749,969
Small business loans                                     774,746
Home equity loans - fixed rate                         7,556,783       7,413,485
Equity lines or credit - variable rate                 2,551,908       2,946,938
                                                     -----------     -----------

           Total                                      82,369,272      90,355,374

Less:
  Allowance for loan losses                              489,355         462,815
  Deferred loan fees                                     852,604         959,350
                                                     -----------     -----------

           Total                                     $81,027,313     $88,933,209
                                                     ===========     ===========



                                       56
<PAGE>

     The  Company  is  servicing  loans  for  the  benefit  of  others  totaling
     approximately  $51,787,000  and  $56,730,000 at December 31, 1998 and 1997,
     respectively.  Servicing loans for others generally  consists of collecting
     mortgage  payments,  maintaining  escrow accounts,  disbursing  payments to
     investors and foreclosure processing.  Loan servicing income is recorded on
     the cash basis and  includes  servicing  fees from  investors  and  certain
     charges collected from borrowers,  such as late payment fees. In connection
     with these loans serviced for others,  the Company held  borrowers'  escrow
     balances  of  $311,320   and  $353,742  at  December  31,  1998  and  1997,
     respectively.

     At December 31, 1998 and 1997, the Company had outstanding loan origination
     commitments  of  $1,473,900  and  $793,800,  respectively,  for  fixed  and
     adjustable rate loans, with rates ranging from 5.50% to 9.95% and 7.125% to
     11.75%,  respectively.  These  commitments are expected to be funded within
     one year.  Commitments are issued in accordance with the same loan policies
     and underwriting  standards as settled loans. In November 1994, the Company
     entered into an initial  agreement with a community  investment  company to
     purchase  $250,000 of loans for low and  moderate  income  housing over the
     next three years.  At December 31, 1998 and 1997, the Company had purchased
     $172,000  and $122,000 of these loans,  respectively.  The Company  entered
     into an  agreement  in January  1998,  with the same  community  investment
     company,  to purchase an  additional  $250,000 of these types of loans over
     the next three  years.  At December  31,  1998,  the Company had  purchased
     $18,000 of these loans.

     Certain  directors and officers of the Company have loans with the Company.
     Such loans were made in the  ordinary  course of business at the  Company's
     normal credit terms, including interest rate and collateralization,  and do
     not  represent  more than a normal risk of  collection.  The following is a
     summary of loans to these officers and directors:

                                                          December 31,
                                                  ------------------------------
                                                     1998               1997

Balance, beginning of year                         $ 511,456          $ 367,780
Additions                                            322,400            195,090
Repayments                                          (217,166)           (51,414)
                                                   ---------          ---------

Balance, end of year                               $ 616,690          $ 511,456
                                                   =========          =========

     The following is a summary of changes in the allowance for loan losses:

                                                    Year Ended December 31,
                                          --------------------------------------
                                             1998           1997          1996

Balance, beginning of year                $ 462,815      $ 247,000     $ 200,000
Provision charged to operations              69,294        215,815        47,000
Charge-offs                                 (42,754)
                                          ---------      ---------     ---------

Balance, end of year                      $ 489,355      $ 462,815     $ 247,000
                                          =========      =========     =========

     Loans  delinquent  more than 90 days are placed on  nonaccrual  status.  At
     December  31, 1998 and 1997,  nonaccrual  loans  amounted to  approximately
     $94,000 and  $774,000,  respectively.  Interest  reserved  from these loans
     amounted to $3,880, $18,459 and $3,123 at December 31, 1998, 1997 and 1996,
     respectively.


                                       57
<PAGE>


     The  provision  for loan losses  charged to expense is based upon past loan
     and loss  experiences and an evaluation of estimated  losses in the current
     loan  portfolio,  including the evaluation of impaired loans under SFAS No.
     114.  A  loan  is  considered  to be  impaired  when,  based  upon  current
     information  and events,  it is probable that the Company will be unable to
     collect all amounts due according to the contractual  terms of the loan. An
     insignificant  delay or insignificant  shortfall in amount of payments does
     not require application of SFAS No. 114. For this purpose, delays less than
     90 days are  considered  to be  insignificant.  As of December 31, 1998 and
     1997,  100% of the impaired loan balance was measured for impairment  based
     on the fair value of the loan's collateral.  Impairment losses are included
     in the  provision  for loan  losses.  SFAS No.  114 does not apply to large
     groups of smaller balance homogeneous loans that are collectively evaluated
     for impairment,  except for those loans  restructured under a troubled debt
     restructuring.  At December 31, 1998 and 1997, the Company's impaired loans
     consisted  of  smaller  balance   residential   mortgage  loans  which  are
     collectively evaluated for impairment.

     Interest income on impaired loans other than nonaccrual loans is recognized
     on an accrual basis. Interest income on nonaccrual loans is recognized only
     as collected.

6.   OFFICE PROPERTY AND EQUIPMENT

     Office  property and  equipment is summarized  by major  classification  as
     follows:

                                                         December 31,
                                                --------------------------------
                                                    1998                1997

Land and buildings                              $ 2,344,384         $ 2,278,764
Furniture and equipment                           1,074,998           1,017,822
                                                -----------         -----------

    Total                                         3,419,382           3,296,586
Accumulated depreciation                         (1,431,011)         (1,340,182)
                                                -----------         -----------

Net                                             $ 1,988,371         $ 1,956,404
                                                ===========         ===========

     Depreciation expense totaled $91,956,  $126,656, and $121,751 for the years
     ended December 31, 1998, 1997 and 1996, respectively.

7.   MORTGAGE SERVICING RIGHTS

     The Company's  servicing portfolio for which mortgage servicing rights have
     been capitalized at December 31, 1998 consists of fixed rate, predominately
     conforming mortgage loans, as follows:

          Whole Loans Sold -  $31,258,472  - interest  rates range from 5.50% to
          8.875%;  original  terms  range from 180  months to 360 months  with a
          weighted average coupon of 7.324%, weighted average remaining maturity
          of 298 months, and an average servicing fee of 0.25%.

          Participations  Sold - $4,177,373 - interest rates range from 6.75% to
          8.00%;  original  terms  range from 120  months to 240  months  with a
          weighted average coupon of 7.30%,  weighted average  pass-through rate
          of 7.10%, and a weighted average remaining term of 142 months.


                                       58
<PAGE>


     Evaluation  of  potential  impairment  of the  carrying  value of  mortgage
     servicing  rights is determined based upon market valuation of loans within
     specified  interest  rate ranges.  At December 31, 1998 and 1997,  the fair
     value  of  mortgage  servicing  rights  approximates  its  carrying  value.
     Mortgage  servicing  rights are  amortized in  proportion  to projected net
     servicing revenue.

8.   DEPOSITS

     Deposits by stated type are summarized as follows:

                                                       December 31,
                                     -------------------------------------------
                                              1998                   1997
                                     ---------------------  --------------------
                                        Amount    Percent      Amount    Percent

Demand deposit accounts:
  1998 - 1.70%                       $ 1,999,737     3.0%
  1997 - 2.05%                                              $ 1,063,720     1.4%
Passbook accounts:
  1998 - 2.50%                         1,697,025     2.6
  1997 - 4.14%                                                2,494,272     3.2
Money market deposit accounts:
  1998 - 2.79%                         7,043,797    10.6
  1997 - 3.40%                                                8,532,239    11.1
91-day to five-year certificates
  of deposit
  1998 - 4.08% - 8.27%                55,604,437    83.8
  1997 - 4.94% - 7.04%                                       64,792,970    84.3
                                     -----------   -----    -----------   -----

Total                                $66,344,996   100.0%   $76,883,201   100.0%
                                     ===========   =====    ===========   =====

     The weighted average cost of funds was 5.26% and 5.65% at December 31, 1998
     and 1997, respectively.

     A summary of certificates of deposit by maturity is as follows:


                                                          December 31,
                                               ---------------------------------
                                                   1998                  1997

Less than 1 year                               $36,504,191           $44,979,769
1 to 3 years                                    15,760,529            16,173,988
3 years or more                                  3,339,717             3,639,213
                                               -----------           -----------

Total                                          $55,604,437           $64,792,970
                                               ===========           ===========



                                       59
<PAGE>


     A summary of interest expense on savings accounts is as follows:

                                                  Year Ended December 31,
                                        ----------------------------------------
                                            1998           1997           1996

Passbooks                               $   68,497     $  136,140     $  109,203
Demand deposit accounts                     23,851         19,088         14,634
Money market deposit accounts              228,021        292,641        281,797
Certificates of deposit                  3,512,511      3,968,578      4,092,023
                                        ----------     ----------     ----------

Total                                   $3,832,880     $4,416,447     $4,497,657
                                        ==========     ==========     ==========

     At  December  31,  1998,  the  Company  had   $10,997,000  of  deposits  in
     denominations  of  $100,000  or more.  Generally,  deposits  in  excess  of
     $100,000 are not federally  insured.  The Company does not accept  brokered
     deposits.

9.   ADVANCES FROM FEDERAL HOME LOAN BANK

     Advances from the Federal Home Loan Bank consist of the following:

                                            December 31,
                     ---------------------------------------------------------
                                   1998                        1997
                     ------------------------------ --------------------------
                                      Weighted                        Weighted
                                      Interest                        Interest
Maturing Period         Amount          Rate            Amount          Rate
---------------      -----------      --------       -----------      --------
                                                   
Line of credit                                     
12 months or less    $ 7,180,558       6.36%        $ 6,600,000        6.27%
13 to 24 months        1,491,580        6.62          6,000,000         6.51
25 to 36 months        3,603,275        6.90          1,300,000         6.72
37 to 48 months          315,684        6.39          3,400,000         6.96
49 to 60 months        1,151,056        5.19            100,000         7.35
                     -----------                    -----------
                                                   
Total                $13,742,153                    $17,400,000
                     ===========                    ==============
                                                   
     The weighted average interest rate for these advances at December 31, 1998,
     and 1997 was 6.43% and 6.53%, respectively.

     As of  December  31,  1997,  the  Company  had an unused  line of credit of
     $8,592,000  with the  Federal  Home Loan Bank of  Pittsburgh.  The  Company
     cancelled the line of credit in 1998.

10.  REGULATORY CAPITAL REQUIREMENTS

     The Bank is subject to various regulatory capital requirements administered
     by the federal and state banking agencies.  Failure to meet minimum capital
     requirements  can initiate  certain  mandatory  -- and possibly  additional
     discretionary  -- actions by regulators  that, if undertaken,  could have a
     direct material effect on the Company's  consolidated financial statements.
     Under capital adequacy  guidelines and the regulatory  framework for prompt
     corrective  action,  the Bank must meet specific  capital  guidelines  that
     involve quantitative measures of the Bank's assets, liabilities and certain
     off-balance   sheet  items  as  calculated  under   regulatory   accounting
     practices.  The Bank's capital amounts and


                                       60
<PAGE>


     classifications are also subject to qualitative judgments by the regulators
     about components, risk weightings, and other factors.

     Quantitative  measures established by regulation to ensure capital adequacy
     require the Bank to maintain  minimum  amounts and ratios (set forth in the
     table below) of tangible  and core capital (as defined in the  regulations)
     to total adjusted  assets (as defined),  and of Tier 1 risk-based and total
     risk-based  capital (as  defined)  to  risk-weighted  assets (as  defined).
     Management  believes,  as of  December  31,  1998,  that the Bank meets all
     capital adequacy requirements to which they are subject.

     The most  recent  notification  to the Office of Thrift  Supervision  (OTS)
     categorized the Bank as well-capitalized under the regulatory framework for
     prompt corrective action. To be categorized as  well-capitalized,  the Bank
     must maintain minimum tangible,  core and risk-based ratios as set forth in
     the table.  There are no conditions or events since that  notification that
     management believes have changed the Bank's category.

     The Bank's actual  capital  amounts (in thousands) and ratios are presented
     in the table below:

<TABLE>
<CAPTION>
                                                                                              To be Considered
                                                                                              Well Capitalized
                                                                     Required for               Under Prompt
                                            Actual                 Capital Adequacy              Provisions
                                   ---------------------      -----------------------        --------------------
                                     Amount        Ratio        Amount        Ratio          Amount        Ratio
<S>                                <C>             <C>         <C>              <C>           <C>           <C>
At December 31, 1998:
  Tangible                         $ 13,349        13.81%      $ 1,450          1.50%            N/A          N/A
  Core (leverage)                    13,349        13.81         2,899          3.00          $ 4,833        5.00%
  Tier 1 risk-based                  13,349        24.13          N/A            N/A            3,319        6.00
  Total risk-based                   13,378        24.91         4,426          8.00            5,532       10.00

At December 31, 1997:
  Tangible                         $ 13,085        11.77%      $ 1,667          1.50%            N/A          N/A
  Core (leverage)                    13,085        11.77         3,335          3.00          $ 5,558        5.00%
  Tier 1 risk-based                  13,085        21.81          N/A           N/A             3,600        6.00
  Total risk-based                   13,467        22.44         4,800          8.00            6,000       10.00
</TABLE>

     Retained  earnings for  financial  statement  purposes  differs from actual
     (leverage) capital amounts by $27,000, and $36,000 at December 31, 1998 and
     1997,  respectively.  This difference  represents the unallowed  portion of
     mortgage  servicing  rights and the  exclusion  of the  unrealized  loss on
     available for sale securities.  Retained  earnings for financial  statement
     purposes  differs from total  risk-based  capital  amounts by the unallowed
     portion of mortgage  servicing  rights,  the exclusion of the allowance for
     loan losses and the unrealized  loss on available for sale  securities from
     the calculation.

     On May 21, 1997, the Bank entered into a supervisory agreement with the OTS
     which requires the Bank to develop, adopt and in some cases modify, certain
     policies  and  procedures   relating  to  interest  rate  risk  management,
     improvement of operating performance and capital adequacy.

     It is  management's  opinion,  based  on the  Bank's  compliance  with  all
     regulatory capital  requirements and compliance with various agreements and
     directives,  that no further  regulatory  action  will be taken and that no
     adjustments to the consolidated financial statements will be required.


                                       61
<PAGE>


     At the date of the Conversion,  the Bank established a liquidation  account
     in an amount equal to its retained earnings.  The liquidation  account will
     be maintained for the benefit of eligible  account  holders who continue to
     maintain their accounts at the Bank after the  Conversion.  The liquidation
     account  will be reduced  annually  to the  extent  that  eligible  account
     holders have reduced their qualifying deposits as of each anniversary date.
     Subsequent increases will not restore an eligible account holder's interest
     in the liquidation  account. In the event of a complete  liquidation of the
     Bank,  each  eligible   account  holder  will  be  entitled  to  receive  a
     distribution from the liquidation account in an amount proportionate to the
     current adjusted qualifying balances for accounts then held.

11.  INCOME TAXES

     As of January 1, 1996, the Company changed its method of computing reserves
     for bad debts to the experience  method.  The bad debt deduction  allowable
     under this  method is  available  to small banks with assets less than $500
     million.  Generally,  this  method  allows the  Company to deduct an annual
     addition to the reserve for bad debts equal to the  increase in the balance
     of the Company's  reserve for bad debts at the end of the year to an amount
     equal to the  percentage  of total  loans at the end of the year,  computed
     using the ratio of the previous six years' net  charge-offs  divided by the
     sum of the previous six years' total outstanding loans at year end.

     A thrift  institution  required to change its method of computing  reserves
     for bad debts  treats  such  change  as a change in a method of  accounting
     determined  solely with respect to the "applicable  excess reserves" of the
     institution.  The amount of the  applicable  excess  reserves is taken into
     account  ratably over a six-taxable  year period,  beginning with the first
     taxable year beginning  after  December 31, 1995.  For financial  reporting
     purposes,  the  Company  will not incur any  additional  tax expense due to
     previously  provided  deferred  taxes.  At December 31, 1998 under SFAS No.
     109,  deferred  taxes were  provided  on the  difference  between  the book
     reserve at  December  31,  1998 and the  applicable  excess  reserve in the
     amount equal to the Company's increase in the tax reserve from December 31,
     1987 to December 31, 1998.  Retained earnings at December 31, 1998 and 1997
     includes  approximately  $1,300,000  representing  bad debt  deductions for
     which no deferred income taxes have been provided.


                                       62
<PAGE>


     Income taxes (benefit) consist of the following components:

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                        ----------------------------------------------------------------------------------------------------------
                                       1998                              1997                                   1996
                        -------------------------------  ----------------------------------    -----------------------------------
                          Federal      State      Total    Federal       State        Total      Federal        State        Total

<S>                       <C>         <C>       <C>        <C>         <C>         <C>          <C>          <C>         <C>       
Current tax provision     $42,000     $9,900    $51,900    $(8,400)    $(1,900)    $(10,300)    $(96,200)    $(22,800)   $(119,000)
Deferred tax provision                                                                            50,000                    50,000
                        ---------  ---------  ---------  ---------   ---------    ---------    ---------    ---------    ---------

Total                     $42,000     $9,900    $51,900    $(8,400)    $(1,900)    $(10,300)    $(46,200)    $(22,800)   $ (69,000)
                        =========  =========  =========  =========   =========    =========    =========    =========    =========
</TABLE>

     The Company's provision (benefit) for income taxes differs from the amounts
     determined  by applying  the  statutory  federal  income tax rate to income
     before income taxes for the following reasons:

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                    -----------------------------------------------------------------------------
                                                           1998                       1997                        1996
                                                    ---------------------       --------------------        ---------------------
                                                      Amount   Percentage        Amount   Percentage          Amount   Percentage
<S>                                                  <C>           <C>         <C>            <C>           <C>            <C>
Tax at federal tax rate                              $43,351       35.0%       $ (8,593)      (35.0)%       $(57,239)      (35.0)%
Increase (decrease) resulting from:
  Benefit of surtax exemption                         (1,239)      (1.0)            246         1.0            1,635         1.0
  State income taxes, net of federal
    income tax benefit                                 6,534        5.3          (1,254)       (5.1)         (15,048)       (9.2)
  Other                                                3,254        2.6            (699)       (2.8)           1,652         1.0
                                                    --------        ---        --------        ----         --------        ----

Total                                                $51,900        41.9%      $(10,300)       (41.9)%      $(69,000)       (42.2)%
                                                    ========        ===        ========        ====         ========        ====
</TABLE>



                                       63
<PAGE>


     Items that give rise to  significant  portions of the deferred tax accounts
     at December 31, 1998 and 1997 are as follows:

                                                              December 31,
                                                       -------------------------
                                                          1998           1997

Deferred tax assets:
  Deferred loan fees                                    $201,240       $233,526
  Reserve for bad debts                                   91,568         63,840
  Other                                                   20,751         14,730
                                                       ---------      ---------

           Total deferred tax assets                     313,559        312,096
                                                       ---------      ---------

Deferred tax liabilities:
  Property                                               (18,119)        (8,404)
  Mortgage servicing rights                             (114,121)      (126,263)
                                                       ---------      ---------

           Total deferred tax liabilities               (132,240)      (134,667)
                                                       ---------      ---------

Net deferred income taxes                               $181,319       $177,429
                                                       =========      =========

12.  EMPLOYEE BENEFITS

     Pension Plan

     The Company  terminated  its pension  plan on December  17,  1997,  ceasing
     benefit  accruals as of January 15, 1998.  The Company  distributed  excess
     funds pro rata to the participants in 1998.

     Net pension expense for 1997 and 1996 included the following components:

                                                               December 31,
                                                         -----------------------
                                                            1997          1996

Service cost - benefits earned during the year            $62,681       $69,168
Interest cost on projected benefit obligation              60,266        59,198
Actual return on assets                                   (55,469)      (29,910)
Net amortization of transition costs                      (14,376)      (47,717)
                                                         --------      --------

Net pension expense                                       $53,102       $50,739
                                                         ========      ========


                                       64
<PAGE>


      The following table sets forth the aggregate  funded status of the pension
plan for December 31, 1997.


Actuarial present value of benefit obligation:
  Vested                                                               $653,317
  Nonvested                                                              15,998
                                                                      ---------

Total accumulated benefit obligation                                   $669,315
                                                                      =========

Plan assets at fair value                                              $970,808
Projected benefit obligation                                           (966,140)
                                                                      ---------

Projected benefit obligation less than plan assets                        4,668
Unrecognized:
  Net gain from past experience                                        (132,423)
  Net transition asset                                                  (20,923)
                                                                      ---------

Accrued pension liability                                             $(148,678)
                                                                      =========

     The projected  benefit  obligation was determined  using a weighted average
     assumed  discount rate of 7% and a rate of compensation  increase of 4.25%.
     The expected  weighted average  long-term rate of return of plan assets was
     7%. Assumed average  remaining service lives of employees was approximately
     22 years.

     The  type of  assets  held  by the  plan  were  general  trust  investments
     including cash equivalents,  fixed income assets, group annuities and stock
     mutual funds.

     Deferred compensation  agreements are in effect with certain members of the
     Board of Directors.  Payment of director fees is being  deferred  under the
     terms of the deferred compensation agreements. For the years ended December
     31, 1998, 1997 and 1996,  $13,939,  $11,718 and $11,590,  respectively,  of
     fees were deferred under these agreements.

     401(k) Plan

     The Company instituted a 401(k) plan beginning in 1997. The plan covers all
     full-time  employees of the Company and provides for pre-tax  contributions
     by the employees with matching contributions of 25% of the first 2% of each
     employee's  contribution.  The Company incurred $5,660 and $4,611 in 401(k)
     expense for the years ended December 31, 1998 and 1997, respectively.

     Common Stock Acquired by Stock Benefit Plan

     In connection with the Conversion,  the Company established an ESOP for the
     benefit of eligible  employees.  The  Company  purchased  92,560  shares of
     common stock on behalf of the ESOP in the Conversion. For each of the years
     ended December 31, 1998 and 1997, 9,256 shares were released from the total
     ESOP and allocated to eligible  participants.  The Company accounts for its
     ESOP in  accordance  with  AICPA  Statement  of  Position  93-6,  Employers
     Accounting for Employee Stock Ownership  Plans,  which requires the Company
     to  recognize  compensation  expense  equal to the  fair  value of the ESOP
     shares during the periods in which they become committed to be released. To
     the extent that the fair value of the ESOP shares  differs from the cost of
     such  shares,  this  differential  will be charged or credited to equity as
     additional  paid-in  capital.  Management  expects the  recorded  amount of
     expense to fluctuate as continuing  adjustments are made to reflect changes
     in the fair value of the ESOP

                                       65
<PAGE>


     shares.  The Company  recorded  compensation  and employee  benefit expense
     related to the ESOP of $114,311  and $ 92,560 for the years ended  December
     31, 1998 and 1997, respectively.

13.  CONCENTRATION OF CREDIT RISK

     Most of the Company's lending activity is with customers located within the
     state  of  Delaware.  Generally,  the  loans  are  secured  by real  estate
     consisting of single-family residential properties.  The ultimate repayment
     of these loans is dependent to a certain degree on the local economy.

14.  FAIR VALUE OF FINANCIAL INSTRUMENTS

      The  following  disclosure  of  the  estimated  fair  value  of  financial
      instruments is made in accordance  with the  requirements of SFAS No. 107,
      Disclosures About Fair Value of Financial Instruments.  The estimated fair
      value amounts have been determined by the Company using  available  market
      information and appropriate valuation methodologies. However, considerable
      judgment is necessarily  required to interpret  market data to develop the
      estimates of fair value.  Accordingly,  the estimates presented herein are
      not  necessarily  indicative of the amounts the Company could realize in a
      current market exchange.  The use of different market  assumptions  and/or
      estimation  methodologies may have a material effect on the estimated fair
      value amounts.

<TABLE>
<CAPTION>
                                                                            December 31,
                                                     ----------------------------------------------------------
                                                               1998                             1997
                                                     -------------------------        -------------------------
                                                      Carrying      Estimated          Carrying      Estimated
                                                       Amount       Fair Value          Amount       Fair Value
                                                          (in thousands)                    (in thousands)

<S>                                                   <C>            <C>               <C>            <C>
Assets:
  Cash and cash equivalents                           $10,483        $10,483           $15,200        $15,200
  Investment securities available for sale                                               2,500          2,500
  Mortgage-backed securities available
    for sale                                            2,942          2,942             1,901          1,901
  Loans, net                                           81,027         80,892            88,933         89,949

Liabilities:
  Demand deposits and passbook accounts                 3,697          3,697             3,558          3,558
  Money market accounts                                 7,044          7,044             8,532          8,532
  Certificates of deposit                              55,604         56,357            64,793         65,187
  Advances from Federal Home Loan Bank                 13,742         13,987            17,400         17,523
</TABLE>

     Cash and Cash  Equivalents  - For cash and cash  equivalents,  the carrying
     amount is a reasonable estimate of fair value.

     Investments and  Mortgage-backed  Securities - The fair value of investment
     and   mortgage-backed   securities   (including   collateralized   mortgage
     obligations) is based on quoted market prices or dealer quotes.

     Loans  Receivable - The fair value of loans is  estimated  based on present
     value using approximate  current  entry-value  interest rates applicable to
     each category of such financial instruments.


                                       66
<PAGE>


     Loans  Held for Sale - The fair  value of loans held for sale is based upon
     commitment prices from the Federal Home Loan Mortgage Corporation.

     Demand  Deposits,  Passbook  Accounts,  Money  Market  Accounts and Savings
     Certificates  - The fair value of demand  deposits,  passbook  accounts and
     money market accounts is the amount  reported in the financial  statements.
     The fair value of savings certificates is based on a present value estimate
     using rates currently offered for deposits of similar remaining maturity.

     Advances  from Federal Home Loan Bank - The fair value of advances is based
     on a present value estimate using rates currently  offered for Federal Home
     Loan Bank borrowings of similar remaining maturity.

     Commitments to Extend Credit - The majority of the Company's commitments to
     extend credit carry current  market  interest  rates if converted to loans.
     Because  commitments to extend credit are generally  unassignable by either
     the  Company or the  borrower,  they only have value to the Company and the
     borrower.  The estimated fair value  approximates the recorded deferred fee
     amounts, which are insignificant.

     The  fair  value  estimates   presented   herein  are  based  on  pertinent
     information  available to  management  as of the date  indicated.  Although
     management is not aware of any factors that would significantly  affect the
     estimated  fair value amounts,  such amounts have not been  comprehensively
     revalued  for  purposes  of these  financial  statements  since  the  dates
     indicated  and,  therefore,  current  estimates  of fair  value may  differ
     significantly from the amounts presented herein.

15.  SAVINGS ASSOCIATION INSURANCE FUND

     On September 30, 1996, an omnibus appropriations bill for fiscal year 1996,
     which included  recapitalization of the Savings Association  Insurance Fund
     (SAIF) became law. Accordingly,  all SAIF-insured  depository  institutions
     were charged a one-time special  assessment based on their  SAIF-assessable
     deposits  as  of  March  31,  1995  at  the  rate  of  65.7  basis  points.
     Accordingly,  the Company incurred a pre-tax expense of $491,992 during the
     third quarter of 1996.


                                       67
<PAGE>


16.  PARENT COMPANY FINANCIAL INFORMATION

     Financial  statements  of  Delaware  First  Financial  Corporation  are  as
     follows:


                        Statements of Financial Condition
                                    ($000's)
                                                                December 31,
                                                          ----------------------
Assets                                                       1998         1997

Interest-bearing deposits                                 $  2,417     $  2,145
Investment in subsidiary bank                               14,118       13,954
Other assets                                                     9            1
                                                          --------     --------

Total assets                                              $ 16,544     $ 16,100
                                                          ========     ========

Liabilities and Stockholders' Equity

Other liabilities                                         $    264     $      2
                                                          --------     --------
Stockholders' equity:
  Common stock                                                  12           12
  Additional paid-in capital                                10,988       10,966
  Common stock acquired by the stock benefit plan             (740)        (833)
  Unrealized loss on available for sale securities              (6)          (1)
  Retained earnings                                          6,026        5,954
                                                          --------     --------

Total stockholders' equity                                  16,280       16,098
                                                          --------     --------

Total liabilities and stockholders' equity                $ 16,544     $ 16,100
                                                          ========     ========


                            Statements of Operations
                                    ($000's)


<TABLE>
<CAPTION>
                                                                                             Period
                                                                                          September 23,
                                                                                               1997
                                                                                            (date of
                                                                  Year                    Incorporation)
                                                                 Ended                       Through
                                                              December 31,                 December 31,
                                                                  1998                         1997
                                                             -------------                --------------
<S>                                                            <C>                              <C>
Interest income                                                $ 182
Operating expenses                                              (252)                           $  (1)
                                                               -----                            -----

Net loss before equity in undistributed
  earnings from subsidiary                                       434                               (1)

Equity in undistributed earnings from subsidiary                 142
                                                               -----                            -----

Net income (loss)                                              $  72                            $  (1)
                                                               =====                            =====
</TABLE>



                                       68
<PAGE>


                                   Statements of Cash Flows
                                           ($000's)

<TABLE>
<CAPTION>
                                                                                                    Period
                                                                                                September 23,
                                                                                                     1997
                                                                                                   (date of
                                                                                    Year        Incorporation)
                                                                                    Ended          Through
                                                                                December 31,     December 31,
                                                                                    1998             1997
                                                                               ---------------- ---------------
<S>                                                                              <C>              <C>      
Operating Activities:
  Net income (loss)                                                              $     72         $     (1)
  Adjustments to reconcile net income (loss) to net cash                                         
    provided by operating activities:                                                            
    Equity in undistributed earnings of subsidiary                                   (142)       
    Increase in other assets                                                           (8)              (1)
    Increase in other liabilities                                                     262                2
    Increase in investment in subsidiary                                              (27)       
    Amortization of common stock acquired by the stock benefit plan                   115               93
                                                                                 --------         --------
                                                                                                 
           Net cash provided by operating activities                                  272               93
                                                                                 --------         --------
                                                                                                 
Investing Activities - purchase of common                                                        
  stock of subsidiary                                                                               (8,000)
                                                                                                  --------
                                                                                                 
           Net cash used in investing activities                                                    (8,000)
                                                                                                  --------
                                                                                                 
Financing Activities:                                                                            
  Net proceeds from issuance of common stock                                                        10,978
  Common stock acquired by stock benefit plan                                                         (926)
                                                                                                  --------
                                                                                                 
           Net cash provided by financing activities                                                10,052
                                                                                                  --------
                                                                                                 
Net increase in cash                                                                  272            2,145
                                                                                                 
Cash, Beginning of Period                                                           2,145        
                                                                                 --------         --------
                                                                                                 
Cash, End of Period                                                              $  2,417         $  2,145
                                                                                 ========         ========
</TABLE>

                                     ******


                                       69
<PAGE>


Item 8. Changes in and  Disagreements  on With  Accountants  on  Accounting  and
        Financial Disclosure

Not applicable

                                    PART III

Item 9. Directors and Executive Officers of the Registrant

Management of the Company and the Savings Bank

     The  Board of  Directors  of the  Company  ("Board")  consists  of the same
individuals   who  serve  as  directors  of  the  Savings  Bank.  The  Company's
Certificate of  Incorporation  and Bylaws require that directors be divided into
three  classes,  as nearly equal in number as possible.  Each class of directors
serves for a three-year period,  with  approximately  one-third of the directors
elected each year.  Officers will be elected  annually by the Board and serve at
the Board's discretion.

     The Savings Bank's Board of Directors ("Savings Bank Board") is composed of
five members each of whom serves for a term of three years.  The Savings  Bank's
Federal  Stock Charter and Bylaws  require that  directors be divided into three
classes,  as nearly equal in number as possible.  Each class of directors serves
for a three-year period,  with approximately  one-third of the directors elected
each year. Executive officers are elected annually by the Savings Bank Board and
serve at the Savings Bank Board's discretion.

     The following table sets forth  information with respect to the Company and
Savings Bank's directors and executive officers.

<TABLE>
<CAPTION>
                                         Age at                                                                Current
                                        March 31,                                             Director           Term
               Name                       1999               Position                           Since          Expires
               ----                       ----               --------                           -----          -------

<S>                                        <C>         <C>                                      <C>              <C>
J. Bayard Cloud                            86          Chairman                                 1945             1999
Thomas B. Cloud                            50          Director                                 1972             2000
Larry D. Gehrke                            53          Director                                 1988             2000
Alan B. Levin                              44          Director                                 1993             1999
Ernest J. Peoples                          66          President, Chief Executive               1964             2001
                                                       Officer and Director
</TABLE>



                                       70
<PAGE>


Other Executive Officers


<TABLE>
<CAPTION>
                                                        Age at
                                                      March 31,
           Name                                          1999                Position
           ----                                          ----                --------

<S>                                                       <C>          <C>
Jerome P. Arrison                                         47           Executive Vice President, Chief
                                                                       Operating Officer and Treasurer

A. Joseph Atz                                             52           Vice President, Small Business
                                                                       Banking
Genevieve B. Marino                                       33           Vice President, Retail Banking
                                                                       Services
Lori N. Richards                                          36           Vice President, Finance and
                                                                       Administration
</TABLE>

     The principal  occupation and business  experience of each of the directors
is set forth below. Unless otherwise noted, the information applies for the past
five years.  There are no arrangements or understandings  between the Company or
the Savings  Bank and any person  pursuant to which such person has been elected
as a director.

     J. Bayard Cloud has been  Chairman of the Board since  January 1, 1983.  He
previously  served as President of the Savings Bank from 1961 to 1982. He is the
father of Thomas B. Cloud.

     Thomas B. Cloud,  since  December  1, 1995,  has been  President  and Chief
Executive  Officer of United  Electric  Supply  Company,  Inc. where he has been
employed since 1973 in various capacities including  Controller,  Vice President
of Finance and Chief Financial  Officer and Executive Vice  President.  The firm
employs over 190 individuals and  distributes  electric  products to industrial,
institutional  and electrical  construction  customers in a five state area. Mr.
Cloud is the son of J. Bayard Cloud.

     Larry D.  Gehrke is a  director  and Vice  President  of  Bellevue  Holding
Company of Wilmington,  Delaware, a real estate development concern. He has been
employed  there since 1972.  He holds real estate  brokerage  licenses  from the
State of Delaware and the Commonwealth of Pennsylvania.

     Alan B. Levin is Chairman,  President and Chief Executive  Officer of Happy
Harry's,  Inc., a privately held pharmacy  chain in Delaware with  approximately
1,100 employees. He is a member of the Delaware Bar and a former chairman of the
Delaware Workforce Development Council and Delaware Private Industry Council. He
was formerly a member of the State Attorney General's Office in Delaware.




                                       71
<PAGE>


     Ernest J. Peoples has been Interim President and Chief Executive Officer of
the Company  and the Savings  Bank,  since June 1, 1998.  Prior to that,  he was
retired and formerly an owner of a building and construction firm.

Executive Officers Who Are Not Directors

     The following executive officers do not serve on the Company or the Savings
Bank Board. There are no arrangements or understandings between the Savings Bank
and any person  pursuant to which such person  serves as an  executive  officer.
Except as  otherwise  noted,  they have been  employed by the Company or Savings
Bank for the last five years.

     Jerome P. Arrison has been  employed by the Savings Bank since August 1989.
He is currently  the Chief  Operating  Officer,  Executive  Vice  President  and
Treasurer.

     A. Joseph Atz was hired by the Savings  Bank in May 1998 as Vice  President
of Small  Business  Banking.  Prior to joining  the  Savings  Bank,  Mr. Atz was
employed by Beneficial  National Bank since 1971.  Between 1984 and May 1998, he
worked in the commercial lending area of Beneficial National Bank.

     Genevieve  B.  Marino  joined  the  Savings  Bank in  November  1995 as the
Director of Marketing and Communications. She assumed her current position, Vice
President  of Retail  Banking  Services,  in July 1997.  From  November  1993 to
November 1995 she was the Advertising and  Communications  Manager of Wilmington
Savings Fund Society,  FSB. Prior to that, she served in other capacities in the
Wilmington Savings Fund Society marketing department.

     Lori N. Richards  assumed her current position as Vice President of Finance
and  Administration  in July  1997.  From  June  1996 to July  1997  she was the
Controller  of the Savings  Bank.  From  September  1994 to June 1996 she was an
accounting supervisor at Lanxide Corporation located in Newark,  Delaware.  From
May 1991 to September  1994 she served as a senior  financial  accountant  at TA
Instruments, Inc. in New Castle, Delaware. She is a Certified Public Accountant.

Compliance with Section 16(a) of the Exchange Act

     Section 16(a) of the Exchange Act requires the officers and directors,  and
persons who own more than 10% of the  Company's  Common Stock to file reports of
ownership and changes in ownership with the  Securities and Exchange  Commission
and the National Association of Securities Dealers, Inc. Officers, directors and
greater than 10%  stockholders are required by regulation to furnish the Company
with copies of all Section 16(a) forms they file. The Company knows of no person
who owns 10% or more of the Company's Common Stock.


                                       72
<PAGE>


     Based  solely on  review  of the  copies  of such  forms  furnished  to the
Company, or written representations from its officers and directors, the Company
believes  that during,  and with respect to, 1998,  the  Company's  officers and
directors complied in all respects with the reporting  requirements  promulgated
under Section 16(a) of the Exchange Act.

Board Meetings and Committees

     The  Board  of  Directors   conducts  its  business  through  meetings  and
activities of its committees. During the year ended December 31, 1998, the Board
of Directors held 12 regular  meetings and eight special  meetings.  No director
attended  fewer than 75% of the total  meetings  of the Board of  Directors  and
committees  on which such  director  served  during the year ended  December 31,
1998,  except for Mr.  Levin who  attended  58% of such  meetings.  The standing
committees of the Board include the following:

     Executive  Committee.  The Executive  Committee  meets as needed.  It makes
recommendations to the full Board and acts on policies adopted by the full Board
in the absence of the meeting of the entire full Board.  The  committee  did not
meet during 1998. The committee is composed of Messrs.  Peoples  (Chairman),  J.
Bayard Cloud, and Thomas Cloud.

     Appraisal  Committee.  The Appraisal Committee consists of Messrs.  Peoples
(Chairman),  J. Bayard Cloud and Gehrke. The members of the committee review the
appraisals  of the real estate  collateral  for  certain  loans.  The  Appraisal
Committee met four times in 1998.

     Personnel   Committee.   The  Personnel   Committee  reviews  and  prepares
recommendations  for annual salary  adjustment  and bonuses.  The committee also
administers  the Savings  Bank's various  benefit plans.  It consists of Messrs.
Gehrke (Chairman) and Levin. The committee met six times during 1998.

     Budget  Committee.  The Budget Committee is responsible for determining the
capital needs of the Savings Bank and making recommendations regarding how those
needs may be  satisfied.  The Budget  Committee  did not meet  during  1998.  It
consists of Mr. Gehrke.

     Audit Committee.  The Audit Committee meets with the Company's  independent
certified public accountants  annually to review the results of the annual audit
and other related matters. This committee consists of Messrs. Peoples and Levin.
It met once during 1998.

     Funds Management  Committee.  The Fund Management  Committee  (formerly the
Asset/Liability  Committee)  consists of Mr.  Thomas  Cloud.  It is  principally
responsible  for  management of the Company's  interest rate risk. The committee
met six times during 1998.


                                       73
<PAGE>

Item 10. Executive Compensation

     Summary Compensation Table. The Company has not paid separate  compensation
to its  directors  and  officers.  The  following  table sets forth a summary of
certain  information  concerning the  compensation  paid by the Savings Bank for
services  rendered in all  capacities  during the year ended  December 31, 1998,
1997 and 1996 to the  President  and Chief  Executive  Officer and the Executive
Vice President and Chief Operating  Officer.  No other executive officers of the
Company or the Savings Bank had total annual  compensation in excess of $100,000
during fiscal 1998.

<TABLE>
<CAPTION>
====================================================================================================================================
                                                       Annual Compensation                                Long-Term
                                                                                                          Compensation
----------------------------------------------------------------------------------------------------------------------
          Name and              Year         Salary           Bonus         Other Annual        Restricted   Options      All Other
     Principal Position                                                     Compensation           Stock                Compensation
                                                                                                  Awards
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>          <C>           <C>              <C>                      <C>        <C>      <C>
Ernest J. Peoples               1998         $68,121(1)    $      0         $          0             $0         $ 0      $13,350(2)
   President and Chief          1997               0              0                    0              0           0       31,797(2)
   Executive Officer            1996               0              0                    0              0           0       30,886(2)
------------------------------------------------------------------------------------------------------------------------------------
Jerome P. Arrison
   Executive Vice               1998        $102,323       $      0         $          0             $0         $ 0      $12,333(4)
   President and Chief          1997         101,000              0                    0              0           0       11,341(4)
   Operating Officer            1996          96,606          8,921               12,840(3)           0           0            0
------------------------------------------------------------------------------------------------------------------------------------
Ronald P. Crouch
   Former President and         1998       $  46,154(5)    $      0         $          0            $ 0         $ 0      $85,394(6)
   Chief Executive              1997         120,000              0                    0              0           0       11,341(4)
   Officer                      1996         116,595         11,132               12,873(3)           0           0            0
====================================================================================================================================
</TABLE>
----------

(1)  Mr.  Peoples was  appointed to the position of Interim  President and Chief
     Executive  Officer as of June 1, 1998. His annual salary as of December 31,
     1998 is $121,800.  The amount shown  represents  salary paid to Mr. Peoples
     from June 1, 1998 through December 31, 1998.

(2)  This amount  represents  directors' fees,  retainers and special  retainers
     paid to Mr. Peoples for the period January 1, 1998 through May 31, 1998 and
     for the years of 1997 and 1996.

(3)  Amounts   reflect  the   Savings   Bank's   contribution   to  its  defined
     non-contributory pension plan on behalf of the employee during 1996. Annual
     compensation does not include amounts  attributable to other  miscellaneous
     benefits received by the executive officers.  The costs to the Savings Bank
     of providing such other  miscellaneous  benefits during fiscal 1998 did not
     exceed the  lesser of $50,000 or 10% of the total  salary and bonus paid to
     or accrued for the benefit of such individual executive officer.

(4)  Consists of amounts  allocated during the years ended December 31, 1998 and
     1997 on behalf of each individual pursuant to the ESOP.

(5)  Mr. Crouch resigned as President and Chief Executive Officer of the Company
     and the Savings Bank as of May 20, 1998. This amount represents salary paid
     to Mr. Crouch from January 1, 1998 through May 20, 1998.

(6)  This  amount  represents  payments  made to or on behalf  of Mr.  Crouch in
     connection  with a severance  agreement  between  the Savings  Bank and Mr.
     Crouch.  These payments included salary  continuation,  medical,  life, and
     disability insurance, and outplacement services.



                                       74
<PAGE>


     401(k) Plan. In 1997, the Savings Bank  established a contributory  savings
plan for employees  which meets the  requirements of Section 401(k) of the Code.
All employees who are at least 21 years old and who have  completed at least one
year of service may elect to  contribute a percentage of their  compensation  to
the plan each year  subject to certain  maximums  imposed  by federal  law.  The
Savings Bank  matches 25% of each  employee's  contribution,  on the first 2% of
that employee's contribution.

     Participants are fully vested in the amounts they contribute to the 401(k).
Participants are fully vested in amounts contributed to the plan on their behalf
by the Savings  Bank as  employer  matching  contributions  after seven years of
service.  Benefits  under  the  401(k)  plan  are  payable  in  the  event  of a
participant's  retirement,  death,  disability,  or  termination  of employment.
Normal retirement age under the 401(k) plan is 65 years of age.

     Employee Stock Ownership Plan. The Savings Bank has established an employee
stock ownership plan (the "ESOP") to allow  participating  employees to share in
its growth and  profits.  Participating  employees  are all  employees  who have
completed one year of service with the Savings Bank and have attained the age of
21.

     The ESOP is funded by tax-deductible contributions made by the Savings Bank
in cash or common stock. All contributions to the ESOP will be held in the trust
which is part of the ESOP and will be invested primarily in Savings Bank stock.

     To receive an  allocation,  a  participant  must be credited  with at least
1,000 hours of service  during the year and be  employed by the Savings  Bank on
the last day of the year,  or have  terminated  employment  during the year as a
result of death,  disability  (as defined in the ESOP) or retirement at or after
attaining  age 65. A  participant  becomes  vested  in his  account  balance  as
follows:  after 1 year of service - 20%, 2 years - 40%, 3 years - 60%, 4 years -
80%, 5 years or more - 100%.  Full vesting is accelerated  upon retirement at or
after age 65,  death,  disability,  or  termination  of the ESOP,  provided such
acceleration is not prohibited by applicable law.

     The Board of Directors has appointed the Personnel  Committee to administer
the ESOP and to serve as the ESOP Committee.  Wilmington  Trust Company has been
engaged  as the  ESOP  Trustee.  The  Personnel  Committee  is  responsible  for
administering  the  ESOP and for  instructing  the ESOP  Trustee  regarding  the
investment of any ESOP funds which cannot be invested in Savings Bank stock.

Director Compensation

     Each of the  non-employee  directors is paid an annual  retainer of $2,000.
Additionally,  each  non-employee  director receives $300 for each board meeting
attended and $300 for each committee


                                       75
<PAGE>


meeting attended. The maximum fee for meetings attended for any director is $300
per day so that if both a board and  committee  meeting are held on the same day
the maximum payment for attendance is $300.

     J. Bayard Cloud, the Chairman of the Board,  receives a special retainer of
$28,800  per year.  Prior to  becoming  Interim  President,  Ernest  J.  Peoples
received a special  retainer of $27,000 per year. These retainers are paid based
on their  service as Chair and Vice  Chair of the Board and for their  review of
appraisals.  Since assuming the position of Interim President,  Mr. Peoples does
not receive any director fees, retainers or special retainers.  Additionally,  a
supplemental  pension benefit is paid to J. Bayard Cloud. For 1998 the amount of
that benefit was $15,468.  Wilmington wage tax is also paid for all non-employee
directors.  This  tax is  currently  1.25% of gross  earnings.  Wilmington  wage
withholding  for  1998  was  $896.  Total  aggregate  fees  paid to the  current
directors for the year ended December 31, 1998 were $98,590.

Deferred Non-employee Director Compensation Program

     The Savings Bank has a deferred non-employee director compensation program,
whereby directors may defer their fees.  Currently,  Mr. Gehrke  participates in
this program.  Pursuant to this program,  directors defer their fees until their
retirement  or  resignation  from the  Board of  Directors.  For the year  ended
December 31, 1998, $11,433 of fees were deferred pursuant to this program.  Fees
deferred  pursuant to this  program  are  subject to the  general  rights of the
Bank's creditors.



                                       76
<PAGE>


Item 11. Security Ownership of Certain Beneficial Owners and Management

     The following table sets forth, as of March 22, 1999,  certain  information
as to the common stock of the Company  beneficially  owned by (i) each person or
entity,  including  any "group" as that term is used in Section  13(d)(3) of the
Exchange Act, who or which was known to the Company to be the  beneficial  owner
of more than 5% of the issued and outstanding  Common Stock,  (ii) the directors
of the Company,  (iii) those executive  officers of the Company whose salary and
bonus  exceeded  $100,000 in fiscal 1998,  and (iv) all  directors and executive
officers of the Company and the Savings Bank as a group.



<TABLE>
<CAPTION>
                                                                Common Stock Beneficially Owned as of
                Name of Beneficial Owner                                  March 22, 1999(1)
-----------------------------------------------------     ----------------------------------------------
                                                                    No.                       %
                                                          ---------------------    ---------------------
<S>                                                                <C>                      <C>
Delaware First Financial Corporation Employee                      74,048(2)                6.4%
Stock Ownership Plan and Trust
  400 Delaware Avenue
  Wilmington, Delaware 19801

Jeffrey L. Gendell, et al.                                        114,500(3)                9.9
  200 Park Avenue
  Suite 3900
  New York, New York 10166

Directors:


J. Bayard Cloud                                                     1,000                     *
Thomas B. Cloud                                                     6,154                     *
Larry D. Gehrke                                                     5,000                     *
Alan B. Levin                                                       1,500                     *
Ernest J. Peoples                                                   1,000                     *

Executive Officer:

Jerome P. Arrison                                                   2,467(4)                  *


All directors and executive officers of the Company                23,809                    2.1
and the Bank as a group (nine persons)
</TABLE>

----------


*    Represents  less  than  1% of  the  outstanding  Common  Stock.

                                              (Footnotes continued on next page)


                                       77
<PAGE>


(1)  Based upon  filings  made  pursuant  to the  Exchange  Act and  information
     furnished by the  respective  individuals.  Under  regulations  promulgated
     pursuant to the  Exchange  Act,  shares of the  Company's  Common Stock are
     deemed  to be  beneficially  owned by a  person  if he or she  directly  or
     indirectly has or shares (i) voting power, which includes the power to vote
     or to direct the voting of the  shares,  or (ii)  investment  power,  which
     includes the power to dispose or to direct the  disposition  of the shares.
     Unless otherwise indicated,  the named beneficial owner has sole voting and
     dispositive power with respect to the shares.

(2)  The Delaware  First  Employee  Stock  Ownership  Plan Trust  ("Trust")  was
     established  pursuant  to  the  ESOP  by  an  agreement  between  DFFN  and
     Wilmington Trust Company who acts as trustee of the plan ("Trustee"). As of
     December 31, 1998,  18,512 shares held in the Trust have been  allocated to
     the accounts of participating employees. The 74,048 unallocated shares held
     in the  Trust as of  December  31,  1998  will be voted by the  Trustee  in
     accordance  with its fiduciary duty as Trustee.  The amount of Common Stock
     beneficially  owned by all directors and executive officers as a group does
     not include the shares held by the Trust.

(3)  Mr. Gendell is the managing member of Tontine Management, L.L.C., a limited
     liability  company organized under the laws of the State of Delaware ("TM")
     and  Tontine  Overseas  Associates,  L.L.C.,  a limited  liability  company
     organized  under  the laws of the  State  of  Delaware  ("TOA").  TM is the
     general partner of Tontine  Financial  Partners,  L.P., a Delaware  limited
     partnership  ("TFP").  TOA serves as the investment manager to TFP Overseas
     Funds,  Ltd.,  a company  organized  under the laws of the  Cayman  Islands
     ("TFPO").  TFP and TFPO  directly  own 93,750  and 20,750  shares of DFFN's
     Common Stock,  respectively.  The business  address of Mr.  Gendell and TM,
     TOA, TFP and TFPO is 200 Park Avenue, Suite 3900, New York, New York 10166.

(4)  Includes  2,367  shares of the  Company's  common  stock  allocated  to Mr.
     Arrison under the ESOP which the Trustees will vote in accordance  with Mr.
     Arrison's instructions.

Item 12. Certain Relationships and Related Transactions

     The Company  offers loans to its directors  and  officers.  These loans are
currently  made in the  ordinary  course of business  with the same  collateral,
interest  rates and  underwriting  criteria as those of comparable  transactions
prevailing  at the  time  and do not  involve  more  than  the  normal  risk  of
collectibility  or present  other  favorable  features.  Under  current law, the
Company's  loans to directors and executive  officers are required to be made on
substantially the same terms,  including interest rates, as those prevailing for
comparable  transactions  and must not  involve  more  than the  normal  risk of
repayment or present other favorable features.  Additionally,  all loans to such
persons must be approved in advanced by a disinterested majority of the Board of
Directors.  At December 31, 1998, the Company's loans to directors and executive
officers  totalled  approximately  $617,000,  or 3.8% of the Company's  retained
earnings at that date.



                                       78
<PAGE>


Item 13. Exhibits, List and Reports on Form 8-K

     (a) The  following  exhibits  are filed as part of the Form 10-K,  and this
list includes the Exhibit

Index:

No.                Exhibits
---                --------
3.1                Certificate of Incorporation of the Company.*
3.2                Bylaws of the Company.*
4.0                Stock Certificate of the Company.*
21.0               List of Subsidiaries.*
27.0               Financial Data Schedule.


----------
*Incorporated herein by reference from the Company's  Registration  Statement on
Form SB-2 filed with the SEC on September 26, 1997.

(b)  Reports filed on Form 8-K.

     On November 24,  1998,  the Company  filed a Form 8-K Current  Report under
Item 5 to reflect the execution on November 18, 1998 of an Agreement and Plan of
Reorganization pursuant to which The Crown Group, Inc. will acquire the Company.
No financial statements were filed.


                                       79
<PAGE>


                                   SIGNATURES

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


                      DELAWARE FIRST FINANCIAL CORPORATION


                  By: /s/ Ernest J. Peoples
                      ---------------------------------------
                      Ernest J. Peoples
                      President and Chief Executive Officer

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





/s/ Ernest J. Peoples                                           March 31, 1999
--------------------------------------
Ernest J. Peoples
President and Chief Executive Officer

/s/ J. Bayard Cloud                                             March 31, 1999
--------------------------------------
 J. Bayard Cloud
Chairman of the Board


/s/ Thomas B. Cloud                                             March 31, 1999
--------------------------------------
Thomas B. Cloud
Director


/s/ Larry D. Gehrke                                             March 31, 1999
--------------------------------------
Larry D. Gehrke
Director






                                       80
<PAGE>





 /s/ Alan B. Levin                                              March 31, 1999
--------------------------------------
Alan B. Levin
Director



/s/ Jerome P. Arrison                                           March 31, 1999
--------------------------------------
Jerome P. Arrison
Vice President
(principal financial officer)


/s/ Lori N. Richards
--------------------------------------
Lori N. Richards                                                March 31, 1999
Treasurer
(principal accounting officer)




                                       81