EXHIBIT 13

                        ANNUAL REPORT TO SECURITY HOLDERS




<PAGE>


                       1997 ANNUAL REPORT TO STOCKHOLDERS

                             CHARTER FINANCIAL, INC.




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


                                Table of Contents


                                                                         Page
                                                                         ----

Message from the Chairman                                                  1
Common Stock and Related Matters                                           2
Selected Consolidated Financial Information                                3
Management's Discussion and Analysis                                       5
Independent Auditors' Report                                               18
Consolidated Financial Statements                                          19
Notes to Consolidated Financial Statements                                 24
Stockholder Information                                                    52


<PAGE>
                                                       MESSAGE FROM THE CHAIRMAN

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







To Our Stockholders:


As announced in July 1997, Charter Financial, Inc. engaged Charles Webb & Co., a
division of Keefe,  Bruyette & Woods,  to advise  Charter  Financial,  Inc. with
respect to enhancement of shareholder value. A review of alternative  methods to
enhance  shareholder  value,   including  a  strategic  affiliation  with  other
entities, was made.

I am pleased to report  that on  November  19,  1997,  Charter  Financial,  Inc.
entered into an Agreement and Plan of Merger with Magna Group, Inc. Terms of the
Agreement  provide for each share of Charter  common stock to be  exchanged  for
 .5751  of  a  share  of  Magna  common  stock.  The  purchase  price  represents
approximately 1.6 times Charter's book value.

We are excited  about the  opportunities  to be derived from the  alliance  with
Magna,  which is a $7 billion bank. Many new services,  including trust services
and commercial products,  will be made available to our customers as a result of
the merger.  The  transaction  will require  approval of the  regulators and our
shareholders and is anticipated to be completed in the second quarter of 1998.

One of our major  accomplishments  during the past year was the  acquisition  of
$28.6 million Home Federal Savings Bank in Carbondale, Illinois. The addition of
the Home Federal branch facility  provides another  convenient  location for the
high traffic area in Carbondale.  Additionally two new automatic teller machines
(ATM's) were  installed in the Carbondale  market.  One ATM was installed in the
Southern  Illinois  University  Student  Center  and the other at our new branch
located at 635 E. Walnut Street.

As  a  shareholder  you  have  benefited  from  the  continued  improvement  and
performance  of Charter Bank  through the  increase in  dividends  from $.06 per
share to $.08 per share during the past three quarters.

I want to thank the  directors,  employees  and  customers who made 1997 another
successful  year. Your continued  support during this time of transition will be
greatly appreciated.

Sincerely,


/s/John A. Becker
-----------------
John A. Becker
Chairman of the Board, President,
and Chief Executive Officer



                                     - 1 -
<PAGE>
COMMON STOCK AND RELATED MATTERS
--------------------------------------------------------------------------------


The common stock of Charter  Financial,  Inc. is traded in the  over-the-counter
market  and is listed for  quotation  in the NASDAQ  National  Market  under the
symbol "CBSB." The stock was issued on December 28, 1995 at $10.00 per share. As
of  November  28,  1997,  there were 820  stockholders  of record and  4,150,123
outstanding shares of common stock.

The  following  table sets forth the high and low closing bid prices as reported
by  NASDAQ  and  dividends  paid  per  share of  common  stock  for the  periods
indicated.
 
                                                                       Dividends
             Quarter ended               High              Low           paid
             -------------               ----              ---           ----
                                   
           December 31, 1995         $ 10.8125         $ 10.8125       $   .15*
           March 31, 1996              12.2500           10.8125           .06
           June 30, 1996               12.0000           11.2500           .06
           September 30, 1996          13.0000           10.8750           .06
           December 31, 1996           13.0000           12.5000           .06
           March 31, 1997              17.2500           12.2500           .08
           June 30, 1997               18.0000           16.7500           .08
           September 30, 1997          21.5000           17.2500           .08
    
               


Payment of  dividends  on the  common  stock is  subject  to  determination  and
declaration  by the Board of Directors and will depend upon a number of factors,
including  capital  requirements,  regulatory  limitations  on  the  payment  of
dividends,  Charter Financial's  results of operations and financial  condition,
tax considerations,  and general economic conditions.  No assurance can be given
that  dividends  will be declared or, if declared,  what the amount of dividends
will be, or whether such dividends, once declared, will continue.















*   Represents dividends paid by Charter Bank, S.B., to its stockholders other
    than its mutual holding company prior to the reorganization of Charter
    Bancorp, M.H.C. to Charter Financial, Inc.


                                                      
                                     - 2 -
<PAGE>
                                     SELECTED CONSOLIDATED FINANCIAL INFORMATION

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

The following  tables set forth certain  historical  information  concerning the
financial  position  and  results  of  operations  of the  Company  at the dates
indicated.
<TABLE>
<CAPTION>
                                                               At September 30,
                                        ------------------------------------------------------------ 
                                          1997         1996         1995         1994         1993
                                                    
                                                               (In Thousands)
<S>                                     <C>          <C>          <C>          <C>          <C>
Selected Financial Condition Data:
    Total assets ..................     $387,032     $388,431     $293,135     $261,297     $259,042
    Loans receivable, net .........      287,650      275,487      206,074      178,058      157,342
    Investments, net (1) ..........       66,768       77,999       60,174       58,798       68,957
    Mortgage-backed securities, net       14,606       16,632       16,670       16,071       20,950
    Deposits (2) ..................      275,980      248,723      197,103      189,947      198,183
    Borrowed money ................       50,317       76,354       57,080       35,566       27,095
    Stockholders' equity (3) ......       58,417       56,394       35,622       31,581       22,016

<CAPTION>
                                                                   Year ended September 30,
                                                --------------------------------------------------------------
                                                  1997         1996          1995          1994         1993
                                                --------     --------      --------      --------     --------             
                                                                  (In Thousands, except per share data)
<S>                                             <C>          <C>           <C>           <C>          <C>
Selected Operating Data:
    Interest income .......................     $ 29,636     $ 24,819      $ 20,009      $ 18,233     $ 18,391
    Interest expense ......................       15,724       12,426        10,309         8,387        8,730
                                                --------     --------      --------      --------     --------             
       Net interest income ................       13,912       12,393         9,700         9,846        9,661
    Provision for losses on loans .........          321          170           360           140        1,004
                                                --------     --------      --------      --------     --------             
       Net interest income after
         provision for losses on loans ....       13,591       12,223         9,340         9,706        8,657
                                                --------     --------      --------      --------     --------             
    Noninterest income:
       Late charges and other loan fees ...          579          391           241           266          173
       Gain (loss) on sale of invesment
         securities, net ..................          369          (29)          (14)          121            8
       Gain (loss) on sale of mortgage-
         backed securities, net ...........           15           (9)         --            --           --
       Deposit account fees ...............          961          797           677           603          530
       Other ..............................        2,082          691           506           454          458
                                                --------     --------      --------      --------     --------             
         Total noninterest income .........        4,006        1,841         1,410         1,444        1,169
                                                --------     --------      --------      --------     --------  
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                             <C>          <C>           <C>           <C>          <C>
    Noninterest expense:
       Compensation and employee benefits .        3,970        3,661         3,025         2,778        2,106
       Office buildings and equipment
         and data processing ..............        1,418        1,083           835           825          836
       Advertising ........................          195          237           148           196          152
       Deposit insurance premiums .........          147          458           438           461          380
       SAIF special assessment ............         --          1,479          --            --           --
       Other ..............................        2,129        1,641         1,306         1,199          880
       Provision for losses and
         expenses on real estate
         acquired by foreclosure ..........          188           81             4           184           84
       Amortization of cost in
         excess of fair value of net
           assets acquired ................          455          211           136           142          142
                                                --------     --------      --------      --------     --------             
         Total noninterest expense ........        8,502        8,851         5,892         5,785        4,580
                                                --------     --------      --------      --------     --------             
         Income before income tax
           expense and cumulative effect of
           change in accounting principle .        9,095        5,213         4,858         5,365        5,246
    Income tax expense ....................        3,657        2,155         1,874         2,054        2,173
                                                --------     --------      --------      --------     --------             
       Income before cumulative effect of
         change in accounting principle ...        5,438        3,058         2,984         3,311        3,073
    Cumulative effect of change in
         accounting principle .............         --           --            --             786         --
                                                --------     --------      --------      --------     --------             
      Net income .........................      $  5,438     $  3,058      $  2,984      $  4,097     $  3,073
                                                ========     ========      ========      ========     ========
Earnings per share:
       Income before cumulative effect of
        change in accounting principle ....     $   1.27     $   0.67      $   0.69      $   0.78     $    N/A
       Cumulative effect of change in
         accounting principle .............          --           --            --           0.19          N/A
                                                --------     --------      --------      --------     --------             
       Net Income .........................     $   1.27     $   0.67      $   0.69      $   0.97     $    N/A
                                                ========     ========      ========      ========     ========
                                                              

</TABLE>

                                     - 3 -
<PAGE>

SELECTED CONSOLIDATED FINANCIAL INFORMATION,  Cont.

--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                At or for the year ended September 30,
                                                    --------------------------------------------------------- 
                                                     1997         1996        1995        1994           1993
                                                     ----         ----        ----        ----           ----
<S>                                                 <C>         <C>         <C>         <C>            <C>
Selected Financial Ratios and Other Data:
    Performance ratios:
       Return on average assets (4) ........          1.40%       0.93%       1.09%       1.27%(5)       1.26%
       Return on average stockholders'
          equity (4) .......................          9.57        5.57        8.92       15.29          15.10
       Stockholders' equity as a percent
          of average assets ................         15.02       17.18       12.97       12.14           9.02
       Stockholders' equity to total
          assets (end of period) ...........         15.09       14.52       12.15       12.09           8.50
       Interest rate spread (6) ............          3.24        3.27        3.25        3.48           3.86
       Net interest margin (7) .............          3.78        3.95        3.68        3.85           4.12
       Average interest-earning assets as
          a percent of average interest-
           bearing liabilities (8) .........        112.72      117.30      110.80      111.17         107.06
    Asset quality ratios:
       Nonperforming loans as a percent
          of loans receivable, net (9) .....          0.52        0.78        0.32        0.23           1.40
       Nonperforming assets as a percent
          of total assets (10) .............          0.56        0.67        0.27        0.24           0.94
       Allowance for loan losses as a
          percent of nonperforming loans (9)        150.79      111.89      336.65      528.29         100.09
    Number of full-service offices .........          8           7           6           5              5

</TABLE>
----------------
(1)  Includes Federal Home Loan Bank stock and interest-bearing deposits.
(2)  During the years ended  September 30, 1994 and 1993,  $1.8 million and $7.6
     million,  respectively,  in  certificates  of deposit were  converted  into
     reverse repurchase agreements and, therefore,  are not reflected in deposit
     totals.
(3)  Reflects only retained earnings for years prior to 1994, the fiscal year in
     which Charter Bank converted to stock form.
(4)  Averages are computed on a simple average basis using period-end balances.
(5)  Does not include  cumulative  effect of change in  accounting  principle of
     $786,053.  Return on average  assets  was 1.57%  including  such  amount at
     September 30, 1994.
(6)  Represents  the  difference  between the yield on average  interest-earning
     assets and the cost of average interest-bearing liabilities.
(7)  Represents  net  interest  income as a percent of average  interest-earning
     assets.  (8) Averages  are  computed  based upon  month-end  balances.  (9)
     Includes  nonaccruing  loans  90  days or more  delinquent.  (10)  Includes
     nonaccruing  loans  90 days or more  delinquent  and real  estate  acquired
     through foreclosure.




                                      - 4-
<PAGE>
                                            MANAGEMENT'S DISCUSSION AND ANALYSIS
--------------------------------------------------------------------------------
General

Net income of Charter  Financial,  Inc. and its  subsidiary  ("the  Company") is
primarily  dependent  on the  interest  income  earned on its loans  receivable,
mortgage-backed  securities,  and  investments,  and the interest expense on its
deposits  and  borrowings.  The  Company's  net income is also  affected  by its
noninterest  income,  consisting  primarily of late charges and other loan fees,
deposit account fees,  brokerage  commissions and fees, as well as its provision
for losses on loans, and noninterest expense,  such as compensation and employee
benefits, deposit insurance premiums,  occupancy and equipment costs, and income
taxes.

Additionally,  earnings  of the Company are  affected  significantly  by general
economic and  competitive  conditions,  particularly  changes in market interest
rates, government policies, and actions of regulatory authorities.

On  December  28,  1995,   the  Company   completed  its   conversion   from  an
Illinois-charted  mutual holding  company to a Delaware stock  corporation  (the
Conversion).  At the date of the Conversion,  the Company  completed the sale of
2,919,414 shares of common stock, $.10 par value, at a price of $10 per share to
Charter Bank,  S.B.'s ("the Bank")  depositors,  Employee  Stock  Ownership Plan
(ESOP),  and minority  stockholders  in a  subscription  offering and to certain
members of the general  public in a community  offering.  Net proceeds  from the
sale of common  stock  were  $27,051,859,  after  deducting  approximately  $1.2
million of offering  expenses and $969,030  related to the sale of 96,903 shares
to the Bank's ESOP.

In  conjunction  with the  subscription  and community  offering,  an additional
2,054,832  shares of common stock were issued by the Company to convert  986,051
shares of the Bank's  common  stock held by  minority  stockholders  into common
stock  of the  Company.  Each  share of the  Bank's  common  stock in the  above
transaction  was  converted  into the  right to  receive  2.0839  shares  of the
Company's common stock (the Exchange Ratio).

When used in this Annual Report the words or phrases "will likely  result," "are
expected  to," "will  continue,"  "is  anticipated,"  "estimate,"  "project"  or
similar expressions are intended to identify "forward-looking statements" within
the  meaning of the  Private  Securities  Litigation  Reform  Act of 1995.  Such
statements  are subject to certain  risks and  uncertainties,  including,  among
other  things,  changes in economic  conditions  in the  Company's  market area,
changes in policies by  regulatory  agencies,  fluctuations  in interest  rates,
demand for loans in the Company's market area and competition,  that could cause
actual results to differ materially from historical earnings and those presently
anticipated  or projected.  The Company  wishes to caution  readers not to place
undue reliance on any such  forward-looking  statements,  which speak only as of
the date made.  The Company  wishes to advise  readers  that the factors  listed
above  could  affect the  Company's  financial  performance  and could cause the
Company's  actual  results  for  future  periods to differ  materially  from any
opinions or statements  expressed  with respect to future periods in any current
statements.

The Company does not undertake,  and  specifically  declines any obligation,  to
publicly  release the result of any  revisions  which may be made to any forward
looking  statements to reflect  events or  circumstances  after the date of such
statements or to reflect the occurrence of anticipated or unanticipated events.

                                     - 5 -
<PAGE>
Business Strategy

The Company's  current  business  strategy is to operate as a  well-capitalized,
profitable,  and independent  community savings bank dedicated to financing home
ownership and consumer needs in its market area and to provide  quality  service
to its  customers.  The Company has  implemented  this  strategy by: (i) closely
monitoring needs of customers and providing  quality  service;  (ii) emphasizing
consumer banking by originating  residential  mortgage loans and consumer loans,
and by offering  checking  accounts and other  financial  services and products;
(iii)  maintaining  asset  quality;   (iv)  maintaining  capital  in  excess  of
regulatory  requirements and growing  moderately in a manner consistent with the
Company's strategy of maintaining high capital levels; (v) increasing  earnings;
and (vi)  managing  interest  rate risk by better  matching  asset and liability
maturities and rates.

On January 16,  1997,  the Company  completed  its  acquisition  of Home Federal
Savings Bank, Carbondale, Illinois ("Home Federal") in exchange for cash of $6.3
million.  Home Federal's assets consisted primarily of loans receivable of $21.4
million, investment securities of $3.1 million and mortgage-backed securities of
$1.8 million, while liabilities consisted primarily of savings deposits of $23.8
million.  The  acquisition  was  accounted  for using the  purchase  method and,
accordingly,  the  operating  results of Home Federal have been  included in the
Company's results of operations since the date of the acquisition. The excess of
the cost over fair  value of the net  assets  acquired  was  approximately  $2.6
million.

On May 15, 1996,  the Company  completed its  acquisition  of Community  Savings
Bank,  Marion,  Illinois  ("Community  Savings")  in  exchange  for cash of $7.5
million.  Community  Savings' assets consisted  primarily of loans receivable of
$45.4  million and  investment  securities of $6.3  million,  while  liabilities
consisted  primarily of savings  deposits of $49.7 million.  The acquisition was
accounted for using the purchase method and, accordingly,  the operating results
of Community  Savings have been included in the Company's  results of operations
since the date of the acquisition. The excess of the cost over fair value of the
net assets acquired was approximately $2.9 million.

Results of Operations

The  earnings  of the  Company  depend  primarily  on its level of net  interest
income,  which  is the  difference  between  interest  earned  on the  Company's
interest-earning  assets and the interest paid on interest-bearing  liabilities.
Net interest income is a function of the Company's interest rate spread which is
the difference between the yield earned on interest-earning  assets and the rate
paid on  interest-bearing  liabilities,  as well as a  function  of the  average
balance  of  interest-earning  assets as  compared  to the  average  balance  of
interest-bearing  liabilities.  The Company had net income of $5.4 million, $3.1
million,  and $3.0 million for the fiscal years ended September 30, 1997,  1996,
and 1995, respectively.









                                                        
                                     - 6 -
<PAGE>
Average Balance Sheet

The  following  table sets forth certain  information  relating to the Company's
average  balance sheet and reflects the average yield on assets and average cost
of |liabilities for the periods indicated.  Such yields and costs are derived by
dividing  income or expense  by the  average  balance of assets or  liabilities,
respectively,  for the periods  presented.  Average  balances  are derived  from
utilizing  month-end  balances.  Management  does  not  believe  that the use of
month-end balances instead of daily balances has caused any material differences
in the information presented.
<TABLE>
<CAPTION>
                                                                       Year ended September 30,
                                              -------------------------------------------------------------------------  
                                                              1997                                  1996                 
                                              ------------------------------------   ----------------------------------  
                                               Average                   Average     Average                  Average    
                                               balance      Interest    yield/cost   balance       Interest  yield/cost  
                                                ----------------------------------------  -----------------------------  
                                                                        (Dollars in Thousands)
<S>                                           <C>            <C>         <C>        <C>            <C>         <C>

Interest-earning assets:
     Loans receivable, net (1)                $ 285,700      $ 24,247      8.49%    $ 230,765      $ 19,439      8.42%     
     Investments, net (2)                        62,572         4,123      6.59        62,243         3,937      6.33     
     Mortgage-backed securities, net             15,803         1,092      6.91        16,353         1,173      7.17     
     Interest-bearing deposits                    4,130           174      4.21         4,563           270      5.92     
                                              ---------      --------               ---------      --------               
       Total interest-earning assets          $ 368,205        29,636      8.05     $ 313,924        24,819      7.91     
                                              =========      --------               =========      --------               
Interest-bearing liabilities:
     Deposits                                 $ 268,767        12,378      4.61     $ 219,092         9,793      4.47     
     Borrowed money                              57,888         3,346      5.78        48,544         2,633      5.42     
                                                --------     --------               ---------      --------               
       Total interest-bearing liabilities     $ 326,655        15,724      4.81     $ 267,636        12,426      4.64     
                                              =========      --------               =========      --------               
Net interest income                                          $ 13,912                              $ 12,393               
                                                             ========                              ========               
Net interest rate spread (3)                                               3.24%                                 3.27%    
                                                                         ======                                ======   
Net interest margin (4)                                                    3.78%                                 3.95%  
                                                                         ======                                ======  
Ratio of average interest-earning assets
     to average interest-bearing liabilities                             112.72%                               117.30%  
                                                                         ======                                ======   
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                       1995                
                                                      ------------------------------------  
                                                        Average                  Average          
                                                        balance      Interest   yield/cost         
                                                      ------------------------------------  
<S>                                                   <C>            <C>         <C>      
Interest-earning assets:                     
     Loans receivable, net (1)                        $ 188,897      $ 15,462      8.19%         
     Investments, net (2)                                54,036         3,308      6.12     
     Mortgage-backed securities, net                     17,510         1,087      6.21     
     Interest-bearing deposits                            3,477           152      4.37     
                                                      ---------      --------               
       Total interest-earning assets                  $ 263,920        20,009      7.58     
                                                      =========      --------               
Interest-bearing liabilities:                                                               
     Deposits                                         $ 189,309         7,567      4.00     
     Borrowed money                                      48,882         2,742      5.61     
                                                      ---------      --------                
       Total interest-bearing liabilities             $ 238,191        10,309      4.33     
                                                      =========      --------               
Net interest income                                                  $  9,700               
                                                                     ========               
Net interest rate spread (3)                                                       3.25%    
                                                                                 ======           
Net interest margin (4)                                                            3.68%    
                                                                                 ======           
                                                                                            
Ratio of average interest-earning assets                                                    
     to average interest-bearing liabilities                                     110.80%    
                                                                                =======

</TABLE>
<PAGE>
Rate/Volume Analysis

The table below sets forth  certain  information  regarding  changes in interest
income and interest expense of the Company for the periods  indicated.  For each
category   of   interest-earning   assets  and   interest-bearing   liabilities,
information is provided on changes attributable to (i) changes in average volume
(changes in average  volume  multiplied  by prior  rate);  (ii) changes in rates
(change  in  rate  multiplied  by  prior  average  volume);   (iii)  changes  in
rate-volume  (changes in rate multiplied by the change in average  volume);  and
(iv) the net change.
<TABLE>
<CAPTION>

                                                                          Year ended September 30,
                                     ------------------------------------------------------------------------------------------- 
                                                       1997 vs. 1996                                 1996 vs. 1995               
                                     -----------------------------------------------  ------------------------------------------ 
                                                     Increase (decrease)                          Increase (decrease)            
                                                           due to                                       due to                   
                                     -----------------------------------------------  ------------------------------------------ 
                                                                 Rate/    Increase                           Rate/    Increase   
                                           Volume       Rate     volume   (Decrease)   Volume       Rate     volume   (Decrease) 

                                                                              (In Thousands)
<S>                                        <C>         <C>       <C>       <C>         <C>         <C>       <C>       <C>
Interest income:
     Loans receivable, net (1) ........    $ 4,626     $ 220     $ (38)    $ 4,808     $ 3,429     $ 434     $ 114     $ 3,977
     Investments, net (2) .............         21       166        (1)        186         502       113        14         629
     Mortgage-backed securities, net ..        (39)      (41)       (1)        (81)        (72)      168       (10)         86
     Interest-bearing deposits ........        (26)      (77)        7         (96)         47        54        17         118
                                           -------     -----     -----     -------     -------     -----     -----     -------
          Total interest-earning assets      4,582       268       (33)      4,817       3,906       769       135       4,810
                                           -------     -----     -----     -------     -------     -----     -----     -------
Interest expense:
     Deposits .........................      2,220       435       (70)      2,585       1,191       890       145       2,226
     Borrowed money ...................        506       241       (34)        713         (19)      (93)        3        (109)
                                           -------     -----     -----     -------     -------     -----     -----     -------
          Total interest-bearing
             liabilities ..............      2,726       676      (104)      3,298       1,172       797       148       2,117
                                           -------     -----     -----     -------     -------     -----     -----     -------
       Change in net interest income ..    $ 1,856     $(408)    $  71     $ 1,519     $ 2,734     $ (28)    $ (13)    $ 2,693
                                           =======     =====     =====     =======     =======     =====     =====     =======

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                      Year ended September 30,
                                           ------------------------------------------
                                                           1995 vs. 1994                 
                                           ------------------------------------------   
                                                        Increase (decrease)              
                                                              due to                     
                                           ------------------------------------------   
                                                                   Rate/    Increase           
                                            Volume       Rate      volume   (Decrease)  
                                                          (In Thousands)
<S>                                        <C>         <C>         <C>       <C> 
Interest income:
     Loans receivable, net (1) ........    $ 1,614     $   526     $  66     $ 2,206
     Investments, net (2) .............       (632)        223       (37)       (446)
     Mortgage-backed securities, net ..        (10)         15         0           5
     Interest-bearing deposits ........        (37)         65       (17)         11
                                           -------     -------     -----     -------
          Total interest-earning assets        935         829        12       1,776
                                           -------     -------     -----     -------
Interest expense:
     Deposits .........................       (205)        942       (29)        708
     Borrowed money ...................        609         432       173       1,214
                                           -------     -------     -----     -------
          Total interest-bearing
             liabilities ..............        404       1,374       144       1,922
                                           -------     -------     -----     -------
       Change in net interest income ..    $   531     $  (545)    $(132)    $  (146)
                                           =======     =======     =====     =======

</TABLE>
--------------------------------------------------------------------------------
(1)  Average balance includes nonaccrual loans.
(2)  Includes Federal Home Loan Bank stock and investment securities.
(3)  Net interest  rate spread  represents  the  difference  between the average
     yield on  interest-earning  assets and the average cost of interest-bearing
     liabilities.
(4)  Net  interest  margin  represents  net interest  income as a percentage  of
     average interest-earning assets.


















                                     - 7 -
<PAGE>
Comparison of Operating Results for the Fiscal Years ended September 30, 1997
and 1996

Interest Income. Interest income totaled $29.6 million for the fiscal year ended
September 30, 1997 compared to $24.8 million for the fiscal year ended September
30,  1996,  an  increase  of $4.8  million,  or 19.4%.  This  increase  resulted
primarily from a $54.3 million, or 17.3%,  increase in average  interest-earning
assets to $368.2  million for fiscal  year 1997 from  $313.9  million for fiscal
year 1996. The increase in average  interest-earning  assets resulted  primarily
from the acquisition of Home Federal in January 1997 and a full year's effect of
the Community  Savings  acquisition in May 1996. The increase in interest income
was also impacted by an increase in the average yield on interest-earning assets
to 8.05% in fiscal  year 1997 from  7.91% in fiscal  year  1996.  This  resulted
primarily from a shift in the composition of interest-earning assets to a larger
percentage of higher yielding loans.

Interest  income earned on loans  receivable  increased $4.8 million,  or 24.7%,
reflecting an increase in average loans outstanding of $54.9 million , or 23.8%,
to $285.7  million in fiscal  year  1997,  as well as a slight  increase  in the
average yield on loans  receivable to 8.49% from 8.42%.  The general increase in
market rates  resulted in higher  yields on new consumer loan  originations,  as
well as adjustable rate mortgages which repriced at higher levels.  The increase
in average loans outstanding  resulted from $21.4 million in loans acquired from
Home Federal in January 1997 and the full year's  impact of the $45.4 million of
loans acquired from Community Savings in May 1996.

Interest received from investments  increased $187,000, or 4.7%, to $4.1 million
for the fiscal year ended  September  30, 1997  compared to $3.9 million for the
fiscal year ended September 30, 1996. This increase reflects the increase in the
average yield on investments to 6.59% from 6.33%.

Interest received from mortgage-backed  securities decreased to $1.1 million for
the year ended  September  30, 1997 from $1.2  million for the fiscal year ended
September 30, 1996. The average yield on mortgage-backed securities decreased to
6.91% for  fiscal  year 1997 from  7.17% for  fiscal  year 1996 and the  average
balance on  mortgage-backed  securities  decreased  $550,000,  or 3.4%, to $15.8
million in fiscal year 1997 from $16.4 million in fiscal year 1996.

Interest income from  interest-bearing  deposits  decreased  $96,000,  or 35.5%,
reflecting a decrease in the average yield on interest-bearing deposits to 4.21%
for fiscal year 1997 from 5.92% for fiscal year 1996 as well as the  decrease in
the average  balance of $433,000,  or 9.5%,  to $4.1 million in fiscal year 1997
from $4.6 million in fiscal year 1996.

Interest Expense. Interest expense increased by $3.3 million, or 26.5%, to $15.7
million for the fiscal year ended  September 30, 1997 from $12.4 million for the
fiscal year ended September 30, 1996. This increase  resulted  primarily from an
increase in average interest-bearing  liabilities of $59.0 million, or 22.1%, to
$326.7  million in fiscal year 1997  compared  to $267.6  million in fiscal year
1996. The increase in interest  expense was also impacted by the increase in the
average cost on  interest-bearing  liabilities to 4.81% in fiscal year 1997 from
4.64% in fiscal year 1996.

Interest  expense on deposits  increased $2.6 million,  or 26.4%,  reflecting an
increase  in the  average  cost of  deposits  to 4.61%  from 4.47% as well as an
increase of $49.7 million, or 22.7%, in average deposits to $268.8 million from

   
                                   - 8 -
<PAGE>
$219.1  million.  The  increase  in the  average  balance of  deposits  resulted
primarily  from the $23.8  million of  deposits  acquired  from Home  Federal in
January 1997 and the full years impact of the $49.7 million of deposits acquired
from  Community  Savings  in May  1996.  The  increase  in the cost of  deposits
reflected  the higher  cost of time  deposits  acquired  from Home  Federal  and
Community Savings.

Interest expense on borrowed money increased $713,000,  or 27.1%,  reflecting an
increase in average  borrowed money of $9.3 million,  or 19.2%, to $57.9 million
in fiscal  year 1997 from $48.5  million in fiscal  year 1996 and an increase in
the cost of borrowed  money to 5.78% from 5.42%.  The increase in borrowed money
resulted from the continued utilization of Federal Home Loan Bank line of credit
advances  to fund  the  origination  and  purchase  of  mortgage  loans  and the
acquisition of Home Federal.

Net Interest Income. Net interest income totaled $13.9 million and $12.4 million
for the fiscal  years  ended  September  30,  1997 and 1996,  respectively.  The
increase  reflects  the  positive  impact  of a  shift  in  the  composition  of
interest-earning  assets to a larger  percentage of higher yielding loans.  Over
the past two years, average loans receivable as a percentage of interest-earning
assets increased 9.1%, with 6.3% of the increase occurring in fiscal year 1997.

Provision for Losses on Loans.  The allowance for loss is established  through a
provision  for  losses on loans  based on  management's  evaluation  of the risk
inherent  in its  loan  portfolio  and  the  general  economy.  Such  evaluation
considers  numerous  factors  including,   general  economic  conditions,   loan
portfolio  composition,  prior loss experience,  the review of delinquencies and
loan portfolio quality,  the estimated fair value of the underlying  collateral,
and other  factors that warrant  recognition  in providing  for an adequate loan
loss allowance.

The provision  for losses on loans for the fiscal year ended  September 30, 1997
was $321,000  compared to $170,000 for the fiscal year ended September 30, 1996.
The higher  provision in fiscal year 1997 was necessary to adequately  cover the
credit risk associated with a classified commercial real estate loan.

The Company's allowance for losses on loans was $2.3 million, or 0.77%, of loans
receivable at September 30, 1997  compared to $2.4 million,  or 0.86%,  of loans
receivable at September 30, 1996. The reduced allowance as a percentage of loans
receivable resulted primarily from an increased level of residential real estate
loans. This increase was attributable to the higher concentration of residential
real estate loans which  comprised  the Home Federal  portfolio  acquired by the
Company.  Residential  real  estate  loan  charge-offs  for the Company and Home
Federal have been minimal over the past five years. Overall, the Company's level
of net loans  charged  off as a  percentage  of  average  net  loans  receivable
outstanding  was 0.24% and 0.11% for fiscal  years 1997 and 1996,  respectively.
Additionally,  the  Company's  nonperforming  loans  as a  percentage  of  loans
receivable,  net,  decreased to 0.52% from 0.78% at September 30, 1997 and 1996,
respectively.  The increased  charge-off  level in 1997 was primarily due to the
charge-off  of a commercial  real estate loan and a commercial  business loan in
1997 and the impact of an  increased  level of auto loan  charge-offs.  Based on
current  levels in the  allowance for losses on loans in relation to total loans
receivable and delinquent  loans,  management's  ability to resolve problem loan
situations,  and the level of charge-offs in recent years,  management  believes
the allowance is adequate at September 30, 1997.



                                     - 9 -
<PAGE>
The breakdown of general loan loss  allowances and specific loan loss allowances
is only made for regulatory  accounting  purposes.  General loan loss allowances
are added  back to  capital  to the extent  permitted  in  computing  risk-based
capital. Both general and specific loan loss provisions are charged to expense.

Noninterest  Income.  The  Company's  principal  sources of  noninterest  income
include late charges and other loan fees,  deposit account fees, and commissions
and  fees  from  brokerage  activities.  Noninterest  income  increased  by $2.2
million, or 117.6%, for the fiscal year ended September 30, 1997 to $4.0 million
from $1.8 million for the fiscal year ended  September 30, 1996. The increase is
primarily  the result of a $1.2 million  adjustment  for loans  purchased in the
1980's as  participation  loans  which  were  recently  determined  to have been
discounted whole loans.

In the early  1980s,  the  Company  purchased  from the same  Seller  three loan
participation  packages (with  participation  interests ranging from 75% to 90%)
which the Company  historically  accounted for as a purchase of a  participation
interest.  However,  since  inception,  the  Company  received  100% of both the
principal and interest payments in said loans. During the third quarter of 1997,
it was concluded that at some point in time the  participation  agreements  were
amended  whereby  the  Company  was deemed to have  purchased  whole  loans at a
discount.  In order to adjust the  anticipated  yield of the purchased loans for
the impact of actual cash flows received since the  participation  packages were
purchased,  adjustments  were made  resulting  in an increase to other income of
$1.2  million and to net income of  $791,000.  The  adjustment  increased  loans
receivable  by  $785,000,  to reflect the  portion of said loans not  previously
considered owned by the Company and resulted in the establishment of an unearned
discount account of $162,000.

Additionally,  the increase reflects the increase in late charges and other loan
fees,  gains on sale of investment  securities and deposit  account fees,  which
increases were  partially  offset by a decrease in  commissions  and fees.  Late
charges and other loan fees increased  $188,000,  or 48.0%,  for the fiscal year
ended  September  30, 1997 to $579,000  compared to $391,000 for the fiscal year
ended  September  30,  1996.  The  increase  reflects  the  increase in the loan
portfolio  as  well as the  growth  in loan  originations.  The  gain on sale of
investment securities increased $398,000 to $369,000 for fiscal year 1997 from a
loss on sale of investment  securities for fiscal year 1996 of $29,000. The gain
on sale of investment  securities  resulted primarily from the sale of an equity
security and the sale of United States Government  obligations.  Deposit account
fees increased $164,000,  or 20.6%, for the fiscal year ended September 30, 1997
to $961,000  compared to $797,000 for the fiscal year ended  September 30, 1996.
The  increase  resulted  from the  growth  in  deposit  accounts  as well as the
increase in the fee levels charged to customers.

Noninterest  Expense.  Noninterest expense decreased $350,000,  or 4.0%, for the
fiscal year ended  September  30, 1997 to $8.5 million from $8.9 million for the
fiscal year ended  September 30, 1996.  For the fiscal year ended  September 30,
1996,  noninterest  expense included a one-time SAIF special  assessment of $1.5
million.  During fiscal year 1997,  compensation  and employee  benefits expense
increased  $309,000,  or 8.5%,  to $4.0 million for fiscal year 1997 compared to
$3.7  million  for fiscal  year 1996.  The  primary  reason for the  increase in
compensation  and employee  benefits  expense is due to additional  compensation
expense related to the acquisition of Community  Savings in May of 1996 and Home
Federal in January 1997, as well as the cost of certain stock benefit plans.


                                                        
                                     - 10 -
<PAGE>
Primarily as a result of the acquisitions of Community Savings and Home Federal:
office buildings and equipment expense increased $273,000, or 41.2%, to $936,000
for fiscal year 1997 compared to $663,000 for fiscal year 1996;  data processing
increased  $62,000,  or 14.7%,  to  $482,000  for fiscal  year 1997  compared to
$420,000 for fiscal year 1996; and, amortization of cost in excess of fair value
of net assets acquired  increased  $244,000,  or 115.4%,  to $455,000 for fiscal
year 1997 from $211,000 for fiscal year 1996.  These  increases  were  partially
offset by a decrease in advertising of $43,000,  or 18.0%, to $195,000 in fiscal
year 1997 as  compared to  $237,000  in fiscal  year 1996,  and the  decrease of
$311,000,  or 67.9%, in deposit insurance  premiums to $147,000 at September 30,
1997,  from  $458,000 at September 30, 1996.  The decrease in deposit  insurance
premiums  was due to the Federal  Deposit  Insurance  Corporation  reduction  in
assessment rates.

Other noninterest expense increased $488,000,  or 29.7%, to $2.1 million for the
fiscal year ended  September  30, 1997  compared to $1.6  million for the fiscal
year ended  September 30, 1996.  This increase  resulted  primarily  from losses
recognized for a discrepancy  that existed in the Company's credit card clearing
account at the time the Company's third-party credit card processor and servicer
went out of business.  As a result of pending  litigation by the Company against
their former credit card servicer, professional fees have also increased.

Income  Taxes.  The  provision  for income  taxes  totaled $3.7 million and $2.2
million for the fiscal years ended  September  30, 1997 and 1996,  respectively.
The increase in income taxes  resulted  from an increase in income before taxes.
The  Company's  effective  income  tax rates were 40.2% and 41.3% for the fiscal
years ended September 30, 1997 and 1996, respectively.

Net Income.  Net income totaled $5.4 million for the fiscal year ended September
30 1997  compared to $3.1 million for the fiscal year ended  September 30, 1996.
The increase in net income reflects:  the increase of $1.5 million, or 12.3%, in
net interest  income;  the increase of $2.2 million,  or 117.6%,  in noninterest
income;  and the decrease in  noninterest  expense of $350,000,  or 4.0%.  These
increases  were  partially  offset by an increase in the provision for losses on
loans of $151,000,  or 89.0%,  and the increase in income taxes of $1.5 million,
or 69.7%.

Comparison of Operating Results for the Fiscal Years ended September 30, 1996
and 1995

Interest Income. Interest income totaled $24.8 million for the fiscal year ended
September 30, 1996 compared to $20.0 million for the fiscal year ended September
30,  1995,  an  increase  of $4.8  million,  or 24.0%.  This  increase  resulted
primarily  from an increase in the average yield on  interest-earning  assets to
7.91% in fiscal  year  1996  from  7.58% in fiscal  year  1995,  which  increase
reflected the general increase in market interest rates,  which existed for most
of fiscal  year  1996,  as well as  changes  in the  composition  and  amount of
interest-earning  assets.  Average  interest-earning  assets increased to $313.9
million  for fiscal year 1996  compared to $263.9  million for fiscal year 1995.
The  increase in average  interest-earning  assets  resulted  from the impact of
$27.1 million of net proceeds from the sale of common stock and the  acquisition
of Community Savings.

Interest  income earned on loans  receivable  increased $4.0 million,  or 25.7%,
reflecting an increase in average loans outstanding of $41.9 million , or 22.2%,
to $230.8  million in fiscal  year 1996,  as well as an  increase in the average
yield on loans receivable to 8.42% from 8.19%. The general increase in market

                                     - 11 -
<PAGE>
rates  resulted in higher yields on new consumer loan  originations,  as well as
adjustable  rate  mortgages  which  repriced at higher  levels.  The increase in
average  loans  outstanding  consisted  substantially  of $45.8 million in loans
acquired from  Community  Savings Bank, and the purchase of $37.4 million in ARM
loans.

Interest received from investments increased $629,000, or 19.0%, to $3.9 million
for the fiscal year ended  September  30, 1996  compared to $3.3 million for the
fiscal year ended  September 30, 1995.  This  increase  reflects the increase of
$8.2 million,  or 15.2%,  in the average balance of investments to $62.2 million
in fiscal  year  1996  from  $54.0  million  in  fiscal  year 1995 as well as an
increase in the average yield on investments  to 6.33% from 6.12%.  The increase
in the average balance of investment  securities  resulted from the $6.3 million
of  investments  acquired  from  Community  Savings  coupled with the  increased
purchase  activity of  investment  securities by the Company in 1996 compared to
1995.

Interest  received  from  mortgage-backed  securities  remained  stable  at $1.2
million and $1.1 million for the fiscal years ended September 30, 1996 and 1995,
respectively. The average yield on mortgage-backed securities increased to 7.17%
for  fiscal  year 1996 from  6.21% for  fiscal  year  1995  which  increase  was
partially  offset by the  decrease  in the  average  balance on  mortgage-backed
securities of $1.2  million,  or 6.6%, to $16.4 million in fiscal year 1996 from
$17.5 million in fiscal year 1995.

Interest income from  interest-bearing  deposits increased  $118,000,  or 77.2%,
reflecting  an  increase in the average  yield on  interest-bearing  deposits to
5.92%  for  fiscal  year  1996 from  4.37%  for  fiscal  year 1995 as well as an
increase in the average balance of $1.1 million, or 31.2%.

Interest Expense. Interest expense increased by $2.1 million, or 20.5%, to $12.4
million for the fiscal year ended  September 30, 1996 from $10.3 million for the
fiscal year ended September 30, 1995. This increase  resulted  primarily from an
increase in the average cost on interest-bearing  liabilities to 4.64% in fiscal
year 1996 from 4.33% in fiscal  year  1995,  as well as an  increase  in average
interest-bearing  liabilities of $29.4 million,  or 12.4%,  to $267.6 million in
fiscal year 1996 compared to $238.2 million in fiscal year 1995.

Interest  expense on deposits  increased $2.2 million,  or 29.4%,  reflecting an
increase  in the  average  cost of  deposits  to 4.47%  from 4.00% as well as an
increase of $29.8 million,  or 15.7%, in average deposits to $219.1 million from
$189.3 million.  The increase in the average  balance of deposits  resulted from
the $49.7 million of deposits  acquired from  Community  Savings in May 1996 and
the full years impact of the $21.1 million of deposits  acquired in the May 1995
branch  acquisition.  The increase in the cost of deposits  reflected the higher
cost of time deposits acquired from Community Savings.

Interest  expense on borrowed money decreased  $109,000,  or 4.0%,  reflecting a
decrease in average  borrowed  money of $338,000,  or 0.7%,  to $48.5 million in
fiscal  year 1996 from $48.9  million in fiscal  year 1995 and a decrease in the
cost of borrowed  money to 5.42% from 5.61%.  Borrowed  money  resulted from the
continued  utilization of Federal Home Loan Bank line of credit advances to fund
the  origination and purchase of mortgage loans and the acquisition of Community
Savings.

Net Interest Income.  Net interest income totaled $12.4 million and $9.7 million
for the fiscal years ended September 30, 1996 and 1995, respectively.

                                     - 12 -
<PAGE>
This  increase in net interest  income  primarily  resulted  from an increase to
117.30%   in  the  ratio  of   average   interest-earning   assets  to   average
interest-bearing  liabilities  in fiscal year 1996 compared to 110.80% in fiscal
year 1995, as well as an increase in the Company's  interest  margin to 3.95% in
fiscal year 1996 from 3.68% in fiscal year 1995.

Provision for Losses on Loans.  The allowance for loss is established  through a
provision  for  losses on loans  based on  management's  evaluation  of the risk
inherent  in its  loan  portfolio  and  the  general  economy.  Such  evaluation
considers  numerous  factors  including,   general  economic  conditions,   loan
portfolio  composition,  prior loss experience,  the review of delinquencies and
loan portfolio quality,  the estimated fair value of the underlying  collateral,
and other  factors that warrant  recognition  in providing  for an adequate loan
loss allowance.

The provision  for losses on loans for the fiscal year ended  September 30, 1996
was $170,000  compared to $360,000 for the fiscal year ended September 30, 1995.
The higher  provision in fiscal year 1995 was  necessary to establish  loan loss
reserves to cover the credit risk associated with one large  commercial loan and
the  collateralization of a commercial real estate project based on management's
current estimate of the value of the underlying collateral.

The Company's allowance for losses on loans was $2.4 million, or 0.86%, of loans
receivable at September 30, 1996  compared to $2.2 million,  or 1.05%,  of loans
receivable at September 30, 1995. The reduced allowance as a percentage of loans
receivable resulted primarily from an increased level of residential real estate
loans. This increase was attributable to the higher concentration of residential
real estate loans which comprised the Community  Savings  portfolio  acquired by
the  Company.  Residential  real  estate  loan  charge-offs  for the Company and
Community  Savings  have been  minimal  over the past five years.  Overall,  the
Company's  level of net loans  charged off as a percentage  of average net loans
receivable  outstanding  was 0.11% and 0.14%  for  fiscal  years  1996 and 1995,
respectively. Additionally, the Company's nonperforming loans as a percentage of
loans receivable,  net,  increased to 0.78% from 0.32% at September 30, 1996 and
1995, respectively. Based on current levels in the allowance for losses on loans
in relation to total loans receivable and delinquent loans, management's ability
to resolve problem loan  situations,  and the low level of charge-offs in recent
years, management believes the allowance is adequate at September 30, 1996.

The breakdown of general loan loss  allowances and specific loan loss allowances
is only made for regulatory  accounting  purposes.  General loan loss allowances
are added  back to  capital  to the extent  permitted  in  computing  risk-based
capital. Both general and specific loan loss provisions are charged to expense.

Noninterest  Income.  The  Company's  principal  sources of  noninterest  income
include late charges and other loan fees,  deposit account fees, and commissions
and fees from brokerage activities. Noninterest income increased by $431,000, or
30.6%,  for the fiscal  year ended  September  30,  1996 to $1.8  million.  This
increase resulted  primarily from increases in late charges and other loan fees,
deposit account fees,  commissions and fees and other noninterest income,  which
increases were partially offset by an increase in the loss on sale of investment
securities and losses on sales of mortgage-backed  securities.  Late charges and
other loan fees increased $150,000, or 62.3%, for the fiscal year ended




                                                       
                                     - 13 -
<PAGE>
September 30, 1996 to $391,000 as compared to $241,000 for the fiscal year ended
September 30, 1995. Deposit account fees increased  $120,000,  or 17.7%, for the
fiscal year ended  September  30, 1996 to $797,000  compared to $677,000 for the
fiscal year ended September 30, 1995.

Noninterest  Expense.  Noninterest expense increased $3.0 million, or 50.2%, for
the fiscal year ended  September  30, 1996 to $8.9 million from $5.9 million for
the fiscal year ended  September 30, 1995. The increase in  noninterest  expense
resulted   primarily   from  the  SAIF  special   assessment  of  $1.5  million.
Additionally,  the increase in noninterest expense was the result of an increase
in compensation  and employee  benefits  expense of $636,000,  or 21.0%, to $3.7
million for fiscal year 1996 compared to $3.0 million for fiscal year 1995.  The
primary reason for the increase in compensation and employee benefits expense is
due to additional  compensation  expense  related the acquisition of the DuQuoin
branch in fiscal year 1995 and Community  Savings in fiscal year 1996 as well as
the cost of certain stock benefit plans.

Primarily as a result of the  acquisition  of the DuQuoin  branch  office in May
1995 and the acquisition of Community  Savings in May 1996, office buildings and
equipment expense increased $186,000, or 38.9%, to $663,000 for fiscal year 1996
compared to $477,000 for fiscal year 1995, data processing increased $62,000, or
17.3%,  to $420,000  for fiscal year 1996  compared to $358,000  for fiscal year
1995, and  amortization  of cost in excess of fair value of net assets  acquired
increased $75,000,  or 54.9%, to $211,000 for fiscal year 1996 from $136,000 for
fiscal year 1995.

Other noninterest expense increased $335,000,  or 25.6%, to $1.6 million for the
fiscal year ended  September  30, 1996  compared to $1.3  million for the fiscal
year ended September 30, 1995. This increase resulted  primarily from additional
losses on the  disposition of repossessed  collateral.  The provision for losses
and expenses on real estate acquired by foreclosure increased $78,000 to $81,000
for the fiscal year ended  September  30, 1996 compared to $4,000 for the fiscal
year ended  September  30,  1995,  due to  increased  losses on the sale of real
estate acquired by foreclosure.

Income  Taxes.  The  provision  for income  taxes  totaled $2.2 million and $1.9
million for the fiscal years ended  September  30, 1996 and 1995,  respectively.
The  Company's  effective  income  tax rates were 41.3% and 38.6% for the fiscal
years ended  September  30,  1996 and 1995,  respectively.  The  increase in the
effective  tax rate is  primarily  the  result  of  increases  in  nondeductible
expenses.

Net Income.  Net income totaled $3.1 million for the fiscal year ended September
30 1996  compared to $3.0 million for the fiscal year ended  September 30, 1995.
The increase in net income  reflects the increase of $2.7 million,  or 27.8%, in
net interest income, the increase of $431,000,  or 30.6%, in noninterest income,
and the decrease in provision for losses on loans of $190,000,  or 52.8%,  which
increases  were partially  offset by an increase in noninterest  expense of $3.0
million, or 50.2%, and the increase in income taxes of $281,000, or 15.0%.

Asset and Liability Management - Interest Rate Sensitivity Analysis

The matching of assets and  liabilities  may be analyzed by examining the extent
to which such  assets and  liabilities  are  "interest  rate  sensitive"  and by
monitoring  an  institution's  interest  rate  sensitivity  "gap".  An  asset or
liability is said to be interest rate sensitive within a specific time period if

                                                     
                                     - 14 -
<PAGE>
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of  interest-earning  assets
maturing  or  repricing  within  a  specific  time  period  and  the  amount  of
interest-bearing  liabilities  maturing or repricing  within that time period. A
gap is considered  positive when the amount of interest  rate  sensitive  assets
exceeds the amount of interest rate sensitive  liabilities.  A gap is considered
negative  when the amount of interest  rate  sensitive  liabilities  exceeds the
amount of interest rate  sensitive  assets.  During a period of rising  interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to positively  affect net interest income.  This has not
been the case for the  Company.  However,  no  assurance  can be given that this
trend will continue.

The Company's policy in recent years has been to reduce its exposure to interest
rate risk  generally by better  matching  the  maturities  of its interest  rate
sensitive  assets and liabilities and by originating or purchasing ARM loans and
other  variable rate or short-term  loans,  as well as by purchasing  short-term
investments.  The Company  seeks to lengthen the  maturities  of its deposits by
promoting  longer-term  certificates.  The Company has also entered into reverse
repurchase agreements with terms of up to 330 days. The Company does not solicit
negotiated high-rate jumbo certificates of deposit or brokered funds.

The Board of Directors  functions as the Asset  Liability  Management  Committee
which is responsible for reviewing the Company's  asset and liability  policies.
The Committee meets quarterly to discuss interest rate risks and trends, as well
as liquidity and capital ratios and requirements.

Liquidity and Capital Resources

At September 30, 1997,  the Company was required to maintain  minimum  levels of
liquid assets by FDIC regulations.  The Company's liquidity policy, which varies
from time to time depending upon economic conditions and deposit flows, is based
upon a percentage of deposits and short-term  borrowings and is currently  5.0%.
The Company  historically  has  maintained a level of liquid assets in excess of
requirements, and the Company's liquidity ratio averaged 5.36% during the fiscal
year ended September 30, 1997. The Company adjusts its liquidity levels in order
to meet  funding  needs for deposit  outflows,  payment of real estate  taxes on
mortgage loan escrow accounts,  repayment of borrowings,  when  applicable,  and
loan commitments.  The Company also adjusts liquidity as appropriate to meet its
asset/liability objectives.

The Company's primary sources of funds are deposits,  borrowed money,  repayment
and prepayment of loans and mortgage-backed securities,  borrowings,  maturities
of   investments,   and  funds   provided  from   operations.   While  loan  and
mortgage-backed  securities  scheduled  repayments are a relatively  predictable
source of funds,  deposit flows and loan  prepayments are greatly  influenced by
general  interest  rates,  economic  conditions,  and  competition.  The Company
manages the pricing of its  deposits to maintain a steady  deposit  balance.  In
addition,  the  Company  invests  excess  funds  in  overnight  deposits,  other
short-term  interest-earning   investments,   and  other  assets  which  provide
liquidity to fund lending demand.  Assets  qualifying for liquidity at September
30, 1997,  1996,  and 1995 amounted to $13.1 million,  $29.6 million,  and $26.3
million, respectively.

A major portion of the Company's liquidity consists of cash and cash equivalents
which are a product of its operating,  investing, and financing activities.  The
primary sources of cash are derived from operations and financing activities.

                                     - 15 -
<PAGE>
Liquidity  management  is  both a  daily  and  long-term  function  of  business
management.  If the Company  requires  funds beyond its ability to generate them
internally,  borrowing  agreements  exist with the FHLB to proved an  additional
source of funds.  At  September  30,  1997,  the  Company  had $37.0  million in
borrowings from the FHLB.

At September 30, 1997, the Company had outstanding  mortgage loan commitments of
$2.0 million. Certificates of deposit scheduled to mature in one year or less at
September 30, 1997 totaled $112.2 million.  Management  believes,  based on past
experience,  that a  significant  portion of such  deposits will remain with the
Company.

At  September  30, 1997,  the Company  exceeded  all of its  regulatory  capital
requirements.

Impact of Inflation and Changing Prices

The  consolidated  financial  statements  of  the  Company  and  notes  thereto,
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 due
to inflation.  The impact of inflation is reflected in the increased cost of the
Company's operations.  Unlike most industrial  companies,  nearly all the assets
and liabilities of the Company are monetary. As a result,  interest rates have a
greater  impact on the  Company's  performance  than do the  effects  of general
levels  of  inflation.  Interest  rates  do not  necessarily  move  in the  same
direction or to the same extent as the price of goods and services.

Impact of New Accounting Pronouncements

In  February  1997,  the FASB issued SFAS No.  128,  Earnings  per Share,  which
establishes  standards for computing  and  presenting  earnings per share (EPS).
SFAS No. 128  simplifies  existing  standards  for  computing EPS and makes them
comparable to international  standards.  It replaces the presentation of primary
EPS with a  presentation  of basic EPS. It also  requires dual  presentation  of
basic and diluted EPS on the face of the income  statement for all entities with
complex capital  structures and requires a  reconciliation  of the components of
basic and diluted EPS.  Basic EPS excludes  dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares  outstanding for the period.  Diluted EPS reflects the potential dilution
that could occur if  securities  or other  contracts  to issue common stock were
exercised or  converted  into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company. SFAS No. 128 is effective
for  financial  statements  issued for periods  ending after  December 31, 1997,
including interim periods, and requires restatement of all prior-period EPS data
presented. The Company does not believe the adoption of SFAS No. 128 will have a
material effect on its financial condition or results of operations.

Also in February 1997,  the FASB issued SFAS No. 129,  Disclosure of Information
about Capital  Structure.  SFAS No. 129 applies to all entities and  establishes
standards for disclosing  information about an entity's capital structure.  SFAS
No. 129 is effective for financial  statements for periods ending after December
15, 1997. The adoption of SFAS No. 129 is not expected to have a material impact
on the Company's consolidated financial statements.



                                     - 16 -
<PAGE>
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income. SFAS
No. 130 establishes  standards for reporting and display of comprehensive income
and its components in a full set of general  purpose  financial  statements.  It
does not,  however,  specify when to recognize or how to measure items that make
up  comprehensive  income.  SFAS No. 130 was issued to address concerns over the
practice of reporting elements of comprehensive income directly in equity.

SFAS No.  130  requires  all items  that are  required  to be  recognized  under
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement  that is  displayed  in equal  prominence  with  the  other
financial  statements.  It does not require a specific format for that financial
statement but requires that an enterprise  display an amount  representing total
comprehensive income for the period in that financial statement. Enterprises are
required to classify  items of "other  comprehensive  income" by their nature in
the financial  statement and display the balance of other  comprehensive  income
separately in the equity section of a statement of financial  position.  It does
not require per share amounts of comprehensive income to be disclosed.

SFAS No. 130 is  applicable to all entities that provide a full set of financial
statements  consisting  of  a  statement  of  financial  position,   results  of
operations and cash flows.

SFAS No. 130 is effective for both interim and annual  periods  beginning  after
December 15, 1997.  Earlier  application  is  permitted.  Comparative  financial
statements  provided  for earlier  periods are  required to be  reclassified  to
reflect the provisions of this statement. Publicly traded enterprises that issue
condensed  financial  statements  for interim  periods are  required to report a
total for comprehensive  income in those financial  statements.  The adoption of
SFAS  No.  130 is not  expected  to  have a  material  impact  on the  Company's
consolidated financial statements.

                                                     


























                                     - 17 -
<PAGE>


                     CHARTER FINANCIAL, INC. AND SUBSIDIARY
                                Sparta, Illinois

                        Consolidated Financial Statements

                           September 30, 1997 and 1996

                   (With Independent Auditors' Report Thereon)



<PAGE>





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













The Board of Directors
Charter Financial, Inc.
Sparta, Illinois:

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Charter
Financial,  Inc. and subsidiary (the Company) as of September 30, 1997 and 1996,
and the related  consolidated  statements of income,  stockholders'  equity, and
cash flows for each of the years in the  three-year  period ended  September 30,
1997. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Charter Financial,
Inc. and  subsidiary as of September 30, 1997 and 1996, and the results of their
operations and cash flows for each of the years in the  three-year  period ended
September 30, 1997, in conformity with generally accepted accounting principles.




                                                        /s/KPMG Peat Marwick LLP

                                                           KPMG Peat Marwick LLP

St. Louis, Missouri
November 3, 1997


                                     - 18 -
<PAGE>
<TABLE>
<CAPTION>
                                      Consolidated Balance Sheets

                                      September 30, 1997 and 1996


                         Assets                                             1997               1996
                                                                      -------------      -------------
<S>                                                                   <C>                <C>
Cash ............................................................     $   1,342,727      $   1,492,740
Interest-bearing deposits .......................................         4,954,102          7,475,682
Investment securities:
     Available for sale, at market value (amortized
       cost of $55,686,540 and $61,973,995 at
       September 30, 1997 and 1996, respectively) ...............        56,022,239         61,663,300
     Held to maturity, at cost (market value of
       $5,828,799 and $8,819,034 at September 30,
       1997 and 1996, respectively) .............................         5,791,540          8,860,125
Mortgage-backed securities:
     Available for sale, at market value (amortized
       cost of $13,185,144 and $15,059,424 at
       September 30, 1997 and 1996, respectively) ...............        13,403,729         15,116,592
     Held to maturity, at cost (market value of
       $1,241,765 and $1,553,881 at September 30,
       1997 and 1996, respectively) .............................         1,202,190          1,515,622
Loans receivable, net ...........................................       287,649,998        275,486,929
Accrued interest receivable .....................................         2,693,331          3,098,131
Real estate acquired by foreclosure, net ........................           670,274            428,279
Office properties and equipment, at cost less
     accumulated depreciation ...................................         5,862,896          5,990,392
Prepaid expenses and other assets ...............................           765,415          1,995,423
Income taxes receivable .........................................           280,655               --
Deferred tax asset, net .........................................              --              955,304
Core deposit intangible .........................................           895,813          1,031,729
Cost in excess of fair value of net assets acquired .............         5,497,576          3,320,843
                                                                      -------------      -------------
                                                                      $ 387,032,485      $ 388,431,091
                                                                      =============      =============

                  Liabilities and Stockholders' Equity

Deposits ........................................................     $ 275,979,748      $ 248,722,627
Accrued interest on deposits ....................................           783,851            576,341
Borrowed money ..................................................        50,317,037         76,353,783
Advance payments by borrowers for taxes and insurance ...........           313,840          1,084,720
Income taxes payable ............................................              --              188,097
Deferred tax liability, net .....................................           210,831               --
Accrued expenses and other liabilities ..........................         1,009,882          5,111,072
                                                                      -------------      -------------
                         Total liabilities ......................       328,615,189        332,036,640
                                                                      -------------      -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                   <C>                <C>
Commitments and contingencies
Stockholders' equity:
     Common stock, $0.10 par value,  8,000,000 shares authorized,
       4,365,823 and 4,253,459 shares issued at
       September 30, 1997 and 1996,  respectively ...............           436,582            425,346
     Additional paid-in capital .................................        30,592,730         28,762,464
     Retained earnings, substantially restricted ................        33,137,223         28,885,198
     Unrealized gain (loss) on securities available
       for sale, net of applicable taxes ........................           326,291           (206,204)
     Unamortized restricted stock awards ........................        (1,222,368)              --
     Unearned ESOP shares .......................................        (1,236,024)        (1,472,353)
     Treasury stock, at cost; 215,700 shares
       at September 30, 1997 ....................................        (3,617,138)              --
                                                                      -------------      -------------
                         Total stockholders' equity .............        58,417,296         56,394,451
                                                                      -------------      -------------
                                                                      $ 387,032,485        388,431,091
                                                                      =============      =============

</TABLE>

See accompanying notes to consolidated financial statements.


                                                - 19 -
<PAGE>
<TABLE>
<CAPTION>
                               Consolidated Statements of Income

                        Years ended September 30, 1997, 1996, and 1995


                                                     1997            1996             1995
                                                 -----------     -----------      -----------
<S>                                              <C>             <C>              <C>
Interest income:
   Loans receivable ........................     $24,246,665     $19,439,001      $15,461,525
   Investment securities ...................       4,123,334       3,936,589        3,307,960
   Mortgage-backed securities ..............       1,091,424       1,173,197        1,086,559
   Other ...................................         174,310         270,160          152,449
                                                 -----------     -----------      -----------
           Total interest income ...........      29,635,733      24,818,947       20,008,493
                                                 -----------     -----------      -----------
Interest expense:
   Deposits ................................      12,377,941       9,792,900        7,566,735
   Borrowed money ..........................       3,345,919       2,632,822        2,741,838
                                                 -----------     -----------      -----------
           Total interest expense ..........      15,723,860      12,425,722       10,308,573
                                                  -----------     -----------      -----------
          Net interest income .............      13,911,873      12,393,225        9,699,920
Provision for losses on loans ..............         321,250         170,000          360,000
                                                 -----------     -----------      -----------
           Net interest income after
               provision for losses on loans      13,590,623      12,223,225        9,339,920
                                                 -----------     -----------      -----------
Noninterest income:
   Late charges and other loan fees ........         578,795         391,113          241,049
   Gain (loss) on sale of investment
      securities, net ......................         369,474         (28,806)         (13,719)
   Gain (loss) on sale of mortgage-backed
      securities, net ......................          14,859          (8,916)            --
   Deposit account fees ....................         961,377         797,034          677,134
   Commissions and fees ....................         221,300         274,747          179,851
   Other ...................................       1,861,192         416,239          326,157
                                                 -----------     -----------      -----------
           Total noninterest income ........       4,006,997       1,841,411        1,410,472
                                                 -----------     -----------      -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                              <C>             <C>              <C>
Noninterest expense:
   Compensation and employee benefits ......       3,970,386       3,660,994        3,025,291
   Office buildings and equipment ..........         936,123         662,845          477,326
   Data processing .........................         481,550         419,906          357,828
   Advertising .............................         194,641         237,479          147,918
   Deposit insurance premiums ..............         147,162         457,818          437,794
   SAIF special assessment .................            --         1,479,021             --
   Other ...................................       2,128,763       1,641,149        1,306,395
   Provision for losses and expenses on
      real estate acquired by foreclosure ..         188,181          81,197            3,531
   Amortization of cost in excess of fair
      value of net assets acquired .........         455,061         211,271          136,409
                                                 -----------     -----------      -----------
           Total noninterest expense .......       8,501,867       8,851,680        5,892,492
                                                 -----------     -----------      -----------
           Income before income tax expense        9,095,753       5,212,956        4,857,900
Income tax expense .........................       3,657,373       2,155,311        1,874,023
                                                 -----------     -----------      -----------
           Net income ......................     $ 5,438,380     $ 3,057,645      $ 2,983,877
                                                 ===========     ===========      ===========

Earnings per share .........................     $      1.27     $       .67      $      .69
</TABLE>


See accompanying notes to consolidated financial statements.


                                                - 20 -
<PAGE>
<TABLE>
<CAPTION>
                                           Consolidated Statements of Stockholders' Equity
                                           Years ended September 30, 1997, 1996, and 1995

                                                                        Unrealized
                                                                        gain (loss)
                                                                       on securities
                                                             Retained    available     Unamor-
                                                             earnings,   for sale,      tized                              Total
                                                Additional    substan-    net of     restricted    Unearned                stock-
                             Common stock         paid-in      ially     applicable    stock         ESOP     Treasury    holders'
                          Shares     Amount       capital    restricted    taxes       awards       shares     stock       equity
                          ------     ------       -------    ----------    -----       ------       ------     -----       ------
<S>                     <C>        <C>         <C>          <C>          <C>         <C>         <C>           <C>     <C>
Balance, Septem-
   ber 30, 1994         2,170,160  $2,170,160  $ 7,131,365  $24,349,064  $(620,508)  $(297,333)  $(1,152,000)  $ -     $ 31,580,748
Net income                   -           -          -         2,983,877       -          -            -          -        2,983,877
Amortization of                                                                                       -
   restricted
   stock awards              -           -          -            -            -        148,666        -          -          148,666
Amortization of
   ESOP awards               -           -         259,045       -            -          -           288,000     -          547,045
Exercise of stock
   options                    965         965        8,685       -            -          -            -          -            9,650
Dividends declared on
   nonmutual holding
   company-owned
   common stock
   at $.60 per share        -            -          -          (569,572)      -          -            -          -         (569,572)
Change in unrealized
   gain (loss) on
   securities
   available for
   sale, net of
   applicable taxes         -            -          -            -         921,566       -            -          -          921,566
                       ----------  ----------  -----------   -----------  --------   ---------   -----------   ----    ------------
Balance, Septem-
   ber 30, 1995         2,171,125   2,171,125    7,399,095    26,763,369   301,058    (148,667)     (864,000)    -       35,621,980
Net income                  -            -          -          3,057,645      -          -            -          -        3,057,645
Net proceeds from
   sale of common
   stock of Charter
   Financial, Inc.      2,919,414     291,941   27,728,948       -            -          -          (969,030)    -       27,051,859
Cancellation of
   Charter Bank, S.B.
   common stock owned
   by Charter
   Bancorp, M.H.C.     (1,190,000) (1,190,000)   1,190,000       -            -          -           -           -          -
Cancellation of
   Charter Bank, S.B.
   common stock owned
   by minority stock-
   holders               (986,051)   (986,051)     986,051       -            -          -           -           -          -
Insurance of common
   stock of Charter
   Financial, Inc. to
   minority
   stockholders of
   Charter Bank, S.B.   2,054,832     205,483     (205,483)      -            -          -           -           -          -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                     <C>        <C>         <C>          <C>          <C>         <C>         <C>           <C>     <C>
Capital contribution
   from Charter
   Bancorp, M.H.C           -            -         100,000       -            -          -           -           -          100,000
Cash paid to minority
   stockholders for
   fractional shares        (230)         (23)      (2,303)      -            -          -           -           -           (2,326)
Purchase of treasury
   stock and retirement
   of shares            (721,285)     (72,129)  (8,911,580)      -            -          -           -           -       (8,983,709)
Exercise of stock  
   options                 6,488        5,834       55,262       -            -          -           -           -           61,096
Tax benefit of non-
   incentive stock
   options                  -            -          27,400       -            -          -           -           -           27,400
   exercised
Cancellation of
   restricted stock
   awards                   (834)        (834)      (7,506)      -            -           8,340      -           -          -
Amortization of
   restricted stock
   awards                   -            -          -            -            -         140,327      -           -          140,327
Amortization of
   ESOP awards              -            -         402,580       -            -          -           360,677     -          763,257
Dividend declared
   on nonmutual
   holding company-
   owned common stock
   at $.15 per              -            -          -           (132,780)     -          -           -           -         (132,780)
   share
Dividends declared
   on common stock of
   Charter Financial,
   Inc. at $.18 per
   share                    -            -          -           (803,036)     -          -           -           -         (803,036)
Cumulative effect of
   transfer of
   securities to
   available for sale,
   net of                   -            -          -            -         (59,952)      -           -           -          (59,952)
   applicable taxes
Change in unrealized
   gain (loss) on
   securities
   available for
   sale, net of
   applicable taxes         -            -          -            -        (447,310)      -           -           -         (447,310)
                       ----------  ----------  -----------   -----------  --------   ---------   -----------   ----    ------------ 
Balance, Septem-
   ber 30, 1996        4,253,459   $  425,346  $28,762,464   $28,885,198 $(206,204)  $   -      $ (1,472,353)   $ -     $56,394,451
                       =========   ==========  ===========   =========== =========   ========== ============    ====    ============
</TABLE>
See accompanying notes to consolidated financial statements.

                                            - 21 -
<PAGE>
<TABLE>
<CAPTION>
                                     Consolidated Statements of Stockholders' Equity, Continued

                                                                     Unrealized
                                                                     gain (loss)
                                                                    on securities
                                                          Retained    available     Unamor-
                                                          earnings,   for sale,      tized                              Total
                                            Additional    substan-    net of     restricted    Unearned                stock-
                           Common stock       paid-in      ially     applicable    stock         ESOP     Treasury    holders'
                        Shares     Amount     capital    restricted    taxes       awards       shares     stock       equity
                        ------     ------     -------    ----------    -----       ------       ------     -----       ------
<S>                   <C>        <C>       <C>          <C>          <C>         <C>         <C>           <C>          <C>
Balance, Septem-
   ber 30, 1996       4,253,459  $425,346  $28,762,464  $28,885,198  $ (206,204) $   -       $(1,472,353)  $   -        $56,394,451 
Net income                 -         -          -         5,438,380        -         -             -           -          5,438,380
Issuance of re-
   stricted stock
   awards               112,000    11,200    1,426,880        -      (1,438,080)     -             -           -            -
Purchase of treasury
   stock                   -         -          -             -            -         -             -        (3,617,138)  (3,617,138)
Exercise of stock
   options                  364        36        1,715        -            -         -             -           -              1,751
Amortization of
   restricted stock
   awards                 -          -          -             -         215,712      -             -           -            215,712
Amortization of
   ESOP awards            -          -         401,671        -            -         -            236,329      -            638,000
Dividends declared
   on common stock of
   Charter Financial,
   Inc. at $.30 per
   share                  -          -          -        (1,186,355)       -         -             -           -         (1,186,355)
Change in unrealized
   gain (loss) on
   securities
   available for
   sale, net of
   applicable taxes       -          -          -             -         532,495      -             -           -            532,495
                      ---------  --------  ----------- ----------    ----------  ----------  ------------    ---------   ----------
Balance, Septem-
   ber 30, 1997       4,365,823  $436,582  $30,592,730  $33,137,223  $  326,291  $(1,222,368)$(1,236,024)  $(3,617,138) $58,417,296 
                      =========  ========  ===========  ===========  ==========  =========== ===========   ===========  ===========

</TABLE>

See accompanying notes to consolidated financial statements.

                                      - 22-
<PAGE>
<TABLE>
<CAPTION>
                                         Consolidated Statements of Cash Flows

                                     Years ended December 31, 1997, 1996 and 1995


                                                                          1997              1996              1995
                                                                     -----------        -----------       -----------
<S>                                                                  <C>                <C>               <C>
Cash flows from operating activities:
   Net income ................................................       $ 5,438,380        $ 3,057,645       $ 2,983,877
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Depreciation and amortization:
         Office properties and equipment .....................           710,394            507,285           351,612
         Discounts related to purchase accounting ............           (53,525)           (63,272)          (28,334)
         Cost in excess of fair value of net assets acquired .           455,061            211,271           136,409
         Fees, discounts, and premiums .......................        (1,597,827)        (1,894,383)       (1,717,121)
         Stock plans .........................................           853,712            903,584           695,711
       Decrease (increase) in accrued interest receivable ....           541,797           (664,241)         (498,481)
       Increase (decrease) in accrued interest on deposits ...            95,531           (230,264)           47,005
       Provision for losses on loans .........................           321,250            170,000           360,000
       Stock dividend from FHLB ..............................              --                 --             (27,000)
       Decrease (increase) in income taxes, net ..............           486,239           (348,536)          257,939
       (Gain) loss on sale of investment securities, net .....          (369,474)            28,806            13,719
       (Gain) loss on sale of mortgage-backed securities, net            (14,859)             8,916              --
       Net change in other assets and other liabilities ......        (2,717,310)         2,169,206           125,068
                                                                     -----------        -----------       -----------
           Net cash provided by operating activities .........         4,149,369          3,856,017         2,700,404
                                                                     -----------        -----------       -----------
Cash flows from investing activities:
   Principal repayments on:
     Loans receivable ........................................       112,698,300        102,481,371        67,036,963
     Mortgage-backed securities ..............................         4,238,302          4,224,776         2,442,953
     Investment securities ...................................         1,142,042          2,447,789         2,158,335
   Proceeds from sale of:
     Loans receivable ........................................         2,630,969          1,549,116         1,722,721
     Mortgage-backed securities ..............................         1,758,789             64,471              --
     Investment securities ...................................         6,753,867          3,876,723            39,500
   Redemption of FHLB stock ..................................         1,094,300            656,000           955,000
   Maturity of investment securities .........................        19,811,970         17,130,000         7,635,000
   Purchase of:
     Loans receivable ........................................          (906,792)       (37,362,675)      (28,213,309)
     Mortgage-backed securities ..............................        (1,998,351)        (3,095,523)       (2,542,936)
     Investment securities ...................................       (15,356,585)       (32,556,167)      (11,988,779)
     FHLB stock ..............................................          (448,900)        (1,176,900)       (1,505,900)
   Cash invested in loans receivable .........................      (104,320,244)       (89,278,254)      (67,058,169)
   Cash paid for acquisition, net of cash received ...........        (5,739,607)        (6,936,679)             --
   Proceeds from sales of real estate acquired by
     foreclosure, net ........................................           360,103            345,722           335,148
   Purchase of office properties and equipment ...............          (412,811)          (780,856)       (1,507,572)
                                                                     -----------        -----------       -----------
           Net cash provided by (used in) investing activities        21,305,352        (38,411,086)      (30,491,045)
                                                                     -----------        -----------       -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                  <C>                <C>               <C>
Cash flows from financing activities:
   Increase (decrease) in deposits ...........................         3,436,770          1,895,605       (13,873,930)
   Deposits acquired, net of premium .........................              --                 --          19,794,592
   Repayments of FHLB advances ...............................          (124,290)        (2,119,864)       (2,010,000)
   Increase (decrease) in securities sold under agreements
     to repurchase, net ......................................        (1,436,456)         1,365,957        (1,987,822)
   Increase (decrease) in other borrowings, net ..............       (23,900,000)        18,800,000        25,800,000
   Repayments of ESOP indebtedness ...........................          (576,000)          (288,000)         (288,000)
   Increase (decrease) in advance payments by borrowers
     for taxes and insurance .................................          (792,877)           115,265            39,149
   Proceeds from sale of common stock, net ...................              --           27,051,859              --
   Cash paid to minority stockholders ........................              --               (2,326)             --
   Exercise of stock options .................................             1,751             61,096             9,650
   Dividends paid ............................................        (1,118,074)          (820,195)       (1,773,219)
   Purchase of treasury stock and retirement of shares .......              --           (8,983,709)             --
   Purchase of treasury stock ................................        (3,617,138)              --                --
   Capital contribution from Charter Bancorp, M.H.C ..........              --              100,000              --
                                                                     -----------        -----------       -----------
           Net cash provided by (used in)
              financing activities ...........................       (28,126,314)        37,175,688        25,710,420
                                                                     -----------        -----------       -----------
           Net increase (decrease) in cash
              and cash equivalents ...........................        (2,671,593)         2,620,619        (2,080,221)
Cash and cash equivalents, beginning of year .................         8,968,422          6,347,803         8,428,024
                                                                     -----------        -----------       -----------
Cash and cash equivalents, end of year .......................     $   6,296,829      $   8,968,422      $  6,347,803
                                                                   =============      =============      ============
Supplemental disclosure of cash flow information:
   Interest paid .............................................        15,380,434      $  12,260,869      $ 10,352,617
   Taxes paid ................................................         3,045,500          2,508,882         1,590,000
   Loans transferred to real estate acquired by foreclosure ..           961,615            720,040           258,078
   Interest credited to deposits .............................         8,609,797          6,619,453         5,464,128
   Securities transferred to available for sale ..............              --            5,971,820              --
                                                                   =============      =============      ============
</TABLE>
See accompanying notes to consolidated financial statements.



















                                     - 23 -
<PAGE>
                   Notes to Consolidated Financial Statements

                           September 30, 1997 and 1996



(1)    Summary of Significant Accounting Policies
       Following  are  the   significant   accounting   policies  which  Charter
          Financial,  Inc. and its subsidiary  (the Company) follow in preparing
          and presenting their consolidated financial statements:

          Reorganization to a Stock Corporation
          On  December 28, 1995, Charter Bancorp, M.H.C. (the MHC) completed its
              conversion from an Illinois-chartered  mutual holding company to a
              Delaware stock  corporation (the  Conversion).  At the date of the
              Conversion,  the Company completed the sale of 2,919,414 shares of
              common  stock,  $.10 par value,  at a price of $10.00 per share to
              Charter  Bank  S.B.'s  (the  Bank)   depositors,   Employee  Stock
              Ownership Plan (ESOP), and minority stockholders in a subscription
              offering  and to  certain  members  of  the  general  public  in a
              community  offering.  Net  proceeds  from the sale of common stock
              were $27,051,859,  after deducting  approximately  $1.2 million of
              offering  expenses  and  $969,030  related  to the sale of  96,903
              shares to the Bank's ESOP.

          In  conjunction  with the  subscription  and  community  offering,  an
              additional  2,054,832  shares of common  stock were  issued by the
              Company to convert  986,051 shares of the Bank's common stock held
              by minority  stockholders  into common stock of the Company.  Each
              share of the  Bank's  common  stock in the above  transaction  was
              converted into the right to receive 2.0839 shares of the Company's
              common stock (the Exchange Ratio).

          Prior to the Conversion,  the Company had not issued any stock, had no
              assets  or  liabilities,  and  had  not  engaged  in any  business
              activities other than of an  organizational  nature.  Accordingly,
              operating  activities  prior to  December  28,  1995  reflect  the
              operations of the Bank only.

          Business
          The Company  provides a full range of banking  services to  individual
              and  corporate  customers  through  its  home  office  in  Sparta,
              Illinois,  and  seven  branch  offices  in  neighboring  cities in
              Southern  Illinois.  The  Company is subject to  competition  from
              other  financial  institutions,  is subject to the  regulations of
              certain  federal  and  state  agencies,   and  undergoes  periodic
              examinations by those regulatory authorities.











                                     - 24 -
<PAGE>
                   Notes to Consolidated Financial Statements



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

          Material  estimates that are  particularly  susceptible to significant
              change  in  the  near  term  relate  to the  determination  of the
              allowance for loan losses. In connection with the determination of
              the  allowance  for loan losses,  management  obtains  independent
              appraisals for significant properties.

          Management  believes  that the  allowance for loan losses is adequate.
              While  management  uses  available  information  to recognize such
              losses,  future  additions to the allowance may be necessary based
              on changes in economic conditions. In addition, various regulatory
              agencies,  as an  integral  part  of  their  examination  process,
              periodically  review the  Company's  allowance  for  losses.  Such
              agencies  may require the Company to  recognize  additions  to the
              allowance based on their judgments about information  available to
              them at the time of their examination.

          Statement  of   Financial   Accounting   Standards   (SFAS)  No.  107,
              Disclosures  About Fair Value of Financial  Instruments,  requires
              that  the  estimated   fair  value  of  the  Company's   financial
              instruments  be  disclosed.  Fair  value  estimates  of  financial
              instruments  are  made at a  specific  point  in  time,  based  on
              relevant market  information  and information  about the financial
              instruments.  These  estimates  do  not  reflect  any  premium  or
              discount  that could result from offering for sale at one time the
              entire holdings or a significant portion of a particular financial
              instrument.  Because no market exists for a significant portion of
              the Company's financial instruments, some fair value estimates are
              subjective  in nature and  involve  uncertainties  and  matters of
              significant  judgment.  Changes in assumptions could significantly
              affect these  estimates.  Fair value  estimates  are presented for
              existing   on-balance-sheet   and   off-balance-sheet    financial
              instruments   without   attempting   to  estimate   the  value  of
              anticipated   future   business   and  the  value  of  assets  and
              liabilities  that are not  considered  financial  instruments.  In
              addition,  the tax ramifications related to the realization of the
              unrealized gains and losses can have a significant  effect on fair
              value  estimates  and  have  not  been  considered  in  any of the
              estimates (see note 17).







                                     - 25 -
<PAGE>
                   Notes to Consolidated Financial Statements



          Principles of Consolidation
          The consolidated  financial statements include the accounts of Charter
              Financial,  Inc. and its  wholly-owned  subsidiary,  Charter Bank,
              S.B. Sparta First Service  Corporation,  a subsidiary of the Bank,
              is engaged  primarily  in the sale of multiple  lines of insurance
              products to its customers.  All significant  intercompany accounts
              and transactions have been eliminated in consolidation.

          Consolidated Statements of Cash Flows
          For purposes of the consolidated statements of cash flows, the Company
              considers all interest-bearing  deposits (consisting  primarily of
              interest-bearing demand and time deposits) to be cash equivalents.

          Investment Securities and Mortgage-Backed Securities
          The Company  classifies  its debt  securities  in one of the following
              categories:    available   for   sale   or   held   to   maturity.
              Held-to-maturity  securities  are  those  securities  in which the
              Company  has the ability  and intent to hold until  maturity.  All
              other  securities  not included in held to maturity are classified
              as available for sale.

          Available-for-sale    securities   are   recorded   at   fair   value.
              Held-to-maturity   securities  are  recorded  at  amortized  cost,
              adjusted for the amortization of premiums or discounts. Unrealized
              gains  and   losses,   net  of  the   related   tax   effect,   on
              available-for-sale  securities  are  excluded  from  earnings  and
              reported as a separate  component  of  stockholders'  equity until
              realized.

          A   decline in the  market  value of any  security  below cost that is
              deemed  other than  temporary  results in a charge to earnings and
              the establishment of a new cost basis for the security.

          Premiums and discounts are amortized  over the lives of the respective
              securities as an  adjustment  to yield using the interest  method.
              Dividend and interest income are recognized when earned.  Realized
              gains and losses are  included in earnings  and are derived  using
              the  specific-identification  method for  determining  the cost of
              securities sold.

          On  November 15, 1995, the Financial Accounting Standards Board (FASB)
              issued a special report,  A Guide to  Implementation  of Statement
              115 on  Accounting  for  Certain  Investments  in Debt and  Equity
              Securities (the Special Report). Due to uncertainties  surrounding
              the regulatory  capital  treatment for unrealized gains and losses
              on available-for-sale securities, the Special Report was issued to
              allow all  entities a one-time  opportunity  to  reconsider  their
              ability and intent to hold






                                     - 26 -
<PAGE>
                   Notes to Consolidated Financial Statements



              securities  to  maturity  and  transfer  securities  from  held to
              maturity   without   "tainting"  the  remaining   held-to-maturity
              securities.  These  transfers  were only allowed during the period
              from the date of issuance of the Special Report  through  December
              31,  1995.  As  a  result  of  the  Special   Report,   management
              reconsidered the classification of held-to-maturity securities and
              transferred  $5,971,820 of investment  securities to available for
              sale on December 15, 1995.

          Loans Receivable
          Loans receivable  are carried at cost,  net of discounts  and deferred
              loan fees.  Interest  is  credited  to income as earned;  however,
              interest   receivable  is  accrued  only  if  deemed  collectible.
              Discounts  on loans  purchased  and  certain  consumer  loans  are
              amortized into income using the interest method over the estimated
              lives of the loans.

          Loans receivable acquired in a business  combination  accounted for by
              the purchase method are recorded at fair value.  The net discounts
              related  to the fair  value  adjustment  are  amortized  using the
              interest method over the lives of the loans acquired, adjusted for
              expected prepayments.

          Loanorigination  fees  and the  related  incremental  direct  costs of
              originating  loans are amortized over the contractual lives of the
              related loans using the interest method.

          The allowance for loan losses is  maintained  at an amount  considered
              adequate  to provide for credit  losses.  The  provision  for loan
              losses is based on a periodic  analysis of the loan  portfolio  by
              management. In this regard, management considers numerous factors,
              including,  but  not  necessarily  limited  to,  general  economic
              conditions, loan portfolio composition, prior loss experience, and
              independent appraisals of the underlying  collateral.  In addition
              to the allowance for identified  problem  loans,  the Company also
              maintains a general allowance for unidentified credit losses.

          A   loan is considered impaired when it is probable a creditor will be
              unable to collect all amounts due - both  principal and interest -
              according to the  contractual  terms of the loan  agreement.  When
              measuring  impairment,  the  expected  future  cash  flows  of  an
              impaired  loan are  discounted  at the loan's  effective  interest
              rate. Alternatively, impairment can be measured by reference to an
              observable  market price, if one exists,  or the fair value of the
              collateral  for a  collateral-dependent  loan.  Regardless  of the
              historical   measurement   method  used,   the  Company   measures
              impairment  based on the  fair  value  of the  collateral  when it
              determines  foreclosure is probable.  Additionally,  impairment of
              loans for which terms





                                     - 27 -
<PAGE>
                   Notes to Consolidated Financial Statements



              have been modified in a troubled-debt restructuring is measured by
              discounting  the total  expected  future  cash flows at the loan's
              effective  rate  of  interest  as  stated  in  the  original  loan
              agreement.

          The Company  applies the  recognition  criteria for impaired  loans to
              multi-family  residential  loans,  commercial  real estate  loans,
              agriculture  loans,  and  restructured   loans.   Smaller  balance
              homogeneous loans,  including one-to-four family residential loans
              and consumer  loans,  are  collectively  evaluated for impairment.
              Interest income on impaired loans is recognized on a cash basis.

          Real Estate Acquired by Foreclosure
          Realestate  acquired  by  foreclosure  is  initially  recorded  on  an
              individual  property  basis at estimated fair value on the date of
              foreclosure,  thus  establishing  a new cost basis.  Subsequent to
              foreclosure,  real estate is periodically  evaluated by management
              and a valuation  allowance is  established  if the estimated  fair
              value,  less cost to sell,  of the property  declines.  Subsequent
              increases  in fair value are  recorded  through a reversal  of the
              valuation  allowance,  but  not  below  zero.  Costs  incurred  in
              maintaining the properties are charged to expense.

          Profit on sales of real  estate  owned is  recognized  when  title has
              passed, minimum down payment requirements have been met, the terms
              of  any  notes  received  by  the  Company  are  such  to  satisfy
              continuing  payment  requirements,  and the Company is relieved of
              any  requirement  for  continued  involvement  in the real estate.
              Otherwise,  recognition  of profit is deferred until such criteria
              are met.

          Stock in Federal Home Loan Bank
          The Company,  as a member of the reconstituted  Federal Home Loan Bank
              System  administered  by the Federal  Housing  Finance  Board,  is
              required to maintain an investment in capital stock of the Federal
              Home Loan Bank of Chicago (FHLB) in an amount equal to the greater
              of 1% of the aggregate outstanding balance of the loans secured by
              dwelling  units at the  beginning of each year,  or 5% of advances
              from the FHLB to the Company. The stock is recorded at cost, which
              represents redemption value.

          Office Properties and Equipment
          Depreciation of office  properties and equipment is charged to expense
              using the straight-line  method over the estimated useful lives of
              the related  assets.  Estimated lives are 3 to 50 years for office
              buildings and improvements; 2 to 15 years for furniture,  fixtures
              and equipment; and 3 years for automobiles.







                                     - 28 -
<PAGE>
                   Notes to Consolidated Financial Statements



          Cost in Excess of Fair Value of Net Assets Acquired
          Costin excess of fair value of net assets  acquired  (goodwill)  arose
              from the  acquisitions of Home Federal  Savings Bank,  Carbondale,
              Illinois in 1997 (see note 2),  Community  Savings  Bank,  Marion,
              Illinois  in 1996 (see note 2), and  Carbondale  Savings  and Loan
              Association  in  1983,  all of  which  were  accounted  for by the
              purchase  method.  Goodwill is being  amortized on a straight-line
              basis over 15 years.

          Core Deposit Intangible
          A   core  deposit  intangible  in the  original  amount of  $1,235,604
              resulted from the May 1995 acquisition of the deposit  liabilities
              of another financial  institution.  This intangible asset is being
              amortized on an  accelerated  basis over 10 years.  The  remaining
              unamortized intangible totaled $895,813 at September 30, 1997.

          Securities Sold Under Agreements to Repurchase
          The Company   enters  into  sales  of  securities   under   repurchase
              agreements  (reverse repurchase  agreements).  Reverse repur-chase
              agreements  are  treated  as  financings,  and the  obligation  to
              repurchase  securities  sold is  reflected  as a liability  in the
              consolidated balance sheets.

          Stock Option Plans
          Prior to October 1, 1996,  the Company  accounted for its stock option
              plan in accordance  with the  provisions of Accounting  Principles
              Board  (APB)  Opinion  No.  25,  Accounting  for  Stock  Issued to
              Employees,  and  related  interpretations.  As such,  compensation
              expense would be recorded on the date of grant only if the current
              market price of the underlying  stock exceeded the exercise price.
              On October 1, 1996, the Company  adopted SFAS 123,  Accounting for
              Stock-Based  Compensation,  which permits entities to recognize as
              expense over the vesting period the fair value of all  stock-based
              awards  on the date of  grant.  Alternatively,  SFAS No.  123 also
              allows entities to continue to apply the provisions of APB Opinion
              No. 25 and provide pro forma net income for employee  stock option
              grants  made in 1996 and future  years as if the  fair-value-based
              method  defined in SFAS No. 123 had been applied.  The Company has
              elected to continue to apply the  provisions of APB Opinion No. 25
              and provide the pro forma disclosure provisions of SFAS No. 123.

          Income Taxes
          The Company files a consolidated  federal income tax return.  Deferred
              income  taxes  result  from  income and  expense  recogni-tion  in
              different  accounting  periods for tax purposes than for financial
              reporting purposes (timing differences).

          Income taxes are accounted  for under the asset and liability  method.
              Deferred tax assets and liabilities are recognized





                                     - 29 -
<PAGE>
                   Notes to Consolidated Financial Statements

              for  the  future  tax  consequences  attributable  to  differences
              between  the  financial  statement  carrying  amounts of  existing
              assets and  liabilities and their  respective tax bases.  Deferred
              tax assets and  liabilities  are measured  using enacted tax rates
              expected  to apply to taxable  income in the years in which  those
              temporary differences are expected to be recovered or settled. The
              effect on deferred tax assets and  liabilities  of a change in tax
              rates is  recognized  in income in the period  that  includes  the
              enactment date.

          Earnings Per Share
          Earnings per share  are  based  upon the  weighted  average  number of
              common   shares  and  common  stock   equivalents,   if  dilutive,
              outstanding  during the period.  The only common stock equivalents
              are stock  options.  The weighted  average  number of common stock
              equivalents is calculated  using the treasury  stock method.  Only
              ESOP shares  committed to be released are  considered  outstanding
              for purposes of computing earnings per share.

          Earnings per share have been calculated  based on the weighted average
              number of common shares and common stock  equivalents  outstanding
              of  4,293,449,  4,550,068,  and  4,314,838  for  the  years  ended
              September 30, 1997, 1996, and 1995,  respectively.  As a result of
              the  Conversion,  the  weighted  average  number of common  shares
              outstanding for 1995 was restated based on the Exchange Ratio.

          Reclassifications
          Certain  reclassifications of 1996 and 1995 information have been made
              to conform to the 1997 presentation.

(2)    Business Combinations
       On January 15,1997, the Company completed its acquisition of Home Federal
          Savings Bank, Carbondale, Illinois (Home Federal) in exchange for cash
          of $6.3 million.  Home Federal's assets  consisted  primarily of loans
          receivable of $21.4  million,  investment  securities of $3.1 million,
          and  mortgage-backed  securities  of $1.8 million,  while  liabilities
          consisted  primarily  of  savings  deposits  of  $23.8  million.   The
          acquisition   was  accounted  for  using  the  purchase   method  and,
          accordingly,  the operating results of Home Federal have been included
          in  the  Company's  results  of  operations  since  the  date  of  the
          acquisition.  The excess of the cost over fair value of the net assets
          acquired was approximately $2.6 million.

       On May 15,  1996,  the Company  completed  its  acquisition  of Community
          Savings Bank,  Marion,  Illinois  (Community  Savings) in exchange for
          cash of $7.5 million. Community Savings' assets consisted primarily of
          loans  receivable of $45.4 million and  investment  securities of $6.3
          million,  while liabilities consisted primarily of savings deposits of
          $49.7 million.  The  acquisition  was accounted for using the purchase
          method and,  accordingly,  the operating  results of Community Savings
          have been  included in the Company's  results of operations  since the
          date of the acquisition. The excess of the cost over fair value of the
          net assets acquired was approximately $2.9 million.



                                     - 30 -
<PAGE>
                   Notes to Consolidated Financial Statements



(3)    Investment Securities
       Theamortized  cost and market value of investment  securities  classified
          as available for sale at September 30, 1997 and 1996 follow:
<TABLE>
<CAPTION>
                                                     September 30, 1997
                               --------------------------------------------------------------
                                                  Gross             Gross
                                                  unreal-           unreal-
                                Amortized          ized              ized             Market
                                  cost             gains            losses             value
                               -----------      ---------       ------------       -----------
<S>                            <C>              <C>             <C>                <C>
Debt securities:
   U.S. government
     and agencies .......      $37,419,828      $ 437,682       $    (25,905)      $37,831,605
   Corporate debentures .        2,098,299          2,018               (387)        2,099,930
   Collateralized
     mortgage obligations        5,622,860         11,252            (53,113)        5,580,999
   Municipal bonds ......        1,255,891          9,850               --           1,265,741
Equity securities:
   Mutual funds .........        6,690,162          1,915            (47,613)        6,644,464
   Stock in Federal
     Home Loan Bank .....        2,599,500           --                 --           2,599,500
                               -----------      ---------       ------------       -----------
                               $55,686,540      $ 462,717       $   (127,018)      $56,022,239
                               ===========      =========       ============       ===========
<CAPTION>
                                                    September 30, 1996
                               ---------------------------------------------------------------
                                                  Gross              Gross
                                                 unreal-           unreal-
                                 Amortized        ized               ized              Market
                                  cost            gains             losses             value
                               -----------      ---------       ------------       -----------
<S>                            <C>              <C>             <C>                <C>
Debt securities:
   U.S. government
     and agencies .......      $43,726,735      $ 263,581       $   (196,290)      $43,794,026
   Corporate debentures .        2,149,003           --              (32,923)        2,116,080
   Collateralized
     mortgage obligations        6,373,165          5,958           (222,024)        6,157,099
Equity securities:
   Mutual funds .........        6,675,192           --             (128,997)        6,546,195
   Stock in Federal
     Home Loan Bank .....        3,049,900           --                 --           3,049,900
                               -----------      ---------       ------------       -----------
                               $61,973,995      $ 269,539       $   (580,234)      $61,663,300
                               ===========      =========       ============       ===========
</TABLE>
<PAGE>
       Gross realized  gains,  gross  realized  losses,  and gross proceeds from
          sales of debt and equity securities follow:
<TABLE>
<CAPTION>


                                       1997                1996           1995
                                   -----------       -----------       --------
<S>                                <C>               <C>               <C>   
Gross realized gains ........      $   374,767       $     1,425       $   --
Gross realized losses .......           (5,293)          (30,231)       (13,719)
                                   -----------       -----------       --------
      Net realized gain
         (loss) .............      $   369,474       $   (28,806)      $(13,719)
                                   ===========       ===========       ========

Gross proceeds ..............      $ 6,753,867       $ 3,876,723       $ 39,500
                                   ===========       ===========       ========

</TABLE>
                                     - 31 -
<PAGE>
                   Notes to Consolidated Financial Statements



       Theamortized  cost and  market  value of debt  securities  classified  as
          available  for sale at September 30, 1997,  by  contractual  maturity,
          follow:
<TABLE>
<CAPTION>
                                                 Amortized               Market
                                                   cost                  value
                                                -----------          -----------
<S>                                             <C>                  <C>
Within one year ......................          $ 3,388,338          $ 3,404,863
Between one and five years ...........           23,479,669           23,610,544
Between five and ten years ...........            9,115,974            9,170,589
After ten years ......................           10,412,897           10,592,279
                                                -----------          -----------
                                                $46,396,878          $46,778,275
                                                ===========          ===========
</TABLE>

       Theamortized  cost and market value of investment  securities  classified
          as held to maturity at September 30, 1997 and 1996 follows:
<TABLE>
<CAPTION>
                                                    September 30, 1997
                                -----------------------------------------------------------
                                                                  Gross            Gross
                                                                  unreal-          unreal-
                                 Amortized        ized             ized            Market
                                   cost           gains           losses            value
                                ----------      --------       -----------       ----------
<S>                             <C>             <C>            <C>               <C>
Debt securities:
   Corporate debentures ..      $1,002,147      $    583       $      --         $1,002,730
   Collateralized mortgage
     obligations .........       1,935,570         6,392           (11,865)       1,930,097
   Municipal bonds .......       2,853,823        42,159               (10)       2,895,972
                                ----------      --------       -----------       ----------
                                $5,791,540      $ 49,134       $   (11,875)      $5,828,799
                                ==========      ========       ===========       ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                    September 30, 1996
                                -----------------------------------------------------------
                                                 Gross             Gross
                                                 unreal-           unreal-
                                  Amortized       ized              ized           Market
                                    cost          gains            losses          value
                                ----------      --------       -----------       ----------
<S>                             <C>             <C>            <C>               <C>
Debt securities:
   U.S. government
     and agencies ........      $1,000,000      $  8,010       $      --         $1,008,010
   Corporate debentures ..       3,275,594         2,029            (4,053)       3,273,570
   Collateralized mortgage
     obligations .........       2,334,731          --             (56,505)       2,278,226
   Municipal bonds .......       2,249,800        10,193              (765)       2,259,228
                                ----------      --------       -----------       ----------
                                $8,860,125      $ 20,232       $   (61,323)      $8,819,034
                                ==========      ========       ===========       ==========

</TABLE>
                                     - 32 -

<PAGE>
                   Notes to Consolidated Financial Statements



       Theamortized cost and market value of debt securities  classified as held
          to maturity at September 30, 1997, by contractual maturity, follows:
<TABLE>
<CAPTION>
                                                   Amortized            Market
                                                     cost                value
                                                  ----------          ----------
<S>                                               <C>                 <C>
Within one year ........................          $1,325,678          $1,326,693
Between one and five years .............           1,150,925           1,164,375
Between five and ten years .............             150,000             150,000
After ten years ........................           3,164,937           3,187,731
                                                  ----------          ----------
                                                  $5,791,540          $5,828,799
                                                  ==========          ==========
</TABLE>
(4)    Mortgage-Backed Securities
       Theamortized  cost  and  market  value  of   mortgage-backed   securities
          classified  as  available  for  sale at  September  30,  1997 and 1996
          follow:
<TABLE>
<CAPTION>
                                       September 30, 1997
                 ---------------------------------------------------------------
                                    Gross            Gross
                   Amortized      unrealized       unrealized           Market
                     cost           gains            losses             value
                 -----------      ---------       ------------       -----------

GNMA ......      $   639,203      $  69,387       $       --         $   708,590
FHLMC .....        8,792,346        166,706            (99,022)        8,860,030
FNMA ......        3,753,595         95,490            (13,976)        3,835,109
                 -----------      ---------       ------------       -----------
                 $13,185,144      $ 331,583       $   (112,998)      $13,403,729
                 ===========      =========       ============       ===========
 
<CAPTION>

                                      September 30, 1996
                 ---------------------------------------------------------------
                                    Gross             Gross
                  Amortized       unrealized       unrealized           Market
                     cost           gains             losses             value
                 -----------      ---------       ------------       -----------
<S>              <C>              <C>             <C>                <C>
GNMA ......      $   715,742      $  73,898       $       --         $   789,640
FHLMC .....        9,980,068        172,936           (184,954)        9,968,050
FNMA ......        4,363,614         54,798            (59,510)        4,358,902
                 -----------      ---------       ------------       -----------
                 $15,059,424      $ 301,632       $   (244,464)      $15,116,592
                 ===========      =========       ============       ===========
</TABLE>
<PAGE>
       The amortized  cost and  market  value  of   mortgage-backed   securities
          classified as available for sale at September 30, 1997, by contractual
          maturity,  are shown  below.  Expected  maturities  will  differ  from
          contractual   maturities  due  to  scheduled  repayments  and  because
          borrowers  may have the right to prepay  obligations  with or  without
          prepayment   penalties.   The  following  table  does  not  take  into
          consideration the effects of possible prepayments:
<TABLE>
<CAPTION>


                                                   Amortized             Market
                                                     cost                 value
                                                 -----------         -----------
<S>                                              <C>                 <C>
Within one year ........................         $      --           $      --
Between one and five years .............             644,136             641,384
Between five and ten years .............              18,874              19,250
After ten years ........................          12,522,134          12,743,095
                                                 -----------         -----------
                                                 $13,185,144         $13,403,729
                                                 ===========         ===========

</TABLE>
                                     - 33 -

<PAGE>
                   Notes to Consolidated Financial Statements


       Gross realized  gains,  gross  realized  losses,  and gross proceeds from
          sales of mortgage-backed securities follows:
<TABLE>
<CAPTION>
                                                       1997               1996
                                                  -----------          --------
<S>                                               <C>                  <C>
Gross realized gains ....................         $    19,064          $   --
Gross realized losses ...................              (4,205)           (8,916)
                                                  -----------          --------
      Net realized gain (loss) ..........         $    14,859          $ (8,916)
                                                  ===========          ========

Gross proceeds ..........................         $ 1,758,789          $ 64,471
                                                  ===========          ========
</TABLE>
       There were no sales of  mortgage-backed  securities during the year ended
September 30, 1995.

       Theamortized  cost  and  market  value  of   mortgage-backed   securities
          classified as held to maturity at September 30, 1997 and 1996 follow:
<TABLE>
<CAPTION>
                                         September 30, 1997
                                                         Gross            Gross
                          Amortized     unrealized    unrealized          Market
                            cost          gains         losses             value
                         ----------      -------      ----------      ----------
<S>                      <C>             <C>          <C>             <C>

GNMA ..............      $  446,629      $21,093      $     --        $  467,722
FHLMC .............         316,617        8,031            --           324,648
FNMA ..............         118,138        5,669            --           123,807
Private pass-
  throughs ........         320,806        4,782            --           325,588
                         ----------      -------      ----------      ----------
                         $1,202,190      $39,575      $     --        $1,241,765
                         ==========      =======      ==========      ========== 
<CAPTION>
                                           September 30, 1996
                         -------------------------------------------------------
                                           Gross        Gross
                          Amortized     unrealized    unrealized         Market
                            cost           gains       losses            value
                         ----------      -------      ----------      ----------
<S>                      <C>             <C>          <C>             <C>
GNMA ..............      $  612,116      $10,526      $     --        $  622,642
FHLMC .............         363,470        3,439            --           366,909
FNMA ..............         171,941        4,992            --           176,933
Private pass-
  throughs ........         368,095       19,302            --           387,397
                         ----------      -------      ----------      ----------
                         $1,515,622      $38,259      $     --        $1,553,881
                         ==========      =======      ==========      ==========
</TABLE>
                                     - 34 -
<PAGE>
          Notes to Consolidated Financial Statements

       The amortized  cost  and  market  value  of   mortgage-backed  securities
          classified as held to maturity at September  30, 1997, by  contractual
          maturity,  are shown  below.  Expected  maturities  will  differ  from
          contractual   maturities  due  to  scheduled  repayments  and  because
          borrowers  may have the right to prepay  obligations  with or  without
          prepayment   penalties.   The  following  table  does  not  take  into
          consideration the effects of possible prepayments:
<TABLE>
<CAPTION>
                                                    Amortized            Market
                                                      cost                value
                                                  ----------          ----------
<S>                                               <C>                 <C>
Between five and ten years .............          $   72,740          $   75,881
After ten years ........................           1,129,450           1,165,884
                                                  ----------          ----------
                                                  $1,202,190          $1,241,765
                                                  ==========          ==========
</TABLE>
<PAGE>
(5)    Loans Receivable
       A comparative summary of loans receivable follows:
<TABLE>
<CAPTION>
                                                      1997               1996
                                                 ------------       ------------
<S>                                              <C>                <C>     
Loans secured by real estate:
   Residential:
     1-4 family ..........................       $200,610,239       $193,301,481
     Multifamily .........................          3,053,705          1,748,587
                                                 ------------       ------------
            Total residential ............        203,663,944        195,050,068
   Land held for development .............          1,531,653          1,055,501
   Commercial ............................         13,705,020         11,621,874
                                                 ------------       ------------
            Total loans secured by
              real estate ................        218,900,617        207,727,443
                                                 ------------       ------------
Commercial business loans ................          7,880,656          7,767,959
Consumer loans:
   Automobile loans ......................         47,252,503         50,292,567
   Mobile home loans .....................            292,927            169,808
   Education loans .......................            549,648          1,373,526
   Loans secured by deposits .............          1,820,881          1,589,568
   Other .................................         15,735,460         12,119,599
                                                 ------------       ------------
            Total consumer loans .........         65,651,419         65,545,068
                                                 ------------       ------------
                                                  292,432,692        281,040,470
                                                 ------------       ------------
Less:
   Loans in process ......................                769             35,787
   Unearned discount, net ................          2,057,724          2,648,056
   Deferred loan fees ....................            274,593            205,280
   Allowance for losses ..................          2,257,515          2,418,800
   Purchase accounting discounts .........            192,093            245,618
                                                 ------------       ------------
                                                    4,782,694          5,553,541
                                                 ------------       ------------
                                                 $287,649,998       $275,486,929
                                                 ============       ============
</TABLE>
          The weighted  average  interest  rate on loans  was 8.65% and 8.48% at
              September 30, 1997 and 1996, respectively.


                                     - 35 -
<PAGE>
                   Notes to Consolidated Financial Statements


          A   summary  of  activity  in the  allowance  for losses for the years
              ended September 30, 1997, 1996, and 1995 follows:
<TABLE>
<CAPTION>


                                       1997             1996             1995
                                  -----------      -----------      -----------
<S>                               <C>              <C>              <C>
Balance, beginning of year ..     $ 2,418,800      $ 2,232,016      $ 2,129,296
Provision charged to expense          321,250          170,000          360,000
Acquisition of Home Federal .         190,000             --               --
Acquisition of Community
   Savings ..................            --            265,000             --
Charge-offs .................        (829,402)        (421,652)        (349,839)
Recoveries ..................         156,867          173,436           92,559
                                  -----------      -----------      -----------
Balance, end of year ........     $ 2,257,515      $ 2,418,800      $ 2,232,016
                                  ===========      ===========      ===========
</TABLE>
       A summary of loans  receivable  contractually  in arrears three months or
more is as follows:
<TABLE>
<CAPTION>
                                                    1997                1996
                                                 ----------          ----------
<S>                                              <C>                 <C>
Residential real estate loans ..........         $  826,582          $1,068,570
Commercial real estate loans ...........            381,374             849,529
Consumer loans .........................            289,219             243,426
                                                 ----------          ----------
                                                 $1,497,175          $2,161,525
                                                 ==========          ==========

Percent of loans receivable ............                .52%                .78%
                                                 ==========          ==========

Number of loans ........................                 93                  66
                                                 ==========          ==========
</TABLE>
       A  summary of loans on which  interest is not being  accrued and impaired
          loans at September 30, 1997 and 1996 follows:
<TABLE>
<CAPTION>
                                                         1997             1996
                                                       --------         --------
<S>                                                    <C>              <C>
Nonaccrual loans .............................         $381,374         $765,662
Impaired loans continuing to
   accrue interest ...........................             --               --
                                                       --------         --------
            Total impaired loans .............         $381,374         $765,662
                                                       ========         ========
</TABLE>
<PAGE>
       The allowance for losses on impaired  loans was  $204,000 and $375,000 at
          September  30, 1997 and 1996,  respectively.  The  average  balance of
          impaired loans during the years ended  September 30, 1997 and 1996 was
          $573,518 and $524,403, respectively.

       A  summary of interest  income on nonaccrual and other impaired loans for
          the years ended September 30, 1997 and 1996 follows:
<TABLE>
<CAPTION>
                                                            1997           1996
                                                          --------       -------
<S>                                                       <C>            <C>
Income recognized - nonaccrual loans ..............       $   --         $  --
                                                          ========       =======

Interest income if interest had accrued -
   nonaccrual loans ...............................       $ 48,675       $53,681
                                                          ========       =======
</TABLE>
                                     - 36 -

<PAGE>
                   Notes to Consolidated Financial Statements


(6)    Real Estate Acquired by Foreclosure
       A  comparative  summary of real  estate  acquired  by  foreclosure  is as
         follows:
<TABLE>
<CAPTION>

                                                       1997               1996
                                                     --------           --------
<S>                                                  <C>                <C>
Foreclosed real estate ...................           $632,473           $385,074
Deficiency judgments .....................             37,801             43,205
                                                     --------           --------
                                                     $670,274           $428,279
                                                     ========           ========
</TABLE>

(7)    Office Properties and Equipment
       A comparative summary of office properties and equipment follows:
<TABLE>
<CAPTION>
                                                       1997              1996
                                                   -----------        ----------
<S>                                                <C>                <C>
Land ......................................        $   903,727        $  855,373
Office buildings and improvements .........          5,245,362         5,321,618
Furniture, fixtures and equipment .........          4,100,865         3,636,287
Automobiles ...............................            102,833           102,833
                                                   -----------        ----------
                                                    10,352,787         9,916,111
Less accumulated depreciation .............          4,489,891         3,925,719
                                                   -----------        ----------
                                                   $ 5,862,896        $5,990,392
                                                   ===========        ==========
</TABLE>


          Depreciation expense for the years ended September 30, 1997, 1996, and
              1995 amounted to $710,394, $507,285, and $351,612, respectively.
<PAGE>
(8)    Deposits
       A comparative summary of deposits follows:
<TABLE>
<CAPTION>
                                                                     1997                          1996
                                                         ------------------------      ------------------------
                                                                          Percent                       Percent
                                      Stated                                 to                            to
                                       rate                  Amount        total            Amount       total
                                       ----                  ------        -----            ------       -----
<S>                               <C>                    <C>               <C>         <C>               <C>
Demand deposits:
   Checking                               0-2.70%        $ 42,257,489       15.3%      $ 35,809,064       14.4%
   Money market
     demand                            2.50-3.75           18,158,607        6.6         17,448,651        7.0
   Passbook                            2.00-2.75           41,577,326       15.1         35,694,715       14.4
                                                         ------------      -----       ------------      ----- 
                                                          101,993,422       37.0         88,952,430       35.8
                                                         ------------      -----       -------------     ----- 
Certificates of
   deposit:
                                  Less than 3.00               14,222        -               26,463        -
                                       3.00-4.99            3,111,382        1.1         14,826,775        6.0
                                       5.00-6.99          169,123,261       61.3        141,335,188       56.8
                                       7.00-8.99            1,324,695         .5          3,086,126        1.2
                                      9.00-11.00              412,766         .1            495,645         .2
                                      ==========         ------------      -----       ------------      -----
                                                          173,986,326       63.0        159,770,197       64.2
                                                         ------------      -----       ------------      ----- 
                                                         $275,979,748      100.0%      $248,722,627      100.0%
                                                         ============      =====       ============      =====

</TABLE>
                                     - 37 -

<PAGE>
                   Notes to Consolidated Financial Statements



          The weighted  average interest rate on deposits was 4.67% and 4.63% at
              September 30, 1997 and 1996, respectively.

          A   summary of the maturities of  certificates of deposit at September
              30, 1997 and 1996 follows:
<TABLE>
<CAPTION>
                                       1997                          1996
                           --------------------------   --------------------------                               
                             Amount          Percent       Amount         Percent
                           ------------       -----    ------------        -----
<S>                        <C>                <C>      <C>                 <C>
Within one year ......     $112,180,098        64.5%   $109,803,423         68.7%
Second year ..........       46,667,854        26.8      32,827,662         20.5
Third year ...........       13,637,680         7.8      10,989,454          6.9
Fourth year ..........          939,670          .6       5,400,553          3.4
Thereafter ...........          561,024          .3         749,105           .5
                           ------------       -----    ------------        -----
                           $173,986,326       100.0%   $159,770,197        100.0%
                           ============       =====    ============        =====
</TABLE>

       Interest expense on deposits,  by type, for the years ended September 30,
          1997, 1996, and 1995 is summarized as follows:
<TABLE>
<CAPTION>


                                         1997            1996             1995
                                     -----------      ----------      ----------
<S>                                  <C>              <C>             <C>
Checking and money
   market .....................      $ 1,437,091      $1,334,117      $1,199,954
Savings accounts ..............        1,382,156         953,487         898,191
Certificates of deposit .......        9,422,778       7,363,202       5,370,258
Amortization of core
   deposit intangible .........          135,916         142,094          98,332
                                     -----------      ----------      ----------
                                     $12,377,941      $9,792,900      $7,566,735
                                     ===========      ==========      ==========
</TABLE>
       Certificates  of deposit of  $100,000  or more  totaled  $17,535,643  and
          $11,837,210 at September 30, 1997 and 1996,  respectively.  Investment
          securities  and  mortgage-backed  securities  with a carrying value of
          approximately  $26,226,000  and  $12,207,000 at September 30, 1997 and
          1996,   respectively,   were  pledged  to  secure   certain  of  these
          certificates  of deposit.  Investment  securities and  mortgage-backed
          securities  with a  carrying  value of  approximately  $4,300,000  and
          $3,296,000 at September 30, 1997 and 1996, respectively,  were pledged
          to secure a commercial checking account.


                                     - 38 -
<PAGE>
                                    Notes to Consolidated Financial Statements


(9)    Borrowed Money
       A summary of borrowed money at September 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>

                                                        September 30,             September 30,
                                                            1997                       1996
                                                        Weighted                     Weighted
                                                         average                      average
                                                         interest                     interest
                                           Amount          rate        Amount           rate
                                          -----------      ----     -----------         ----
<S>                                       <C>              <C>      <C>                 <C>
Reverse repurchase
   agreements .......................     $13,345,251      5.48%    $14,781,706         5.35%
Line of credit advances
   from FHLB ........................      17,200,000      6.48      53,600,000         6.22
Fixed-term advances from FHLB due in:
                                 1998      19,500,000      5.42       7,000,000         5.11
                                 2001         271,786      8.36         396,077         8.36
ESOP ................................            --         --          576,000         8.00
                                                                    -----------         ----
                                          $50,317,037      5.81%    $76,353,783         5.97%
                                          ===========      ====     ===========         ====
</TABLE>
       Reverse repurchase agreements (the agreements) are treated as financings,
          and the obligations to repurchase the securities sold are reflected as
          a  liability.  These  agreements  mature  within one year.  All of the
          agreements  were to repurchase  identical  securities.  The investment
          securities  underlying the  agreements  were delivered to a designated
          safekeeping agent.  These investment  securities had an amortized cost
          and market value of  $13,948,000  and  $14,229,000,  respectively,  at
          Septem-ber 30, 1997. At September 30, 1996, the investment  securities
          had an amortized cost and market value of $16,878,000 and $16,851,000,
          respectively.

       The agreements averaged approximately  $13,320,000 and $13,510,000 during
          1997 and 1996,  respectively.  The maximum amounts  outstanding at any
          month-end  during  1997 and 1996 were  approximately  $13,345,000  and
          $14,782,000,  respectively.  Interest  expense on  reverse  repurchase
          agreements was approximately $720,000,  $741,000, and $803,000 for the
          years ended September 30, 1997, 1996, and 1995, respectively.

       Line of  credit  advances  bear  interest  at 1%  above  the  FHLB  daily
          investment  deposit rate.  These  borrowings  are  short-term  and are
          secured.   The  maximum  amount   outstanding  at  any  month-end  was
          approximately  $56,491,000  and  $53,600,000  during  1997  and  1996,
          respectively.   Interest  expense  on  line  of  credit  advances  was
          approximately $1,528,000, $1,180,000, and $973,000 for the years ended
          September 30, 1997, 1996, and 1995, respectively.

       Interest expense on fixed-term  advances from the FHLB was  approximately
              $1,090,000,  $649,000,  and $878,000 for the years ended September
              30, 1997, 1996, and 1995, respectively.

                                     - 39 -
<PAGE>
                   Notes to Consolidated Financial Statements



       At September 30, 1997 and 1996, total borrowings from the FHLB of Chicago
          were $36,971,786 and $60,996,077, respectively. Advances from the FHLB
          of Chicago are secured by a blanket lien of qualifying  first mortgage
          loans  equivalent to 165% of outstanding  borrowings.  As of September
          30, 1997, the Company's  available  credit from the FHLB cannot exceed
          the  lesser  of  35%  of  total  assets  ($135.5  million),  or 60% of
          one-to-four-family   residential  mortgages  not  more  than  90  days
          delinquent ($119.9 million).

       In 1994, the ESOP borrowed  $1,440,000 to finance the  acquisition of the
          stock  to  be  held  in  trust  for  future   allocation  to  eligible
          participants.  The  debt of the ESOP  was  collateralized  by the ESOP
          shares and was  reflected as a liability in the  consolidated  balance
          sheet.  During 1997, the Company  repaid the remaining  balance on the
          debt.  Principal  payments  totaling  $576,000 in 1997 and $288,000 in
          1996 and interest  payments of  approximately  $9,000 and $63,000 were
          made during 1997 and 1996, respectively.

(10)   Income Taxes
       The  composition of income tax expense for the years ended  September 30,
          1997, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>


                                  1997              1996                1995
                              ----------        -----------         -----------
<S>                           <C>               <C>                 <C>              
Current:
   Federal ...........        $2,531,015        $ 2,336,702         $ 1,689,259
   State .............           235,537            286,175             198,905
Deferred .............           890,821           (467,566)            (14,141)
                              ----------        -----------         -----------
                              $3,657,373        $ 2,155,311         $ 1,874,023
                              ==========        ===========         ===========

</TABLE>
                                     - 40 -

<PAGE>
                   Notes to Consolidated Financial Statements


       The reasons for  the  difference  between  expected  federal  income  tax
          expense  computed at the federal  statutory rate of 34% and the actual
          amount are as follows:
<TABLE>
<CAPTION>
                                        1997                        1996                        1995
                            ------------------------     -------------------------    -------------------------                   
                               Amount        Percent        Amount         Percent       Amount         Percent
                               ------        -------        ------         -------       ------         -------
<S>                         <C>                 <C>      <C>                 <C>      <C>                 <C>
Computed "expected"
  income tax expense ..     $ 3,092,556         34.0%    $ 1,772,405         34.0%    $ 1,651,686         34.0%
Items affecting
  federal income
  tax rate:
    Amortization
      of ESOP awards ..         131,709          1.4         161,587          3.1          72,114          1.5
    Tax-exempt
      interest ........         (46,663)         (.5)        (38,824)         (.8)        (45,269)         (.9)
    Amortization of
      cost in excess
      of fair value
      of net assets
      acquired ........         154,721          1.7          71,832          1.4          46,379           .9
    State income taxes,
      net of federal
      benefit .........         306,173          3.4         147,347          2.8         163,020          3.4
    Other .............          18,877           .2          40,964           .8         (13,907)         (.3)
                            -----------         ----     -----------         ----     -----------         ----
                            $ 3,657,373         40.2%    $ 2,155,311         41.3%    $ 1,874,023         38.6%
                            ===========         ====     ===========         ====     ===========         ====
</TABLE>

<PAGE>
       The    components of deferred tax assets and deferred tax  liabilities at
              September 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
                                                 1997             1996
                                             -----------      -----------
<S>                                          <C>              <C>                            
Deferred tax assets:
   General loan loss allowance .........     $   735,498      $   726,528
   SAIF special assessment .............            --            572,973
   Available-for-sale securities market
     valuation .........................            --             47,321
   Discounts and premiums related to
     purchase method of accounting .....         115,640           57,005
   Accrued liabilities .................         190,817             --
   Core deposit intangible .............          54,515           33,773
   Other, net ..........................          33,495           64,437
                                             -----------      -----------
          Total deferred tax assets ....       1,129,965        1,502,037
                                             -----------      -----------
Deferred tax liabilities:
   Available-for-sale securities market
     valuation .........................        (227,993)            --
   Loans, due to bad debts taken in
     excess of base year reserve .......        (287,590)        (217,535)
   Restricted stock awards .............        (423,803)            --
   Tax depreciation in excess of that
     recorded for book purposes ........        (238,946)        (227,969)
   FHLB stock dividends ................         (30,799)         (39,929)
   Other, net ..........................        (131,665)         (61,300)
                                             -----------      -----------
          Total deferred tax liabilities      (1,340,796)        (546,733)
                                             -----------      -----------
          Net deferred tax asset
             (liability) ...............     $  (210,831)     $   955,304
                                             ===========      ===========
</TABLE>
                                     -41 -

<PAGE>
                   Notes to Consolidated Financial Statements



       If certain  conditions  were met, the  Company,  in  determining  taxable
          income,  was allowed a special bad debt  deduction  based on specified
          experience  formulas or on a percentage of taxable  income before such
          deduction. The Company used the percentage of taxable income method in
          1996 and 1995,  since this  method  resulted  in the  maximum bad debt
          deduction.  The bad debt  deduction  under the  percentage  method was
          limited to 8% of taxable income.

       The special bad debt deduction accorded  thrift  institutions  is covered
          under  Section 593 of the Internal  Revenue  Code. On August 20, 1996,
          the Small  Business  Job  Protection  Act of 1996 (the Act) was signed
          into law.  This Act included the repeal of Section 593  effective  for
          tax years  beginning after December 31, 1995. The repeal of the thrift
          reserve method  generally  requires  thrift  institutions to recapture
          into income the portion of bad debt reserves that exceed the base year
          reserve.  The recapture  will  generally be taken into income  ratably
          over six tax years.  However,  if the Company meets a residential loan
          requirement for the tax years beginning in 1996 and 1997, recapture of
          the reserve can be deferred  until the tax year  beginning in 1998. At
          September  30,  1997,  the  Company  had bad  debts  deducted  for tax
          purposes in excess of the base year reserve of approximately $742,000.
          The Company has  recognized a deferred  income tax  liability for this
          amount.

       Certain events  covered by IRC Section  593(e),  which was not  repealed,
          will  trigger  a  recapture  of the base year  reserve.  The base year
          reserve of thrift  institutions would be recaptured if a thrift ceases
          to qualify as a bank for federal  income tax  purposes.  The base year
          reserves  of thrift  institutions  also  remain  subject to income tax
          penalty  provisions which, in general,  require recapture upon certain
          stock redemptions of, and excess  distributions to,  stockholders.  At
          September 30, 1997,  retained  earnings  included  approximately  $9.7
          million of base year  reserves,  for which no deferred  federal income
          tax liability has been recognized.

(11)   Regulatory Matters
       The Bank  is  subject   to  various   regulatory   capital   requirements
          administered by the federal 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  Bank's   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
          classification  are  also  subject  to  qualitative  judgments  by the
          regulators about components, risk weightings, and other factors.






                                     - 42 -
<PAGE>
                   Notes to Consolidated Financial Statements


       Quantitative  measures  established  by  regulations  to  ensure  capital
          adequacy  require the Bank to maintain minimum amounts and ratios (set
          forth in the table  below) of total and Tier I capital  (as defined in
          the regulations) to risk-weighted  assets (as defined),  and of Tier I
          capital  (as  defined)  to  average  assets (as  defined).  Management
          believes,  as of  September  30,  1997,  the Bank  meets  all  capital
          adequacy requirements to which they are subject.

       As of June  30,  1996,  the  most  recent  notification  from  regulatory
          agencies categorized the Bank as well capitalized under the regulatory
          framework for prompt correction action. To be well capitalized,  banks
          must maintain minimum total risk-based,  Tier I risk-based, and Tier I
          leverage  ratios  of 10%,  6%,  and  5%,  respectively.  There  are no
          conditions or events since that notification that management  believes
          have changed the Bank's category.

       The    Bank's  actual  and  required  capital  amounts  and  ratios as of
              September 30, 1997 are as follows:
<TABLE>
<CAPTION>
                                                                        Capital
                                                Actual               requirements
                                        --------------------      -------------------
                                         Amount       Ratio       Amount       Ratio
                                         ------       -----       ------       -----
                                                     (dollars in thousands)
<S>                                     <C>            <C>        <C>            <C>
Total capital (to risk-
   weighted assets) ...............     $48,699        22.16%     $17,579        8.00%
                                        =======        =====      =======        ====

Tier I capital (to risk-
   weighted assets) ...............     $46,800        21.30%     $ 8,789        4.00%
                                        =======        =====      =======        ====

Tier I capital (to average
   assets) ........................     $46,800        12.10%     $11,606        3.00%
                                        =======        =====      =======        ====
</TABLE>
(12)   Pension Plan
       Substantially  all employees are included in a trusteed  defined  benefit
          pension plan. The benefits contemplated by the plan are funded through
          payments to the Financial Institutions Retirement Fund, which operates
          as an industry-wide  plan and does not report relative plan assets and
          actuarial  liabilities of the individual  participating  associations.
          The cost of funding is  charged  to  current  operations.  There is no
          unfunded  liability  for past  service.  Expense  for the years  ended
          September 30, 1996 and 1995 was $113,558 and  $102,304,  respectively.
          There was no expense for the year ended  September  30, 1997 since the
          plan was fully funded.

       During 1994, the Bank adopted a supplemental  executive  retirement  plan
          for certain key executive officers and directors selected by the Board
          of Directors.  Benefits to be paid under the plan are accrued over the
          remaining period to retirement of the covered executives.  Expense for
          the years ended September 30, 1997,  1996, and 1995 was  approximately
          $67,000, $12,000 and $14,000, respectively.

                                     - 43 -
<PAGE>
                   Notes to Consolidated Financial Statements



(13)   Employee Stock Ownership Plan, Stock Option
          Plan, and Recognition and Retention Plan
       During 1994,  the Company  established  a  tax-qualified  ESOP.  The plan
          covers substantially all employees who have attained the age of 21 and
          completed one year of service.  In connection  with the mutual holding
          company  conversion,  the ESOP purchased  144,000 shares of the Bank's
          common stock at a  subscription  price of $10.00 per share using funds
          loaned by a third  party.  As a result of the  Conversion,  these ESOP
          shares were converted into 300,082 shares based on the Exchange Ratio.
          In connection  with the  Conversion,  the ESOP purchased an additional
          96,903  shares of common stock at a  subscription  price of $10.00 per
          share using funds loaned by the Company.  During 1997, the third party
          loan was repaid and added to the  Company  loan which is being  repaid
          with level principal  payments over 5 years.  All shares are held in a
          suspense  account for allocation among the participants as the loan is
          repaid.  Shares released from the suspense account are allocated among
          the participants  based upon their pro rata annual  compensation.  The
          purchases  of the shares by the ESOP were  recorded  by the Company as
          unearned  ESOP shares in a contra equity  account.  As ESOP shares are
          committed to be released to  compensate  employees,  the contra equity
          account is reduced and the  Company  recognizes  compensation  expense
          equal to the fair market value of the shares committed to be released.
          Dividends  on  allocated  ESOP shares are  recorded as a reduction  of
          retained  earnings;  dividends on unallocated ESOP shares are recorded
          as a reduction of debt.  Compensation  expense related to the ESOP was
          approximately  $638,000,  $763,000,  and  $547,000 for the years ended
          September 30, 1997, 1996, and 1995, respectively.

       The ESOP shares as of September 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>


                                                        1997             1996
                                                     ----------       ----------
<S>                                                  <C>              <C>
Allocated shares .............................          223,436          180,049
Committed to be released shares ..............             --              7,267
Unreleased shares ............................          173,549          209,669
                                                     ----------       ----------
                       Total ESOP shares .....          396,985          396,985
                                                     ==========       ==========

Fair value of unreleased shares ..............       $3,644,529       $2,620,850
                                                     ==========       ==========
</TABLE>
       In connection  with the mutual holding company  conversion,  the Board of
          Directors  adopted the Charter Bank,  S.B. 1993 Incentive Stock Option
          Plan which  provided  for the  granting  of  options  for a maximum of
          144,000  shares of common stock at $10.00 per share to directors,  key
          officers,  and  employees.  As a result of the  Conversion,  the stock
          options and the price per share were  converted  based on the Exchange
          Ratio.

                                     - 44 -
<PAGE>
                   Notes to Consolidated Financial Statements


       On January 16, 1997, the Company  adopted the 1997 Incentive Stock Option
          Plan which  provided  for the  granting  of  options  for a maximum of
          233,553  shares of common stock at $12.84 per share to directors,  key
          officers, and employees.

       Activity within the plans is summarized as follows:
<TABLE>
<CAPTION>
                                                 Number of
                                                  shares                Price
                                                  ------                -----
<S>                                               <C>               <C>
Balance at September 30, 1995 ...............     120,360           $   10.00
Exercised ...................................      (5,760)              10.00
Conversion into common stock
   of Charter Financial, Inc. ...............     124,205                4.80
Granted .....................................        --               --
Exercised ...................................        (728)               4.80
Cancelled ...................................        (730)               4.80
                                                                    ---------
Balance at September 30, 1996 ...............     237,347                4.80
Granted .....................................     219,500               12.84
Exercised ...................................        (365)               4.80
Cancelled ...................................        --               --
                                                                    ---------
Balance at September 30, 1997 ...............     456,482           $    8.67
                                                 ========           =========
</TABLE>
       The Company applies APB Opinion No. 25 in  accounting  for stock  options
          and,  accordingly,  no  compensation  cost has been  recognized in the
          consolidated   financial   statements.   Had  the  Company  determined
          compensation  cost for stock options granted in 1997 based on the fair
          value at the grant date under SFAS No. 123, there would be no material
          effect on net income nor earnings per share.

       Also, in  connection  with the mutual  holding  company  conversion,  the
          Company  established  the Charter  Bank,  S.B.  1993  Recognition  and
          Retention  Plan which  acquired  48,000  shares  (2.2% of total shares
          issued) of $1.00 par value stock at a subscription price of $10.00 per
          share.  The plan  provided  that such common  stock could be issued to
          directors and employees in key management  positions to encourage such
          key  directors  and  employees  to  remain  with  the  Company.  As of
          September  30,  1996,  participants  had become  fully  vested and the
          shares  of  stock  were  released  to  the  appropriate  participants.
          Compensation   expense   related  to  vesting  in  the  plan   totaled
          approximately  $140,000 and $149,000  during the years ended September
          30, 1996 and 1995, respectively.

       On January  16,  1997,  the  Company  adopted  the 1997  Recognition  and
          Retention  Plan which issued  112,000 shares of $0.10 par value common
          stock.  The market price on the date of issuance was $12.84.  The plan
          provides  that  such  common  stock can be  issued  to  directors  and
          employees in key management  positions to encourage such directors and
          key  employees  to remain with the  Company.  Interest in the plan for
          each participant vests in

                                     - 45 -
<PAGE>
                   Notes to Consolidated Financial Statements


          five equal  installments  beginning  January 16, 1998. The issuance of
          the shares has been recorded in the consolidated  financial statements
          through a  $1,438,080  credit to common stock and  additional  paid-in
          capital with a corresponding charge to a contra equity account for the
          restricted  shares.  The contra  equity  account  will be amortized to
          compensation expense over the period of vesting.  Compensation expense
          was $215,712 for the year ended September 30, 1997.

(14)   Financial Instruments With Off-Balance-Sheet Risk
       The Company is a party to financial  instruments  with  off-balance-sheet
          risk in the normal course of business to meet the  financing  needs of
          its customers.  These  financial  instruments  include  commitments to
          extend credit and financial guarantees.

       The Company's exposure to credit loss in the event of  nonperformance  by
          the other party to the financial  instrument for commitments to extend
          credit  and  financial   guarantees  written  is  represented  by  the
          contractual  amount of these  instruments.  The Company  uses the same
          credit policies in making  commitments and conditional  obligations as
          it does for on-balance-sheet instruments.

       Commitments to extend credit are agreements to lend to a customer as long
          as there is no violation of any condition established in the contract.
          Commitments generally have fixed expiration dates or other termination
          clauses  and  may  require  payment  of a fee.  Since  certain  of the
          commitments are expected to expire without being drawn upon, the total
          commitment   amounts  do  not   necessarily   represent   future  cash
          requirements.  The Company evaluates each customer's  creditworthiness
          on a case-by-case  basis. The amount of collateral  obtained if deemed
          necessary  by the  Company  upon  extension  of  credit  is  based  on
          management's credit evaluation of the counterparty.

       At September  30,  1997,  the  Company  had  outstanding  commitments  to
          originate  residential  loans of  approximately  $1,628,000,  of which
          $425,000 were at fixed rates and $1,203,000 were at adjustable  rates.
          In addition,  the Company had commitments to fund  outstanding  credit
          lines of approximately  $9,341,000 at September 30, 1997.  Commitments
          to extend credit may involve  elements of interest rate risk in excess
          of the amount recognized in the consolidated balance sheets.  Interest
          rate risk on commitments to extend credit results from the possibility
          that interest  rates may have moved  unfavorably  from the position of
          the Company since the time the commitment was made.

(15)   Commitments and Contingencies
       As discussed  more  fully  in  note  14,  the  Company  has   outstanding
          commitments to originate loans in the ordinary course of business.


                                     - 46 -
<PAGE>
                   Notes to Consolidated Financial Statements



       The Company is involved  in various  litigation  arising in the  ordinary
          course of business. In the opinion of management, at the present time,
          disposition of the suits and claims will not have a material effect on
          the financial position of the Company.

(16)   Liquidation Account
       At the time of Conversion, the Bank established a liquidation account for
          the  benefit of  eligible  savings  account  holders  who  continue to
          maintain their savings accounts with the Bank after conversion. In the
          event of a complete  liquidation of the Bank (and only in such event),
          eligible  savings  account  holders who  continue  to  maintain  their
          accounts  with the Bank shall be  entitled  to receive a  distribution
          from the liquidation account after payment to all creditors but before
          any liquidation distribution with respect to common stock. The initial
          liquidation account was established at approximately $22 million. This
          account will be proportionately  reduced for any subsequent  reduction
          in  the  eligible   holders'  deposit   accounts.   The  creation  and
          maintenance  of the  liquidation  account will not restrict the use or
          application of any of the capital accounts of the Company, except that
          the Company may not declare or pay a cash  dividend on, or  repurchase
          any  of,  its  capital  stock,  if the  effect  of  such  dividend  or
          repurchase  would be to cause the  Company's  net worth to be  reduced
          below the aggregate amount then required for the liquidation  account,
          or the amount required by federal or state law.

(17)   Fair Values of Financial Instruments
       The estimated fair values of the  Company's  interest-earning  assets and
          interest-bearing liabilities at September 30, 1997 are as follows:
<TABLE>
<CAPTION>
                                                     Carrying          Estimated
                                                       value          fair value
                                                 ------------       ------------
<S>                                              <C>                <C>
Interest-earning assets:
   Cash and cash equivalents .............       $  6,296,829       $  6,296,829
   Investment securities .................         61,813,779         61,851,038
   Mortgage-backed securities ............         14,605,919         14,645,494
   Loans receivable ......................        287,649,998        290,076,173
                                                 ------------       ------------
                                                 $370,366,525       $372,869,534
                                                 ============       ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S>                                              <C>                <C>
Interest-bearing liabilities:
   Deposits:
     Checking, money market demand,
       and passbooks .....................       $101,993,422       $101,993,422
     Certificates of deposit .............        173,986,326        173,876,547
   Borrowed money:
      Reverse repurchase agreements ......         13,345,251         13,345,251
      Line-of-credit advances
        from FHLB ........................         17,200,000         17,200,000
      Fixed-term advances from FHLB ......         19,771,786         19,771,786
                                                 ------------       ------------
                                                 $326,296,785       $326,187,006
                                                 ============       ============

</TABLE>

                                     - 47 -
<PAGE>
                   Notes to Consolidated Financial Statements


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

          Cash and Cash Equivalents
          Cashand  cash  equivalents   consist  of  cash  and   interest-bearing
              deposits.  The carrying value is considered a reasonable  estimate
              of  fair  value  of  these  financial  instruments  due  to  their
              short-term nature.

          Investment Securities
          Fair values are based on quoted market prices or dealer quotes.

          Mortgage-Backed Securities
          Fair values are based on quoted market prices or dealer quotes.

          Loans Receivable
          Fairvalues  are  estimated  for   portfolios  of  loans  with  similar
              financial  characteristics.  Loans are segregated by type, such as
              residential  real  estate,   commercial  real  estate,  commercial
              business,  and  consumer  loans.  Each loan  category  is  further
              segmented  into fixed and  adjustable  rate interest  terms and by
              performing and nonperforming categories.

          The fair  value of  performing  loans  is  calculated  by  discounting
              scheduled   cash  flows  through  the  estimated   maturity  using
              estimated  market  discount  rates  that  reflect  the  credit and
              interest rate risk inherent in the loan.  The estimate of maturity
              is based on the Company's historical  experience,  with repayments
              for each loan classification modified, as required, by an estimate
              of the effect of current economic and lending conditions.

          Fairvalue  for  significant  nonperforming  loans is  based on  recent
              external  appraisals.  Assumptions  regarding  credit  risk,  cash
              flows,  and  discount  rates  are  judgmentally  determined  using
              available market information and specific borrower information.

          Stock in Federal Home Loan Bank
          Stock in Federal  Home Loan Bank is valued at cost,  which  represents
              redemption value and approximates fair value.

          Deposits
          The fair value of deposits with no stated maturity,  such as checking,
              money market demand, and passbook,  is equal to the amount payable
              on demand at September 30, 1997.

          The fair value of  certificates  of deposit,  all of which have stated
              maturities,  is based on the discounted  value of contractual cash
              flows.  The discount rate is estimated  using the rates  currently
              offered for deposits of similar remaining maturities.



                                     - 48 -
<PAGE>
                   Notes to Consolidated Financial Statements



          Borrowed Money
          The fair value of borrowed money is based on the  discounted  value of
              contractual cash flows. The discount rate is estimated using rates
              currently available to the Company for similar terms to maturity.

(18)   Regulatory Developments
       On September 30, 1996, the Deposit Insurance Funds Act of 1996 (DIFA) was
          signed into law. DIFA authorized the FDIC to impose a one-time special
          assessment on  SAIF-assessable  deposits of  depository  institutions.
          This special assessment,  which was based on SAIF-assessable  deposits
          at March 31, 1995, was intended to recapitalize the SAIF. The one-time
          special assessment for the Company totaled  approximately $1.5 million
          and was accrued on  September  30, 1996.  The actual  reduction of net
          income  was   approximately   $917,000,   after  considering  the  tax
          deductibility of the special assessment.

(19)   Selected Quarterly Financial Data (Unaudited)
       Selected  quarterly  financial data for the year ended September 30, 1997
          is as follows:
<TABLE>
<CAPTION>
                                                       Quarter ended
                                         -----------------------------------------
                                         Decem-                           Septem-
                                         ber 31,    March 31,  June 30,    ber 30,
                                          1996       1997       1997       1997
                                         ------     ------     ------     ------
                                                 (thousands of dollars,
                                                 except per share data)
<S>                                      <C>        <C>        <C>        <C>
Total interest income ..............     $7,156     $7,422     $7,562     $7,496
Total interest expense .............      3,880      3,860      3,987      3,997
                                         ------     ------     ------     ------
           Net interest income .....      3,276      3,562      3,575      3,499
Provision for losses on loans ......        111         45         65        100
                                         ------     ------     ------     ------
           Net interest income
              after provision
              for losses
              on loans .............      3,165      3,517      3,510      3,399
Noninterest income .................        618        577      1,889        923
Noninterest expense ................      1,851      2,229      2,139      2,283
                                         ------     ------     ------     ------
           Income before income
              tax expense ..........      1,932      1,865      3,260      2,039
Income tax expense .................        772        730      1,351        805
                                         ------     ------     ------     ------
           Net income ..............     $1,160     $1,135     $1,909     $1,234
                                         ======     ======     ======     ======

Earnings per share .................     $  .29     $  .26     $  .45     $  .27
                                         ======     ======     ======     ======
</TABLE>
                                     - 49 -
<PAGE>
                   Notes to Consolidated Financial Statements



       Selected  quarterly  financial data for the year ended September 30, 1996
         is as follows:
<TABLE>
<CAPTION>
                                                   Quarter ended
                                     -----------------------------------------
                                     Decem-                            Septem-
                                     ber 31,    March 31,  June 30,    ber 30,
                                      1995        1996       1996       1996
                                      ------     ------     ------     ------
                                              (thousands of dollars,
                                              except per share data)
<S>                                   <C>        <C>        <C>        <C>

Total interest income ...........     $5,690     $5,692     $6,199     $7,238
Total interest expense ..........      2,970      2,648      3,028      3,780
                                      ------     ------     ------     ------
           Net interest income ..      2,720      3,044      3,171      3,458
Provision for losses on loans ...         30         30         50         60
                                      ------     ------     ------     ------
           Net interest income
              after provision
              for losses
              on loans ..........      2,690      3,014      3,121      3,398
Noninterest income ..............        364        439        547        492
Noninterest expense .............      1,700      1,720      1,891      3,541
                                      ------     ------     ------     ------
           Income before income
              tax expense .......      1,354      1,733      1,777        349
Income tax expense ..............        561        718        700        176
                                      ------     ------     ------     ------
           Net income ...........     $  793     $1,015     $1,077     $  173
                                      ======     ======     ======     ======

Earnings per share ..............     $  .18     $  .21     $  .22     $  .06
                                      ======     ======     ======     ======
</TABLE>
         (1) Includes SAIF special assessment of $1.5 million.

(20)   Parent Company Financial Information
       Thefollowing  are condensed  balance  sheets as of September 30, 1997 and
          1996 and  condensed  statements  of income and cash flows for the year
          ended  September  30,  1997 and period  from  Decem-  ber 28,  1995 to
          September 30, 1996 for Charter Financial, Inc. (parent company only):
<PAGE>
<TABLE>
<CAPTION>
                            Condensed Balance Sheets

                                                          1997             1996
                                                         -------         -------
                                                             (in thousands)
<S>                                                      <C>             <C>
Assets:
   Cash ........................................         $     7         $   268
   Repurchase agreements .......................           5,045           4,401
   Investment in subsidiary ....................          53,239          53,404
   Other assets ................................             825             275
                                                         -------         -------
                                                         $59,116          58,348
                                                         =======         =======
Liabilities and stockholders' equity:
   Other liabilities ...........................         $ 1,025         $ 1,954
   Stockholders' equity ........................          58,091          56,394
                                                         -------         -------
                                                         $59,116         $58,348
                                                         =======         =======
</TABLE>
                                     - 50 -

<PAGE>
                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                         Condensed Statements of Income


                                                  1997          1996
                                                 -------      -------
                                                    (in thousands)
<S>                                              <C>          <C>
Interest income ............................     $   323      $   401
Interest expense ...........................        --             55
                                                 -------      -------
                                                     323          346
Other income ...............................          65         --
Other operating expenses ...................         (95)         (43)
                                                 -------      -------
            Income before income taxes and
               equity in undistributed
               earnings of subsidiary ......         293          303
Income tax expense .........................         114          116
                                                 -------      -------
            Income before equity in
               undistributed earnings
               of subsidiary ...............         179          187
Equity in undistributed earnings
   of subsidiary ...........................       5,259        2,871 (1)
                                                 -------      -------
            Net income .....................     $ 5,438      $ 3,058
                                                 =======      =======
</TABLE>


          (1)       Includes  undistributed  earnings of subsidiary for the year
                    ended September 30, 1996.


                                     - 51 -

<PAGE>
                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                       Condensed Statements of Cash Flows

                                                          1997            1996
                                                        -------        --------
                                                            (in thousands)
<S>                                                     <C>            <C>
Operating activities:
   Net income ...................................       $ 5,438        $  3,058
   Equity in undistributed earnings of
     subsidiary .................................        (5,259)         (2,871)
   Other, net ...................................          (695)          2,032
                                                        -------        --------
           Net cash provided by (used in)
              operating activities ..............          (516)          2,219
                                                        -------        --------
Investing activities:
   Capital contributions (to)
     from subsidiary ............................         5,632         (15,166)
   Increase in repurchase agreements ............          (644)         (4,401)
                                                        -------        --------
           Net cash provided by (used in)
              investing activities ..............         4,988         (19,567)
                                                        -------        --------
Financing activities:
   Proceeds from issuance of stock ..............          --            27,052
   Exercise of stock options ....................             2               3
   Cash paid to minority stockholders ...........          --                (2)
   Dividends paid ...............................        (1,118)           (553)
   Purchase of treasury stock ...................        (3,617)           --
   Retirement of stock ..........................          --            (8,984)
   Capital contribution from Charter
     Bancorp, M.H.C .............................          --               100
                                                        -------        --------
           Net cash provided by (used in)
              financing activities ..............        (4,733)         17,616
                                                        -------        --------
           Net change in cash and cash
              equivalents .......................          (261)            268
Cash and cash equivalents at beginning
   of year ......................................           268            --
                                                        -------        --------
Cash and cash equivalents at end
   of year $ ....................................             7        $    268
                                                        =======        ========
</TABLE>
<PAGE>


(21)   Event Subsequent to Date of Independent Auditors' Report -
         Adoption of Plan of Merger (Unaudited)
       On November 19, 1997,  the  Company's  Board of Directors  announced  the
          execution of a definitive agreement with Magna Group, Inc. (Magna) for
          the sale of the Company. Under terms of the agreement, stockholders of
          the Company will receive  0.5751 shares of Magna common stock for each
          of the Company's  outstanding  common  shares.  The total value of the
          exchange of common shares outstanding,  based on the closing bid price
          of Magna on Novem- ber 19, 1997, is  approximately  $100  million.  In
          addition,  Magna will reserve  approximately 263,000 shares for future
          issuance  for  the  assumption  of  the  Company's  outstanding  stock
          options.   The  merger  is  subject  to  approval  by  the   Company's
          stockholders,  the receipt of appropriate  regulatory  approvals,  and
          several  other   conditions.   This  transaction  is  expected  to  be
          consummated in the middle of calendar 1998.






                                     - 52 -




<PAGE>
STOCKHOLDER INFORMATION
--------------------------------------------------------------------------------

BOARD OF DIRECTORS                      OFFICERS
------------------                      --------

John A. Becker, Chairman                John A. Becker                          
Truman D. Cashman                       Chairman of the Board and President     
William A. Norton
Klondis T. Pirtle                       Michael R. Howell                       
Carl S. Schlageter, M.D.                Executive Vice President and Treasurer  
Linda M. Johnson
Michael R. Howell                       Linda M. Johnson                        
John Petkas, Jr.                        Senior Vice President and Secretary     
James H. Clutts
Dennis F. Doelitzsch                    Karen P. Jacobus                        
Ralph Eugene Watson                     Vice President and Controller           

MURPHYSBORO ADVISORY BOARD              Ronald W. Seymour                       
--------------------------              Vice President                          
James E. McCoskey
                                        Jerry K. Thomas                         
CORPORATE HEADQUARTERS                  Vice President                          
----------------------
114 West Broadway                       Klay D. Tiemann
Sparta, IL  62286                       Vice President
(618) 443-2166
                                        Ronald L. Diel
ANNUAL MEETING                          Vice President
--------------
Thursday, January 15, 1998              J. Doug Baker
1:30 P.M.                               Vice President
Charter Financial, Inc.
Corporate Headquarters                  Carl E. Eubanks
114 West Broadway                       Vice President
Sparta, IL 62286
                                        William H. Gardiner
STOCK LISTING                           Vice President
-------------
NASDAQ                                  Robert A. Law
Symbol:   CBSB                          Vice President

SPECIAL COUNSEL                         Cynthia M. Calhoun
---------------                         Assistant Vice President
Silver, Freedman & Taff, L.L.P.
1100 New York Avenue, N.W.              Bruce N. Uchtman
Washington, D.C.  20005-3934            Assistant Vice President

INDEPENDENT AUDITORS                    Larry D. Keller
--------------------                    Assistant Vice President
KPMG Peat Marwick, LLP
1010 Market Street                      Bonnie L. Meacham
St. Louis, MO  63101                    Assistant Vice President and
                                        Assistant Secretary
<PAGE>
TRANSFER AGENT
--------------                          Rosalyn K. Thies
Registrar and Transfer Company          Assistant Vice President and
10 Commerce Drive                       Assistant Secretary
Cranford, NJ  07016
(800) 368-5948                          Deborah J. Baird
                                        Assistant Vice President and
GENERAL INQUIRIES AND REPORTS           Assistant Secretary
-----------------------------
A copy of the Company's 1997            Kay L. Morrison
Annual Report to the Securities         Assistant Secretary
and Exchange Commission,
Form 10-K, may be obtained              Elizabeth H. Gearhart
without charge by written               Assistant Secretary
request of shareholders to:
Linda M. Johnson, Senior Vice           Jo Ann Etherton
President, Charter Financial,           Assistant Secretary
Inc., 114 West Broadway, Sparta,
IL  62286                               Franny R. Presutti
                                        Assistant Secretary

                                        Theresa M. Richter                      
                                        Assistant Secretary     
                                                                
                                        Mary E. Yeckley         
                                        Assistant Secretary     
                                                                
                                        April G. Kremer         
                                        Assistant Secretary     
                                                                
                                        Judith L. Batchelor     
                                        Assistant Secretary     
                                                                
                                        Josefina M. Beck        
                                        Assistant Secretary     
                                                                
                                        Jolene Falat            
                                        Assistant Secretary   

                                        Marsha A. Pieron  
                                        Assistant Secretary  

FDIC Disclaimer
---------------

This  Annual  Report  has not  been  reviewed,  or  confirmed  for  accuracy  or
relevance, by the FDIC.














                                     - 53 -