SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
       Act of 1934 
       [FEE  REQUIRED]
        
       For the Fiscal Year Ended September 30, 1996

                                       OR

[  ]   Transition Report Pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934 
       [NO FEE REQUIRED]
         

       For the transition period from _______________ to  ______________________

                         Commission File Number: 0-27304

                             CHARTER FINANCIAL, INC.
             (Exact name of registrant as specified in its charter)

          Delaware                                         37-1345386
(State or other jurisdiction of                         (I.R.S. Employer
incorporation or organization)                         Identification Number)

                 114 West Broadway, Sparta, Illinois 62286-1683
                (Address of Principal Executive Offices) Zip Code

                                 (618) 443-2166
                         (Registrant's telephone number)

          Securities Registered Pursuant to Section 12(b) of the Act:
                                      None

          Securities Registered Pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.10 per share
                                (Title of Class)

         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the  preceding  twelve  months (or for such shorter  period that the
Registrant  was required to file such  reports) and (2) has been subject to such
requirements for the past 90 days. YES [X[   NO [ ] 

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X].

         As of December 23, 1996,  there were issued and  outstanding  4,253,459
shares of the Registrant's Common Stock.

         The aggregate  market value of the voting stock held by  non-affiliates
of the  Registrant,  which  amount  includes  voting  stock held by officers and
directors, computed by reference to the last sale price on December 23, 1996, as
reported by the Nasdaq National Market, was approximately $41.2 million.
<PAGE>
                       DOCUMENTS INCORPORATED BY REFERENCE

1.   Annual Report to Stockholders  for the fiscal year ended September 30, 1996
     (Parts II and IV).

2.   Proxy  Statement  for the January 16, 1997 Annual  Meeting of  Stockholders
     (Part III).
<PAGE>
                                     PART I

ITEM 1.           Business

Charter Financial, Inc.

         Charter Financial,  Inc. (the "Company") is a Delaware corporation that
was organized in June 1995. The only  significant  assets of the Company are the
investment in Charter Bank, S.B. (the "Bank") and $4.4 million invested with the
Bank.  The Company is registered as a savings and loan holding  company with the
Office of Thrift Supervision (the "OTS").

         The Company  employs  executive  officers and a support staff if and as
the  need  arises.  Such  personnel  are  provided  by the Bank and are not paid
separate remuneration for such services. The Company reimburses the Bank for the
use of Bank personnel. At September 30, 1996, the Company had total consolidated
assets of $388.4 million,  total  consolidated  deposits of $248.7 million,  and
consolidated  stockholders'  equity of $56.4  million.  The Company's  executive
office is located at 114 West Broadway, Sparta, Illinois 62286 and its telephone
number is (618) 443-2166.

Charter Bank, S.B.

         Charter Bank, S.B. (the "Bank") is an  Illinois-chartered  savings bank
headquartered in Sparta,  Illinois. The Bank conducts its business from its main
office  and [six]  full-service  branches  located in  Carbondale,  Murphysboro,
Steeleville,  DuQuoin,  Anna,  and  Marion,  Illinois.  The Bank was  originally
chartered  in 1894.  The Bank has been a member  of the  Federal  Home Loan Bank
System  since 1936.  The Bank's  deposits  are  insured by the  Federal  Deposit
Insurance Corporation ("FDIC").

         The Bank is a community-oriented  savings bank engaged primarily in the
business of attracting  retail  deposits  from the general  public in the Bank's
market area and using such funds  together with  borrowings and funds from other
sources to primarily  originate  mortgage  loans secured by one- to  four-family
residential real estate and consumer loans. The Bank also originates  commercial
real estate loans, multi-family real estate loans and commercial business loans.
Additionally, the Bank invests in mortgage-backed securities primarily issued or
guaranteed by the United States Government or agencies thereof,  and maintains a
portion  of its assets in liquid  investments,  such as  overnight  funds at the
Federal Home Loan Bank  ("FHLB").  The Bank invests in obligations of the United
States  Government or agencies  thereof,  collateralized  mortgage  obligations,
corporate debentures, mutual funds and municipal bonds.

         The Bank's  principal  sources of funds are  deposits,  FHLB  advances,
reverse repurchase agreements,  funds received from the repayment and prepayment
of loans and mortgage-backed  securities,  on-going operations,  and the sale or
maturity of  investment  securities.  Principal  sources of income are  interest
income on residential,  commercial and consumer loans,  interest on investments,
commissions  and fees.  The  Bank's  principal  expenses  are  interest  paid on
deposits,  interest  paid  on  borrowed  money  and  employee  compensation  and
benefits.

         The Bank's principal  executive office is located at 114 West Broadway,
Sparta, Illinois, and its telephone number at that address is (618) 443-2166.
<PAGE>
Recent Development

           On December 28, 1995, the Company  acquired 100% of the capital stock
of Charter Bank, S.B. (the "Bank"),  sold 2,919,414  shares of common stock in a
subscription offering for a purchase price of $10.00 per share (the "Offering"),
and issued  2,054,832  shares of common stock in exchange for 986,051  shares of
the Bank's common stock held by shareholders other than Charter Bancorp,  M.H.C.
(together with the Offering, the "Conversion").

         In May 1996,  the Bank completed its  acquisition of Community  Savings
Bank, Marion,  Illinois  ("Community"),  whereby it assumed deposit  liabilities
totaling  $49.7  million and $1.5 million in borrowed  money.  The Bank acquired
loans receivable of $45.4 million,  mortgage-backed  securities of $1.3 million,
investment securities of $6.3 million and building and equipment with a value of
$2.0 million. The Bank is operating  Community's office as a branch of the Bank.
The total purchase price to acquire Community was approximately $7.5 million.

         On August 12, 1996, the Company,  the Bank, and Charter Interim Savings
Bank entered into an Agreement  and Plan of Merger (the  "Agreement")  with Home
Federal Savings Bank,  Carbondale,  Illinois ("Home  Federal"),  which provides,
among other things,  for the (i)  acquisition  of Home Federal by the Bank,  and
(ii) the payment of $21.00 per share (subject to adjustment if transaction costs
exceed  $100,000)  for  each  share  of  Community's  Common  Stock  issued  and
outstanding (the "Acquisition"). The holders of Home Federal stock options shall
receive cash equal to the  difference  between their option  exercise  price and
$21.00  multiplied by the number of shares  underlying  the stock option.  It is
expected  that  the  total  purchase  price  to  acquire  Home  Federal  will be
approximately $6.3 million.

         Consummation  of the  Acquisition  is subject  to  certain  conditions,
including  the  approval  of Home  Federal's  stockholders  and  receipt  of all
regulatory approvals.  With those approvals, it is expected that the Acquisition
will be completed during the first quarter of calendar year 1997.

Market Area/Local Economy

         The  Bank is a  community-oriented  savings  bank  offering  a range of
retail banking  services to residents of its market area. The Bank's market area
includes  all of Randolph,  Jackson,  Williamson,  Perry and Union  counties and
portions of Monroe, Washington, Alexander, Pulaski, Jefferson, Johnson, Franklin
and St.  Clair  counties.  Management  believes  that its offices are located in
communities  that  can  generally  be   characterized   as  stable   residential
communities of predominantly one- to four-family  residences.  The Bank's market
for deposits is concentrated in the communities  surrounding its main office and
six  full-service  branches.  The  Bank  is the  largest  independent  financial
institution headquartered in its market area.

         The local economy of the Bank's market area consists  primarily of coal
mining,  agriculture,  light  commercial  industry and  government.  The largest
employers   in  the  Bank's   primary   market   area  are   Southern   Illinois
University-Carbondale and Gilster Mary-Lee Corp., a food packaging company.

         The Bank's business and operating results are significantly affected by
the general  economic  conditions  prevalent  in its primary  market  area.  The
population  in the  Bank's  market  area is  expected  to  remain  stable in the
foreseeable future.
<PAGE>
         The Bank faces  significant  competition  in  attracting  deposits from
commercial banks,  other savings  institutions and credit unions. The Bank faces
additional  competition  for deposits from short-term  money market funds,  from
other  corporate  and  government  securities  funds  and from  other  financial
institutions  such as brokerage firms and insurance  companies.  Notwithstanding
the foregoing,  the Bank's deposit  market share has remained  stable.  The Bank
also faces  significant  competition  in the  origination  of loans from savings
institutions, mortgage banking companies, credit unions, insurance companies and
commercial banks.

Lending Activities

         General.  The Bank's loan portfolio  consists primarily of conventional
mortgage loans secured by one- to four-family residences. At September 30, 1996,
the Bank's  loans  receivable,  net  totaled  $275.5  million,  of which  $193.3
million, or 68.78% consisted of one- to four-family  residential mortgage loans.
The  remainder  of the  Bank's  loans  receivable  at  such  date  consisted  of
multi-family  loans (0.62%),  commercial  real estate loans (4.51%),  commercial
business loans (2.76%) and consumer loans (23.33%).  Historically, the principal
lending  activity of the Bank has been the origination of mortgage loans for the
purpose of financing or refinancing one- to four-family  residential  properties
in the Bank's primary market area. For the fiscal year ended September 30, 1996,
the Bank's residential loan originations (excluding equity lines of credit) were
$21.8 million.  For the fiscal year ended September 30, 1996, the Bank's one- to
four-family  residential  mortgage loans  increased by $58.7 million,  or 43.6%,
from  September  30, 1995. In order to expand its loan  portfolio,  the Bank has
emphasized consumer lending and the purchase of adjustable rate mortgage ("ARM")
loans secured primarily by residential  properties located outside of the Bank's
market area.

         The Bank has managed to make its interest-earning  assets more interest
rate sensitive by, among other things, originating variable interest rate loans,
such as ARM loans and medium-term  consumer loans, and by investing primarily in
short and  medium-term  securities.  The Bank continues to originate  fixed-rate
mortgage loans secured by one- to four-family  residential properties with terms
ranging  up to 20  years.  The  ability  of the Bank to  originate  ARM loans is
substantially  affected by market  interest  rates and consumer  preference  for
fixed-rate loans in a relatively low interest rate environment. At September 30,
1996,  approximately  $164.6  million,  or  58.6%  of  the  Bank's  total  loans
receivable consisted of loans with variable interest rates.

         During the fiscal year ended  September  30,  1996,  the Bank sold $1.5
million of student loans.  During the fiscal year ended  September 30, 1996, the
Bank purchased $37.4 million of residential one- to four-family  mortgage loans.
Loan  purchases  consist  primarily of ARM loans secured by  properties  located
outside the Bank's market area.  Purchased loans in the aggregate  totaled $68.1
million and  represented  32.8% of the Bank's total real estate loans at the end
of  the  fiscal  year.  For  the  years  ended  September  30,  1995  and  1994,
respectively,  the Bank purchased  $25.9 million and $2.4 million of residential
mortgage loans.

         The Bank also invests in  mortgage-backed  securities  with  adjustable
interest  rates.  At September 30, 1996, the Bank's  mortgage-backed  securities
portfolio  totaled  $16.6 million or 4.3% of total  assets.  At that date,  $6.1
million or 36.44% of the  mortgage-backed  securities  had  adjustable  interest
rates.  Mortgage-backed  securities  with remaining  terms of five years or less
represent $2.9 million, or 17.42% of the mortgage-backed securities portfolio.
<PAGE>
         Analysis of Loan  Portfolio.  Set forth  below is data  relating to the
composition  of the  Bank's  loan  portfolio  by type  of  loan as of the  dates
indicated.
<TABLE>
<CAPTION>
                                                                          At September 30,
                                             ----------------------------------------------------------------------
                                                      1996                     1995                    1994
                                             ---------------------     --------------------    -------------------- 
                                                                        (Dollars in Thousands)
<S>                                           <C>          <C>         <C>         <C>         <C>          <C>
Real estate loans:
  Residential:
    1-4 family (1).........................   $193,301      68.78%     $134,640      63.45%    $116,124      62.83%
    Multi-family...........................      1,749        .62         1,479       0.70        1,671       0.90
Commercial.................................     12,677       4.51         9,186       4.33        7,385       4.00
                                              --------     ------      --------     ------     --------      ----- 
      Total real estate loans..............    207,727      73.91       145,305      68.48      125,180      67.73

Commercial business loans..................      7,768       2.76         6,634       3.13        6,452       3.49
Consumer loans:
  Automobile...............................     50,292      17.90        49,918      23.52       43,091      23.31
  Mobile home loans........................        170       0.06           145       0.07           67       0.04
  Education loans..........................      1,373       0.49         2,755       1.30        3,853       2.08
  Loans secured by deposit accounts........      1,590       0.57         1,117       0.53        1,001       0.54
  Other (2)................................     12,120       4.31         6,312       2.97        5,185       2.81
                                              --------     ------      --------     ------     --------      ----- 
    Total consumer loans...................     65,545      23.33        60,247      28.39       53,197      28.78
                                              --------     ------      --------     ------     --------      ----- 
      Total loans receivable...............    281,040     100.00%      212,186     100.00%     184,829     100.00%
                                                           ======                   ======                  ======

Less:
      Loans in process.....................         36                       37                   1,417
      Unearned discounts, net..............      2,648                    3,429                   2,674
      Deferred loan fees...................        205                      105                     214
      Allowance for loan losses............      2,419                    2,232                   2,129
      Purchase accounting discounts........        245                      309                     337
                                              --------                 --------                --------     
      Total loans receivable, net..........   $275,487                 $206,074                $178,058
                                              ========                 ========                ========

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

(1) Includes home equity lines of credit of $1.6 million, $1.8 million, and $2.0
million at September 30, 1996, 1995, and 1994, respectively.

(2) Includes personal loans and credit line checking.
</TABLE>
<PAGE>
         Residential  Real Estate Loans.  The Bank's primary lending activity is
the origination of one- to  four-family,  owner-occupied,  residential  mortgage
loans secured by property located in the Bank's market area. Loans are generated
through the Bank's marketing efforts,  its existing customers and referrals from
mortgage bankers, real estate brokers,  builders and local businesses.  The Bank
generally has limited its real estate loan  originations  to finance  properties
located within its market area. When local loan demand has been  insufficient to
meet desired  levels of mortgage loan  originations,  which has been the case in
recent years, the Bank has purchased ARM loans secured by residential properties
located outside of its market area. The Bank uses similar underwriting  criteria
in evaluating  residential  mortgage loans for purchase as it uses in evaluating
residential mortgage loans that it originates  directly.  At September 30, 1996,
the Bank had $193.3 million, or 68.78% of its total loans receivable invested in
mortgage loans secured by one- to four-family residences.

         Historically,  the delinquency  rate on purchased loans has been higher
than that of loans  originated by the Bank.  However,  in fiscal year 1996,  the
Bank experienced relatively low delinquency rates on purchased loans. Management
believes  this is  primarily  due to the fact that the Bank  generally  does not
service  most loans which it  purchases,  thereby  making it more  difficult  to
monitor  delinquent  borrowers.  At September 30, 1996 and 1995,  purchased loan
delinquencies totaled $238,000 and $435,000,  respectively, and represented 0.3%
and  0.8%  of  purchased  loans  outstanding.  The  delinquency  rate  on  loans
originated  by the Bank at  September  30,  1996  and  1995  was 0.9% and  0.1%,
respectively,  of  originated  loans  outstanding.  While  the Bank  intends  to
continue to purchase  loans as it deems  appropriate,  it will attempt to reduce
overall  credit  risk  by  increasing  the  geographic  diversity  of  its  loan
portfolio.

         The Bank  currently  originates  loans  primarily  for retention in its
portfolio.  However,  the Bank has been approved to originate  service loans for
Fannie Mae.  The Bank's  fixed-rate  mortgage  loans are  amortized on a monthly
basis with principal and interest due each month.  Residential real estate loans
often  remain   outstanding  for   significantly   shorter  periods  than  their
contractual  terms  because  borrowers  may  refinance  or prepay loans at their
option.

         The Bank  currently  offers ARM loans for terms ranging up to 30 years.
The Bank also offers fixed-rate  residential  mortgage loans with terms of up to
20 years.  The Bank  currently  offers ARM loans that adjust every year or every
five  years  from  the  date  of  origination,  with  interest  rate  adjustment
limitations  up to two  percentage  points  per year and with a cap of up to six
percentage  points on total  interest rate  increases over the life of the loan.
The Bank has used  different  interest  indices  for ARM loans in the past,  and
currently uses the one-year,  three-year or five-year Constant Maturity Treasury
Index. The Bank also has purchased ARM loans with various interest rate indices.
Consequently, the interest rate adjustments on the Bank's portfolio of ARM loans
do not reflect changes in a particular interest rate index. ARM loans secured by
residential  one- to four- family real estate totaled $145.1 million,  or 75.1%,
of the Bank's  total  one- to four-  family  residential  real  estate  loans at
September 30, 1996.  The  origination  of fixed-rate  mortgage  loans versus ARM
loans is  monitored  on an ongoing  basis and is affected  significantly  by the
level of market interest rates,  customer  preference,  the Bank's interest rate
gap position and loan products  offered by the Bank's  competitors.  As interest
rates spike  upward,  borrowers  may prefer ARM loans to fixed rate loans due to
ARM loans'  lower  interest  rates.  Although  it is  management's  strategy  to
emphasize ARM loans,  market  conditions  may occur where there will be a demand
for fixed-rate  loans. The Bank will continue to emphasize ARM loans by offering
<PAGE>
competitive  pricing and  service,  and as a result ARM loan  originations  have
exceeded  fixed-rate mortgage loan originations in recent years. During the year
ended  September  30, 1996,  the Bank  originated  $11.1  million of  fixed-rate
residential  and  multi-family  mortgage  loans and $15.9  million of ARM loans.
During fiscal years 1995 and 1994,  the Bank  originated  $1.7 million and $10.0
million of fixed-rate  residential  and  multi-family  mortgage  loans and $13.4
million and $12.1 million of ARM loans, respectively.

         The primary  purpose of  offering  ARM loans is to make the Bank's loan
portfolio interest rate sensitive. However, as the interest income earned on ARM
loans varies with prevailing  interest  rates,  such loans do not offer the Bank
predictable  cash flows as would  long-term,  fixed-rate  loans. ARM loans carry
increased  credit risk associated with  potentially  higher monthly  payments by
borrowers as general market interest rates increase. It is possible,  therefore,
during periods of rising  interest  rates,  that the risk of  delinquencies  and
defaults  on ARM loans may  increase  due to the upward  adjustment  of interest
costs to the borrower,  thereby  resulting in increased loan  delinquencies  and
possibly additional loan losses.

         The  Bank's  residential  first  mortgage  loans  customarily   include
due-on-sale clauses, which are provisions giving the Bank the right to declare a
loan  immediately  due and payable in the event,  among other  things,  that the
borrower sells or otherwise  disposes of the underlying real property serving as
security for the loan.  Due-on-sale  clauses are an important  means of imposing
assumption  fees  and  increasing  the  interest  rate  on the  Bank's  mortgage
portfolio during periods of rising interest rates.

         All  financial   institutions   are  required  to  adopt  and  maintain
comprehensive written real estate lending policies that are consistent with safe
and sound banking practices.  These lending policies must reflect  consideration
of the Interagency  Guidelines for Real Estate Lending  Policies  adopted by the
federal  banking  agencies,  including  the  OTS  and  FDIC,  in  December  1992
("Guidelines").  The Guidelines  set forth,  pursuant to the mandates of FDICIA,
uniform regulations  prescribing  standards for real estate lending. Real estate
lending is defined as extension of credit  secured by liens on interests in real
estate or made for the purpose of financing  the  construction  of a building or
other  improvements to real estate,  regardless of whether a lien has been taken
on the property.

         The policies must address certain lending  considerations  set forth in
the Guidelines,  including  loan-to-value  ("LTV") limits,  loan  administration
procedures,  underwriting standards,  portfolio  diversification  standards, and
documentation,  approval and reporting requirements. These policies must also be
appropriate  based upon the size of the  institution and the nature and scope of
its operations,  and must be reviewed and approved by the institution's board of
directors at least annually.  The LTV ratio  framework,  with an LTV ratio being
the total amount of credit to be extended  divided by the appraised value of the
property  at the time the credit is  originated,  must be  established  for each
category of real estate loan.  If not a first lien,  the lender must combine all
senior liens when calculating  this ratio.  The Guidelines,  among other things,
establish the following supervisory LTV limits: raw land (65%); land development
(75%);  construction   (commercial,   multi-family  and  nonresidential)  (80%);
improved  property (85%) and owner occupied one to four family  residential  (no
maximum ratio, however any LTV ratio in excess of 90% should require appropriate
insurance or readily marketable collateral).
<PAGE>
         Certain  institutions  are  permitted to make real estate loans that do
not  conform  with  the   established  LTV  ratio  limits  up  to  100%  of  the
institution's  total capital.  Within this aggregate limit,  total loans for all
commercial,   agricultural,   multifamily  and  other  non-one-  to  four-family
residential  properties  should not exceed 30% of total capital.  An institution
will come  under  increased  supervisory  scrutiny  as the  total of such  loans
approaches  these  levels.  Certain  loans are exempt from the LTV ratios (e.g.,
those  guaranteed by a government  agency,  loans to facilitate the sale of real
estate  owned,  loans  renewed,  refinanced  or  restructured  by  the  original
lender(s) to the same  borrower(s)  where there is no  advancement of new funds,
etc.).

         Regulations  limit  the  amount  that a  savings  association  may lend
relative  to the  appraised  value of the real  estate  securing  the  loan,  as
determined  by an appraisal at the time of loan  origination.  Such  regulations
permit a maximum  loan-to-value  ratio of 100% for residential  property and 90%
for all other real estate loans. The Bank's lending policies, however, generally
limit the maximum  loan-to-value ratio on both fixed-rate loans and ARM loans to
95% of the lesser of the appraised  value or the purchase  price of the property
securing  the  loan  in  the  case  of  loans  secured  by one  to  four  family
owner-occupied  properties.  The maximum  loan-to-value  ratio on other types of
real estate loans is generally the lesser of 80% of the  appraisal  value or the
purchase price of the property.

         When  underwriting  residential real estate loans, the Bank reviews and
verifies each loan applicant's  income and credit history.  Management  believes
that  stability  of income and past  credit  history are  integral  parts in the
underwriting process. Generally, the applicant's total monthly mortgage payment,
including all escrow amounts, is limited to 28% of the applicant's total monthly
income.  In addition,  total  monthly  obligations  of the  applicant  excluding
mortgage  payments,  are limited to 8% of the applicant's  gross monthly income.
Thus,  a  residential  real estate loan  applicant's  total debt to income ratio
should not exceed  36%.  Written  appraisals  are  reviewed  on each real estate
property  offered to secure an  applicant's  loan.  For real  estate  loans with
loan-to-value  ratios of between 85% and 95%, the Bank requires private mortgage
insurance.  The Bank  requires  fire and  casualty  insurance,  as well as title
insurance, on all properties securing real estate loans.

         The Bank also offers home equity  lines of credit  which are  generally
secured by the  borrower's  principal  residence.  The maximum  amount of a home
equity line of credit can be up to 100% of the  appraised  value of a borrower's
real  estate  collateral  less the  amount of any  prior  mortgages  or  related
liabilities.  Home equity lines of credit are approved with adjustable  interest
rates at a margin  above a  market  index  such as the  prime  interest  rate as
published in The Wall Street Journal. The Bank's home equity lines of credit are
currently  approved  at  1-1/2%  to  2-1/2%  percentage  points  above the prime
interest  rate as published in The Wall Street  Journal.  The maximum term for a
home equity line of credit is 15 years.
<PAGE>
         Commercial Real Estate and Multi-Family  Residential Real Estate Loans.
The Bank originates  commercial real estate and  multi-family  residential  real
estate loans. At September 30, 1996, $12.7 million, or 4.51%, of the Bank's loan
portfolio  consisted of commercial real estate loans and $1.7 million, or 0.62%,
consisted of multi-family  real estate loans. The Bank's  commercial real estate
loans are secured  primarily  by  improved  properties  such as  offices,  small
building   facilities   and  other   non-residential   buildings.   The  maximum
loan-to-value  ratio for commercial real estate loans originated or purchased by
the Bank is 80%.  At  September  30,  1996,  approximately  90.9% of the  Bank's
commercial real estate loans and multi-family residential real estate loans were
secured by properties  located  within the State of Illinois.  At that date, the
largest  commercial  real  estate  loan had a  principal  balance  of  $901,000,
substantially  all of which is  guaranteed by a  municipality.  At September 30,
1996,  the  largest  multi-family  residential  real estate loan had a principal
balance of $421,000 and was performing in accordance with its terms.

         The  underwriting  standards  employed by the Bank for commercial  real
estate and multi-family residential real estate loans include a determination on
the applicant's  credit history and an assessment of the applicant's  ability to
meet existing obligations and payments on the proposed loan. The income approach
is primarily utilized to determine whether income generated from the applicant's
business or real estate offered as collateral is adequate to repay the loan. The
value of the real  estate  offered  as  collateral  is  reviewed  by the Bank in
relation to the  proposed  loan  amount.  Generally,  the loan amount  cannot be
greater  than 80% of the  value  of the  real  estate.  Written  appraisals  are
obtained  by the Bank  from  either  licensed  or  certified  appraisers  on all
multi-family   and  commercial   real  estate  loans.   The  Bank  assesses  the
creditworthiness  of the  applicant  by  reviewing a credit  report or obtaining
other public records regarding the applicant.

         Loans  secured by commercial  and  multi-family  real estate  generally
involve a greater  degree of credit  risk than  one-to-four  family  residential
mortgage loans and carry larger loan balances.  This increased  credit risk is a
result of several factors,  including the effects of general economic conditions
on income producing properties and the successful operation or management of the
properties  securing the loans.  Furthermore,  the repayment of loans secured by
commercial  and  multi-family  real  estate  is  typically  dependent  upon  the
successful  operation of the related business and real estate  property.  If the
cash flow from the project is reduced,  the borrower's ability to repay the loan
may be impaired.

         Commercial  Business  Loans.  The Bank originates  commercial  business
loans to  borrowers  located in its market area which are secured by  collateral
other than real estate.  Such commercial business loans are generally secured by
equipment,  inventory  and accounts  receivable,  and generally are offered with
adjustable  rates and various  terms to maturity.  In addition,  the Bank,  on a
limited basis,  originates  loans to automobile  dealerships  for the purpose of
allowing automobile dealerships to finance their inventory. The Bank secures the
automobile dealership loan by perfecting a security interest in the dealership's
used motor vehicles. At September 30, 1996, the Bank had 4 automobile dealership
floor plan loans, the largest of which had an outstanding  principal  balance of
$675,000.  Commercial  business loans  generally bear higher interest rates than
residential  loans,  but they also may  involve a higher  risk of default  since
their  repayment  is  generally  dependent  on the  successful  operation of the
<PAGE>
borrower's  business.  The Bank generally  obtains personal  guarantees from the
borrower or a third party as a condition to originating its commercial  business
loans.  Commercial  business loans totaled $7.8 million, or 2.76%, of the Bank's
total loans  receivable at September 30, 1996. At that date,  the Bank's largest
commercial business loan had a principal balance of $755,000, and was secured by
equipment, fixtures and patents.

         The  underwriting  standards used by the Bank for  commercial  business
loans  include a  determination  of the  applicant's  ability  to meet  existing
obligations  and payments on the proposed loan from normal cash flows  generated
in the applicant's  business.  The financial  strength of each applicant also is
assessed through review of financial  statements provided by the applicant.  The
creditworthiness of an applicant is derived from a review of credit reports or a
search  of  public  records.  Once  originated,  commercial  business  loans are
reviewed  periodically by the Bank.  Financial statements are requested at least
annually and are reviewed by the Bank for substantial deviations or changes that
might  affect  repayment of the loan.  Loan  officers of the Bank also visit the
premises of substantial borrowers to observe the business premises,  facilities,
and personnel and to inspect the pledged collateral.  Underwriting standards for
commercial  business  loans are different for each type of loan depending on the
financial  strength  of the  applicant  and the value of  collateral  offered as
security.

         Consumer Loans. As of September 30, 1996,  consumer loans totaled $65.5
million, or 23.33%, of the Bank's total loans receivable. The principal types of
consumer  loans  offered  by the Bank are  automobile  loans,  loans  secured by
deposit accounts, and education loans. Consumer loans generally are offered on a
fixed-rate basis. The largest category of consumer loans in the Bank's portfolio
consists of loans secured by automobiles.  At September 30, 1996, consumer loans
secured by  automobiles  totaled  $50.3  million,  or 17.90% of the Bank's total
loans  receivable.  Automobile loans are generally offered with maturities of up
to 60 months for new  automobiles.  Loans secured by used  automobiles will have
maximum  terms which vary  depending  upon the age of the  automobile.  The Bank
generally will not make an automobile loan with a  loan-to-value  rate in excess
of 80%, although the loan-to-value  rate may be greater or less depending on the
borrower's  credit  history,  debt to income  ratio,  home  ownership  and other
banking relationships with the Bank.

         Consumer   loans  entail   greater  risks  than  one-  to   four-family
residential  mortgage  loans,  particularly  consumer  loans  secured by rapidly
depreciable  assets such as  automobiles  or loans that are  unsecured.  In such
cases,  any  repossessed  collateral  for a  defaulted  loan may not  provide an
adequate source of repayment of the outstanding  loan balance,  since there is a
greater likelihood of damage, loss or depreciation of the underlying collateral.
Further,  consumer loan  collections are dependent on the borrower's  continuing
financial  stability,  and therefore are more likely to be adversely affected by
job loss, divorce,  illness or personal bankruptcy.  Finally, the application of
various  Federal and state laws,  including  Federal  and state  bankruptcy  and
insolvency  laws,  may limit the amount  which can be recovered on such loans in
the event of a default.  At September 30, 1996,  consumer  loans 90 days or more
delinquent  totaled $243,000,  or 0.4%, of the Bank's consumer loans receivable.
Management  believes  that the Bank's level of consumer  loan  delinquencies  is
relatively low in comparison to other financial  institutions.  No assurance can
be given,  however,  that the Bank's  delinquency  rate on  consumer  loans will
continue to remain low in the future.
<PAGE>
         The  underwriting  standards  employed by the Bank for  consumer  loans
include a determination  of the applicant's  credit history and an assessment of
the  applicant's  ability  to meet  existing  obligations  and  payments  on the
proposed loan. The stability of the applicant's monthly income may be determined
by   verification  of  gross  monthly  income  from  primary   employment,   and
additionally  from any  verifiable  secondary  income.  Creditworthiness  of the
applicant is of primary  consideration;  however,  the underwriting process also
includes a comparison of the value of the collateral in relation to the proposed
loan amount.  See  "Delinquencies and Classified Assets" and "Allowance for Loan
Losses"  below for  information  regarding the Bank's loan loss  experience  and
reserve policy.

         Loan  Maturity  Schedule.   The  following  table  sets  forth  certain
information  at September 30, 1996 regarding the dollar amount of loans maturing
in the Bank's  portfolio based on their  contractual  terms to maturity.  Demand
loans, loans having no stated schedule of repayments and no stated maturity, and
overdraft loans are reported as due in one year or less.
<TABLE>
<CAPTION>
                                                      1          3           5         10
                                       Within      Through    Though      Through    Through    Beyond
                                       1 Year      3 Years    5 Years    10 Years   20 Years   20 Years       Total
                                       ------      -------    -------    --------   --------   --------       ----- 
                                                                       (In Thousands)
<S>                                    <C>         <C>       <C>         <C>         <C>        <C>         <C>
Real estate loans:
  Residential:
     1-4 family.....................   $4,147      $2,553    $5,377      $26,015     $68,473    $86,736     $193,301
     Multi-family...................       10          64       453           55         936        231       1,749
  Commercial .......................    1,059         342     1,128        4,235       5,139        774      12,677
Commercial business loans...........    2,934       1,281     1,109        1,442       1,002         --       7,768
Consumer loans......................    7,198      21,146    33,940        3,127          70         64      65,545
                                       ------      ------    ------      -------     -------    -------     -------
     Total loans receivable.........   $15,348     $25,386   $42,007     $34,874     $75,620    $87,805     $281,040
                                       =======     =======   =======     =======     =======    =======     ========

Mortgage-backed securities, net.....   $2,061      $  824    $  ---      $   ---     $ 5,684    $ 8,063     $16,632
                                       ======      ======    ======      =======     =======    =======     =======
</TABLE>
<PAGE>
         The  following  table  sets  forth the  dollar  amount of all loans and
mortgage-backed  securities  at  September  30, 1996,  which have  predetermined
interest  rates and have  floating or  adjustable  interest  rates which are due
after September 30, 1997.
<TABLE>
<CAPTION>
                                                                         Floating or
                                                  Fixed Rate           Adjustable Rate            Total
                                                  ----------           ---------------            -----
                                                                       (In Thousands)
<S>                                                 <C>                    <C>                  <C>
Real estate loans:
  Residential:
    1-4 family..............................        $ 44,348               $144,806             $189,154
    Multi-family............................             426                  1,313                1,739
  Commercial................................             221                 11,397               11,618
Commercial business loans...................           2,253                  2,581                4,834
Consumer loans..............................          58,347                     --               58,347
                                                    --------               --------             --------
      Total loans receivable................        $105,595               $160,097             $265,692
                                                    ========               ========             ========

Mortgage-backed securities, net.............        $  8,510               $  6,061             $ 14,571
                                                    ========               ========             ========
</TABLE>
         Loan  Origination,  Solicitation and Processing.  Loan originations are
derived from a number of sources such as real estate broker referrals,  existing
customers, borrowers, builders, attorneys and walk-in customers. Upon receipt of
a loan  application,  a credit  report  is made to verify  specific  information
relating to the applicant's employment, income, and credit standing. In the case
of a real estate loan,  an  appraisal of the real estate  intended to secure the
proposed loan is undertaken by an independent  appraiser approved by the Bank. A
loan  application  file is first  reviewed by a loan  officer in the Bank's loan
department who checks  applications for accuracy and completeness,  and verifies
the  information  provided.  The  financial  resources  of the  borrower and the
borrower's  credit  history,  as well as the  collateral  securing the loan, are
considered an integral part of each risk evaluation prior to approval.  The loan
is then  reviewed by at least one other loan  officer.  Residential  real estate
loans with principal  balances of $125,000 or less may be approved by either (i)
two of the Bank's loan officers,  or (ii) four members of the Board of Directors
who have  reviewed  the loan  application  submitted  by a loan  officer.  Loans
secured  by  single  family  residences  with  principal  balances  in excess of
$125,000  but not more than  $250,000  must be  approved  by a loan  officer and
either the President or Executive Vice President of the Bank. A real estate loan
on a single  residence  exceeding  $250,000 must also be approved by one outside
director.  Loans on two- to four-family  dwellings in excess of $350,000 must be
approved by a loan  officer,  the President or Executive  Vice  President of the
Bank and one outside  director.  Once the loan is approved a loan  commitment is
promptly issued to the borrower.

         If the loan is approved,  the commitment letter specifies the terms and
conditions of the proposed loan including the amount of the loan, interest rate,
amortization term, a brief description of the required collateral,  and required
insurance  coverage.  The  borrower  must  provide  proof of fire  and  casualty
insurance  on the  property  serving  as  collateral  which  insurance  must  be
maintained  during the full term of the loan.  Title  insurance or an attorney's
opinion based on a title search of the property is required on all loans secured
by real property.
<PAGE>
         Origination,   Purchases   and  Sale  of  Loans   and   Mortgage-Backed
Securities.  Set forth below is a table showing the Bank's loan originations and
the purchases,  sales and repayments of loans and mortgage-backed securities for
the periods indicated.
<TABLE>
<CAPTION>
                                                    Year Ended September 30,
                                             -----------------------------------
                                                1996         1995         1994
                                             ---------    ---------    ---------
                                                         (In Thousands)
<S>                                          <C>          <C>          <C>

Loans receivable, net at beginning of year   $ 206,074    $ 178,058    $ 157,342
Originations:
Real Estate:
  Residential (1) ........................      26,987       15,070       22,116
  Commercial .............................       3,149        1,560        1,646
Commercial business loans (2) ............      18,806       15,090       13,161
Consumer .................................      40,336       35,338       46,440
                                             ---------    ---------    ---------
      Total originations .................      89,278       67,058       83,363
Loans purchased ..........................      37,363       28,213        2,389
Loans acquired from Community Savings Bank      45,753         --           --
Repayments ...............................    (102,481)     (67,037)     (65,949)
Loans sold ...............................      (1,549)      (1,723)        --
Increase (decrease) in other items, net ..       1,049        1,505          913
                                             ---------    ---------    ---------
      Total loans receivable, net
       at end of year ....................   $ 275,487    $ 206,074    $ 178,058
                                             =========    =========    =========
Mortgage-backed securities, net
 at beginning of year ..................     $  16,670    $  16,071    $  20,950
Purchases ................................       3,096        2,543        3,310
Mortgage-backed securities acquired from
   Community Savings Bank ................       1,296         --           --
Sales ....................................         (64)        --           --
Repayments ...............................      (4,225)      (2,443)      (7,564)
Discount (premium) amortization ..........         (38)        (119)        (167)
Unrealized gain/(loss) on mortgage-backed
  securities available for sale ..........        (103)         618         (458)
                                             ---------    ---------    ---------
       Mortgage-backed securities, net
       at end of year ....................   $  16,632    $  16,670    $  16,071
                                             =========    =========    =========
------------------------------------
(1) Includes  advances on equity lines of credit of $5.2  million,  $3.1 million
and $3.1 million for September 30, 1996, 1995, and 1994, respectively.
(2)  Includes  advances  on  non-mortgage  commercial  lines of  credit of $15.6
million,  $13.8 million and $9.6 million for September 30, 1996,  1995 and 1994,
respectively.
</TABLE>
<PAGE>
         From time to time the Bank  purchases  real  estate  mortgage  loans in
order to supplement  loan  originations.  During the fiscal year ended September
30, 1996,  the Bank  purchased  $37.4  million in loans.  At September 30, 1996,
purchased  loans  totalled  $68.1  million and  comprised  24.25% of total loans
receivable. At September 30, 1996, $11.0 million of purchased loans were secured
by  properties  located  within the State of  Illinois  and $57.1  million  were
secured by properties located throughout the United States.  Prior to purchasing
loans, Bank personnel will inspect the properties  securing the loan and perform
other "due diligence" deemed necessary.  All purchased loans secured by property
outside  the  Bank's  market  area  must be  approved  by the  Bank's  Board  of
Directors.

Loan  Origination and Other Fees. In addition to interest  earned on loans,  the
Bank may charge loan  origination  fees.  The ability of the Bank to charge loan
origination  fees is influenced by the demand for mortgage loans and competition
from other lenders in the Bank's  market area.  At September 30, 1996,  the Bank
had $205,000 of net deferred loan fees.  The Bank offered loans with and without
fees during the fiscal year ended September 30, 1996. Loan  origination fees are
volatile sources of income. Such fees vary with the volume and type of loans and
commitments made and purchased and with  competitive  conditions in the mortgage
markets, which in turn respond to the demand and availability of money.

         In addition to loan origination fees, the Bank also receives other loan
fees  including  late  charges.  The Bank  recognized  fees and late  charges of
$391,000,  $241,000 and $266,000 for the years ended  September 30, 1996,  1995,
and 1994, respectively.

         Loan  Concentration.  With certain  exceptions,  an  Illinois-chartered
savings  bank may not make a loan or extend  credit for  secured  and  unsecured
loans for business,  commercial,  corporate or agricultural purposes to a single
borrower in excess of 15% of the bank's total assets. At September 30, 1996, the
Bank had no loans in  excess  of its loan to one  borrower  limitation.  At that
date, the largest concentration of loans to one borrower totaled $994,000.

Mortgage-Backed Securities

         The Bank occasionally  invests in mortgage-backed  securities issued or
guaranteed  by  the  United  States  Government  or  agencies   thereof.   These
securities,  which consist  primarily of  mortgage-backed  securities  issued or
guaranteed by FHLMC,  FNMA and GNMA, had a total carrying value of $16.6 million
at  September   30,   1996.   Included  in  this  amount  are  $2.9  million  of
mortgage-backed  securities  with remaining  terms of five years or less.  Total
mortgage-backed   securities   consisted   of  $10.6   million   of  fixed  rate
mortgage-backed  securities and $6.0 million of adjustable-rate  mortgage-backed
securities.
<PAGE>
         Set  forth  below is a table  showing  the  composition  of the  Bank's
mortgage-backed securities portfolio at the dates indicated.
<TABLE>
<CAPTION>

                                                                           At September 30,
                                                -------------------------------------------------------------------
                                                         1996                   1995                   1994
                                                --------------------   --------------------    --------------------
                                                 Amount      Percent    Amount      Percent     Amount      Percent
                                                                       (Dollars in Thousands)
<S>                                             <C>          <C>        <C>        <C>         <C>          <C>

Mortgage-backed securities, net 
Available for sale (at market value):
   Adjustable...............................    $  5,693      34.23%    $ 4,052      24.31%    $  1,987      12.36%
   Fixed....................................       9,424      56.66      12,203      73.20       13,607      84.67
                                                --------     ------     -------     ------     --------     ------
     Total mortgage-backed securities
        available for sale..................      15,117      90.89      16,255      97.51       15,594      97.03
Held to maturity (at cost):
   Adjustable...............................         368       2.21         415       2.49          477       2.97
   Fixed....................................       1,147       6.90          --         --           --         --
                                                --------     ------     -------     ------     --------     ------
      Total mortgage-backed securities
        held to maturity....................       1,515       9.11         415       2.49          477       2.97
                                                --------     ------     -------     ------     --------     ------
      Total mortgage-backed securities, net     $ 16,632     100.00%    $16,670     100.00%    $ 16,071     100.00%
                                                ========     ======     =======     ======     ========     ======
</TABLE>

Mortgage-backed  securities  typically are issued with stated principal amounts,
and the securities  are backed by pools of mortgage loans with varying  interest
rates and maturities.  The mortgage loans backing the mortgage-backed securities
can be either  fixed-rate  mortgage  loans or ARM loans.  The interest rate risk
characteristics  of the  underlying  pool of mortgages as well as the prepayment
risk  are   passed  on  to  the  holder  of  the   mortgage-backed   securities.
Consequently,  in a declining  interest  rate  environment  there is a risk that
mortgage-backed securities will prepay faster than anticipated thereby adversely
affecting   the  yield  to  maturity  and  the  related   market  value  of  the
mortgage-backed  securities.  Moreover,  there can be no assurance that the Bank
would be able to reinvest the cash flow from prepaid mortgage-backed  securities
into comparable yielding investments. In a rising interest rate environment, the
value of the  mortgage-backed  securities  with fixed-rate  underlying  mortgage
loans will be less as investors seek higher yielding investments,  and the value
of mortgage-backed securities with adjustable-rate underlying mortgage loans may
be impaired due to contractual limits on interest rate adjustments.
<PAGE>
Delinquencies and Classified Assets

         The Bank's collection  procedures  provide that when a mortgage loan is
15 days  past  due,  a  computer-generated  late  charge  notice  is sent to the
borrower  requesting  payment plus a late charge.  If the mortgage  loan remains
delinquent  after 30 days,  a telephone  call is made or a letter is sent to the
borrower, stressing the importance of reinstating the loan and obtaining reasons
for the delinquency. Older mortgage loans receive a 30-day grace period before a
late charge is assessed.  When a loan  continues  in a delinquent  status for 90
days  or  more,  and a  repayment  schedule  has  not  been  made or kept by the
borrower,  a notice of intent to foreclose upon the underlying  property is then
sent to the  borrower,  giving 30 days to cure the  delinquency.  If not  cured,
foreclosure  proceedings  are  initiated.  Consumer loans receive a 10-day grace
period  before a late charge is  assessed.  Collection  efforts  begin after the
grace period expires.

         In recent years the Bank has increased its  collection  efforts by more
closely monitoring  delinquent loans and management  believes that these efforts
have  contributed to the loan portfolio's low delinquency  levels.  At September
30, 1996 the percentage of loans receivable  delinquent 90 days or more to total
loans receivable, net was 0.78%.

         Delinquent  Loans and  Non-Performing  Assets.  Loans are reviewed on a
regular  basis and are placed on a  non-accrual  status when,  in the opinion of
management,  the collection of additional  interest is doubtful.  Mortgage loans
are placed on non-accrual  status generally when either principal or interest is
90 days or more past due and  management  considers the interest  uncollectible.
Interest  accrued and unpaid at the time a loan is placed on non-accrual  status
is charged against  interest income.  Subsequent  payments are either applied to
the outstanding  principal balance or recorded as interest income,  depending on
management's assessment of the ultimate collectability of the loan.

         During fiscal year 1996,  non-performing loans as a percentage of total
loans receivable, net, increased from 0.32% as of September 30, 1995 to 0.78% as
of September 30, 1996.

         Real estate  acquired by the Bank as a result of foreclosure or by deed
in lieu of  foreclosure is classified as real estate owned until such time as it
is sold. When real estate owned is acquired,  it is recorded at the lower of the
unpaid  principal  balance of the related loan,  or its fair market value,  less
estimated  selling  expenses.  Any further  write-down  of real estate  owned is
charged against  earnings.  At September 30, 1996, 1995 and 1994, the Bank owned
approximately  $428,000,  $140,000  and  $210,000,   respectively,  of  property
acquired  as a  result  of  foreclosure  or by deed in lieu of  foreclosure  and
classified  as real estate  owned.  In recent  years,  the Bank  believes it has
worked  aggressively  to  minimize  real  estate  owned  property  by  improving
collection procedures and tightening loan underwriting standards.

         Classified  Assets.  Federal  regulations  require  that  each  insured
savings  institution  classify its assets on a regular  basis.  In addition,  in
connection with examinations of insured institutions, Federal examiners have the
authority to identify  problem assets and, if appropriate,  classify them. There
are three  classifications  for problem  assets:  "substandard,"  "doubtful" and
"loss."  Substandard  assets  have  one  or  more  defined  weaknesses  and  are
characterized  by the distinct  possibility  that the insured  institution  will
sustain some loss if the  deficiencies  are not corrected.  Doubtful assets have
<PAGE>
the weaknesses of substandard assets with the additional characteristic that the
weaknesses  make  collection  or  liquidation  in full on the basis of currently
existing  facts,  conditions  and  values  questionable,  and  there  is a  high
possibility of loss. An asset classified loss is considered uncollectible and of
such  little  value  that  continuance  as an  asset of the  institution  is not
warranted. For assets classified  "substandard" and "doubtful",  the institution
is required to establish general loan loss reserves in accordance with generally
accepted  accounting  principles.   Assets  classified  "loss"  must  be  either
completely written off or supported by a 100% specific reserve. A classification
category  designated  "special  mention" also must be established and maintained
for  assets  not  currently   requiring   classification  but  having  potential
weaknesses  or risk  characteristics  that could result in future  problems.  An
institution  is required to develop an in-house  program to classify its assets,
including  investments  in  subsidiaries,  on a  regular  basis  and  set  aside
appropriate  loss reserves on the basis of such  classification.  As part of the
periodic  examinations  of the Bank by  regulatory  agencies,  the staff of such
agencies  review  the  Bank's   classifications   and  determine   whether  such
classifications  are adequate.  Such agencies  have, in the past, and may in the
future,  require the Bank to classify  certain  assets which  management has not
otherwise classified or require a classification more severe than established by
management.  At September 30, 1996,  the Bank's  classified  assets totaled $2.2
million,  of which $1.6 million were  classified  substandard  and $543,000 were
classified  loss.  The assets or portions  thereof which are  classified as loss
have been  specifically  reserved  for. At September  30, 1996,  the Bank had no
assets classified as special mention.
<PAGE>
         The following table sets forth  information  regarding loans delinquent
for more than 90 days and real estate acquired by foreclosure by the Bank at the
date indicated.  As of the dates  indicated,  the Bank did not have any material
restructured loans within the meaning of SFAS 15.
<TABLE>
<CAPTION>

                                                                      At September 30,
                                             1996          1995            1994            1993           1992
                                             ----          ----            ----            ----           ----
                                                                 (Dollars in Thousands)
<S>                                        <C>            <C>             <C>             <C>            <C>
Nonperforming loans:
   Residential real estate............     $ 1,069        $  544          $  290          $2,023         $ 1,187
   Commercial real estate.............         850             --             16              32              21
   Consumer...........................         243            119             97             150              78
   Commercial business................          --            --              --              --              --
                                           -------        ------          ------          ------         -------
      Total nonperforming loans.......       2,162            663            403           2,205           1,286
   Total real estate acquired through
      foreclosure (1).................         428            140            210             241             464
                                           -------        -------         ------          ------         -------
      Total nonperforming assets......     $ 2,590        $  803          $  613          $2,446         $ 1,750
                                           =======        ======          ======          ======         =======
Total nonperforming loans
   to loans receivable, net...........        0.78%          0.32%          0.23%           1.40%           0.95%
                                           =======        =======         ======          ======         =======
Total nonperforming loans
   to total assets....................        0.56%          0.23%          0.15%           0.85%           0.56%
                                           =======        =======         ======          ======         =======
Total nonperforming assets
    to total assets...................        0.67%          0.27%          0.24%           0.94%           0.76%
                                           =======        =======         ======          ======         =======


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

(1)   Represents  the  book  value of  property  acquired  by the  Bank  through
      foreclosure, real estate in judgment or in-substance foreclosures,  net of
      valuation reserves.
</TABLE>
         At September  30, 1996,  the Bank's  largest  nonperforming  loan had a
principal  balance of $386,000 and was secured by  commercial  real  estate.  At
September 30, 1996, the Bank's largest property  constituting  real estate owned
by the Bank had a book value of $156,000.  During the year ended  September  30,
1996,  the Bank would have recorded  $88,000 in gross  interest  income on loans
accounted  for on a nonaccrual  basis if such loans had  performed in accordance
with their original  terms.  During the year ended  September 30, 1996, the Bank
did not record any interest income attributable to such non-accrual loans.
<PAGE>
Allowance for Loan Losses

         Management's  policy is to provide for  estimated  losses on the Bank's
loan portfolio based on management's evaluation of the potential losses that may
be incurred.  Management regularly reviews the Bank's loan portfolio,  including
problem  loans,  to determine  whether any loans require  classification  or the
establishment of appropriate reserves or allowances for losses. Such evaluation,
which  includes a review of all loans of which full  collectability  of interest
and principal may not be reasonably assured, considers, among other matters, the
estimated  net  realizable  value of the  underlying  collateral.  Other factors
considered by  management  include the size and risk exposure of each segment of
the  loan  portfolio,  present  indicators  such as  delinquency  rates  and the
borrower's current financial  condition,  and the potential for losses in future
periods.  Management  calculates  the general  allowance for loan losses in part
based on past  experience,  and in part based on specified  percentages  of loan
balances.  While both general and specific loss  allowances are charged  against
earnings, a portion of general loan loss allowances are added back to capital to
the extent  permitted in computing  risk-based  capital  under federal and state
regulations.

         During the years ended  September  30,  1996,  1995 and 1994,  the Bank
provided  $170,000,  $360,000 and $140,000,  respectively,  to the allowance for
loan losses.  The Bank's  allowance for loan losses  totaled $2.4 million,  $2.2
million and $2.1 million at September 30, 1996, 1995 and 1994, respectively. The
provisions for loan losses in recent years  reflected  management's  decision to
increase  the  emphasis on factors in addition to past loan loss  experience  in
evaluating  the  adequacy of the  allowance  for loan losses.  Accordingly,  the
increased  provision in fiscal year 1995 was  necessary  to establish  loan loss
reserves to cover the credit risk  associated  with one 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  decreased
provisions in fiscal year 1994, reflected,  among other factors, the termination
of the selective strike of area coal mines by the United Mine Workers of America
which began in May 1993 and was resolved on December 14, 1993, the continued low
level of delinquencies relative to other savings institutions,  and management's
effort  to  closely  monitor  the  level  of  delinquencies.  Although  the Bank
maintains  its  allowance  for loan losses at a level which it  considers  to be
adequate to provide for potential  losses,  there can be no assurance  that such
losses  will not  exceed  the  estimated  amounts  or that the Bank  will not be
required  to make  additions  to the  allowance  for loan  losses in the future.
Future  additions  to the Bank's  allowance  for loan  losses and changes in the
related  ratio of the  allowance  for loan  losses  to  nonperforming  loans are
dependent  upon the economy,  changes in real estate values and interest  rates,
the view of the regulatory authorities toward adequate loan loss reserve levels,
and inflation.  Management  will continue to review the entire loan portfolio to
determine the extent,  if any, to which further  additional loan loss provisions
may be deemed necessary.

         Analysis of the  Allowance For Loan Losses.  The  following  table sets
forth the  breakdown of the  allowance  for loan losses by loan category for the
periods  indicated.  The  table  reflects  the  allowance  for loan  losses as a
percentage of net loans receivable.  Management  believes that the allowance can
be allocated by category only on an  approximate  basis.  The  allocation of the
allowance by category is not  necessarily  indicative  of future losses and does
not restrict the use of the allowance to absorb losses in any category.
<PAGE>
<TABLE>
<CAPTION>
                                                                      At September 30,
                                          ----------------------------------------------------------------------
                                           1996            1995            1994            1993            1992
                                          --------      ----------       ---------     ----------      ---------
                                                                  (Dollars in Thousands)
<S>                                      <C>            <C>              <C>           <C>             <C>   
Total loans outstanding...............   $ 281,040      $  212,186       $ 184,829     $  163,365      $ 140,581
Average loans receivable, net
   outstanding........................     230,765         188,897         168,391        144,923        138,062
                                         =========      ==========       =========     ==========      =========
Allowance balance (at beginning
   of year)...........................   $   2,232      $    2,129       $   2,207     $    1,315      $     860
Provision for loan losses.............         170             360             140          1,003            653
Reserves from Community Savings
   Bank...............................         265              --              --             --             --
Charge-offs:
   Residential real estate............          13              57             116             30             67
   Commercial real estate.............          --              --              --             --             87
   Consumer...........................         409             293             160            139            104
   Commercial business................          --              --              --             --             18
                                         ---------      ----------       ---------     ----------      ---------
      Total charge-offs...............         422             350             276            169            276
                                         ---------      ----------       ---------     ----------      ---------
Recoveries:
   Residential real estate............          --               1               6             21              9
    Consumer..........................         174              92              52             37              4
                                         ---------      ----------       ---------     ----------      ---------
      Total recoveries................         174              93              58             58             13
                                         ---------      ----------       ---------     ----------      ---------
Transfers.............................          --              --              --             --           65(1)
                                         ---------      ----------       ---------     ----------      -------
Allowance balance (at end of year)....   $   2,419      $    2,232       $   2,129     $    2,207      $   1,315
                                         =========      ==========       =========     ==========      =========
Allowance for loan losses as a
   percent of total loans outstanding
   at end of year.....................        0.86%           1.05%           1.15%          1.35%          0.94%
                                         =========      ==========       =========     ==========      =========
Net loans charged off as a percent
   of average loans receivable, net...        0.11%           0.14%           0.13%          0.08%          0.19%
                                         =========      ==========       =========     ==========      =========
Ratio of allowance for loan losses
   to total nonperforming loans
   at end of year.....................      111.89%         336.65%         528.29%        100.09%        102.26%
                                         =========      ==========       =========     ==========      =========
------------------------------------

(1) Consists of a transfer of unallocated allowance for losses on investments to 
the allowance for losses on loans.
</TABLE>
<PAGE>
         Allocation of Allowance for Loan Losses. The following table sets forth
the  allocation  of allowance  for loan losses by loan  category for the periods
indicated.
<TABLE>
<CAPTION>

                                                                       At September 30,
                                            -----------------------------------------------------------------------
                                                  1996                       1995                    1994
                                            ---------------------     ----------------------   -------------------- 
                                                     % of Loans                % of Loans               % of Loans
                                                        in Each                   in Each                  in Each
                                                     Category to               Category to              Category to
                                            Amount   Total Loans      Amount   Total Loans     Amount   Total Loans
                                            ------   -----------      ------   -----------     ------   -----------
                                                                      (Dollars in Thousands)
<S>                                           <C>       <C>            <C>        <C>          <C>          <C>
Balance at end of year
   applicable to:

   Residential real estate................    $  557      69.40%       $  723      64.15%      $  792        63.73%
   Commercial real estate.................       544       4.51           152       4.33          123         4.00
   Consumer...............................     1,148      23.33         1,120      28.39        1,038        28.78
   Commercial business....................       170       2.76           187       3.13          176         3.49
   Credit enhancement.....................        --         --            50         --           --           --
                                              ------     ------        ------      -----       ------       ------ 
      Total allowance for
        loan losses.......................    $2,419     100.00%       $2,232     100.00%      $2,129       100.00%
                                              ======     ======        ======     ======       ======       ======

</TABLE>
Investment Activities

         The Bank's investment  portfolio  consists  primarily of obligations of
the United  States  Government  and agencies  thereof,  collateralized  mortgage
obligations,  corporate  debentures,  mutual  funds and FHLB  stock.  The Bank's
portfolio of investment  securities totaled $67.5 million at September 30, 1996.
The Bank's  holdings of FHLB stock  totaled $3.0 million at September  30, 1996.
The Bank's total  investment  in  interest-bearing  deposits was $7.5 million at
September 30, 1996. Total investments at September 30, 1996 were $78.0 million.

         The Bank is required  under federal  regulations  to maintain a minimum
amount of liquid assets that may be invested in specified short-term  securities
and certain other  investments.  The Bank  generally has  maintained a liquidity
portfolio  in  excess  of  regulatory  requirements.  Liquidity  levels  may  be
increased or decreased depending upon the yields on investment  alternatives and
upon management's judgment as to the attractiveness of the yields then available
in relation to other  opportunities  and its  expectation  of the level of yield
that will be available in the future, as well as management's  projections as to
the short-term  demand for funds to be used in the Bank's loan  origination  and
other  activities.  The Bank's  average  liquidity  ratio for September 1996 was
9.41%, which was adequate to meet its normal business activities.

         Investment Portfolio. The following table sets forth the carrying value
of the Bank's investment  securities  portfolio,  interest-bearing  deposits and
FHLB stock at the dates  indicated.  At September 30, 1996,  the market value of
the Bank's investment  securities was approximately  $67.4 million. At September
30, 1996 the market  value of the FHLB stock and  interest-bearing  deposits was
approximately equal to the book value of such investments.
<PAGE>
<TABLE>
<CAPTION>
                                                                         At September 30,
                                                     -------------------------------------------------------
                                                       1996                   1995                    1994
                                                     -------                -------                 --------
                                                                        (In Thousands)
<S>                                                  <C>                    <C>                     <C>

Investment securities:
  Available for sale (at market value):
    U.S. Government and agencies............         $43,794                $ 23,281                $ 15,706
    Corporate debentures....................           2,116                     --                       --
    Collateralized mortgage obligations.....           6,157                     --                       --
    Equity securities-mutual funds..........           6,546                  6,167                    6,023
                                                     -------                -------                 --------
      Total investment securities
        available for sale..................          58,613                 29,448                   21,729
                                                      ------                 ------                   ------
  Held to maturity (at cost):
    U.S. Government and agencies............           1,000                  5,000                    5,000
    Corporate debentures....................           3,275                  7,632                    9,683
    Collateralized mortgage obligations.....           2,335                  8,948                   11,018
    Municipal bonds.........................           2,250                  1,756                    2,516
    Equity securities - mutual funds........              --                     --                       --
                                                     -------                -------                 --------
      Total investment securities held to
         maturity...........................           8,860                 23,336                   28,217
                                                     -------                -------                 --------
      Total investment securities...........          67,473                 52,784                   49,946
Interest-bearing deposits...................           7,476                  5,250                    7,290
FHLB stock, at cost.........................           3,050                  2,140                    1,562
                                                     -------                -------                 --------
      Total investments.....................         $77,999                $ 60,174                $ 58,798
                                                     =======                ========                ========

</TABLE>
<PAGE>
         Investment  Securities  Maturities.  The following table sets forth the
scheduled  maturities,  carrying  values  and  average  yields  for  the  Bank's
investment  securities,  excluding  equity  securities,  at September  30, 1996.
Equity securities  consisting of $6.5 million invested in mutual funds have been
excluded since such instruments have no stated maturity.
<TABLE>
<CAPTION>

                                                                                        At September 30, 1996
                                                             -----------------------------------------------------------------------
                                                                 One Year of Less        One to Five Years         Five to Ten Years
                                                             -----------------------------------------------------------------------
                                                                         Annualized               Annualized              Annualized
                                                                          Weighted                 Weighted                Weighted 
                                                             Carrying      Average    Carrying      Average     Carrying    Average 
                                                               Value        Yield       Value        Yield        Value      Yield  
                                                               -----        -----       -----        -----        -----      -----  
                                                                                      (Dollars in Thousands)
<S>                                                          <C>             <C>       <C>            <C>       <C>            <C>
Investment securities:
    Available for sale:
        U.S. Government and agencies......................   $  8,257        6.43%     $22,159        6.68%     $ 5,378        7.35%
        Corporate debentures..............................         --          --        2,116        5.95           --          -- 
        Collateral mortgage obligations...................         --          --           --          --          617        5.35 
    Held to maturity:
        U.S. Government and agencies......................         --          --           --          --        1,000        6.50 
        Corporate debentures..............................      2,265        7.29        1,010        6.01           --          -- 
        Collateralized mortgage obligations...............         --          --           --          --           --          -- 
        Municipal bonds...................................        496        6.29        1,454        4.71          195        6.08 
                                                             --------        ----      -------        ----      -------        ---- 
            Total investment securities...................   $ 11,018        6.60%     $26,739        6.49%     $ 7,190        7.03%
                                                              =======        ====       ======        ====       ======        ==== 

<CAPTION>
                                                             At September 30, 1996
                                                             ---------------------
                                                              More than Ten Years  
                                                              ------------------- 
                                                                           Annualized  
                                                                            Weighted   
                                                              Carrying      Average   
                                                               Value         Yield    
                                                               -----         -----    
<S>                                                          <C>             <C>                                                    
Investment securities:                                    
    Available for sale:                                   
        U.S. Government and agencies......................   $  8,000        7.81%   
        Corporate debentures..............................         --          --   
        Collateral mortgage obligations...................      5,540        5.77   
    Held to maturity:                                                                 
        U.S. Government and agencies......................         --          --   
        Corporate debentures..............................         --          --   
        Collateralized mortgage obligations...............      2,335        5.79   
        Municipal bonds...................................        105        5.85   
                                                             --------        ----    
            Total investment securities...................   $ 15,980        6.79%  
                                                             ========        ====    
                                                             
</TABLE>
<PAGE>
Sources of Funds

         General.  Deposits and  borrowings  are the major sources of the Bank's
funds for lending and other investment purposes.  In addition,  the Bank derives
funds from the repayment and prepayment of loans and mortgage-backed securities,
operations,  and the sale or maturity of investment  securities.  Scheduled loan
principal  repayments  are a relatively  stable  source of funds,  while deposit
inflows and  outflows  and loan  prepayments  are  influenced  significantly  by
general  interest  rates and market  conditions.  Other sources of funds include
advances  from  the  FHLB  and  reverse  repurchase   agreements.   For  further
information see "Borrowings" below. Borrowings may be used on a short-term basis
to compensate for reductions in the  availability of funds from other sources or
on a longer term basis for general business purposes.

         Deposits.  Consumer and commercial  deposits are attracted  principally
from  within the Bank's  primary  market area  through  the  offering of a broad
selection of deposit instruments including  interest-bearing  checking accounts,
noninterest-bearing  checking  accounts,  savings accounts,  money market demand
accounts, term certificate accounts and individual retirement accounts. The Bank
accepts deposits of $100,000 or more and may offer negotiated  interest rates on
such  deposits.  Deposit  account  terms vary  according to the minimum  balance
required,  the time  periods the funds must  remain on deposit and the  interest
rate,  among other factors.  The Bank  regularly  evaluates its internal cost of
funds, surveys rates offered by competing institutions,  reviews the Bank's cash
flow  requirements  for lending and  liquidity  and  executes  rate changes when
deemed appropriate.  The Bank does not obtain funds through brokers, nor does it
solicit  funds  outside  its market  area.  Further,  the Bank has  rarely  used
premiums  to  attract  deposits.  The Bank  does not  participate  in  marketing
promotions  to attract  individual  retirement  account  funds,  nor does it pay
premium rates for individual  retirement account deposits.  The Bank also enters
into reverse repurchase  agreements with large balance depositors,  particularly
those with  maturing  certificates  of deposit  which  enable the  depositor  to
reinvest   the  maturing   deposit  in  reverse   repurchase   agreements.   See
"--Borrowings."  In recent  years  the  Bank's  total  deposits  have  increased
steadily.
<PAGE>
         The  following  table sets forth the net change in deposits of the Bank
for the periods indicated.
<TABLE>
<CAPTION>

                                                                        At September 30,
                                                    --------------------------------------------------------
                                                      1996                    1995                   1994
                                                    ---------              ---------               ---------
                                                                        (In Thousands)
<S>                                                <C>                   <C>                       <C>         

Deposits....................................       $ 658,951              $ 672,364                $ 549,315
Deposits acquired, net of premium...........          49,724                 19,795                       --
Withdrawals (1).............................        (663,674)              (690,467)                (562,907)
                                                   ---------              ---------                ---------
  Net increase (decrease) before
    interest credited.......................          45,001                  1,692                  (13,592)
Interest credited...........................           6,619                  5,464                    5,356
                                                    --------              ---------                ---------
    Net increase (decrease) in deposits.....       $  51,620              $   7,156                $  (8,236)
                                                   =========              ---------                =========
------------------------------------

(1)  During the years ending September 30, 1994, $1.8 million of certificates of
     deposit were converted into reverse repurchase  agreements and,  therefore,
     are not reflected in totals.
</TABLE>
<PAGE>
         Deposit Portfolio.  Deposits in the Bank as of September 30, 1996, were
represented by the various types of deposit programs described below.
<TABLE>
<CAPTION>

Weighted
 Average                                                                                                 Percentage
 Interest                                                            Minimum                               of Total
   Rate         Minimum Term           Checking and Savings           Amount             Balance          Deposits
   ----         ------------           --------------------           ------             -------          --------
                                                                                     (In Thousands)
<S>             <C>                    <C>                            <C>               <C>                 <C>
   0.00%        None                   Noninterest-bearing checking   $  100            $  9,796              3.94%
   2.44         None                   Interest-bearing checking         100              26,013             10.46
   3.71         None                   Money market demand               100              17,449              7.01
   2.79         None                   Savings accounts                  100              25,956             10.44
   4.43         None                   Savings accounts                5,000               9,739              3.91
                                                                                        --------            ------
                                                                                          88,953             35.76
                                                                                        --------            ------


                                       Certificates of Deposit


   4.43         91 days                Fixed term, fixed rate            500               1,234              0.50
   5.03         6 months               Fixed term, fixed rate            500              20,742              8.34
   5.99         9 months               Fixed term, fixed rate          5,000               7,589              3.05
   5.36         1 year                 Fixed term, fixed rate            500              33,578             13.50
   5.68         11/2years              Fixed term, fixed rate            500               6,938              2.79
   5.54         21 months              Fixed term, fixed rate          2,000               1,227              0.49
   5.82         2 years                Fixed term, fixed rate            500              10,735              4.32
   6.26         2 years                Fixed term, adj. rate (1)       1,000                 277              0.11
   5.58         21/2years              Fixed term, fixed rate            500              18,451              7.42
   5.67         21/2years              Fixed term, adj. rate (2)       2,500              10,899              4.38
   6.82         25 months              Fixed term, fixed rate          5,000               8,406              3.38
   5.47         3 years                Fixed term, fixed rate            500               7,603              3.06
   5.42         4 years                Fixed term, fixed rate            500               5,721              2.30
   6.44         5 to 10 years          Fixed term, fixed rate (3)         --               4,535              1.82
   5.74         Various                IRA/QRP                        50-100              16,831              6.77
   6.16         Various                Negotiated jumbo              100,000               5,004              2.01
                                                                                        --------            ------
                                                                                         159,770             64.24
                                                                                        --------            ------
                                                                      Total             $248,723            100.00%
                                                                                         -------            ======

------------------------------------
(1) This  deposit  product  adjusts  the  interest  rate  paid at each six month
interval. This product is no longer offered and is nonrenewable.
(2) This deposit  product  allows the  depositor to elect to adjust the interest
rate paid once during the initial term of the certificate of deposit.
(3) Certificates are only available on a renewal basis.
</TABLE>
<PAGE>
Deposit Flow

         The following  table sets forth the change in dollar amount of deposits
in the various types of deposit  accounts  offered by the Bank between the dates
indicated.
<TABLE>
<CAPTION>
                                      Balance                         Balance                         Balance                       
                                         at        %      Increase       at        %      Increase      at        %       Increase  
                                      9/30/96   Deposits (Decrease)   9/30/95  Deposits  (Decrease)   9/30/94  Deposits  (Decrease) 
                                      -------   --------  ---------   -------  --------  ----------   -------  --------  ---------- 
                                                                           (Dollars in Thousands)
<S>                                  <C>         <C>      <C>        <C>        <C>         <C>       <C>        <C>        <C>

Demand deposits:
    Noninterest-bearing checking     $  9,796     3.94%    $ 2,158   $  7,638      3.87%    $  (488)  $  8,126     4.28%    $ 1,499 
    Interest-bearing checking...       26,013    10.46        (377)    26,390     13.39         925     25,465    13.41       1,126 
    Money market demand.........       17,449     7.01         226     17,223      8.74      (3,641)    20,864    10.98      (1,441)
    Savings accounts............       35,695    14.35       9,006     26,689     13.54      (1,611)    28,300    14.90       1,056 
                                     --------    -----     -------   --------     -----     --------   -------    -----     ------- 
      Total demand deposits.....       88,953    35.76      11,013     77,940     39.54      (4,815)    82,755    43.57       2,240 
                                     --------    -----     -------   --------     -----     --------   -------    -----     ------- 

Certificates of deposit which mature
  in the period ending: (1)
    Within 1 year...............     $109,803    44.15      36,685     73,118     37.10       2,231     70,887    37.32      (6,876)
    Within 3 years..............       43,817    17.62        (537)    44,354     22.50       9,988     34,366    18.09      (3,148)
    Over 3 years................        6,150     2.47       4,459      1,691      0.86        (248)     1,939     1.02        (452)
                                                            ------   --------     -----     --------  --------   ------     ------- 
   Total certificates of deposit      159,770    64.24      40,607    119,163     60.46      11,971    107,192    56.43     (10,476)
                                     --------    -----     -------   --------     -----     -------   --------   ------     ------- 
         Total deposits.........     $248,723   100.00%    $51,620   $197,103    100.00%    $ 7,156   $189,947   100.00%    $(8,236)
                                     ========   ======     =======   ========    ======     =======   ========   ======     ========


<PAGE>
<CAPTION>
                                               Balance                
                                                 at         %         
                                               9/30/93  Deposits      
                                               -------  --------      
<S>                                          <C>          <C>                                                                       
Demand deposits:                                                      
    Noninterest-bearing checking                                      
    Interest-bearing checking...             $  6,627      3.34%      
    Money market demand.........               24,339     12.28       
    Savings accounts............               22,305     11.25       
                                               27,244     13.75       
      Total demand deposits.....             --------     -----        
                                               80,515     40.62       
                                             --------     -----      
Certificates of deposit which mature                                  
  in the period ending: (1)                                           
    Within 1 year...............                                      
    Within 3 years..............                77,763     39.24      
    Over 3 years................                37,514     18.93      
                                                 2,391      1.21      
   Total certificates of deposit             ---------    ------        
                                               117,668     59.38      
         Total deposits.........             ---------    ------       
                                             $ 198,183    100.00%      
                                             =========    ======       
</TABLE>
(1) During the years ended  September  30, 1994 and 1993,  $1.8 million and $7.6
million,  respectively,  of  certificates of deposit were converted into reverse
repurchase agreements and therefore are not reflected in deposit totals.
<PAGE>
         Certificates  of Deposit by Rates.  The following  table sets forth the
balances of  certificates  of deposit in the Bank  classified by rates as of the
dates indicated:
<TABLE>
<CAPTION>
                                                                         At September 30,
                                                    --------------------------------------------------------
                                                       1996                   1995                     1994
                                                    --------               --------                ---------
                                                                        (In Thousands)
<S>                                                 <C>                    <C>                      <C>    
Less than 3.00%.............................        $     26               $     24                 $    100
3.00 - 4.99%................................          14,827                 42,104                   92,260
5.00 - 6.99%................................         141,335                 73,668                   10,680
7.00 - 8.99%................................           3,086                  2,704                    3,521
9.00 - 10.99%...............................             496                    663                      631
                                                    --------               --------                 -------- 
                                                    $159,770               $119,163                 $107,192
                                                    ========               =========                ======== 
</TABLE>
         Certificates  of Deposit  Maturity  Schedule.  The following table sets
forth the  balances and  maturities  of  certificates  of deposit in the Bank at
September 30, 1996.
<TABLE>
<CAPTION>
                                             Balance Due
                    ------------------------------------------------------------
                    Less Than        1-2         2-3       3 Years
                     1 Year         Years       Years      or More        Total
                     ------         -----       -----      -------        -----
                                           (In Thousands)
         <S>        <C>          <C>          <C>          <C>          <C>      
Less than 3.00%     $   --       $   --       $   --       $     26     $     26
 3.00 - 4.99% .       13,914          800           72           41       14,827
 5.00 - 6.99% .       94,054       31,036       10,917        5,328      141,335
 7.00 - 8.99% .        1,735          596         --            755        3,086
 9.00 - 10.99%           100          396         --           --            496
                    --------     --------     --------     --------     --------
                    $109,803     $ 32,828     $ 10,989     $  6,150     $159,770
                    ========     ========     ========     ========     ========
</TABLE>
         Large  Certificates  of Deposit.  The  following  table  indicates  the
balances of  certificates of deposit of $100,000 or more by time remaining until
maturity as of September 30, 1996.
<TABLE>
<CAPTION>
                                                                   Certificates
    Maturity Period                                                 of Deposit
    ---------------                                                 ----------
                                                                  (In Thousands)
    <S>                                                            <C>
    Three months or less.................................          $    1,975
    Three through six months.............................               3,283
    Six through twelve months............................               2,392
    Over twelve months...................................               4,187
                                                                   ----------
        Total............................................          $   11,837
                                                                   ==========
</TABLE>
<PAGE>
Borrowings

         Deposits  are the  primary  source of funds for the Bank's  lending and
investment activities.  If the need arises, the Bank may rely upon advances from
the FHLB to  supplement  its  supply  of  available  funds  and to fund  deposit
withdrawals.  Advances from the FHLB are typically secured by the Bank's one- to
four-family  residential  mortgage  loans,  United States  Government and agency
securities  and  mortgage-backed  securities.  The FHLB  functions  as a central
reserve bank providing credit for the Bank and other member savings associations
and  financial  institutions.  As a member,  the Bank is required to own capital
stock in the FHLB and is  authorized  to apply for  advances on the  security of
such  stock and  certain of its home  mortgages  and other  assets  (principally
securities  which are  obligations  of, or  guaranteed  by,  the  United  States
Government)  provided certain  standards related to  creditworthiness  have been
met.  Advances  are made  pursuant to several  different  programs.  Each credit
program has its own  interest  rate and range of  maturities.  Depending  on the
program,  limitations  on the  amount of  advances  are based  either on a fixed
percentage of a member  institution's  net worth or on the FHLB's  assessment of
the  institution's  creditworthiness.  At September 30, 1996, the Bank had $61.0
million of FHLB advances. From time to time the Bank also enters into agreements
to sell  securities  under  terms  which  require  it to  purchase  the  same or
substantially  similar  securities  by a  specified  date  ("reverse  repurchase
agreements").  Reverse repurchase agreements are considered borrowings which are
secured by the sold securities.  The Bank's reverse  repurchase  agreements have
terms that do not exceed the legal limit of 330 days. At September 30, 1996, the
Bank had reverse repurchase agreements totalling $14.8 million.

         The following table sets forth certain information regarding borrowings
by the Bank at the end of and during the periods indicated.
<TABLE>
<CAPTION>

                                                         At September 30,
                                              ----------------------------------
                                                1996          1995         1994
                                                ----          ----         ----
                                                      (Dollars in Thousands)
<S>                                           <C>          <C>          <C>
Weighted average rate paid on: (1)
  Reverse repurchase agreements .........        5.48%        5.64%        3.73%
  FHLB advances .........................        5.33         5.51         4.71
  ESOP borrowings .......................        8.35         8.60         6.28

Reverse repurchase agreements:
  Maximum balance .......................     $14,782      $15,406      $15,404
  Average balance .......................      13,510       14,242       14,246

FHLB advances:
  Maximum balance .......................      60,996       42,800       30,510
    Average balance .....................      34,303       33,607       19,410

ESOP borrowings:
  Maximum balance .......................         844        1,152        1,440
  Average balance .......................         751        1,033        1,283
------------------------------------

(1)   Calculated using the daily weighted average interest rates.
</TABLE>
<PAGE>
Subsidiary Activities

         The  Bank  has  one  wholly  owned  subsidiary,  Sparta  First  Service
Corporation ("Sparta First"), an Illinois  corporation.  Sparta First is engaged
primarily in the business of offering investment products (consisting  primarily
of equity  securities,  fixed and variable  annuities and mutual funds)  through
INVEST  and  INSURE.  Both  INVEST and INSURE  are  service  marks  owned by the
brokerage  and  insurance  agency that  contracts  with Sparta  First to provide
services to customers.

         At September  30, 1996,  the Bank had a $804,000  equity  investment in
Sparta First.  For the year ended September 30, 1996 Sparta First had net income
of $148,000.

Competition

         The Bank encounters strong competition both in attracting  deposits and
in  originating  real estate and other loans.  Its most direct  competition  for
deposits has come  historically  from  commercial  banks,  other savings  banks,
savings  associations and credit unions in its market area, and the Bank expects
continued strong competition from such financial institutions in the foreseeable
future.  The Bank  competes  for savings by offering  depositors a high level of
personal service and expertise together with a wide range of financial services.

         The competition for real estate and other loans comes  principally from
commercial banks, mortgage banking companies and other savings banks and savings
associations.  This competition for loans has increased  substantially in recent
years as a result of the large  number of  institutions  competing in the Bank's
market  area as well as the  increased  efforts  by  commercial  banks to expand
mortgage loan originations.

         The Bank competes for loans  primarily  through the interest  rates and
loan fees it charges  and the  efficiency  and  quality of  services it provides
borrowers,  real estate  brokers and builders.  Factors that affect  competition
include general and local economic conditions,  current interest rate levels and
the volatility of the mortgage markets.

         The Bank's market area includes all of Randolph,  Jackson,  Williamson,
Perry and  Union  counties,  and  portions  of  Monroe,  Washington,  Alexander,
Pulaski,  Jefferson,  Johnson, Franklin and St. Clair counties, all of which are
in  Illinois.   The  Bank's   market  area  has  a  large  number  of  financial
institutions.

REGULATION AND SUPERVISION

         General. The Bank is an Illinois-chartered savings bank and its deposit
accounts are insured up to applicable limits by the Federal government under the
SAIF of the FDIC.  The Bank is subject to extensive  regulation  by the Illinois
Commissioner of Savings and  Residential  Finance (the  "Commissioner")  and the
FDIC. The Bank must file reports with the  Commissioner  and the FDIC concerning
its  activities  and financial  condition,  in addition to obtaining  regulatory
approvals  prior to  entering  into  certain  transactions  such as  mergers  or
acquisitions with other depository institutions. There are periodic examinations
of the Bank by the  Commissioner  and the FDIC to review the  Bank's  compliance
<PAGE>
with  various  regulatory  requirements.  The Bank is also  subject  to  certain
reserve  requirements  established  by the  Board of  Governors  of the  Federal
Reserve (the "FRB"). This regulation and supervision establishes a comprehensive
framework  of  activities  in which a savings  bank can engage  and is  intended
primarily  for  the  protection  of the  SAIF  and  depositors.  The  regulatory
structure  also  gives  the  regulatory   authorities  extensive  discretion  in
connection with their  supervisory  and  enforcement  activities and examination
policies,  including  policies with respect to the  classification of assets and
the  establishment of adequate loan loss reserves for regulatory  purposes.  Any
change in such regulation,  whether by the  Commissioner,  the FDIC, or Congress
could have a material  impact on the  operations of the Holding  Company and the
Bank.  The  Company,  as a mutual  savings bank  holding  company,  will also be
required to file certain  reports with, and otherwise  comply with the rules and
regulations  of  the  OTS  and  the  Commissioner.  Certain  of  the  regulatory
requirements  applicable to the Bank and to the Company are referred to below or
elsewhere herein.

         Capital  Maintenance.  Under FDIC  regulations,  the Bank must maintain
minimum levels of capital. The regulations  establish a minimum leverage capital
requirement  of not less than 3% core  capital to total  assets for banks in the
strongest  financial  and  managerial  condition,  with a CAMEL Rating of 1 (the
highest rating of the federal  regulators for banks).  For all other banks,  the
minimum leverage capital  requirement is between 4% and 5% of total assets. Core
capital is composed  of the sum of common  stockholders'  equity,  noncumulative
perpetual preferred stock (including any related surplus) and minority interests
in consolidated subsidiaries, minus all intangible assets (other than qualifying
mortgage servicing rights and qualifying  supervisory intangible core deposits),
identified  losses and  investments  in certain  subsidiaries.  At September 30,
1996,  the Bank's  ratio of core  capital to total  adjusted  assets was 13.01%,
which exceeded the minimum leverage requirement.

         The FDIC also  requires  that savings  banks meet a risk-based  capital
standard.  The risk-based  capital  standard  requires the  maintenance of total
capital  (which is defined as core  capital and  supplementary  capital) to risk
weighted assets of 8.0%. In determining the amount of risk-weighted  assets, all
assets,  including  certain  off  balance  sheet  assets,  are  multiplied  by a
risk-weight of 0% to 100%, based on the risks the federal regulators believe are
inherent in the type of asset.  The components of core capital are equivalent to
those  discussed  earlier under the 3% leverage  requirement.  The components of
supplementary  capital currently include cumulative  perpetual  preferred stock,
long-term  perpetual   preferred  stock,   mandatory   convertible   securities,
subordinated  debt and  intermediate  preferred stock and allowance for loan and
lease losses.  Allowance for loan and lease losses  includible in  supplementary
capital is limited to a maximum of 1.25% of risk-weighted  assets.  Overall, the
amount of capital  counted  toward  supplementary  capital cannot exceed 100% of
core capital.  At September  30, 1996,  the Bank's  risk-based  capital to total
assets  ratio  was  23.67%  and as a  result,  the  Bank  exceeded  its  minimum
risk-based capital requirements.
<PAGE>
         Set forth below is a summary of the Bank's  compliance with its capital
requirements as of September 30, 1996.
<TABLE>
<CAPTION>

                                                         At September 30, 1996
                                                      -------------------------
                                                                     Percent of
                                                       Amount          Assets
                                                       ------          ------
                                                        (Dollars in Thousands)
<S>                                                   <C>             <C>
Tier 1(Core) Capital Leverage Ratio:
  Actual level ..................................     $49,129         13.01%
  Required level ................................      11,325          3.00
                                                      -------         -----
  Excess ........................................     $37,804         10.01%
                                                      =======         =====
Tier 1 Risk-based Capital Ratio:
  Actual level ..................................     $49,129         22.80%
  Required level ................................       8,619          4.00
                                                      -------         -----
  Excess ........................................     $40,510         18.80%
                                                      =======         =====
Tier 2 Risk-based Capital Ratio:
  Actual level ..................................     $51,004         23.67%
  Required level ................................      17,238          8.00
                                                      -------         -----
  Excess ........................................     $33,766         15.67%
                                                      =======         =====

</TABLE>
         Illinois  Savings  Bank  and  Savings  Bank  Holding  Company  Law  and
Regulation. In August 1990, Illinois enacted the Savings Bank Act ("SBA"), which
establishes  Illinois-chartered  savings banks. Under the SBA, savings banks are
chartered  and  regulated by the  Commissioner  and possess all of the powers of
federal and  Illinois-chartered  savings and loan associations.  The SBA permits
Illinois-chartered savings and loan associations, as well as federally chartered
savings and loan  associations  and commercial  banks,  to merge with or convert
directly into an  Illinois-chartered  savings bank.  Pursuant to this authority,
effective May 26, 1993,  the Bank converted  from a federally  chartered  mutual
savings bank into an Illinois-chartered mutual savings bank.

         As  an  Illinois-chartered   savings  bank,  the  Bank  is  subject  to
regulation and supervision by the Commissioner.  This regulation  covers,  among
other things, the Bank's internal organization (i.e., charter,  bylaws,  capital
requirements,  transactions with directors and officers,  and composition of the
board of  directors),  as well as  supervision  of  permissible  activities  and
mergers and  acquisitions.  The Bank is required to file periodic  reports with,
and is subject to  periodic  examinations  at least once within  every  18-month
period by the Commissioner.  The lending and investment authority of the Bank is
prescribed by Illinois law and regulations,  as well as applicable  Federal laws
and regulations,  and the Bank is prohibited from engaging in any activities not
permitted by such laws and regulations.
<PAGE>
         Under  Illinois  law,  savings banks are required to maintain a minimum
core capital to total  assets ratio of 3%. The  Commissioner  is  authorized  to
require  a  savings  bank to  maintain  a higher  minimum  capital  level if the
Commissioner  determines that the savings bank's financial condition or history,
management  or earnings  prospects are not  adequate.  If a savings  bank's core
capital ratio falls below the required level,  the  Commissioner  may direct the
savings  bank  to  adhere  to  a  specific   written  plan  established  by  the
Commissioner  to correct the savings  bank's  capital  deficiency,  as well as a
number of other  restrictions  on the  savings  bank's  operations,  including a
prohibition  on the  declaration  of  dividends  by the savings  bank's board of
directors.  As a matter  of  policy,  the  Commissioner  requires  that  savings
associations  that  convert to savings  banks under the SBA have a minimum  core
capital to assets  ratio of 6%. At September  30, 1996,  the Bank's core capital
ratio was 13.01% of total  adjusted  assets,  which  substantially  exceeded the
required amount.

         Under  Illinois law, a savings bank may make both secured and unsecured
loans.  However,  loans for  business,  corporate,  commercial  or  agricultural
purposes, whether secured or unsecured, may not in the aggregate exceed 15% of a
savings  bank's total assets  unless  authorized by the  Commissioner.  With the
prior written consent of the Commissioner, savings banks may also engage in real
estate  development  activities,  provided that the total  investment in any one
project may not exceed 15% of total  capital,  and the total  investment  in all
projects may not exceed 50% of total capital.  The total loans and extensions of
credit  outstanding at one time, both direct and indirect,  by a savings bank to
any  borrower  may not  exceed  15% of the  savings  bank's  total  capital.  At
September  30,  1996,  the Bank did not have  any  loans-to-one  borrower  which
exceeded this  limitation.  For information  about the largest  borrowers of the
Bank, see "Lending Activities--Loan Concentration" above.

         Illinois-chartered savings banks generally have all lending, investment
and other powers which are possessed by federal savings banks based in Illinois.
Recent  federal and state  legislative  developments  have reduced  distinctions
between  commercial  banks and savings  institutions in Illinois with respect to
lending and investment  authority.  As federal law has expanded the authority of
federally  chartered  savings  institutions  to engage in activities  previously
reserved for commercial  banks,  Illinois  legislation and regulations  ("parity
legislation")  have given  Illinois-chartered  savings  institutions such as the
Bank the powers of federally chartered savings institutions.

         The board of directors  of a savings bank may declare  dividends on its
capital stock based upon the savings  bank's  annualized net profits except that
until the paid-in  surplus of the  savings  bank  equals its  capital  stock,  a
dividend  may not be  declared  unless  there has been  transferred  to  paid-in
surplus not less than 10% of the net profits of the  preceding  half year in the
case of  quarterly  or  semiannual  dividends,  or not less  than 10% of the net
profits for the preceding  year in the case of annual  dividends.  Dividends may
not be  declared  if a  savings  bank  fails to meet its  capital  requirements.
Further  written  approval of the  Commissioner is required before any dividends
exceeding 50% of a savings bank's profits for any calendar year may be declared.
A dividend may be declared out of retained earnings at any time.
<PAGE>
         An  Illinois-chartered  savings  bank  may not  make a loan to a person
owning 10% or more of its stock, an affiliated  person,  an agent or an attorney
of the savings bank,  either  individually or as an agent or partner of another,
except under the rules of the  Commissioner  and  regulations of the FDIC.  This
restriction  does not  apply,  however,  to loans  made (i) on the  security  of
single-family residential property used by the borrower as his or her residence,
and (ii) to a non-profit,  religious,  charitable or fraternal organization or a
corporation  in which  the  savings  bank has been  authorized  to invest by the
Commissioner.  Furthermore,  a savings bank may not purchase, lease or acquire a
site for an office  building  or an  interest  in real  estate  from an officer,
director, employee or the holder of more than 10% of the savings bank's stock or
certain  affiliated  persons  as set forth in  Illinois  law,  unless  the prior
written approval of the Commissioner is obtained.

         The SBA  provides  that any  depository  institution  may merge  into a
savings  bank  operating  under the SBA.  The Board of Directors of each merging
institution must approve a plan of merger by resolution adopted by majority vote
of all members of the respective boards. After such approval, the plan of merger
must be submitted to the Commissioner for approval. The Commissioner may make an
examination of the affairs of each merging  institution (and their  affiliates).
The  Commissioner  shall not  approve a merger  agreement  unless he finds that,
among other things, (i) the resulting  institution meets all requirements of the
SBA; (ii) the merger  agreement is fair to all persons  affected;  and (iii) the
resulting  institution will be operated in a safe and sound manner.  If approved
by the Commissioner, the plan of merger must be submitted to stockholders of the
depository  institution  for  approval,  and may be required to be  submitted to
members  if a  mutual  savings  bank  is  one  of the  constituent  entities.  A
two-thirds affirmative vote is required for approval of the plan of merger.

         The SBA permits an Illinois  savings bank holding company to control or
own more than 5% of the  voting  shares or rights of a savings  bank only if the
principal  place of business of the savings  bank is located in those  states in
which a savings bank holding company is permitted to acquire an Illinois savings
bank.  When  requested,  the  Commissioner  will review the laws of the state to
determine whether the laws of that state expressly authorize an Illinois savings
bank holding company to acquire a savings bank in that state.

         A savings bank holding company may invest in the stock of or other form
of equity ownership of any company which the board of directors determines to be
in the best interests of stock owners and  depositors,  and such investment must
be documented in the holding  company's  minutes with reference to such items as
price/earning ratios, future prospects, sources of income and compatibility with
the overall business plan of the holding company.

Community Reinvestment Act

         Federal  Regulation.  Under the Community  Reinvestment Act ("CRA"), as
implemented  by FDIC  regulations,  a savings  institution  has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire  community,  including  low and  moderate  income
neighborhoods.  The CRA does not  establish  specific  lending  requirements  or
programs  for  financial   institutions  nor  does  it  limit  an  institution's
discretion  to develop the types of products and  services  that it believes are
best  suited  to its  particular  community,  consistent  with the CRA.  The CRA
requires the FDIC, in connection with its examination of a savings  institution,
<PAGE>
to assess the institution's  record of meeting the credit needs of its community
and to take such record into account in its  evaluation of certain  applications
by such institution. The Financial Institutions Reform, Recovery and Enforcement
Act of 1989  ("FIRREA")  amended  the CRA to  require,  effective  July 1, 1990,
public disclosure of an institution's CRA rating and require the FDIC to provide
a written evaluation of an institution's CRA performance utilizing a four-tiered
descriptive  rating  system which  replaced  the  five-tiered  numerical  rating
system.

The Federal Deposit Insurance Corporation Improvement Act of 1991

         The  Federal  Deposit  Insurance  Corporation  Improvement  Act of 1991
("FDICIA") recapitalized the BIF, which insures the deposits of commercial banks
and savings associations, in addition, to establishing a number of new mandatory
supervisory measures for savings associations and banks.

         Standards for Safety and  Soundness.  FDICIA  requires the federal bank
regulatory agencies to prescribe regulatory standards for all insured depository
institutions  and  depository  institution  holding  companies  relating to: (i)
internal   controls,   information   systems  and  audit   systems;   (ii)  loan
documentation;  (iii) credit underwriting; (iv) interest rate risk exposure; (v)
asset  growth;  and (vi)  compensation,  fees  and  benefits.  The  compensation
standards  would  prohibit   employment   contracts,   compensation  or  benefit
arrangements,  stock  option  plans,  fee  arrangements  or  other  compensatory
arrangements that provide excessive compensation, fees or benefits or could lead
to material financial loss. In addition the federal banking regulatory  agencies
are  required to  prescribe  by  regulation  standards  specifying:  (i) maximum
classified assets to capital ratios;  (ii) minimum earnings sufficient to absorb
losses without impairing  capital;  and (iii) to the extent feasible,  a minimum
ratio of market value to book value for  publicly  traded  shares of  depository
institutions and depository institution holding companies. In November 1993, the
federal banking agencies, including the FDIC, proposed regulations regarding the
implementation of these standards.

Insurance of Accounts and Regulation by the FDIC

         The Bank is a member of the SAIF,  which is  administered  by the FDIC.
Deposits are insured up to applicable  limits by the FDIC and such  insurance is
backed by the full faith and credit of the U.S. Government. As insurer, the FDIC
imposes deposit insurance premiums and is authorized to conduct  examinations of
and to require reporting by FDIC-insured institutions.  It also may prohibit any
FDIC-insured  institution  from engaging in any activity the FDIC  determines by
regulation  or order to pose a serious  risk to the FDIC.  The FDIC also has the
authority to initiate  enforcement  actions against savings banks,  after giving
the OTS an  opportunity  to take such  action,  and may  terminate  the  deposit
insurance if it determines  that the  institution  has engaged or is engaging in
unsafe or unsound practices, or is in an unsafe or unsound condition.

         On  September  30,  1996,  the  President  signed into law  legislation
designed  to reduce  the  effect of the Bank  Insurance  Fund  ("BIF")  and SAIF
premium disparity. Under the legislation a special assessment was imposed on the
amount of deposits held by SAIF-member institutions, including the Bank, as of a
specified date, March 31, 1995, to recapitalize the SAIF. The special assessment
was  payable  on  November  27,  1996.  The  amount  of the  special  assessment
determined by the FDIC was 65.7 basis points of insured deposits. As a result of
enactment  of this  legislation  on  September  30,  1996,  the Bank  recorded a
one-time  non-recurring  charge of $1.5 million  prior to  recognition  of a tax
<PAGE>
benefit.  The payment of the special  assessment  had the effect of  immediately
reducing  the  capital  of  SAIF-member  institutions,  net of any  tax  effect;
however,   the  Bank  remains  in  compliance   with  its   regulatory   capital
requirements.  This  legislation  also spreads the obligation for payment of the
Financing Corporation ("FICO") bonds across all SAIF and BIF members.  Beginning
on January 1, 1997, BIF deposits will be assessed for FICO payments at a rate of
20% of the rate assessed by SAIF deposits.  Based upon current  estimates by the
FDIC,  BIF deposits will be assessed a FICO payment of 1.3 basis  points,  while
SAIF deposits will pay an estimated 6.5 basis points on the FICO bonds. Full pro
rata sharing of the FICO  payments  will occur on the earlier of January 1, 2000
or the date the BIF and SAIF are merged. This legislation specifies that the BIF
and SAIF will be merged on January  1, 1999  provided  no  savings  associations
remain as of that time.

         As a result  of this  legislation,  the  FDIC  proposed  to lower  SAIF
assessments  to 0 to  27  basis  points  effective  January  1,  1997,  a  range
comparable to that of BIF members.  However,  SAIF members will continue to make
the higher FICO payments described above. Management cannot predict the level of
FDIC insurance  assessments on an on-going basis whether the savings association
charter  will be  eliminated  or  whether  the BIF and SAIF will  eventually  be
merged.

Holding Company Regulation

         The  Company is a  non-diversified  savings  and loan  holding  company
within the meaning of the HOLA, as amended.  As such,  the Company is registered
with the OTS and is subject to OTS  regulations,  examinations,  supervision and
reporting requirements.  In addition, the OTS has enforcement authority over the
Company and its non-savings institution  subsidiaries.  Among other things, this
authority permits the OTS to restrict or prohibit activities that are determined
to be a serious risk to the subsidiary savings institution. The Bank is required
to notify the OTS 30 days before declaring any dividend to the Company.

         As a unitary savings and loan holding company, the Company generally is
not  restricted  under  existing laws as to the types of business  activities in
which  it may  engage,  provided  that  the  Bank  continues  to be a  QTL.  See
"--Federal Regulation of Savings Institutions--Qualified Thrift Lender Test" for
a discussion of the QTL requirements. Upon any nonsupervisory acquisition by the
Company of another  savings  association or savings bank that meets the QTL test
and is deemed to be a savings institution by the OTS, the Company would become a
multiple  savings and loan holding company (if the acquired  institution is held
as a separate  subsidiary) and would be subject to extensive  limitations on the
types of  business  activities  in which it could  engage.  The HOLA  limits the
activities of a multiple  savings and loan holding  company and its  non-insured
institution  subsidiaries  primarily to activities  permissible for bank holding
companies under Section 4(c)(8) of the Bank Holding Company Act,  subject to the
prior approval of the OTS, and activities authorized by OTS regulation.  The OTS
is prohibited  from  approving any  acquisition  that would result in a multiple
savings and loan holding company controlling  savings  institutions in more than
one state, subject to two exceptions: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies,  and (ii) the acquisition of
a savings  institution  in another  state if the laws of the state of the target
savings institution specifically permit such acquisitions.
<PAGE>
         The HOLA  prohibits a savings  and loan  holding  company,  directly or
indirectly, or through one or more subsidiaries,  from acquiring another savings
institution or holding company  thereof,  without prior written  approval of the
OTS. It also prohibits the acquisition or retention of, with certain exceptions,
more than 5% of a non-subsidiary  savings institution,  a non-subsidiary holding
company,  or a  non-subsidiary  company  engaged in activities  other than those
permitted by the HOLA; or acquiring or retaining  control of an institution that
is not federally  insured.  In evaluating  applications by holding  companies to
acquire savings institutions, the OTS must consider the financial and managerial
resources,  future prospects of the company and institution involved, the effect
of the  acquisition on the risk to the insurance fund, the convenience and needs
of the community and competitive factors.

         Federal law  generally  provides that no "person,"  acting  directly or
indirectly or through or in concert with one or more other persons,  may acquire
"control," as that term is defined in OTS  regulations,  of a federally  insured
savings  institution  without  giving at least 60 days written notice to the OTS
and providing the OTS an opportunity to disapprove of the proposed  acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things,  that (i) the acquisition would substantially  lessen competition;  (ii)
the financial  condition of the acquiring  person might jeopardize the financial
stability  of  the  savings  institution  or  prejudice  the  interests  of  its
depositors;  or (iii) the  competency,  experience or integrity of the acquiring
person or the proposed  management  personnel  indicates that it would not be in
the  interest  of the  depositors  or the  public to permit the  acquisition  of
control by such person.

Federal and State Taxation

         Federal  Taxation.  For federal  income tax purposes,  the Bank files a
federal income tax return based upon a tax year ended  September 30. Because the
Company owns 100% of the outstanding Common Stock of the Bank it is permitted to
file a consolidated federal income tax return with the Bank.

         The  Company  and the Bank are  subject to the rules of federal  income
taxation generally  applicable to corporations under the Code. Most corporations
are not permitted to make tax  deductible  additions to bad debt reserves  under
the Code.  However,  savings and loan associations and savings banks such as the
Bank, which meet certain tests prescribed by the Code may benefit from favorable
provisions  regarding  deductions  from taxable  income for annual  additions to
their bad debt reserve.  For purposes of the bad debt reserve  deduction,  loans
are separated into  "qualifying  real property loans," which generally are loans
secured by interests in real property,  and non-qualifying  loans, which are all
other loans. The bad debt reserve deduction with respect to non-qualifying loans
must be based on actual  loss  experience.  The  amount of the bad debt  reserve
deduction  with  respect to  qualifying  real  property  loans may be based upon
actual loss  experience  (the  "experience  method") or a percentage  of taxable
income  determined  without regard to such deduction (the "percentage of taxable
income method").
<PAGE>
         The Bank has  elected to use the method  that  results in the  greatest
deduction  for Federal  income tax  purposes,  which  historically  had been the
percentage of taxable income method (8% for tax years 1996, 1995 and 1994).  The
amount  of the bad debt  deduction  that a thrift  institution  may  claim  with
respect  to  additions  to its  reserve  for bad  debts is  subject  to  certain
limitations.  First, the full deduction is available only if at least 60% of the
institution's  assets fall within certain designated  categories.  Second, under
the percentage of taxable income method the bad debt deduction  attributable  to
"qualifying  real  property  loans"  cannot exceed the greater of (i) the amount
deductible under the experience  method or (ii) the amount which,  when added to
the bad debt deduction for non-qualifying  loans, equals the amount by which 12%
of the sum of the total deposits and the advance payments by borrowers for taxes
and  insurance  at the end of the taxable  year  exceeds the sum of the surplus,
undivided profits, and reserves at the beginning of the taxable year. Third, the
amount of the bad debt deduction  attributable to qualifying real property loans
computed  using the percentage of taxable income method is permitted only to the
extent that the  institution's  reserve for losses on  qualifying  real property
loans  at the  close  of the  taxable  year  does not  exceed  6% of such  loans
outstanding at such time.

         Deferred  income taxes arise from the  recognition  of certain items of
income and expense for tax purposes in years  different from those in which they
are recognized in the consolidated financial statements.

         The Bank is subject to the corporate  alternative  minimum tax which is
imposed to the extent it exceeds the Bank's regular income tax for the year. The
alternative  minimum  tax  will be  imposed  at the  rate of 20% of a  specially
computed tax base.  Included in this base will be a number of preference  items,
including the following:  (i) 100% of the excess of a thrift  institution's  bad
debt  deduction  over the amount that would have been  allowable on the basis of
actual experience; and (ii) for years beginning in 1988 and 1989 an amount equal
to one-half of the amount by which an institution's  "book income" (as specially
defined)  exceeds its taxable  income with certain  adjustments,  including  the
addition of  preference  items (for  taxable  years  commencing  after 1989 this
adjustment  item is replaced  with a new  preference  item relating to "adjusted
current earnings" as specially computed).  In addition,  for purposes of the new
alternative  minimum tax, the amount of alternative  minimum taxable income that
may be offset by net operating  losses is limited to 90% of alternative  minimum
taxable income.

         The Bank was last audited by the Internal  Revenue  Service for the tax
year ended  September 30, 1991. No changes were necessary to the reported tax as
a result of the audit. For additional  information regarding taxation,  see Note
10 of Notes to Consolidated Financial Statements.

         Illinois Taxation.  The State of Illinois imposes a tax on the Illinois
taxable income of  corporations,  including  savings banks, at the rate of 7.3%.
Illinois  taxable income is generally  similar to federal  taxable income except
that interest from state and municipal  obligations  is taxable and no deduction
is allowed for state income taxes.  However,  a deduction is allowed for certain
U.S. Government and agency obligations.  The Bank's state income tax returns for
the tax years ended  September 30, 1991, 1990 and 1989, have been audited by the
Illinois tax authorities. Such returns did not have to be amended as a result of
such audit.
<PAGE>
Personnel

         As of September 30, 1996, the Bank and its subsidiary had a total of 86
full-time  and  18  part-time  employees.   None  of  the  Bank's  employees  is
represented  by a collective  bargaining  group.  Management  believes  that its
relationship with the Bank's employees is good.
<PAGE>
ITEM     2. Properties

         The Bank  conducts  its  business  through its main  office  located in
Sparta,  Illinois and six branch offices. The following table sets forth certain
information  concerning  the main office and each  branch  office of the Bank at
September 30, 1996. At September 30, 1996, the Bank's premises and equipment had
an aggregate net book value of  approximately  $6.0  million.  The Bank believes
that its current  facilities  are  adequate to meet the present and  immediately
foreseeable needs of the Bank and the Holding Company.
All facilities are owned.
<TABLE>
<CAPTION>
                                                                     Year                     Book Value at
Location                                                           Occupied                September 30, 1996
--------                                                           --------                ------------------
<S>                                                                  <C>                       <C>
Main Office...............................................           1958                      $  660,364
114 West Broadway
Sparta, Illinois  62286

Branch Office.............................................           1988                      $   39,063
358 South Main
Anna, Illinois  62906

Branch Office.............................................           1983                      $  631,484
500 West Main
Carbondale, Illinois  62901

Branch Office.............................................           1995                      $  377,096
Southtown Shopping Center
DuQuoin, Illinois  62832

Branch Office.............................................           1978                      $  418,946
1101 Walnut
Murphysboro, Illinois  62966

Branch Office.............................................           1991                      $  320,397
424 West Broadway
Steeleville, Illinois  62288

Branch Office.............................................          1996(1)                    $1,591,540
1706 West DeYoung Street
Marion, Illinois 62959
------------------
(1) Acquired in May, 1996

</TABLE>

ITEM     3. Legal Proceedings

         There are various claims and lawsuits to which the Bank is periodically
involved  incident to the Bank's  business.  In the opinion of management,  such
claims and lawsuits in the  aggregate  are  immaterial  to the Bank's  financial
condition and results of operations.
<PAGE>
ITEM     4. Submission of Matters to a Vote of Security Holders

         During the fourth  quarter of the fiscal year  covered by this  report,
the Company did not submit any matters to the vote of security holders.

                                     PART II

ITEM     5. Market for Registrant's Common Stock and Related Stockholder Matters

         The  section  titled  "Common  Stock and  Related  Matters" of the 1996
Annual Report to  Stockholders  is  incorporated  herein by reference.  No other
sections of such Annual Report are incorporated herein by this reference.

ITEM     6. Selected Financial Data

         The section titled "Selected  Consolidated Financial and Other Data" of
the 1996 Annual Report to Stockholders is incorporated  herein by reference.  No
other sections of such Annual Report are incorporated herein by this reference.

ITEM     7.  Management's  Discussion  and Analysis of Financial  Condition  and
         Results of Operations

         The section titled  "Management's  Discussion and Analysis of Financial
Condition and Results of Operations"  of the 1996 Annual Report to  Stockholders
is incorporated herein by reference. No other sections of such Annual Report are
incorporated herein by this reference.


ITEM     8. Financial Statements and Supplementary Data

         The sections titled "Consolidated  Statements of Financial  Condition,"
"Consolidated   Statements   of   Operations,"   "Consolidated   Statements   of
Stockholders'  Equity,"  "Consolidated  Statements  of Cash Flows" and "Notes to
Consolidated Financial Statements" of the 1996 Annual Report to Stockholders are
incorporated herein by reference.

ITEM     9. Changes in and  Disagreements  With  Accountants  on Accounting  and
         Financial Disclosure

         Not Applicable.
                                    PART III


ITEM     10. Directors and Executive Officers of the Registrant

         Information  concerning the Directors of the Registrant is incorporated
herein by reference  from the  Registrant's  definitive  Proxy  Statement  dated
December 10, 1996 (the "Proxy Statement").

ITEM     11. Executive Compensation

         Information  concerning the Executive Compensation of the Registrant is
incorporated herein by reference from the Registrant's Proxy Statement.

ITEM     12. Security Ownership of Certain Beneficial Owners and Management

         Information   concerning  security  ownership  of  certain  owners  and
management is  incorporated  herein by reference from the section titled "Voting
Securities and Principal Holders Thereof" of Registrant's Proxy Statement.
<PAGE>
ITEM     13. Certain Relationships and Related Transactions

         Information  concerning  relationships and transactions is incorporated
herein by  reference  from the section  titled  "Certain  Transactions  with the
Company" of Registrant's Proxy Statement.

                                     PART IV

ITEM     14. Exhibits, Financial Statement Schedules, and Reports on From 8-K

         (a)(1)  Financial Statements

         The following  information  appearing in the  Registrant's  1996 Annual
Report is  incorporated by reference as Exhibit 13 to this Annual Report on Form
10-K.
                                                                
                                                                          
         Annual Report Sections                                                 

         Independent Auditors Report

                  Consolidated Balance Sheets
          as of September 30, 1996 and 1995

                  Consolidated Statements of Income for the years ended
         September 30, 1996, 1995 and 1994

                  Consolidated Statements of Stockholders' Equity for the years
         ended September 30, 1996, 1995 and 1994

         Consolidated Statements of Cash Flows for the years ended
         September 30, 1996, 1995 and 1994

         Notes to Consolidated Financial Statements

         (a)(2)  Financial Statement Schedules

     All  financial  statement  schedules  have  been  omitted  as the  required
information  is  inapplicable  or has been  included  in the Notes to  Financial
Statements.
<PAGE>
<TABLE>
<CAPTION>
         (a)(3)  Exhibits
                                                                                              Sequential Page
                                                               Reference to Prior              Number Where
                                                                Filing or Exhibit            Attached Exhibits
  Regulation S-K                                                 Number Attached            Are Located in This
  Exhibit Number                    Document                          Hereto                 Form 10-K Report
  --------------                    --------                          ------                 ----------------
  <S>                      <C>                                        <C>                     <C>
         2                 Plan of acquisition,                        (1)                    Not Applicable
                           reorganization, arrangement,
                           liquidation or succession

        3.1                Certificate of Incorporation                (1)                    Not Applicable

        3.2                Bylaws                                      (1)                    Not Applicable

         4                 Instruments defining the                    (1)                    Not Applicable
                           rights of security holders,
                           including debentures

         9                 Voting trust agreement                     None                    Not Applicable

       10.1                Employment Agreement between                (1)                    Not Applicable
                           the Bank and John A. Becker,
                           President and Chief Executive
                           Officer

       10.2                Employment Agreement between                                       ______________
                           the Bank and Michael R. Howell,
                           Executive Vice President and
                           Treasurer

       10.3                Employment Agreement between                                       ______________
                           the Bank and Linda M. Johnson,
                           Senior Vice President and Secretary

       10.4                Net Worth Maintenance Agreement             (1)                    Not Applicable

       10.5                Employee Severance Compensation             (1)                    Not Applicable
                           Plan

       10.6                1993 Incentive Stock Option Plan            (1)                    Not Applicable

       10.7                1993 Stock Option Plan for                  (1)                    Not Applicable
                           Outside Directors

       10.8                Management Recognition and                  (1)                    Not Applicable
                           Retention Plan and Trust

       10.9                Recognition and Retention Plan              (1)                    Not Applicable
                           and Trust for Outside Directors

       10.10               Supplemental Executive Retirement           (1)                    Not Applicable
                           Plan
<PAGE>
<CAPTION>
                                                                                              Sequential Page
                                                               Reference to Prior              Number Where
                                                                Filing or Exhibit            Attached Exhibits
  Regulation S-K                                                 Number Attached            Are Located in This
  Exhibit Number           Document                                   Hereto                 Form 10-K Report
  <S>                      <C>                                        <C>                     <C>
        11                 Statement re: computation                   Not                    Not Applicable
                           of per share earnings                    Required

        12                 Statement re: computation                   Not                    Not  Applicable
                           of ratios                                Required

        13                 Annual Report to Security Holders           13                         _______


        16                 Letter re: change in certifying            None                    Not Applicable
                           accountants

        18                 Letter re: change in accounting            None                    Not Applicable
                           principles

        21                 Subsidiaries of Registrant                  21                         _______

        22                 Published report regarding                 None                    Not Applicable
                           matters submitted to vote of
                           security holders

        24                 Power of Attorney                      Not Required                Not Applicable

        27                 Financial Data Schedule                Not Required                Not Applicable

        28                 Information from reports                   None                    Not Applicable
                           furnished to state
                           insurance regulatory
                           authorities

        99                 Additional Exhibits                        None                    Not Applicable



(1)      Filed as exhibits to the  Registrant's  Registration  Statement on Form
         S-1 filed with the SEC on June 22,  1995 as  amended on July 12,  1995.
         All  such  previously  filed  documents  are  hereby   incorporated  by
         reference in accordance with Item 601 of Regulation S-K.


         (b)      Reports on Form 8-K
</TABLE>
         The  registrant   filed  a  Form  8-K  to  report  the  acquisition  or
disposition of assets as required by Item 2. The financial  statements  required
to be filed were not available when the Form 8-K was filed.
<PAGE>

                                   Signatures

         Pursuant to the  requirements of Section 13 of the Securities  Exchange
Act of 1934,  the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.


                                                       CHARTER FINANCIAL, INC.


Date:    December 24, 1996                        By:  /S/ John A. Becker
                                                       ------------------
                                                           John A. Becker
                                                           President and Chief 
                                                           Executive Officer

         Pursuant to the  requirements of the Securities  Exchange of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S>                                                      <C>                                         
By:  /S/ John A. Becker                                  By: /S/ Michael R. Howell
     ------------------                                      ---------------------
     John A. Becker                                          Michael R. Howell 
       President, Chief Executive                            Executive Vice President,
       Officer and Chairman of the Board                     Treasurer and Director
       (Principal Executive Officer)                         (Principal Financial Officer)

Date:  December 24, 1996                                     Date:  December 24, 1996


By:  /S/ Karen P. Jacobus                                By: /S/ James Clutts
     --------------------                                    ----------------
     Karen P. Jacobus                                        James Clutts  
     Vice President and Controller                           Director
     (Principal Accounting Officer)

Date:  December 24, 1996                                     Date: December 24, 1996


By:  /S/ Carl S. Schlageter                              By: /S/ Linda M. Johnson
     ----------------------                                  --------------------
     Carl S. Schlageter                                      Linda M. Johnson 
     Director                                                Senior Vice President and Director

Date: December 24, 1996                                      Date:  December 24, 1996


By:  /S/ William A. Norton                               By: /S/ John Petkas, Jr.
     ---------------------                                   --------------------
     William A. Norton                                       John Petkas, Jr.
     Director                                                Director

Date:  December 24, 1996                                     Date: December 24, 1996
<PAGE>
<CAPTION>
<S>                                                      <C>                                         
By:  /S/ Klondis T. Pirtle                               By: /S/ Dennis F. Doelitzch
     ---------------------                                   -----------------------
     Klondis T. Pirtle                                       Dennis F. Doelitzch
     Director

Date: December 24, 1996                                      Date: December 24, 1996

By:  /S/ Ralph Eugen Watson
     ----------------------
     Ralph Eugene Watson

Date: December 24, 1996
</TABLE>