EXHIBIT 13

                        ANNUAL REPORT TO SECURITY HOLDERS

<PAGE>











                       1996 ANNUAL REPORT TO STOCKHOLDERS

                             CHARTER FINANCIAL, INC.




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


                                Table of Contents


                                                                                

Message from the Chairman                                                       
Common Stock and Related Matters                                                
Selected Consolidated Financial Information                                     
Management's Discussion and Analysis                                            
Independent Auditors' Report                                                    
Consolidated Financial Statements                                               
Notes to Consolidated Financial Statements                                      
Stockholder Information                                                         


 
<PAGE>


                            MESSAGE FROM THE CHAIRMAN

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


To Our Valued Stockholders:

The  reorganization  of Charter  Bancorp M.H.C.  to Charter  Financial,  Inc. on
December 28, 1995,  charted the course for a successful  year for Charter  Bank,
S.B. During 1996 the acquisition of the $ 58.9 million Community Savings Bank at
Marion, Illinois, was completed. In addition our intent to acquire $30.7 million
Home Federal Savings in Carbondale, Illinois, has been announced and is expected
to close in January,  1997. As acquisition  targets become available,  the Board
will selectively seek to expand our franchise and build stockholder value.

In 1997,  the Bank  will  pursue  continued  market  share  growth  in the seven
communities  in which our  branches  are  located.  Market  share growth will be
achieved by Charter Bank's  continued  commitment to  innovation.  Whether it be
through new deposit product offerings, alternative delivery channels, additional
convenient locations or new technology, we will focus our efforts to provide the
best financial  services  available.  The commitment to innovation  coupled with
knowledgeable  employees and superior  customer service will keep Charter Bank a
leader in each of the market areas it serves.

Charter  Financial's  commitment to its new shareholders was evidenced by the 5%
repurchase of outstanding stock during June and July, 1996, and a 10% repurchase
of  outstanding   stock  in  September,   1996.  Shares  totaling  721,285  were
repurchased.  We are pleased to have the  financial  strength to  undertake  the
stock repurchases.

We wish to extend our appreciation to our shareholders, customers, and staff for
their continued support.


Sincerely,




John A. Becker
President and Chief Executive Officer


<PAGE>

COMMON STOCK AND RELATED MATTERS

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


The common stock of Charter  Financial,  Inc. is traded in the  over-the-counter
market  and is listed for  quotation  in the NASDAQ  National  Market  under the
symbol "CBSB." The stock was issued on December 28, 1995 at $10.00 per share. As
of  December  1, 1996,  there  were 896  stockholders  of record  and  4,253,459
outstanding shares of common stock.

The  following  table sets forth the high and low closing bid prices as reported
by  NASDAQ  and  dividends  paid  per  share of  common  stock  for the  periods
indicated.

<TABLE>
<CAPTION>
                                                                   Dividends
         Quarter ended               High           Low               paid
         -------------               ----           ---               ----
      <S>                        <C>            <C>               <C>
      December 31, 1995          $ 10.8125      $ 10.8125         $   .15*
      March 31, 1996               10.8125        12.2500             .06
      June 30, 1996                12.0000        11.2500             .06
      September 30, 1996           13.0000        10.8750             .06       
                                                                                
</TABLE>
Payment of  dividends  on the  common  stock is  subject  to  determination  and
declaration  by the Board of Directors and will depend upon a number of factors,
including  capital  requirements,  regulatory  limitations  on  the  payment  of
dividends,  Charter Financial's  results of operations and financial  condition,
tax considerations,  and general economic conditions.  No assurance can be given
that  dividends  will be declared or, if declared,  what the amount of dividends
will be, or whether such dividends, once declared, will continue.















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

<PAGE>
                   SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following  tables set forth certain  historical  information  concerning the
financial  position  and  results  of  operations  of the  Company  at the dates
indicated.
<TABLE>
<CAPTION>
                                                         At September 30,
                                      ---------------------------------------------------- 
                                         1996       1995       1994       1993      1992
                                         ----       ----       ----       ----      ----
                                                         (In Thousands)
<S>                                   <C>        <C>        <C>        <C>        <C>
Selected Financial Condition Data:
    Total assets ..................   $388,431   $293,135   $261,297   $259,042   $229,410
    Loans receivable, net .........    275,487    206,074    178,058    157,342    134,788
    Investments, net (1) ..........     77,999     60,174     58,798     68,957     67,067
    Mortgage-backed securities, net     16,632     16,670     16,071     20,950     19,366
    Deposits (2) ..................    248,723    197,103    189,947    198,183    200,495
    Borrowed money ................     76,354     57,080     35,566     27,095      7,110
    Stockholders' equity (3) ......     56,394     35,622     31,581     22,016     18,943
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                          Year ended September 30,
                                         ------------------------------------------------------ 
                                            1996        1995        1994       1993       1992
                                            ----        ----        ----       ----       ----
                                                  (In Thousands, except per share data)
<S>                                      <C>         <C>         <C>        <C>        <C>
Selected Operating Data:
    Interest income ..................   $ 24,819    $ 20,009    $ 18,233   $ 18,391   $ 19,772
    Interest expense .................     12,426      10,309       8,387      8,730     11,274
                                         --------    --------    --------   --------   --------
       Net interest income ...........     12,393       9,700       9,846      9,661      8,498
    Provision for losses on loans ....        170         360         140      1,004        653
                                         --------    --------    --------   --------   --------
       Net interest income after
         provision for losses on loans     12,223       9,340       9,706      8,657      7,845
                                         --------    --------    --------   --------   --------
    Noninterest income:
       Late charges and other loan fees       391         241         266        173        149
       Gain (loss) on sale of
       invesment securities, net ......       (29)        (14)        121          8        131
       Loss on sale of mortgage-backed.
         securities, net .............         (9)       --          --         --         --
       Deposit account fees ..........        797         677         603        530        446
       Other .........................        691         506         454        458        426
                                         --------    --------    --------   --------   --------
         Total noninterest income ....      1,841       1,410       1,444      1,169      1,152
                                         --------    --------    --------   --------   --------
    Noninterest expense:
       Compensation and employee .....      3,661       3,025       2,778      2,106      1,997
       benefits
       Office buildings and equipment
         and data processing .........      1,083         835         825        836        809
       Advertising ...................        237         148         196        152        138
       Deposit insurance premiums ....        458         438         461        380        447
       SAIF special assessment .......      1,479        --          --         --         --
       Other .........................      1,641       1,306       1,199        880        889
       Provision for losses and
         expenses on real estate
         acquired by foreclosure .....         81           4         184         84        156
       Amortization of cost in
         excess of fair value of net
           assets acquired ...........        211         136         142        142        362
                                         --------    --------    --------   --------   --------
         Total noninterest expense ...      8,851       5,892       5,785      4,580      4,798
                                         --------    --------    --------   --------   --------
<PAGE>
<CAPTION>
                                                          Year ended September 30,
                                         ------------------------------------------------------ 
                                            1996        1995        1994       1993       1992
                                            ----        ----        ----       ----       ----
                                                  (In Thousands, except per share data)
<S>                                      <C>         <C>         <C>        <C>        <C>

    Income before income tax
         expense and cumulative
         effect of change in 
           accounting principle.......      5,213       4,858       5,365      5,246      4,199
    Income tax expense ...............      2,155       1,874       2,054      2,173      1,757
                                         --------    --------    --------   --------   --------
    Income before cumulative effect in
         accounting principle ........      3,058       2,984       3,311      3,073      2,442
    Cumulative effect of change in
         accounting principle ........       --          --           786       --         --
                                         --------    --------    --------   --------   --------
    Net income .......................   $  3,058    $  2,984    $  4,097   $  3,073   $  2,442
                                         ========    ========    ========   ========   ========
    Earnings per share:
         Income before cumulative
         effect of change in 
           accounting principle.......   $   0.67   $    0.69       0.78         N/A        N/A
    Cumulative effect of change in
         accounting principle ........       --          --         0.19         N/A        N/A
                                         --------    --------    --------   --------   --------
    Net Income .......................   $   0.67    $   0.69    $   0.97   $    N/A   $    N/A
                                         ========    ========    ========   ========   ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION,  Cont.

                                                                At or for the year ended
                                                                      September 30,
                                                  -------------------------------------------------- 
                                                    1996      1995      1994         1993     1992
                                                    ----      ----      ----         ----     ----
<S>                                                <C>       <C>       <C>          <C>       <C>
Selected Financial Ratios and Other
Data:
    Performance ratios:
       Return on average assets(4) .........        0.93%     1.09%     1.27%(5)     1.26%     1.08%
       Return on average stockholders'
          equity (4) .......................        5.57      8.92     15.29        15.10     13.79
       Stockholders' equity as a
         percent of average assets .........       17.18     12.97     12.14         9.02      8.35
       Stockholders' equity to total
         assets (end of period) ............       14.52     12.15     12.09         8.50      8.26
       Interest rate spread (6) ............        3.27      3.25      3.48         3.86      3.53
       Net interest margin (7) .............        3.95      3.68      3.85         4.12      3.87
       Average interest-earning assets as a
        percent of average interest-bearing
          liabilities (8) ..................      117.30    110.80    111.17       107.06    106.64
    Asset quality ratios:
       Nonperforming loans as a percent
          of loans receivable, net(9) ......        0.78      0.32      0.23         1.40      0.95
       Nonperforming assets as a percent
          of nonperforming total  assets(10)        0.67      0.27      0.24         0.94      0.76
       Allowance for loan losses as a
          percent of nonperforming loans(9)       111.89    336.65    528.29       100.09    102.26
    Number of full-service offices .........           7         6         5            5         5

</TABLE>
(1)    Includes Federal Home Loan Bank stock and
       interest-bearing deposits.
(2)    During the years ended September 30, 1994,  1993, and 1992, $1.8 million,
       $7.6 million,  and the $6.3 million,  respectively,  in  certificates  of
       deposit were converted into reverse repurchase agreements and, therefore,
       are not reflected in deposit totals.
(3)    Reflects only retained  earnings for years prior to 1994, the fiscal year
       in which Charter Bank converted to stock form.
(4)    Averages are computed on a simple average basis using
       period-end balances.
(5)    Does not include cumulative effect of change in accounting
       principle of $786,053. Return
       on average assets was 1.57% including such amount at
       September 30, 1994.
(6)    Represents the difference  between the yield on average  interest-earning
       assets and the cost of average interest-bearing liabilities.
(7)    Represents net interest income as a percent of
       average interest-earning assets.
(8)    Averages are computed based upon
       month-end balances.
(9)    Includes nonaccruing loans 90 days or
       more delinquent.
(10)   Includes  nonaccruing  loans 90 days or more  delinquent  and real estate
       acquired through foreclosure.
<PAGE>
Average Balance Sheet

The  following  table sets forth certain  information  relating to the Company's
average  balance sheet and reflects the average yield on assets and average cost
of |liabilities for the periods indicated.  Such yields and costs are derived by
dividing  income or expense  by the  average  balance of assets or  liabilities,
respectively,  for the periods  presented.  Average  balances  are derived  from
utilizing  month-end  balances.  Management  does  not  believe  that the use of
month-end balances instead of daily balances has caused any material differences
in the information presented.
<TABLE>
<CAPTION>
                                                                          Year ended September 30,
                                                 -------------------------------------------------------------------------  
                                                              1996                                    1995                        
                                                 ----------------------------------      ---------------------------------          
                                                 Average                  Average        Average                 Average            
                                                 balance    Interest     yield/cost      balance    Interest    yield/cost         
                                                 -------    --------     ----------      -------    --------    ----------          
                                                                           (Dollars in Thousands)
<S>                                            <C>          <C>          <C>           <C>          <C>           <C>
Interest-earning assets:
     Loans receivable, net (1)                 $ 230,765    $ 19,439        8.42%      $ 188,897    $ 15,462        8.19%        
     Investments, net (2)                         62,243       3,937        6.33          54,036       3,308        6.12          
     Mortgage-backed securities, net              16,353       1,173        7.17          17,510       1,087        6.21          
     Interest-bearing deposits                     4,563         270        5.92           3,477         152        4.37          
                                               ---------    --------                   ---------    --------                     
     Total interest-earning assets             $ 313,924      24,819        7.91       $ 263,920      20,009        7.58          
                                               =========    --------                    ========    --------                     
Interest-bearing liabilities:
     Deposits                                  $ 219,092       9,793        4.47       $ 189,309       7,567        4.00          
     Borrowed money                               48,544       2,633        5.42          48,882       2,742        5.61          
                                               ---------    --------                  ---------     --------                     
     Total interest-bearing liabilities        $ 267,636      12,426        4.64       $ 238,191      10,309        4.33          
                                               =========    --------                  =========     --------                     
Net interest income                                         $ 12,393                                $  9,700                      
                                                            ========                                ========                     
Net interest rate spread (3)                                                3.27%                                   3.25%         
                                                                            ====                                    ====         
Net interest margin (4)                                                     3.95%                                   3.68%         
                                                                            ====                                    ====         
Ratio of average interest-earning assets
     to average interest-bearing liabilities                              117.30%                                 110.80%        
                                                                          ======                                  ======          
<PAGE>
<CAPTION>
                                                         Year ended September 30,
                                                   ------------------------------   
                                                                1994                
                                                     ----------------------------   
                                                      Average            Average     
                                                      balance   Interest yield/cost  
                                                     --------  -------  ---------   
                                                   


Interest-earning assets:                      
     Loans receivable, net (1)                       $ 168,391    $ 13,256       7.87 %             
     Investments, net (2)                               64,977       3,754       5.78  
     Mortgage-backed securities, net                    17,673       1,082       6.12  
     Interest-bearing deposits                           4,731         141       2.98  
                                                     ---------    --------            
     Total interest-earning assets                   $ 255,772      18,233       7.13  
                                                     =========    --------            
Interest-bearing liabilities:                                                       
     Deposits                                        $ 195,142       6,859       3.51  
     Borrowed money                                     34,940       1,528       4.37  
                                                     ---------    --------            
     Total interest-bearing liabilities              $ 230,082       8,387       3.65  
                                                       ========   --------            
Net interest income                                               $  9,846             
                                                                  ========            
Net interest rate spread (3)                                                     3.48%
                                                                                 ====  
Net interest margin (4)                                                          3.85%
                                                                                 ==== 
Ratio of average interest-earning assets                                            
     to average interest-bearing liabilities                                   111.17%
                                                                               ====== 
                                                    
</TABLE>
<PAGE>
Rate/Volume Analysis

The table below sets forth  certain  information  regarding  changes in interest
income and interest expense of the Company for the periods  indicated.  For each
category   of   interest-earning   assets  and   interest-bearing   liabilities,
information is provided on changes attributable to (i) changes in average volume
(changes in average (changes in average volume  multiplied by prior rate);  (ii)
changes in rates  (change in rate  multiplied by prior  average  volume);  (iii)
changes in  rate-volume  (changes  in rate  multiplied  by the change in average
volume); and (iv) the net change.
<TABLE>
<CAPTION>
                                                                                              Year ended
                                                                                            September 30,
                                     -----------------------------------------------------------------------------------------------
                                                   1996 vs. 1995                               1995 vs. 1994                        
                                     ------------------------------------------   ----------------------------------------  --------
                                                Increase (decrease)                         Increase (decrease)                     
                                                      due to                                      due to                            
                                     ------------------------------------------   ----------------------------------------  --------
                                                              Rate/     Increase                           Rate/    Increase 
                                        Volume      Rate      volume   (Decrease)   Volume       Rate      volume  (Decrease)
                                        ------      ----      ------   ----------   ------       ----      ------  ----------
                                                                         (In Thousands)
<S>                                    <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Interest income:
     Loans receivable, net (1) .....   $ 3,429    $   434    $   114    $ 3,977    $ 1,614    $   526    $    66    $ 2,206
     Investments, net (2) ..........       502        113         14        629       (632)       223        (37)      (446)
     Mortgage-backed securities, net       (72)       168        (10)        86        (10)        15          0          5
     Interest-bearing deposits .....        47         54         17        118        (37)        65        (17)        11
                                       -------    -------    -------    -------    -------    -------    -------    -------
     Total interest-earning assets .     3,906        769        135      4,810        935        829         12      1,776
                                       -------    -------    -------    -------    -------    -------    -------    -------
Interest expense:
     Deposits ......................     1,191        890        145      2,226       (205)       942        (29)       708
     Borrowed money ................       (19)       (93)         3       (109)       609        432        173      1,214
                                       -------    -------    -------    -------    -------    -------    -------    -------
     Total interest-bearing
        liabilities ................     1,172        797        148      2,117        404      1,374        144      1,922
                                       -------    -------    -------    -------    -------    -------    -------    -------
       Change in net interest income   $ 2,734    $   (28)   $   (13)   $ 2,693    $   531    $  (545)   $  (132)   $  (146)
                                       =======    =======    =======    =======    =======    =======    =======    =======

(1)  Average balance includes nonaccrual loans.

(2)  Includes Federal Home Loan Bank stock and investment securities.

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

(4)  Net  interest  margin  represents  net interest  income as a percentage  of
     average interest-earning assets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                        Year ended   
                                                       September 30,  
                                       -------------------------------------------       
                                                      1994 vs. 1993                  
                                       -------------------------------------------   
                                                   Increase (decrease)               
                                                         due to                      
                                       ------------------------------------------- 
                                                               Rate/     Increase  
                                        Volume      Rate       volume   (Decrease) 
<S>                                    <C>        <C>        <C>       <C>                                                
Interest income:
     Loans receivable, net (1) .....   $ 2,061    $(1,321)   $  (214)   $   526
     Investments, net (2) ..........       329       (389)       (33)       (93)
     Mortgage-backed securities, net       (98)      (247)        17       (328)
     Interest-bearing deposits .....      (226)       (81)        45       (262)
                                       -------    -------    -------    -------
     Total interest-earning assets .     2,066     (2,038)      (185)      (157)
                                       -------    -------    -------    -------
Interest expense:
     Deposits ......................      (190)    (1,023)        24     (1,189)
     Borrowed money ................       557        159        130        846
                                       -------    -------    -------    -------
     Total interest-bearing
        liabilities ................       367       (864)       154       (343)
                                       -------    -------    -------    -------
       Change in net interest income   $ 1,699    $(1,174)   $  (339)   $   186
                                       =======    =======    =======    =======


(1)  Average balance includes nonaccrual loans.

(2)  Includes Federal Home Loan Bank stock and investment securities.

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

(4)  Net  interest  margin  represents  net interest  income as a percentage  of
     average interest-earning assets.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS

General

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

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

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

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

Business Strategy

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

On May 15, 1996,  the Company  completed its  acquisition  of Community  Savings
Bank,  Marion,  Illinois  ("Community  Savings")  in  exchange  for cash of $7.5
million.  Community  Savings' assets consisted  primarily of loans receivable of
$45.4  million and  investment  securities of $6.3  million,  while  liabilities
consisted  primarily of savings  deposits of $49.7 million.  The acquisition was
accounted for using the purchase  method of  accounting  and,  accordingly,  the
operating  results of  Community  Savings  have been  included in the  Company's
results of operations since the date of the acquisition.  The excess of the cost
over fair value of the net assets acquired was approximately $2.9 million.
<PAGE>
On May 12, 1995,  the Company  acquired the savings  deposit  liabilities of the
branch office of another  financial  institution  totaling  approximately  $21.1
million.  The  acquisition  was  accounted  for under the  purchase  method  and
resulted in the recording of a core deposit  intangible  totaling  approximately
$1.2 million.

Results of Operations

The  earnings  of the  Company  depend  primarily  on its level of net  interest
income,  which  is the  difference  between  interest  earned  on the  Company's
interest-earning  assets and the interest paid on interest-bearing  liabilities.
Net interest income is a function of the Company's interest rate spread which is
the difference between the yield earned on interest-earning  assets and the rate
paid on  interest-bearing  liabilities,  as well as a  function  of the  average
balance  of  interest-earning  assets as  compared  to the  average  balance  of
interest-bearing  liabilities.  The Company had net income of $3.1 million, $3.0
million,  and $4.1 million for the fiscal years ended September 30, 1996,  1995,
and 1994, respectively.

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

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

Interest  income earned on loans  receivable  increased $4.0 million,  or 25.7%,
reflecting an increase in average loans outstanding of $41.9 million , or 22.2%,
to $230.8  million in fiscal  year 1996,  as well as an  increase in the average
yield on loans  receivable to 8.42% from 8.19%.  The general  increase in market
rates  resulted in higher yields on new consumer loan  originations,  as well as
adjustable  rate  mortgages  which  repriced at higher  levels.  The increase in
average  loans  outstanding  consisted  substantially  of $45.8 million in loans
acquired from  Community  Savings Bank, and the purchase of $37.4 million in ARM
loans.

Interest received from investments increased $629,000, or 19.0%, to $3.9 million
for the fiscal year ended  September  30, 1996  compared to $3.3 million for the
fiscal year ended  September 30, 1995.  This  increase  reflects the increase of
$8.2 million,  or 15.2%,  in the average balance of investments to $62.2 million
in fiscal  year  1996  from  $54.0  million  in  fiscal  year 1995 as well as an
increase in the average yield on investments  to 6.33% from 6.12%.  The increase
in the average balance of investment  securities  resulted from the $6.3 million
of  investments  acquired  from  Community  Savings  coupled with the  increased
purchase  activity of  investment  securities by the Company in 1996 compared to
1995.
<PAGE>
Interest  received  from  mortgage-backed  securities  remained  stable  at $1.2
million and $1.1 million for the fiscal years ended September 30, 1996 and 1995,
respectively. The average yield on mortgage-backed securities increased to 7.17%
for  fiscal  year 1996 from  6.21% for  fiscal  year  1995  which  increase  was
partially  offset by the  decrease  in the  average  balance on  mortgage-backed
securities of $1.2  million,  or 6.6%, to $16.4 million in fiscal year 1996 from
$17.5 million in fiscal year 1995.

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

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

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

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

Net Interest Income.  Net interest income totaled $12.4 million and $9.7 million
for the fiscal  years  ended  September  30, 1996 and 1995,  respectively.  This
increase in net interest income  primarily  resulted from an increase to 117.30%
in the ratio of  average  interest-earning  assets to  average  interest-bearing
liabilities in fiscal year 1996 compared to 110.80% in fiscal year 1995, as well
as an increase  in the  Company's  interest  margin to 3.95% in fiscal year 1996
from 3.68% in fiscal year 1995.

Provision for Losses on Loans.  The allowance for loss is established  through a
provision  for  losses on loans  based on  management's  evaluation  of the risk
inherent  in its  loan  portfolio  and  the  general  economy.  Such  evaluation
considers  numerous  factors  including,   general  economic  conditions,   loan
portfolio  composition,  prior loss experience,  the review of delinquencies and
loan portfolio quality,  the estimated fair value of the underlying  collateral,
and other  factors that warrant  recognition  in providing  for an adequate loan
loss allowance.
<PAGE>
The provision  for losses on loans for the fiscal year ended  September 30, 1996
was $170,000  compared to $360,000 for the fiscal year ended September 30, 1995.
The higher  provision in fiscal year 1995 was  necessary to establish  loan loss
reserves to cover the credit risk associated with one large  commercial loan and
the  collateralization of a commercial real estate project based on management's
current estimate of the value of the underlying collateral.

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

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

Noninterest  Income.  The  Company's  principal  sources of  noninterest  income
include late charges and other loan fees,  deposit account fees, and commissions
and fees from brokerage activities. Noninterest income increased by $431,000, or
30.6%,  for the fiscal  year ended  September  30,  1996 to $1.8  million.  This
increase resulted  primarily from increases in late charges and other loan fees,
deposit account fees,  commissions and fees and other noninterest income,  which
increases were partially offset by an increase in the loss on sale of investment
securities and losses on sales of mortgage-backed  securities.  Late charges and
other  loan  fees  increased  $150,000,  or 62.3%,  for the  fiscal  year  ended
September 30, 1996 to $391,000 as compared to $241,000 for the fiscal year ended
September 30, 1995. Deposit account fees increased  $120,000,  or 17.7%, for the
fiscal year ended  September  30, 1996 to $797,000  compared to $677,000 for the
fiscal year ended September 30, 1995.

Noninterest  Expense.  Noninterest expense increased $3.0 million, or 50.2%, for
the fiscal year ended  September  30, 1996 to $8.9 million from $5.9 million for
the fiscal year ended  September 30, 1995. The increase in  noninterest  expense
resulted   primarily   from  the  SAIF  special   assessment  of  $1.5  million.
Additionally,  the increase in noninterest expense was the result of an increase
in compensation  and employee  benefits  expense of $636,000,  or 21.0%, to $3.7
million for fiscal year 1996 compared to $3.0 million for fiscal year 1995.  The
primary reason for the increase in compensation and employee benefits expense is
due to additional  compensation  expense  related the acquisition of the DuQuoin
branch in fiscal year 1995 and Community  Savings in fiscal year 1996 as well as
the cost of certain stock benefit plans.
<PAGE>
Primarily as a result of the  acquisition  of the DuQuoin  branch  office in May
1995 and the acquisition of Community  Savings in May 1996, office buildings and
equipment expense increased $186,000, or 38.9%, to $663,000 for fiscal year 1996
compared to $477,000 for fiscal year 1995, data processing increased $62,000, or
17.3%,  to $420,000  for fiscal year 1996  compared to $358,000  for fiscal year
1995, and  amortization  of cost in excess of fair value of net assets  acquired
increased $75,000,  or 54.9%, to $211,000 for fiscal year 1996 from $136,000 for
fiscal year 1995.

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

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

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

Comparison  of Operating  Results for the Fiscal Years ended  September 30, 1995
and 1994

Interest Income. Interest income totaled $20.0 million for the fiscal year ended
September 30, 1995 compared to $18.2 million for the fiscal year ended September
30, 1994, an increase of $1.8 million, or 9.7%. This increase resulted primarily
from an  increase in the average  yield on  interest-earning  assets to 7.58% in
fiscal year 1995 from 7.13% in fiscal year 1994,  which  increase  reflected the
general increase in market interest rates, which existed for most of fiscal year
1995,  as well as changes  in the  composition  and  amount of  interest-earning
assets.

Interest  income earned on loans  receivable  increased $2.2 million,  or 16.6%,
reflecting an increase in average loans  outstanding  of $20.5 million to $188.9
million in fiscal year 1995,  as well as an  increase  in the  average  yield on
loans  receivable to 8.19% from 7.87%.  The general  increase in market interest
rates that began in fiscal year 1994 and  continued for most of fiscal year 1995
resulted in higher yields on new loan  originations  and loans purchased as well
as on adjustable  rate mortgage (ARM) loans which repriced  during the year. The
increase in average loans outstanding consisted substantially of the purchase of
ARM loans as well as  increased  automobile  loan  originations,  as the Company
continued to expand its market for these loans.
<PAGE>
Interest received from investments decreased $446,000, or 11.9%, to $3.3 million
for the fiscal year ended  September  30, 1995  compared to $3.8 million for the
fiscal year ended  September 30, 1994.  This  decrease  reflects the decrease of
$10.9 million,  or 16.8%, in the average balance of investments to $54.0 million
in fiscal year 1995 from $65.0 million in fiscal year 1994,  which  decrease was
partially  offset by an increase in the average  yield on  investments  to 6.12%
from 5.78%. The decrease in the average balance of investment  securities is the
result of funds from  maturities  and principal  repayments on securities  being
utilized to fund the purchase of loans as well as other loan  originations  such
as automobile loans. The average yield on investments  increased due to maturity
and principal  repayment of lower yielding  securities as well as interest rates
on  adjustable  securities  increasing  due to the  general  increase  in market
interest rates which existed for most of fiscal 1995.

Interest  received  from  mortgage-backed  securities  remained  stable  at $1.1
million for fiscal years ended  September 30, 1995 and 1994. The average balance
on mortgage-backed  securities decreased $163,000,  or 0.9%, to $17.5 million in
fiscal year 1995 from $17.7  million in fiscal year 1994,  although  the average
yield increased to 6.21% from 6.12%.

Interest  income from  interest-bearing  deposits  increased  $11,000,  or 8.0%,
reflecting  an  increase in the average  yield on  interest-bearing  deposits to
4.37% for fiscal year 1995 from 2.98% for fiscal year 1994,  which  increase was
partially offset by a decrease in the average balance of $1.3 million, or 26.5%.

Interest Expense. Interest expense increased by $1.9 million, or 22.9%, to $10.3
million for the fiscal year ended  September  30, 1995 from $8.4 million for the
fiscal year ended September 30, 1994. This increase  resulted  primarily from an
increase in the average cost on interest-bearing  liabilities to 4.33% in fiscal
year 1995 from 3.65% in fiscal  year  1994,  as well as an  increase  in average
interest-bearing  liabilities  of $8.1 million to $238.2  million in fiscal year
1995 compared to $230.1 million in fiscal year 1994.

Interest  expense  on  deposits  increased  $708,000,  or 10.3%,  reflecting  an
increase in the average cost of deposits to 4.00% from 3.51% which was partially
offset by a decrease of $5.8  million,  or 3.0%,  in average  deposits to $189.3
million from $195.1  million.  The  increase in the cost of average  deposits is
consistent  with the increase in general market  interest rates that existed for
most of fiscal year 1995 and  reflects  the higher  cost of deposits  which were
acquired  in the  DuQuoin  branch  acquisition.  Average  deposits  continue  to
decrease as depositors  shift funds to  alternative  investments  to seek higher
yields elsewhere.

Interest  expense on average  borrowed money  increased $1.2 million,  or 79.5%,
reflecting an increase in average borrowed money of $13.9 million,  or 39.9%, to
$48.9  million in fiscal year 1995 from $34.9 million in fiscal year 1994 and an
increase  in the cost of average  borrowed  money to 5.61% from  4.37%.  Average
borrowed money increased predominately from the utilization of Federal Home Loan
Company  line of credit  advances to fund the  purchase of mortgage  loans,  the
origination of automobile loans, and the withdrawal of deposits.

Net Interest  Income.  Net interest income totaled $9.7 million and $9.8 million
for the fiscal  years  ended  September  30, 1995 and 1994,  respectively.  This
decline in net interest income primarily  resulted from a decrease to 110.80% in
the  ratio  of  average  interest-earning  assets  to  average  interest-bearing
liabilities in fiscal year 1995 compared to 111.17% in fiscal year 1994, as well
as a decrease in the Company's interest rate spread to 3.25% in fiscal year 1995
from 3.48% in fiscal year 1994.
<PAGE>
Provision for Losses on Loans.  The allowance for loss is established  through a
provision  for  losses on loans  based on  management's  evaluation  of the risk
inherent  in its  loan  portfolio  and  the  general  economy.  Such  evaluation
considers  numerous  factors  including,   general  economic  conditions,   loan
portfolio  composition,  prior loss experience,  the review of delinquencies and
loan portfolio quality,  the estimated fair value of the underlying  collateral,
and other  factors that warrant  recognition  in providing  for an adequate loan
loss allowance.

The provision  for losses on loans for the fiscal year ended  September 30, 1995
was $360,000  compared to $140,000 for the fiscal year ended September 30, 1994.
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  miners by the  United  Mine  Workers  of
America  which began in May 1993 and reached  settlement in December  1993,  the
continued low level of delinquencies relative to other savings institutions, and
management's effort to closely monitor the level of delinquencies.

The Company's allowance for losses on loans was $2.2 million, or 1.05%, of loans
receivable at September 30, 1995  compared to $2.1 million,  or 1.15%,  of loans
receivable at September 30, 1994.  The Company's  level of net loans charged off
as a percentage of average net loans receivable  outstanding was 0.14% and 0.13%
for  fiscal  years  1995 and 1994,  respectively.  Additionally,  the  Company's
nonperforming loans as a percentage of loans receivable  increased to 0.32% from
0.23% at September 30, 1995 and 1994,  respectively.  Based on current levels in
the  allowance  for losses on loans in relation to total  loans  receivable  and
delinquent loans,  management's  effort to resolve problem loan situations,  and
the low level of charge-offs in recent years,  management believes the allowance
is adequate at September 30, 1995.

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

Noninterest  Income.  The  Company's  principal  sources of  noninterest  income
include late charges and other loan fees,  deposit account fees, and commissions
and fees from brokerage  activities.  Noninterest  income decreased  slightly by
$34,000,  or 2.3%, for the fiscal year ended September 30, 1995 to $1.4 million.
This  decrease  resulted  primarily  from a  decrease  in the  gain  on  sale of
investment  securities and a decrease in late charges and other loan fees, which
decreases were partially offset by an increase in deposit account fees and other
noninterest  income.  The  $135,000  decrease in the gain on sale of  investment
securities  resulted  from the decline in sales  activity  from $21.2 million in
fiscal year 1994 to $40,000 in fiscal year 1995. The significant  level of sales
activity  in  fiscal  year  1994  was  designed  to  reposition  the  investment
securities   portfolio  in  anticipation  of  adopting  Statement  of  Financial
Accounting  Standards No. 115,  Accounting  for Certain  Investments in Debt and
Equity  Securities,  at  September  30,  1994.  Late charges and other loan fees
decreased  $25,000,  or 9.3%,  for the fiscal year ended  September  30, 1995 to
$241,000 as compared to $266,000 in the fiscal year ended  September  30,  1994.
Deposit  account fees  increased  $74,000,  or 12.3%,  for the fiscal year ended
September  30, 1995 to $677,000  compared to $603,000  for the fiscal year ended
September 30, 1994.
<PAGE>
Noninterest Expense.  Noninterest expense increased $107,000 for the fiscal year
ended  September  30, 1995 to $5.9 million from $5.8 million for the fiscal year
ended September 30, 1994. One reason for the increase in noninterest expense was
that  compensation  and employee  benefits  expense  increased  $247,000 to $3.0
million for fiscal year 1995 compared to $2.8 million for fiscal year 1994.  The
primary reason for the increase in compensation and employee benefits expense is
due to additional  compensation expense related to the conversion to an in-house
data processing system as well as the cost of certain stock benefit plans. Other
noninterest expense increased $107,000,  or 8.9%, to $1.3 million for the fiscal
year ended September 30, 1995 compared to $1.2 million for the fiscal year ended
September  30, 1994  primarily  due to higher  professional  fees as a result of
being a public  company.  The  provision  for losses and expenses on real estate
acquired by foreclosure  decreased $181,000,  or 98.1%, to $4,000 for the fiscal
year ended  September  30, 1995  compared to $184,000  for the fiscal year ended
September 30, 1994, due to decreased  losses on the sale of real estate acquired
by  foreclosure.  Deposit  insurance  premiums  decreased  $23,000,  or 5.1%, to
$438,000 for the fiscal year ended  September  30, 1995 compared to $461,000 for
the fiscal year ended September 30, 1994.

Income  Taxes and  Cumulative  Effect of Change  in  Accounting  Principle.  The
provision  for income taxes totaled $1.9 million and $2.1 million for the fiscal
years ended September 30, 1995 and 1994,  respectively.  The Company's effective
income tax rates were 38.6% and 38.3% for the fiscal years ended  September  30,
1995 and 1994, respectively.

In 1994, the Company  adopted  Statement of Financial  Accounting  Standards No.
109,  Accounting for Income Taxes (SFAS No. 109),  which resulted in an increase
in income  for the  cumulative  effect of a change of  accounting  principle  of
$786,000.  The net  deferred  tax asset that was  recognized  as a result of the
adoption of SFAS No. 109 represents  future tax benefits  derived from temporary
differences  between the carrying value and tax basis of assets and  liabilities
and bad debt deductions which had not been recognized and are, in substance, tax
loss carryforwards.

Net Income.  Net income totaled $3.0 million for the fiscal year ended September
30 1995  compared to $4.1 million for the fiscal year ended  September 30, 1994.
The net income for the fiscal year ended September 30, 1994, includes the effect
of the adoption of SFAS No. 109 as discussed  above.  The decrease in net income
also  reflects the decrease of $147,000,  or 1.5%, in net interest  income,  the
decrease of $34,000,  or 2.3%, in noninterest  income, the increase in provision
for losses on loans of $220,000,  or 157.1%,  and the  increase of $107,000,  or
1.9%, in noninterest expense, which was partially offset by a decrease in income
taxes of $180,000, or 8.8%.

Asset and Liability Management - Interest Rate Sensitivity Analysis

The matching of assets and  liabilities  may be analyzed by examining the extent
to which such  assets and  liabilities  are  "interest  rate  sensitive"  and by
monitoring  an  institution's  interest  rate  sensitivity  "gap".  An  asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of  interest-earning  assets
maturing  or  repricing  within  a  specific  time  period  and  the  amount  of
interest-bearing  liabilities  maturing or repricing  within that time period. A
gap is considered  positive when the amount of interest  rate  sensitive  assets
exceeds the amount of interest rate sensitive  liabilities.  A gap is considered
negative  when the amount of interest  rate  sensitive  liabilities  exceeds the
<PAGE>
amount of interest rate  sensitive  assets.  During a period of rising  interest
rates, a negative gap would tend to adversely affect net interest income while a
positive gap would tend to positively  affect net interest income.  This has not
been the case for the  Company.  However,  no  assurance  can be given that this
trend will continue.

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

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

Liquidity and Capital Resources

At September 30, 1996,  the Company was required to maintain  minimum  levels of
liquid assets by FDIC regulations.  The Company's liquidity policy, which varies
from time to time depending upon economic conditions and deposit flows, is based
upon a percentage of deposits and short-term  borrowings and is currently  5.0%.
The Company  historically  has  maintained a level of liquid assets in excess of
requirements,  and the Company's liquidity ratio averaged 9.41% during the month
of September 1996 and 9.76% during the fiscal year ended September 30, 1996. The
Company adjusts its liquidity  levels in order to meet funding needs for deposit
outflows,  payment  of real  estate  taxes on  mortgage  loan  escrow  accounts,
repayment of borrowings, when applicable, and loan commitments. The Company also
adjusts liquidity as appropriate to meet its asset/liability objectives.

The Company's primary sources of funds are deposits,  borrowed money,  repayment
and prepayment of loans and mortgage-backed securities,  borrowings,  maturities
of   investments,   and  funds   provided  from   operations.   While  loan  and
mortgage-backed  securities  scheduled  repayments are a relatively  predictable
source of funds,  deposit flows and loan  prepayments are greatly  influenced by
general  interest  rates,  economic  conditions,  and  competition.  The Company
manages the pricing of its  deposits to maintain a steady  deposit  balance.  In
addition,  the  Company  invests  excess  funds  in  overnight  deposits,  other
short-term  interest-earning   investments,   and  other  assets  which  provide
liquidity to fund lending demand.  Assets  qualifying for liquidity at September
30, 1996,  1995,  and 1994 amounted to $29.6 million,  $26.3 million,  and $26.4
million, respectively.

A major portion of the Company's liquidity consists of cash and cash equivalents
which are a product of its operating,  investing, and financing activities.  The
primary  sources of cash are derived from  operations and financing  activities.
Liquidity  management  is  both a  daily  and  long-term  function  of  business
management.  If the Company  requires  funds beyond its ability to generate them
internally,  borrowing  agreements  exist with the FHLB to proved an  additional
source of funds.  At  September  30,  1996,  the  Company  had $61.0  million in
borrowings from the FHLB.
<PAGE>
At September 30, 1996, the Company had outstanding  mortgage loan commitments of
$1.7 million. Certificates of deposit scheduled to mature in one year or less at
September 30, 1996 totaled $109.8 million.  Management  believes,  based on past
experience,  that a  significant  portion of such  deposits will remain with the
Company.

At  September  30, 1996,  the Company  exceeded  all of its  regulatory  capital
requirements.

Impact of Inflation and Changing Prices

The  consolidated  financial  statements  of  the  Company  and  notes  thereto,
presented  elsewhere  herein,  have been prepared in accordance  with  generally
accepted  accounting  principles,  which  require the  measurement  of financial
position  and  operating   results  in  terms  of  historical   dollars  without
considering the change in the relative  purchasing  power of money over time due
to inflation.  The impact of inflation is reflected in the increased cost of the
Company's operations.  Unlike most industrial  companies,  nearly all the assets
and liabilities of the Company are monetary. As a result,  interest rates have a
greater  impact on the  Company's  performance  than do the  effects  of general
levels  of  inflation.  Interest  rates  do not  necessarily  move  in the  same
direction or to the same extent as the price of goods and services.

Impact of New Accounting Pronouncements

Accounting for Mortgage Servicing Rights. In May 1995, the FASB issued Statement
of Financial Accounting Standards 122, Accounting for Mortgage Servicing Rights,
an amendment of FASB Statement No. 65 (SFAS 122).  SFAS 122 amends  Statement of
Financial   Accounting   Standards  No.  65,  Accounting  for  Certain  Mortgage
Companying  Activities,   to  require  that  a  mortgage  Companying  enterprise
recognize  as  separate  assets  rights to service  mortgage  loans for  others,
however those servicing rights are acquired.  A mortgage  Companying  enterprise
that  acquires  mortgage   servicing  rights  through  either  the  purchase  or
origination  of  mortgage  loans  and  sells or  securitizes  those  loans  with
servicing  rights  retained should allocate the total cost of the mortgage loans
to the mortgage  servicing rights and the loans (without the mortgage  servicing
rights) based on their  relative fair values,  if it is  practicable to estimate
those fair values.  If it is not  practicable to estimate the fair values of the
mortgage servicing rights and the mortgage loans (without the mortgage servicing
rights),  the entire  cost of  purchasing  or  originating  the loans  should be
allocated  to the  mortgage  loans,  and no cost should be allocated to mortgage
servicing rights. SFAS 122 also requires that a mortgage  Companying  enterprise
assess its capitalized  mortgage  servicing  rights for impairment  based on the
fair value of those rights.  SFAS 122 must be applied  prospectively  for fiscal
years beginning after December 15, 1995, with earlier  adoption  encouraged,  to
transactions  in which a mortgage  Companying  enterprise  sells or  securitizes
mortgage loans with servicing  rights retained and to impairment  evaluations of
all amounts capitalized as mortgage servicing rights,  including those purchased
before  the  adoption  of  SFAS  122.  Retroactive  capitalization  of  mortgage
servicing  rights  retained  in  transactions  in  which a  mortgage  Companying
enterprise originates mortgage loans and sells or securitizes those loans before
the  adoption  of SFAS  122 is  prohibited.  The  Company  plans  to  adopt  the
provisions of SFAS 122 effective  October 1, 1996.  Management  does not believe
the adoption of SFAS 122 will have a material effect on the Company's  financial
position.
<PAGE>
Accounting for Impairment of Long-Lived  Assets.  In March 1995, the FASB issued
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed  Of." SFAS 121 is  effective  for fiscal  years  beginning
after  December  15,  1995.  Earlier  application  is  permitted.  SFAS 121 will
require,  among other things,  that long-lived  assets and certain  identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be  recoverable.  The Company plans to adopt the  provisions of SFAS 121
effective October 1, 1996. Management does not believe that the adoption of SFAS
121 will have a material impact on the Company's financial position.

Disclosures of Certain  Significant Risks and  Uncertainties.  In December 1994,
the  AICPA  issued  SOP  94-6,  "Disclosure  of  Certain  Significant  Risks and
Uncertainties." SOP 94-6 is effective for fiscal years ending after December 15,
1995.  Earlier  application  is permitted.  SOP 94-6 will  require,  among other
things,  that entities include in their financial  statements  disclosures about
the nature of their  operations  and the use of estimates in the  preparation of
financial statements.  In addition,  SOP 94-6 requires disclosures about current
vulnerability  due to  certain  concentrations.  Management  believes  that  the
adoption  of SOP  94-6 in  fiscal  1996 did not have a  material  impact  on the
Company's financial position.

During October 1995, the FASB issued SFAS No. 123,  "Accounting  for Stock-Based
Compensation",  which establishes  financial  accounting and reporting standards
for stock-based employee  compensation plans and also applies to transactions in
which an entity issues its equity  instruments to acquire goods or services from
nonemployees.  SFAS No. 123 defines a fair value-based  method of accounting for
an employee  stock  option or similar  equity  instruments  and  encourages  all
entities to adopt that method of accounting.  However,  it also allows an entity
to continue  to measure  compensation  cost for those plans using the  intrinsic
value-based  method of  accounting  prescribed by  Accounting  Principles  Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Pro forma
disclosures required for entities that elect to continue to measure compensation
cost using APB 25 must include the effect of all awards  granted in fiscal years
that begin after  December  15, 1994.  The Company  plans to continue to measure
compensation cost using APB 25; therefore, the adoption of SFAS No. 123 will not
have any impact on the Company's financial condition or results of operations.

During June 1996,  the FASB issued SFAS No. 125,  "Accounting  for Transfers and
Servicing  of  Financial  Assets  and  Extinguishments  of  Liabilities",  which
provides consistent  standards for distinguishing  transfers of financial assets
that are sales from  transfers that are secured  borrowings.  The Statement also
requires  that a  liability  can be  derecognized  if an only if either  (a) the
debtor pays the creditor and is relieved of its  obligation for the liability or
(b) the debtor is legally  released from the liability  either  judicially or by
the creditor.

This statement is effective for transactions  occurring after December 31, 1996,
and is to be applied  prospectively.  Earlier or retroactive  application is not
permitted. Management does not believe the statement will have a material impact
on the financial position of the Company.
<PAGE>
                          INDEPENDENT AUDITORS' REPORT














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

We  have  audited  the  accompanying  consolidated  balance  sheets  of  Charter
Financial,  Inc. and subsidiary (the Company) as of September 30, 1996 and 1995,
and the related  consolidated  statements of income,  stockholders'  equity, and
cash flows for each of the years in the  three-year  period ended  September 30,
1996. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial position of Charter Financial,
Inc. and  subsidiary as of September 30, 1996 and 1995, and the results of their
operations and cash flows for each of the years in the  three-year  period ended
September 30, 1996, in conformity with generally accepted accounting principles.



                                              /s/KPMG Peat Marwick LLP
                                              ------------------------
                                                 KPMG Peat Marwick LLP



St. Louis, Missouri
November 20, 1996
<PAGE>
<TABLE>
<CAPTION>
CHARTER FINANCIAL, INC. AND SUBSIDIARY

                                            Consolidated Balance Sheets
                                            September 30, 1996 and 1995


                                       Assets                                            1996             1995
                                                                                         ----             ----
<S>                                                                                <C>              <C>
Cash ...........................................................................   $   1,492,740    $   1,097,732
Interest-bearing deposits ......................................................       7,475,682        5,250,071
Investment securities:
   Available for sale, at market value (amortized
     cost of $58,924,095 and $29,067,062 at
     September 30, 1996 and 1995, respectively) ................................      58,613,400       29,448,015
   Held to maturity, at cost (market value of
     $8,819,034 and $23,019,301 at September 30,
     1996 and 1995, respectively) ..............................................       8,860,125       23,336,289
Mortgage-backed securities:
   Available for sale, at market value (amortized
     cost of $15,059,424 and $16,094,896 at
     September 30, 1996 and 1995, respectively) ................................      15,116,592       16,255,110
   Held to maturity, at cost (market value of
     $1,553,881 and $458,708 at September 30,
     1996 and 1995, respectively) ..............................................       1,515,622          414,681
Loans receivable, net ..........................................................     275,486,929      206,073,777
Accrued interest receivable ....................................................       3,098,131        2,112,947
Real estate acquired by foreclosure, net .......................................         428,279          140,239
Stock in Federal Home Loan Bank, at cost .......................................       3,049,900        2,140,000
Office properties and equipment, at cost less
   accumulated depreciation ....................................................       5,990,392        3,737,740
Prepaid expenses and other assets ..............................................       1,995,423        1,070,713
Deferred tax asset .............................................................         955,304          266,122
Core deposit intangible ........................................................       1,031,729        1,173,823
Cost in excess of fair value of net assets acquired ............................       3,320,843          617,696
                                                                                   -------------    -------------
                                                                                   $ 388,431,091    $ 293,134,955
                                                                                   =============    =============
<PAGE>
<CAPTION>
CHARTER FINANCIAL, INC. AND SUBSIDIARY

                                            Consolidated Balance Sheets
                                            September 30, 1996 and 1995




                        Liabilities and Stockholders' Equity                               1996             1995   
                                                                                           ----             ---- 
<S>                                                                                <C>              <C>
Deposits .......................................................................   $ 248,722,627    $ 197,103,081
Accrued interest on deposits 576,341 ...........................................         513,182
Borrowed money .................................................................      76,353,783       57,079,749
Advance payments by borrowers for taxes and insurance ..........................       1,084,720          848,082
Income taxes payable ...........................................................         188,097           73,933
Accrued expenses and other liabilities .........................................       5,111,072        1,894,948
                                                                                   -------------    -------------
                             Total liabilities .................................     332,036,640      257,512,975
                                                                                   -------------    -------------
Commitments and contingencies
Stockholders' equity:
   Common stock, $0.10 par value, 8,000,000 shares authorized,  4,253,459 shares
     issued and  outstanding  at September  30, 1996;  $1 par value, 20,000,000
     shares authorized, 2,171,125 shares issued and
     outstanding at September 30, 1995 .........................................         425,346        2,171,125
   Additional paid-in capital ..................................................      28,762,464        7,399,095
   Retained earnings, substantially restricted .................................      28,885,198       26,763,369
   Unrealized gain (loss) on securities available
     for sale, net of applicable taxes .........................................        (206,204)         301,058
   Unamortized restricted stock awards .........................................            --           (148,667)
   Unearned ESOP shares ........................................................      (1,472,353)        (864,000)
                                                                                   -------------    -------------
                             Total stockholders' equity ........................      56,394,451       35,621,980
                                                                                   -------------    -------------
                                                                                   $ 388,431,091    $ 293,134,955
                                                                                   =============    =============



See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                 Consolidated Statements of Income

                          Years ended September 30, 1996, 1995, and 1994


                                                          1996            1995            1994
                                                          ----            ----            ----
<S>                                                  <C>             <C>             <C>
Interest income:
   Loans receivable ..............................   $ 19,439,001    $ 15,461,525    $ 13,255,773
   Investment securities .........................      3,936,589       3,307,960       3,754,393
   Mortgage-backed securities ....................      1,173,197       1,086,559       1,081,973
   Other .........................................        270,160         152,449         141,198
                                                     ------------    ------------    ------------
           Total interest income .................     24,818,947      20,008,493      18,233,337
                                                     ------------    ------------    ------------
Interest expense:
   Deposits ......................................      9,792,900       7,566,735       6,859,148
   Borrowed money ................................      2,632,822       2,741,838       1,527,716
                                                     ------------    ------------    ------------
           Total interest expense ................     12,425,722      10,308,573       8,386,864
                                                     ------------    ------------    ------------
           Net interest income ...................     12,393,225       9,699,920       9,846,473
Provision for losses on loans ....................        170,000         360,000         140,000
                                                     ------------    ------------    ------------
           Net interest income after
              provision for losses on loans ......     12,223,225       9,339,920       9,706,473
                                                     ------------    ------------    ------------
Noninterest income:
   Late charges and other loan fees ..............        391,113         241,049         265,678
   Gain (loss) on sale of investment
     securities, net .............................        (28,806)        (13,719)        121,392
   Loss on sale of mortgage-backed securities, net         (8,916)           --              --
   Deposit account fees ..........................        797,034         677,134         602,837
   Commissions and fees ..........................        274,747         179,851         134,079
   Other .........................................        416,239         326,157         320,003
                                                     ------------    ------------    ------------
           Total noninterest income ..............      1,841,411       1,410,472       1,443,989
                                                     ------------    ------------    ------------
Noninterest expense:
   Compensation and employee benefits ............      3,660,994       3,025,291       2,778,036
   Office buildings and equipment ................        662,845         477,326         477,763
   Data processing ...............................        419,906         357,828         347,677
   Advertising ...................................        237,479         147,918         195,629
   Deposit insurance premiums ....................        457,818         437,794         461,218
   SAIF special assessment .......................      1,479,021            --              --
   Other .........................................      1,641,149       1,306,395       1,199,143
   Provision for losses and expenses on
     real estate acquired by foreclosure .........         81,197           3,531         184,202
   Amortization of cost in excess of fair
     value of net assets acquired ................        211,271         136,409         141,507
                                                     ------------    ------------    ------------
           Total noninterest expense .............      8,851,680       5,892,492       5,785,175
                                                     ------------    ------------    ------------
           Income before income tax expense
              and cumulative effect of change
              in accounting principle ............      5,212,956       4,857,900       5,365,287
                                                     ------------    ------------    ------------
<PAGE>
<CAPTION>
                                 Consolidated Statements of Income

                          Years ended September 30, 1996, 1995, and 1994
                                           (continued)

                                                          1996            1995            1994
                                                          ----            ----            ----
<S>                                                  <C>             <C>             <C>
Income tax expense:
   Current 2,622,877 .............................      1,888,164       1,698,936
   Deferred ......................................       (467,566)        (14,141)        355,128
                                                     ------------    ------------    ------------
           Total income tax expense ..............      2,155,311       1,874,023       2,054,064
                                                     ------------    ------------    ------------
           Income before cumulative effect of
              change in accounting principle .....      3,057,645       2,983,877       3,311,223
Cumulative effect of change in
   accounting principle ..........................           --              --           786,053
                                                     ------------    ------------    ------------
           Net income ............................   $  3,057,645    $  2,983,877    $  4,097,276
                                                     ============    ============    ============

Earnings per share:
   Income before cumulative effect of
     change in accounting principle ..............   $        .67    $        .69    $        .78
   Cumulative effect of change in
     accounting principle ........................           --              --               .19
                                                     ------------    ------------    ------------
           Net income ............................   $        .67    $        .69    $        .97
                                                     ============    ============    ============

See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHARTER FINANCIAL, INC. AND SUBSIDIARY


                                           Consolidated Statements of Stockholders' Equity

                                           Years ended September 30, 1996, 1995, and 1994

                                                                                                                         Unrealized 
                                                                                                                         gain (loss)
                                                                                                                       on securities
                                                                                                                          available 
                                                                                                        Retained          for sale, 
                                                                                        Additional      earnings,          net of   
                                                               Common stock              paid-in      substantially      applicable 
                                                        Shares            Amount         capital        restricted         taxes    
                                                        ------            ------         -------        ----------         -----
<S>                                                  <C>           <C>              <C>              <C>               <C>        

Balance, September 30, 1993 .................             --       $       --       $       --       $ 22,016,100      $       --   
Net income ..................................             --               --               --          4,097,276              --   
Capital contribution to
    Charter Bank, M.H.C .....................             --               --               --           (100,000)             --   
Net proceeds from sale of
   common stock .............................        2,102,000        2,102,000        6,441,329             --                --   
Exercise of stock options ...................           20,160           20,160          181,440             --                --   
Issuance of restricted
   stock awards .............................           48,000           48,000          432,000             --                --   
Amortization of restricted
   stock awards .............................             --               --               --               --                --   
Amortization of
   ESOP awards ..............................             --               --             76,596             --                --   
Dividend declared on nonmutual
   holding company-owned
   common stock at $2.00 per share ..........             --               --               --         (1,664,312)             --   
Unrealized gain (loss) on
   securities available for
   sale, net of  applicable taxes ...........             --               --               --               --            (620,508)
                                                  ------------     ------------     ------------     ------------      ------------

Balance, September 30, 1994 .................        2,170,160        2,170,160        7,131,365       24,349,064          (620,508)
Net income ..................................             --               --               --          2,983,877              --   
Amortization of restricted
   stock awards .............................             --               --               --               --                --   
Amortization of
   ESOP awards ..............................             --               --            259,045             --                --   
Exercise of stock options ...................              965              965            8,685             --                --   
Dividend declared on nonmutual
   holding  company-owned
   common stock at $.60 per share ...........             --               --               --           (569,572)             --   
Change in unrealized gain (loss) on
   securities available for
   sale, net of applicable taxes ............             --               --               --               --             921,566
                                                  ------------     ------------     ------------     ------------      ------------

Balance, September 30, 1995 .................        2,171,125     $  2,171,125     $  7,399,095     $ 26,763,369      $    301,058


<PAGE>
<CAPTION>
Consolidated Statements of Stockholders' Equity (continued)
                                                                                
                                          Unamortized                      Total    
                                          restricted      Unearned         stock-   
                                            stock           ESOP           holders' 
                                            awards         shares          equity    
                                            ------         ------          ------ 
<S>                                   <C>             <C>             <C>   
Balance, September 30, 1993 .......   $       --      $       --      $ 22,016,100
Net income ........................           --              --         4,097,276
Capital contribution to
    Charter Bank, M.H.C ...........           --              --          (100,000)
Net proceeds from sale of
   common stock ...................           --        (1,440,000)      7,103,329
Exercise of stock options .........           --              --           201,600
Issuance of restricted
   stock awards ...................       (480,000)           --              --   
Amortization of restricted
   stock awards ...................        182,667            --           182,667
Amortization of
   ESOP awards ....................           --           288,000         364,596
Dividend declared on nonmutual
   holding company-owned
   common stock at $2.00 per share            --              --        (1,664,312)
Unrealized gain (loss) on
   securities available for
   sale, net of  applicable taxes .           --              --          (620,508)
                                      ------------    ------------    ------------

Balance, September 30, 1994 .......       (297,333)     (1,152,000)     31,580,748
Net income ........................           --              --         2,983,877
Amortization of restricted
   stock awards ...................        148,666            --           148,666
Amortization of
   ESOP awards ....................           --           288,000         547,045
Exercise of stock options .........           --              --             9,650
Dividend declared on nonmutual
   holding  company-owned
   common stock at $.60 per share .           --              --          (569,572)
Change in unrealized gain (loss) on
   securities available for
   sale, net of applicable taxes ..           --              --           921,566
                                      ------------    ------------    ------------

Balance, September 30, 1995 .......   $   (148,667)   $   (864,000)   $ 35,621,980
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity (continued)
                                                                                                                        Unrealized
                                                                                                                        gain (loss)
                                                                                                                       on securities
                                                                                                                         available  
                                                                                                       Retained          for sale,  
                                                                                   Additional          earnings,          net of    
                                                        Common stock                 paid-in        substantially       applicable  
                                                  Shares            Amount           capital         restricted           taxes     
                                                  ------            ------           -------          ----------          ----- 
<S>                                            <C>             <C>               <C>               <C>              <C>     
Balance, September 30, 1995 ................    2,171,125      $  2,171,125      $  7,399,095      $ 26,763,369     $    301,058
Net income .................................         --                --                --           3,057,645             --   
Net proceeds from sale of
    common stock of Charter
    Financial, Inc. ........................    2,919,414           291,941        27,728,948              --               --   
Cancellation of Charter
   Bank, S.B. common
   stock owned by Charter
   Bancorp, M.H.C ..........................   (1,190,000)       (1,190,000)        1,190,000              --               --   
Cancellation of Charter
   Bank, S.B. common
   stock owned by
   minority stockholders ...................     (986,051)         (986,051)          986,051              --               --   
Issurance of common stock
   of Charter Financial,
   Inc. to minority
   stockholders of
   Charter Bank, S.B .......................    2,054,832           205,483          (205,483)             --               --   
Capital contribution
   from Charter Bancorp, M.H.C .............         --                --             100,000              --               --   
Cash paid to minority
   stockholders for
   fractional shares .......................         (230)              (23)           (2,303)             --               --   
Purchase of treasury
   stock and retirement
   of shares ...............................     (721,285)          (72,129)       (8,911,580)             --               --   
Exercise of stock options ..................        6,488             5,834            55,262              --               --   
Tax benefit of non-
   incentive stock
   options exercised .......................         --                --              27,400              --               --   
Cancellation of
   restricted stock awards .................         (834)             (834)           (7,506)             --               --   
Amortization of restricted
   stock awards ............................         --                --                --                --               --   
Amortization of ESOP awards ................         --                --             402,580              --               --   
<PAGE>
<CAPTION>
Consolidated Statements of Stockholders' Equity (continued)
                                      
                                                                                                     
                                      Unamortized                      Total                       
                                      restricted       Unearned        stock-                       
                                        stock            ESOP         holders'                      
                                        awards          shares         equity                       
                                        ------          ------         ------                       
<S>                                <C>             <C>             <C>        
Balance, September 30, 1995 ....   $   (148,667)   $   (864,000)   $ 35,621,980
Net income .....................           --              --         3,057,645
Net proceeds from sale of
    common stock of Charter
    Financial, Inc. ............           --          (969,030)     27,051,859
Cancellation of Charter
   Bank, S.B. common
   stock owned by Charter
   Bancorp, M.H.C ..............           --              --              --   
Cancellation of Charter
   Bank, S.B. common
   stock owned by
   minority stockholders .......           --              --              --   
Issurance of common stock
   of Charter Financial,
   Inc. to minority
   stockholders of
   Charter Bank, S.B ...........           --              --              --   
Capital contribution
   from Charter Bancorp, M.H.C .           --              --           100,000
Cash paid to minority
   stockholders for
   fractional shares ...........           --              --            (2,326)
Purchase of treasury
   stock and retirement
   of shares ...................           --              --        (8,983,709)
Exercise of stock options ......           --              --            61,096
Tax benefit of non-
   incentive stock
   options exercised ...........           --              --            27,400
Cancellation of
   restricted stock awards .....          8,340            --              --   
Amortization of restricted
   stock awards ................        140,327            --           140,327
Amortization of ESOP awards ....           --           360,677         763,257
<PAGE>
<CAPTION>
Consolidated Statements of Stockholders' Equity (continued)
                                                                                                                        Unrealized  
                                                                                                                        gain (loss)
                                                                                                                       on securities
                                                                                                                         available  
                                                                                                       Retained          for sale,  
                                                                                   Additional          earnings,          net of    
                                                        Common stock                 paid-in        substantially       applicable  
                                                  Shares            Amount           capital         restricted           taxes     
                                                  ------            ------           -------          ----------          ----- 
<S>                                            <C>             <C>               <C>               <C>              <C>     
Dividend declared on nonmutual                 
   holding company-owned
   common stock at $.15 per share .............      --               --               --            (132,780)              --   
Dividends declared on common stock of
   Charter Financial,Inc. at 
   $.18 per share .............................      --               --               --             (803,036)             --   
Cumulative effect of  transfer of
   securities toavailable for sale,
   net of tax .................................      --               --               --                --              (59,952)
Change in unrealized gain (loss) on
   securities available for sale, net of
   applicable taxes ...........................      --               --               --                --             (447,310)
                                               ----------      ------------      ------------     ------------      ------------

Balance, September 30, 1996 ................... 4,253,459      $    425,346      $ 28,762,464     $ 28,885,198      $   (206,204)
                                               ==========      ============      ============     ============      ============


Consolidated Statements of Stockholders' Equity (continued)
                                      
                                                                                                     
                                         Unamortized                      Total                       
                                         restricted       Unearned        stock-                       
                                            stock           ESOP         holders'                      
                                           awards          shares         equity                       
                                           ------          ------         ------                       
<S>                                        <C>      <C>             <C>       
Dividend declared on nonmutual
   holding company-owned
   common stock at $.15 per share ......     --             --          (132,780)
Dividends declared on common stock of
   Charter Financial,Inc. at
   $.18 per share ......................     --             --          (803,036)
Cumulative effect of  transfer of
   securities toavailable for sale,
   net of tax ..........................     --             --           (59,952)
Change in unrealized gain (loss) on
   securities available for sale, net of
   applicable taxes ....................     --             --          (447,310)
                                           ------   ------------    ------------

Balance, September 30, 1996 ............   $ --     $ (1,472,353)   $ 56,394,451
                                           ======   ============    ============

See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHARTER FINANCIAL, INC. AND SUBSIDIARY

                                                                  CHARTER BANK AND SUBSIDIARY

                                                             Consolidated Statements of Cash Flows

                                                            Years ended September 30, 1992 and 1991

                                                                            1996             1995             1994
                                                                            ----             ----             ----
<S>                                                                      <C>             <C>               <C>
Cash flows from operating activities:
   Net income .....................................................   $   3,057,645    $   2,983,877    $   4,097,276
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Cumulative effect of change in accounting principle ........            --               --           (786,053)
       Depreciation and amortization:
         Office properties and equipment ..........................         507,285          351,612          244,958
         Discounts related to purchase accounting .................         (63,272)         (28,334)        (183,213)
         Cost in excess of fair value of net assets acquired ......         211,271          136,409          141,507
         Fees, discounts, and premiums ............................      (1,894,383)      (1,717,121)      (1,200,626)
         Stock plans ..............................................         903,584          695,711          547,263
       Decrease (increase) in accrued interest receivable .........        (664,241)        (498,481)         387,106
       Increase (decrease) in accrued interest on deposits ........        (230,264)          47,005          (26,133)
       Provision for losses on loans ..............................         170,000          360,000          140,000
       Stock dividend from FHLB ...................................            --            (27,000)            --
       Decrease (increase) in income taxes, net ...................        (348,536)         257,939           32,101
       (Gain) loss on sale of investment securities, net ..........          28,806           13,719         (121,392)
       Loss on sale of mortgage-backed securities, net ............           8,916             --               --
       Net change in other assets and other liabilities ...........       2,169,206          125,068          202,507
                                                                      -------------    -------------    -------------
                          Net cash provided by operating activities       3,856,017        2,700,404        3,475,301
                                                                      -------------    -------------    -------------
Cash flows from investing activities:
   Principal repayments on:
     Loans receivable .............................................     102,481,371       67,036,963       65,948,576
     Mortgage-backed securities ...................................       4,224,776        2,442,953        7,564,219
     Investment securities ........................................       2,447,789        2,158,335        3,067,981
   Proceeds from sale of:
     Loans receivable .............................................       1,549,116        1,722,721             --
     Mortgage-backed securities ...................................          64,471             --               --
     Investment securities ........................................       3,876,723           39,500       21,190,722
     FHLB stock ...................................................         656,000          955,000             --
   Maturity of investment securities ..............................      17,130,000        7,635,000       19,199,667
   Purchase of:
     Loans receivable .............................................     (37,362,675)     (28,213,309)      (2,389,386)
     Mortgage-backed securities ...................................      (3,095,523)      (2,542,936)      (3,310,300)
     Investment securities ........................................     (32,556,167)     (11,988,779)     (36,607,060)
     FHLB stock ...................................................      (1,176,900)      (1,505,900)            --
   Cash invested in loans receivable ..............................     (89,278,254)     (67,058,169)     (83,363,187)
   Cash paid for acquisition, net of cash received ................      (6,936,679)            --               --
   Proceeds from sales of real estate acquired by
     foreclosure, net .............................................         345,722          335,148          951,959
   Purchase of office properties and equipment ....................        (780,856)      (1,507,572)        (330,836)
                                                                      -------------    -------------    -------------
                          Net cash used in investing activities ...     (38,411,086)     (30,491,045)      (8,077,645)
                                                                      -------------    -------------    -------------
<PAGE>
<CAPTION>
CHARTER FINANCIAL, INC. AND SUBSIDIARY

                                              CHARTER BANK AND SUBSIDIARY

                                         Consolidated Statements of Cash Flows

                                        Years ended September 30, 1992 and 1991
                                                      (continued)

                                                                            1996             1995             1994
                                                                            ----             ----             ----
<S>                                                                      <C>             <C>               <C>
Cash flows from financing activities:
   Increase (decrease) in deposits ................................       1,895,605      (13,873,930)      (8,236,484)
   Deposits acquired, net of premium ..............................            --         19,794,592             --
   Repayments of FHLB advances ....................................      (2,119,864)      (2,010,000)      (2,000,000)
   Increase (decrease) in securities sold under agreements
     to repurchase, net ...........................................       1,365,957       (1,987,822)       1,318,258
   Increase in other borrowings, net ..............................      18,800,000       25,800,000        8,000,000
   Proceeds from ESOP indebtedness ................................            --               --          1,440,000
   Repayments of ESOP indebtedness ................................        (288,000)        (288,000)        (288,000)
   Increase (decrease) in advance payments by borrowers
     for taxes and insurance ......................................         115,265           39,149          (47,730)
   Proceeds from sale of common stock, net ........................      27,051,859             --          7,103,329
   Cash paid to minority stockholders .............................          (2,326)            --               --
   Exercise of stock options ......................................          61,096            9,650          201,600
   Dividends paid .................................................        (820,195)      (1,773,219)        (326,456)
   Stock subscriptions ............................................            --               --         (9,127,517)
   Purchase of treasury stock and retirement of shares ............      (8,983,709)            --               --
   Capital contribution (to) from Charter Bancorp, M.H.C ..........         100,000             --           (100,000)
                                                                      -------------    -------------    -------------
                          Net cash provided by (used in)
                             financing activities .................      37,175,688       25,710,420       (2,063,000)
                                                                      -------------    -------------    -------------
                          Net increase (decrease) in cash
                             and cash equivalents .................       2,620,619       (2,080,221)      (6,665,344)
Cash and cash equivalents, beginning of year ......................       6,347,803        8,428,024       15,093,368
                                                                      -------------    -------------    -------------
Cash and cash equivalents, end of year ............................   $   8,968,422    $   6,347,803    $   8,428,024
                                                                      =============    =============    =============

Supplemental disclosure of cash flow information:
   Interest paid ..................................................   $  12,260,869    $  10,352,617    $   8,412,997
   Taxes paid .....................................................       2,508,882        1,590,000        2,068,909
   Loans transferred to real estate acquired by foreclosure .......         720,040          258,078        1,142,530
   Interest credited to deposits ..................................       6,619,453        5,464,128        5,356,000
   Securities transferred to available for sale ...................       5,971,820             --               --
                                                                      =============    =============    =============


See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
                   Notes to Consolidated Financial Statements

                           September 30, 1996 and 1995



(1)     Summary of Significant Accounting Policies

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

        Reorganization to a Mutual Holding Company

        On  October  15,  1993,  Charter  Bank (the  Bank)  reorganized  from an
        Illinois-chartered  mutual savings bank into a mutual  holding  company.
        The mutual holding  company was an Illinois  corporation,  chartered and
        regulated by the Board of Governors  of the Federal  Reserve  System and
        the  Office of the  Illinois  Commissioner  of Savings  and  Residential
        Finance, and was named Charter Bancorp, M.H.C. (the MHC). As part of the
        reorganization, the Bank transferred substantially all of its assets and
        all of its  liabilities  to a new  Illinois-chartered  savings  bank and
        retained its same name.

        The  reorganization was accounted for as a change in corporate form with
        the  historic  basis of the Bank's  assets,  liabilities,  and  retained
        earnings unchanged as a result.

        Concurrent with the reorganization, the Bank offered a minority interest
        of its  common  stock  to its  depositors  and  to  its  Employee  Stock
        Ownership Plan (ESOP).  A total of 912,000 shares of newly issued common
        stock,  $1.00 par value,  were sold at $10.00 per share.  An  additional
        48,000  authorized  shares  of  common  stock  were  sold to the  Bank's
        Recognition and Retention Plan at $10.00 per share.  The cost of issuing
        the 960,000 shares totaled  $577,000,  which was deducted from the sales
        proceeds.

        The Bank was required to be a  majority-owned  subsidiary  of the MHC at
        all times as long as the MHC remained in existence.  The existing rights
        of the Bank's  depositors upon  liquidation were transferred to the MHC,
        and records were  maintained  to ensure such rights  received  statutory
        priority in the event of a future mutual to stock conversion.

        Reorganization to a Stock Corporation

        On December 28, 1995, the MHC completed its conversion from an Illinois-
        chartered  mutual holding company to a Delaware stock  corporation  (the
        Conversion).  At the date of the Conversion,  the Company  completed the
        sale of 2,919,414 shares of common stock,  $.10 par value, at a price of
        $10.00  per  share  to  the  Bank's   depositors,   ESOP,  and  minority
        stockholders  in a subscription  offering and to certain  members of the
        general  public in a community  offering.  Net proceeds from the sale of
        common  stock  were  $27,051,859,  after  deducting  approximately  $1.2
        million of offering  expenses and $969,030 related to the sale of 96,903
        shares to the Bank's ESOP.
<PAGE>
        In  conjunction  with  the  subscription  and  community  offering,   an
        additional  2,054,832  shares of common stock were issued by the Company
        to convert  986,051  shares of the Bank's  common stock held by minority
        stockholders into common stock of the Company.  Each share of the Bank's
        common stock in the above  transaction  was converted  into the right to
        receive  2.0839  shares of the  Company's  common  stock  (the  Exchange
        Ratio).

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

        Business

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

        Basis of Financial Statement Presentation

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

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

        Management  believes  that the  allowance  for loan losses is  adequate.
        While  management  uses available  information to recognize such losses,
        future  additions to the allowance may be necessary  based on changes in
        economic conditions.  In addition,  various regulatory  agencies,  as an
        integral  part of their  examination  process,  periodically  review the
        Company's allowance for losses. Such agencies may require the Company to
        recognize  additions to the  allowance  based on their  judgments  about
        information available to them at the time of their examination.
<PAGE>
        Statement of Financial  Accounting Standards (SFAS) No. 107, Disclosures
        About Fair Value of Financial  Instruments,  requires that the estimated
        fair value of the Company's  financial  instruments  be disclosed.  Fair
        value estimates of financial instruments are made at a specific point in
        time,  based on relevant market  information  and information  about the
        financial  instruments.  These  estimates  do not reflect any premium or
        discount that could result from offering for sale at one time the entire
        holdings or a significant portion of a particular financial  instrument.
        Because no market  exists  for a  significant  portion of the  Company's
        financial  instruments,  some fair value  estimates  are  subjective  in
        nature and involve  uncertainties  and matters of significant  judgment.
        Changes in assumptions could significantly affect these estimates.  Fair
        value  estimates  are  presented  for  existing   on-balance-sheet   and
        off-balance-sheet  financial  instruments without attempting to estimate
        the value of  anticipated  future  business  and the value of assets and
        liabilities that are not considered financial instruments.  In addition,
        the tax ramifications related to the realization of the unrealized gains
        and losses can have a  significant  effect on fair value  estimates  and
        have not been considered in any of the estimates (see note 17).

        Principles of Consolidation

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

        Consolidated Statements of Cash Flows

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

        Investment Securities and Mortgage-Backed Securities

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

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

        A decline in the market value of any security  below cost that is deemed
        other  than   temporary   results  in  a  charge  to  earnings  and  the
        establishment of a new cost basis for the security.
<PAGE>
        Premiums and  discounts  are amortized or accreted over the lives of the
        respective  securities  as an  adjustment  to yield  using the  interest
        method.  Dividend  and  interest  income  are  recognized  when  earned.
        Realized gains and losses are included in earnings and are derived using
        the   specific-identification   method  for   determining  the  cost  of
        securities sold.

        On November 15, 1995, the Financial  Accounting  Standards  Board (FASB)
        issued a special report, A Guide to  Implementation  of Statement 115 on
        Accounting for Certain  Investments in Debt and Equity  Securities  (the
        Special Report). Due to uncertainties surrounding the regulatory capital
        treatment  for  unrealized   gains  and  losses  on   available-for-sale
        securities  at the time SFAS 115 was  required  to be  implemented,  the
        Special  Report was issued to allow all entities a one-time  opportunity
        to reconsider  their  ability and intent to hold  securities to maturity
        and transfer  securities  from held to maturity  without  "tainting" the
        remainder  held-to-maturity  securities.  Those  securities  transferred
        would be accounted for prospectively under SFAS No. 115. These transfers
        were only  allowed  during the period  from the date of  issuance of the
        Special Report through December 31, 1995.

        As  a  result  of  the  Special  Report,   management  reconsidered  the
        classification of held-to-maturity securities and transferred $5,971,820
        of investment  securities to available for sale on December 15, 1995. As
        a result of the transfers:  a market  valuation  account was established
        for  the  available-for-sale  securities  of  $96,697  to  decrease  the
        recorded  balance of such securities to their fair value; a deferred tax
        asset of $36,745  was  recorded  to reflect the tax effect of the market
        valuation  account;  and the net  decrease  resulting  from  the  market
        valuation  adjustment of $59,952 was recorded as a separate component of
        stockholders' equity.

        Loans Receivable

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

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

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

        The  allowance  for loan losses is  maintained  at an amount  considered
        adequate to provide for credit losses.  The provision for loan losses is
        based on a periodic  analysis of the loan  portfolio by  management.  In
        this regard,  management considers numerous factors,  including, but not
        necessarily  limited to,  general  economic  conditions,  loan portfolio
        composition,  prior loss experience,  and independent  appraisals of the
        underlying  collateral.  In addition  to the  allowance  for  identified
        problem  loans,  the  Company  also  maintains a general  allowance  for
        unidentified credit losses.
<PAGE>
        Effective October 1, 1995, the Company adopted SFAS No. 114,  Accounting
        by Creditors for Impairment of a Loan,  and SFAS No. 118,  Accounting by
        Creditors for Impairment of a Loan Income  Recognition and  Disclosures,
        which  amends  SFAS No.  114.  SFAS No. 114, as amended by SFAS No. 118,
        defines the recognition criteria for loan impairment and the measurement
        methods for certain  impaired  loans and loans for which terms have been
        modified  in  troubled-debt   restructurings   (a  restructured   loan).
        Specifically,  a loan  is  considered  impaired  when it is  probable  a
        creditor will be unable to collect all amounts due - both  principal and
        interest - according  to the  contractual  terms of the loan  agreement.
        When measuring impairment, the expected future cash flows of an impaired
        loan are  required to be  discounted  at the loan's  effective  interest
        rate.  Alternatively,  impairment  can be  measured by  reference  to an
        observable  market  price,  if one  exists,  or the  fair  value  of the
        collateral for a collateral-dependent loan. Regardless of the historical
        measurement  method  used,  SFAS No. 114  requires a creditor to measure
        impairment  based on the fair value of the collateral  when the creditor
        determines  foreclosure  is  probable.  Additionally,  impairment  of  a
        restructured  loan is measured by discounting  the total expected future
        cash flows at the loan's  effective  rate of  interest  as stated in the
        original loan agreement.

        The  Company  applies  the  recognition  criteria  of  SFAS  No.  114 to
        multi-family   residential   loans,   commercial   real  estate   loans,
        agriculture loans, and restructured loans. Smaller balance,  homogeneous
        loans,  including  one-to-four  family  residential  loans and  consumer
        loans,  are collectively  evaluated for impairment.  SFAS No. 118 amends
        SFAS No. 114 to allow a creditor to use existing methods for recognizing
        interest income on impaired  loans.  The Company has elected to continue
        to use its  existing  nonaccrual  methods  for  recognizing  interest on
        impaired  loans.  The adoption of SFAS No. 114 and SFAS No. 118 resulted
        in no  prospective  adjustment  to the allowance for loan losses and did
        not affect the Company's policies regarding charge-offs or recoveries.

        Real Estate Acquired by Foreclosure

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

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

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

        Office Properties and Equipment

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

        Cost in Excess of Fair Value of Net Assets Acquired

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

        Core Deposit Intangible

        A core deposit intangible in the original amount of $1,235,604  resulted
        from the May 1995  acquisition  of the  deposit  liabilities  of another
        financial  institution  (see  note 2).  This  intangible  asset is being
        amortized  on  an  accelerated   basis  over  10  years.  The  remaining
        unamortized  intangible totaled $1,031,729 at September 30, 1996. During
        June 1995,  the  Company  fully  amortized  its  previous  core  deposit
        intangible resulting from a prior acquisition of deposit liabilities.

        Securities Sold Under Agreements to Repurchase

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

        Income Taxes

        The Company files a consolidated  federal  income tax return.  Temporary
        differences  exist between income and expense  recognition for financial
        reporting  and  income tax  purposes.  Deferred  income  taxes have been
        provided for these temporary differences.

        Effective October 1, 1993, the Company adopted SFAS No. 109,  Accounting
        for Income Taxes.  Under the asset and liability method of SFAS No. 109,
        deferred tax assets and  liabilities  are  recognized for the future tax
        consequences attributable to differences between the financial statement
        carrying amounts of existing assets and liabilities and their respective
        tax bases.  Deferred  tax  assets and  liabilities  are  measured  using
<PAGE>
        enacted tax rates  expected  to apply to taxable  income in the years in
        which  those  temporary  differences  are  expected to be  recovered  or
        settled.  Under  SFAS No.  109,  the effect on  deferred  tax assets and
        liabilities  of a change  in tax  rates is  recognized  in income in the
        period that  includes  the  enactment  date.  The Company  reported  the
        cumulative  effect of the change in the method of accounting  for income
        taxes totaling $786,053 in the consolidated  statement of income for the
        year ended September 30, 1994.

        Earnings Per Share

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

        Earnings per share have been  calculated  based on the weighted  average
        number of common  shares and common  stock  equivalents  outstanding  of
        4,550,068,  4,314,838,  and 4,218,034 for the years ended  September 30,
        1996, 1995, and 1994, respectively.  As a result of the Conversion,  the
        weighted  average number of common shares  outstanding for 1995 and 1994
        were restated based on the Exchange Ratio.

        Reclassification

        Certain reclassifications of 1995 and 1994 information have been made to
        conform to the 1996 presentation.

(2)     Business Combinations

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

        On May 12, 1995,  the Bank acquired the savings  deposit  liabilities of
        the   branch   office  of   another   financial   institution   totaling
        approximately $21.1 million. The acquisition was accounted for under the
        purchase  method of  accounting  and resulted in the recording of a core
        deposit intangible totaling approximately $1.2 million.
<PAGE>
(3)     Investment Securities

        The amortized cost and market value of investment  securities classified
        as available for sale at September 30, 1996 and 1995 follow:

<TABLE>
<CAPTION>
                                                               September 30, 1996
                                        -----------------------------------------------------------         
                                                           Gross            Gross          
                                          Amortized      unrealized       unrealized       Market
                                            cost            gains           losses         value
                                        ------------   ------------    ------------    ------------
<S>                                     <C>            <C>             <C>             <C>
Debt securities: 
   U.S. government and agencies ....... $ 43,726,735   $    263,581    $   (196,290)   $ 43,794,026
   Corporate debentures ...............    2,149,003           --           (32,923)      2,116,080
   Collateralized mortgage
     obligations ......................    6,373,165          5,958        (222,024)      6,157,099
Equity securities - mutual funds ......    6,675,192           --          (128,997)      6,546,195
                                        ------------   ------------    ------------    ------------
                                        $ 58,924,095   $    269,539    $   (580,234)   $ 58,613,400
                                        ============   ============    ============    ============

</TABLE>
<TABLE>
<CAPTION>
                                                               September 30, 1995
                                        -----------------------------------------------------------         
                                                           Gross            Gross          
                                          Amortized      unrealized       unrealized       Market
                                            cost            gains           losses         value
                                        ------------   ------------    ------------    ------------
<S>                                     <C>            <C>             <C>             <C>
Debt securities - U.S. government       
   and agencies                         $ 22,809,812   $ 521,495       $ (49,846)       $ 23,281,461
Equity securities - mutual funds           6,257,250        -            (90,696)          6,166,554
                                        ------------   ------------    ------------    ------------
                                        $ 29,067,062   $ 521,495       $(140,542)       $ 29,448,015
                                        ============   ============    ============    ============
</TABLE>
<PAGE>
        Gross realized  gains,  gross realized  losses,  and gross proceeds from
        sales of debt securities follow:

<TABLE>
<CAPTION>
                                       1996            1995            1994
                                   ------------    ------------    ------------
<S>                                <C>             <C>             <C>

Gross realized gains ...........   $      1,425    $       --      $    323,060
Gross realized losses ..........        (30,231)        (13,719)       (201,668)
                                   ------------    ------------    ------------
      Net realized gain (loss) .   $    (28,806)   $    (13,719)   $    121,392
                                   ============    ============    ============

Gross proceeds .................   $  3,876,723    $     39,500    $ 21,190,722
                                   ============    ============    ============
</TABLE>

        The  amortized  cost and market value of debt  securities  classified as
        available  for sale at September  30,  1996,  by  contractual  maturity,
        follow:
<TABLE>
<CAPTION>
                                                   Amortized            Market
                                                    cost                value
                                                  -----------        -----------
<S>                                               <C>                <C>
Within one year ..........................        $ 8,246,912        $ 8,257,242
Between one and five years ...............         24,249,476         24,275,189
Between five and ten years ...............          6,032,803          5,994,751
After ten years ..........................         13,719,712         13,540,023
                                                  -----------        -----------
                                                  $52,248,903        $52,067,205
                                                  ===========        ===========
</TABLE>
       The amortized cost and market values of investment  securities classified
as held to maturity at September 30, 1996 and 1995 follows:
<TABLE>
<CAPTION>
                                                               September 30, 1996
                                        -----------------------------------------------------------         
                                                           Gross           Gross          
                                          Amortized      unrealized      unrealized         Market
                                            cost            gains         losses            value
                                        ------------   ------------    ------------    ------------
<S>                                     <C>              <C>            <C>              <C>
Debt securities:
   Securities of U.S. government        
     and agencies                       $ 1,000,000      $  8,010       $    -           $ 1,008,010
   Corporate debentures                   3,275,594         2,029         (4,053)          3,273,570
   Collateralized mortgage
     obligations                          2,334,731           -          (56,505)          2,278,226
   Municipal bonds                        2,249,800        10,193           (765)          2,259,228
                                          ---------        ------         ------           ---------
                                        $ 8,860,125      $ 20,232       $(61,323)        $ 8,819,034
                                          =========        ======         ======           =========

</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                               September 30, 1995
                                        -----------------------------------------------------------         
                                                           Gross            Gross          
                                          Amortized      unrealized       unrealized       Market
                                            cost            gains           losses         value
                                        ------------   ------------    ------------    ------------
<S>                                     <C>            <C>             <C>             <C>
Debt securities:
   Securities of U.S. government
     and agencies                       $  5,000,000      $  4,600     $ (22,200)        $  4,982,400
   Corporate debentures                    7,632,573            -        (69,501)           7,563,072
   Collateralized mortgage
     obligations                           8,947,913        32,392      (262,477)           8,717,828
   Municipal bonds                         1,755,803         6,852        (6,654)           1,756,001
                                          ----------        ------       -------           ----------
                                        $ 23,336,289      $ 43,844     $(360,832)        $ 23,019,301
                                          ==========        ======       =======           ==========

</TABLE>
        Collateralized  mortgage  obligations with a carrying value at September
        30,  1996  of  approximately   $8.3  million  were   collateralized   by
        mortgage-backed  securities  issued  by the  Federal  National  Mortgage
        Association   or  the  Federal  Home  Loan   Mortgage   Corporation.   A
        collateralized  mortgage  obligation  with a carrying value at September
        30, 1996 of  approximately  $177,000  was  collateralized  by  nonagency
        mortgage-backed securities.

        The  amortized  cost and market value of debt  securities  classified as
        held to  maturity  at  September  30,  1996,  by  contractual  maturity,
        follows:
<TABLE>
<CAPTION>
                                                    Amortized            Market
                                                      cost               value
                                                   ----------         ----------
<S>                                                <C>                <C>
Within one year ..........................         $2,761,608         $2,763,901
Between one and five years ...............          2,463,644          2,467,990
Between five and ten years ...............          1,195,000          1,203,010
After ten years ..........................          2,439,873          2,384,133
                                                   $8,860,125         $8,819,034
                                                   ==========         ==========
</TABLE>
<PAGE>

4)     Mortgage-Backed Securities

        The  amortized  cost  and  market  value of  mortgage-backed  securities
        classified as available for sale at September 30, 1996 and 1995 follow:
<TABLE>
<CAPTION>
                                        September 30, 1996
                  --------------------------------------------------------------         
                                     Gross              Gross          
                     Amortized     unrealized        unrealized         Market
                       cost          gains             losses           value
                  ------------    ------------     ------------     ------------
<S>               <C>             <C>              <C>              <C>
GNMA .........    $    715,742    $     73,898     $       --       $    789,640
FHLMC ........       9,980,068         172,936         (184,954)       9,968,050
FNMA .........       4,363,614          54,798          (59,510)       4,358,902
                  ------------    ------------     ------------     ------------
                  $ 15,059,424    $    301,632     $   (244,464)    $ 15,116,592
                  ============    ============     ============     ============
</TABLE>
<TABLE>
<CAPTION>
                                        September 30, 1995
                  --------------------------------------------------------------         
                                     Gross              Gross          
                     Amortized     unrealized        unrealized         Market
                       cost          gains             losses           value
                  ------------    ------------     ------------     ------------
<S>               <C>             <C>              <C>              <C>
GNMA .........    $    831,425    $     91,621     $       --       $    923,046
FHLMC ........      13,244,118         221,981         (217,843)      13,248,256
FNMA .........       2,019,353          64,455             --          2,083,808
                  ------------    ------------     ------------     ------------
                  $ 16,094,896    $    378,057     $   (217,843)    $ 16,255,110
                  ============    ============     ============     ============

</TABLE>
        The  amortized  cost  and  market  value of  mortgage-backed  securities
        classified as available  for sale at September 30, 1996, by  contractual
        maturity, follow:

<TABLE>
<CAPTION>
                                                   Amortized            Market
                                                      cost               value
                                                  -----------        -----------
<S>                                               <C>                <C>
Within one year ..........................        $ 2,059,479        $ 2,061,297
Between one and five years ...............            838,790            824,332
After ten years ..........................         12,161,155         12,230,963
                                                  -----------        -----------
                                                  $15,059,424        $15,116,592
                                                  ===========        ===========
</TABLE>
<PAGE>
        Gross realized  losses and gross proceeds from sales of  mortgage-backed
        securities  during the year ended  September 30, 1996 totaled $8,916 and
        $64,471, respectively. There were no sales of mortgage-backed securities
        during the years ended September 30, 1995 or 1994.

        The  amortized  cost  and  market  value of  mortgage-backed  securities
        classified as held to maturity at September 30, 1996 and 1995 follow:

<TABLE>
<CAPTION>
                                            September 30, 1996
                            ----------------------------------------------------         
                                              Gross         Gross          
                              Amortized     unrealized    unrealized     Market
                                cost          gains        losses        value
                            ----------    ----------    ----------    ----------
<S>                         <C>           <C>           <C>           <C>
GNMA ....................   $  612,116    $   10,526    $     --      $  622,642
FHLMC ...................      363,470         3,439          --         366,909
FNMA ....................      171,941         4,992          --         176,933
Private
  pass-throughs .........      368,095        19,302          --         387,397
                            ----------    ----------    ----------    ----------
                            $1,515,622    $   38,259    $     --      $1,553,881
                            ==========    ==========    ==========    ==========
</TABLE>
<TABLE>
<CAPTION>
                                            September 30, 1995
                            ----------------------------------------------------         
                                             Gross         Gross          
                              Amortized    unrealized    unrealized      Market
                                cost         gains         losses        value
                            ----------    ----------    ----------    ----------
<S>                         <C>           <C>           <C>           <C>
Private
  pass-throughs             $ 414,681     $ 44,027      $    -        $ 458,708
                            =========     ========      ========      =========
</TABLE>

       The  amortized  cost  and  market  value  of  mortgage-backed  securities
classified as held to maturity at September 30, 1995, by  contractual  maturity,
follow:
<TABLE>
<CAPTION>
                                     Amortized           Market
                                       cost              value
                                   -----------       -----------
<S>                                <C>               <C>
     After ten years               $ 1,515,622       $ 1,553,881
                                   ===========       ===========

</TABLE>
<PAGE>
(5)    Loans Receivable

       A comparative summary of loans receivable follows:

<TABLE>
<CAPTION>
                                                          1996           1995
                                                          ----           ----
<S>                                                  <C>            <C>
Loans secured by real estate:
   Residential:
     1-4 family ..................................   $193,301,481   $134,639,565
     Multifamily .................................      1,748,587      1,478,790
                                                     ------------   ------------
            Total residential ....................    195,050,068    136,118,355
   Land held for development .....................      1,055,501      2,380,691
   Commercial ....................................     11,621,874      6,805,559
                                                     ------------   ------------
            Total loans secured by real estate ...    207,727,443    145,304,605
                                                     ------------   ------------
Commercial business loans ........................      7,767,959      6,633,987
Consumer loans:
   Automobile loans ..............................     50,292,567     49,917,806
   Mobile home loans .............................        169,808        145,278
   Education loans ...............................      1,373,526      2,754,359
   Loans secured by deposits .....................      1,589,568      1,117,259
   Other .........................................     12,119,599      6,311,968
                                                     ------------   ------------
            Total consumer loans .................     65,545,068     60,246,670
                                                     ------------   ------------
                                                      281,040,470    212,185,262
                                                     ------------   ------------
Less:
   Loans in process ..............................         35,787         36,538
   Unearned discount, net ........................      2,648,056      3,429,088
   Deferred loan fees ............................        205,280        104,953
   Allowance for losses ..........................      2,418,800      2,232,016
   Purchase accounting discounts .................        245,618        308,890
                                                     ------------   ------------
                                                        5,553,541      6,111,485
                                                     ------------   ------------
                                                     $275,486,929   $206,073,777
                                                     ============   ============
</TABLE>
<PAGE>
        The  weighted  average  interest  rate on loans  was  8.48% and 8.60% at
        September 30, 1996 and 1995, respectively.

        A summary of  activity in the  allowance  for losses for the years ended
        September 30, 1996, 1995, and 1994 follows:
<TABLE>
<CAPTION>


                                          1996           1995           1994
                                      -----------    -----------    -----------
<S>                                   <C>            <C>            <C>
Balance, beginning of year ........   $ 2,232,016    $ 2,129,296    $ 2,206,488
Provision charged to expense ......       170,000        360,000        140,000
Acquisition of Community
   Savings Bank ...................       265,000           --             --
Charge-offs .......................      (421,652)      (349,839)      (275,385)
Recoveries ........................       173,436         92,559         58,193
                                      -----------    -----------    -----------
Balance, end of year ..............   $ 2,418,800    $ 2,232,016    $ 2,129,296
                                      ===========    ===========    ===========
</TABLE>
        A summary of loans  receivable  contractually in arrears three months or
        more is as follows:

<TABLE>
<CAPTION>
                                                      1996               1995
                                                      ----               ----
<S>                                                <C>               <C>
Residential real estate loans ..............       $1,068,570        $  543,952
Commercial real estate loans ...............          849,529              --
Consumer loans .............................          243,426           118,954
                                                   ----------        ----------
                                                   $2,161,525        $  662,906
                                                   ==========        ==========

Percent of loans receivable ................              .78%              .32%
                                                   ==========        ==========

Number of loans ............................               66                36
                                                   ==========        ==========
</TABLE>
        A summary of loans on which  interest is not being  accrued and impaired
        loans at September 30, 1996 follows:

<TABLE>
<CAPTION>
                                                                   September 30,
                                                                       1996
                                                                     --------
<S>                                                                  <C>

Nonaccrual loans ...............................................     $765,662
Impaired loans continuing to accrue interest ...................         --
                                                                     --------
                            Total impaired loans ...............     $765,662
                                                                     ========
</TABLE>
<PAGE>
        The allowance for losses on impaired loans was $375,000 at September 30,
        1996.  The  average  balance  of  impaired  loans  during the year ended
        September 30, 1996 was $524,403.

        A summary of interest  income on nonaccrual and other impaired loans for
        the year ended September 30, 1996 follows:
<TABLE>
<CAPTION>
                                                                   September 30,
                                                                       1996
                                                                     --------
<S>                                                                  <C>             

Income recognized - nonaccrual loans ..........................      $  --
                                                                     =======

Interest income if interest had accrued -
   nonaccrual loans ...........................................      $53,681
                                                                     =======
</TABLE>
(6)    Real Estate Acquired by Foreclosure

        A  comparative  summary of real  estate  acquired by  foreclosure  is as
        follows:
<TABLE>
<CAPTION>


                                                       1996               1995
                                                     --------           --------
<S>                                                  <C>                <C>
Foreclosed real estate ...................           $385,074           $ 92,068
Deficiency judgments .....................             43,205             48,171
                                                     --------           --------
                                                     $428,279           $140,239
                                                     ========           ========

</TABLE>
(7)     Office Properties and Equipment

        A comparative summary of office properties and equipment follows:
<TABLE>
<CAPTION>
                                                        1996              1995
                                                     ----------       ----------
<S>                                                  <C>              <C>
Land .........................................       $  855,373       $  524,818
Office buildings and improvements ............        5,321,618        3,417,024
Furniture, fixtures and equipment ............        3,636,287        2,792,233
Automobiles ..................................          102,833           91,672
                                                     ----------       ----------
                                                      9,916,111        6,825,747
Less accumulated depreciation ................        3,925,719        3,088,007
                                                     ----------       ----------
                                                     $5,990,392       $3,737,740
                                                     ==========       ==========
</TABLE>
<PAGE>
        Depreciation  expense for the years ended September 30, 1996,  1995, and
        1994 amounted to $507,285, $351,612, and $244,958, respectively.

(8)     Deposits

        A comparative summary of deposits follows:
<TABLE>
<CAPTION>
                                                                      1996                          1995
                                                         --------------------------     ------------------------
                                                                            Percent                      Percent
                                           Stated                              to                           to
                                            rate             Amount          total           Amount       total
                                            ----             ------          -----           ------       -----
<S>                                   <C>                <C>                 <C>        <C>               <C>
Demand deposits:
   Checking .........................         0-2.50%    $ 35,809,064         14.4%     $  34,027,636      17.3%
   Money market demand ..............      2.50-3.75       17,448,651          7.0         17,222,778       8.7
   Passbook .........................         0-2.75       35,694,715         14.4         26,689,122      13.5
                                                         ------------         ----      -------------      ---- 
                                                           88,952,430         35.8         77,939,536      39.5
                                                         ------------         ----      -------------      ---- 
Certificates of deposit:

                                      Less than 3.00           26,463           --             23,757        --
                                           3.00-4.99       14,826,775          6.0         42,103,677      21.4
                                           5.00-6.99      141,335,188         56.8         73,668,658      37.4
                                           7.00-8.99        3,086,126          1.2          2,703,808       1.4
                                          9.00-11.00          495,645           .2            663,645        .3
                                                         ============         ----      -------------      ---- 
                                                          159,770,197         64.2        119,163,545      60.5
                                                         ------------         ----      --------------    -----
                                                         $248,722,627        100.0%     $ 197,103,081     100.0%
                                                         ============        =====      =============     ===== 
</TABLE>
        The weighted  average  interest  rate on deposits was 4.63% and 4.31% at
        September 30, 1996 and 1995, respectively.

        A summary of the maturities of  certificates of deposit at September 30,
        1996 and 1995  follows:
<TABLE>
<CAPTION>
                                         1996                            1995
                           --------------------------      --------------------------                       
                               Amount         Percent         Amount          Percent
                           ------------        -----       ------------        -----
<S>                        <C>                 <C>         <C>                 <C>
Within one year ......     $109,803,423         68.7%      $ 73,118,490         61.4%
Second year ..........       32,827,662         20.5         31,892,841         26.8
Third year ...........       10,989,454          6.9         12,460,894         10.4
Fourth year ..........        5,400,553          3.4          1,045,262           .9
Thereafter ...........          749,105           .5            646,058           .5
                           ------------        -----       ------------        -----
                           $159,770,197        100.0%      $119,163,545        100.0%
                           ============        =====       ============        =====
</TABLE>
<PAGE>
        Interest expense on deposits, by type, for the years ended September 30,
        1996, 1995, and 1994 is summarized as follows:
<TABLE>
<CAPTION>


                                         1996            1995            1994
                                      ----------      ----------      ----------
<S>                                   <C>             <C>             <C>
Checking and money market ......      $1,334,117      $1,199,954      $1,307,501
Savings accounts ...............         953,487         898,191         752,121
Certificates of deposit ........       7,363,202       5,370,258       4,750,790
Amortization of core
   deposit intangible ..........         142,094          98,332          48,736
                                      ----------      ----------      ----------
                                      $9,792,900      $7,566,735      $6,859,148
                                      ==========      ==========      ==========
</TABLE>
        Certificates  of deposit of $100,000  or more  totaled  $11,837,210  and
        $5,904,214  at  September  30, 1996 and 1995,  respectively.  Investment
        securities  and  mortgage-backed  securities  with a  carrying  value of
        approximately  $12,207,000  and  $18,767,000  at September  30, 1996 and
        1995, respectively, were pledged to secure certain of these certificates
        of deposit.  Investment securities and mortgage-backed securities with a
        carrying value of  approximately  $3,296,000 and $3,610,000 at September
        30, 1996 and 1995,  respectively,  were  pledged to secure a  commercial
        checking account.

(9)     Borrowed Money

        A  summary  of  borrowed  money  at  September  30,  1996 and 1995 is as
        follows:
<TABLE>
<CAPTION>
                                               September 30, 1996           September 30, 1995
                                           -------------------------   --------------------------
                                                            Weighted                     Weighted
                                                             average                     average
                                                            interest                     interest
                                              Amount          rate         Amount          rate
                                          ------------       -----     ------------       -----      
<S>                                       <C>                <C>       <C>                <C>
Reverse repurchase agreements             $ 14,781,706       5.35%     $ 13,415,749       5.75%
Line of credit advances from FHLB           53,600,000       6.22        33,800,000       6.66
Fixed-term advances from FHLB due in:
      1996                                       -             -          2,000,000       4.52
      1998                                   7,000,000       5.11         7,000,000       5.11
      2001                                     396,077       8.36              -             -
ESOP                                           576,000       8.00           864,000       8.50
                                          ------------                 ------------
                                          $ 76,353,783       5.97%     $ 57,079,749       6.21%
                                          ============       ====      ============       ====
</TABLE>
<PAGE>
        Reverse   repurchase   agreements   (the   agreements)  are  treated  as
        financings,  and the  obligations to repurchase the securities  sold are
        reflected as a liability.  These agreements  mature within one year. All
        of  the  agreements  were  to  repurchase  identical   securities.   The
        investment  securities  underlying  the  agreements  were delivered to a
        designated   safekeeping  agent.  These  investment  securities  had  an
        amortized  cost  and  market  value  of  $16,878,000  and   $16,851,000,
        respectively,  at  September  30,  1996.  At  September  30,  1995,  the
        investment  securities  had  an  amortized  cost  and  market  value  of
        $16,147,000 and $16,348,000, respectively.

        The agreements averaged approximately $13,510,000 and $14,242,000 during
        1996 and 1995,  respectively.  The maximum  amounts  outstanding  at any
        month-end  during  1996  and 1995  were  approximately  $14,782,000  and
        $15,406,000,   respectively.  Interest  expense  on  reverse  repurchase
        agreements was approximately  $741,000,  $803,000,  and $531,000 for the
        years ended September 30, 1996, 1995, and 1994, respectively.

        Line of  credit  advances  bear  interest  at 1% above  the  FHLB  daily
        investment  deposit  rate.  These  borrowings  are  short-term  and  are
        secured.   The  maximum   amount   outstanding   at  any  month-end  was
        approximately   $53,600,000  and  $33,800,000   during  1996  and  1995,
        respectively.   Interest   expense  on  line  of  credit   advances  was
        approximately  $1,180,000,  $973,000,  and  $291,000 for the years ended
        September 30, 1996, 1995, and 1994, respectively.

        Interest expense on fixed-term  advances from the FHLB was approximately
        $649,000, $878,000, and $625,000 for the years ended September 30, 1996,
        1995, and 1994, respectively.

        At  September  30,  1996 and  1995,  total  borrowings  from the FHLB of
        Chicago were  $60,996,077 and $42,800,000,  respectively.  Advances from
        the FHLB of Chicago are secured by a blanket  lien of  qualifying  first
        mortgage  loans  equivalent  to 165% of  outstanding  borrowings.  As of
        September 30, 1996, the Company's  available credit from the FHLB cannot
        exceed the lesser of 35% of total  assets  ($136.0  million),  or 60% of
        one-to-four-family   residential   mortgages   not  more  than  90  days
        delinquent ($116.0 million).

        In 1994, the ESOP borrowed  $1,440,000 to finance the acquisition of the
        stock  to  be  held  in  trust  for  future   allocation   to   eligible
        participants.  The debt of the ESOP is collateralized by the ESOP shares
        and is reflected as a liability in the  consolidated  balance sheet. The
        loan is due on September 30, 1998.  Principal payments totaling $288,000
        in both 1996 and 1995 and interest payments of approximately $63,000 and
        $89,000 were made during 1996 and 1995, respectively.

(10)    Income Taxes

        If certain  conditions  are met, the  Company,  in  determining  taxable
        income,  is  allowed a special  bad debt  deduction  based on  specified
        experience  formulas or on a percentage  of taxable  income  before such
        deduction.  The Company used the  percentage of taxable income method in
        1996, 1995, and 1994, since this method resulted in the maximum bad debt
        deduction. The bad debt deduction under the percentage method is limited
        to 8% of taxable income.
<PAGE>
        The  composition of income tax expense for the years ended September 30,
        1996, 1995, and 1994 is as follows:
<TABLE>
<CAPTION>
                                   1996               1995               1994
                               -----------        -----------        -----------
<S>                            <C>                <C>                <C>
Current:
   Federal .............       $ 2,336,702        $ 1,689,259        $ 1,462,353
   State ...............           286,175            198,905            236,583
Deferred ...............          (467,566)           (14,141)           355,128
                               -----------        -----------        -----------
                               $ 2,155,311        $ 1,874,023        $ 2,054,064
                               ===========        ===========        ===========
</TABLE>
        The reasons  for the  difference  between  expected  federal  income tax
        expense  computed  at the federal  statutory  rate of 34% and the actual
        amount are as follows:

<TABLE>
<CAPTION>
                                              1996                       1995                         1994
                                   -----------------------     -----------------------     ------------------------
                                      Amount       Percent        Amount       Percent        Amount        Percent
                                   -----------     -------      -----------    -------      -----------     -------
<S>                                <C>               <C>       <C>               <C>       <C>                <C>
Computed "expected" income tax
   expense .....................   $ 1,772,405       34.0%     $ 1,651,686       34.0%     $ 1,824,198        34.0%
Items affecting federal income
   tax rate:
     Amortization of ESOP awards       161,587        3.1           72,114        1.5           42,004          .8
     Tax-exempt interest .......       (38,824)       (.8)         (45,269)       (.9)         (45,240)        (.9)
     Amortization of cost in
       excess of fair value of
       net assets acquired .....        71,832        1.4           46,379         .9           48,112          .9
     State income taxes, net of
       federal benefit .........       147,347        2.8          163,020        3.4          180,933         3.4
     Other .....................        40,964         .8          (13,907)       (.3)           4,057          .1
                                   -----------       ----      -----------       ----      -----------        ----
                                   $ 2,155,311       41.3%     $ 1,874,023       38.6%     $ 2,054,064        38.3%
                                   ===========       ====      ============      ====      ===========        ====
</TABLE>
<PAGE>
        The  components of deferred tax assets and deferred tax  liabilities  at
        September 30, 1996 and 1995 are summarized as follows:

<TABLE>
<CAPTION>
                                                             1996         1995
                                                         ----------   ----------
<S>                                                      <C>          <C>
Deferred tax assets:
   General loan loss allowance .......................   $  726,528   $  824,088
   SAIF special assessment ...........................      572,973         --
   Available-for-sale securities market valuation ....       47,321         --
   Discounts and premiums related to purchase
     method of accounting ............................       57,005       78,402
   Core deposit intangible ...........................       33,773       10,637
   Other, net ........................................       64,437       67,051
                                                         ----------   ----------
                 Total deferred tax assets ...........    1,502,037      980,178
                                                         ----------   ----------
Deferred tax liabilities:
   Available-for-sale securities market valuation ....         --        240,108
   Loans, due to bad debts taken in excess of base
     year reserve ....................................      217,535      219,957
   Restricted stock awards ...........................         --         44,422
   Tax depreciation in excess of that recorded
     for book purposes ...............................      227,969      128,534
   FHLB stock dividends ..............................       39,929       69,500
   Other, net ........................................       61,300       11,535
                                                         ----------   ----------
                 Total deferred tax liabilities ......      546,733      714,056
                                                         ----------   ----------
                 Net deferred tax asset ..............   $  955,304   $  266,122
                                                         ==========   ==========
</TABLE>
        The special bad debt deduction  accorded thrift  institutions is covered
        under Section 593 of the Internal  Revenue Code. On August 20, 1996, the
        Small Business Job Protection Act of 1996 (the Act) was signed into law.
        This Act  included  the repeal of Section  593  effective  for tax years
        beginning  after  December  31, 1995.  The repeal of the thrift  reserve
        method generally  requires thrift  institutions to recapture into income
        the portion of bad debt reserves that exceed the base year reserve.  The
        recapture  will  generally  be taken into  income  ratably  over six tax
        years.  However, if the Company meets a residential loan requirement for
        the tax years  beginning in 1996 and 1997,  recapture of the reserve can
        be deferred until the tax year beginning in 1998. At September 30, 1996,
        the Company  had bad debts  deducted  for tax  purposes in excess of the
        base year reserve of approximately  $562,000. The Company has recognized
        a deferred income tax liability for this amount.

        Certain  events covered by IRC Section  593(e),  which was not repealed,
        will trigger a recapture of the base year reserve. The base year reserve
        of thrift institutions would be recaptured if a thrift ceases to qualify
        as a bank for federal  income tax  purposes.  The base year  reserves of
        thrift institutions also remain subject to income tax penalty provisions
        which, in general,  require recapture upon certain stock redemptions of,
        and excess  distributions  to,  stockholders.  At  September  30,  1996,
        retained  earnings  included  approximately  $7.8  million  of base year
        reserves,  for which no deferred  federal  income tax liability has been
        recognized.
<PAGE>
(11)    Regulatory Matters

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

        The  prompt  corrective  action   regulations  define  specific  capital
        categories  based  on  an  institution's  capital  ratios.  The  capital
        categories,  in declining  order,  are "well  capitalized,"  "adequately
        capitalized," "undercapitalized,"  "significantly undercapitalized," and
        "critically  undercapitalized."  To be considered "well capitalized," an
        institution  must generally have a leverage (core) ratio of at least 5%,
        a Tier 1 risk-based capital ratio of at least 6%, and a total risk-based
        capital  ratio of at least 10%. At  September  30, 1996,  the  Company's
        capital levels result in a determination of "well capitalized" under the
        regulatory framework for prompt corrective action.

        A summary of the Company's  compliance with its capital  requirements as
        of September 30, 1996 follows:
<TABLE>
<CAPTION>
                                                                         Regulatory Capital
                                             -------------------------------------------------------------------------------
                                                 Tier 1 Leverage            Tier 1 Risk-based            Total Risk-based
                                                 ---------------            -----------------            ----------------
                                               Amount      Percent         Amount      Percent          Amount       Percent
                                               ------      -------         ------      -------          ------       -------
                                                                       (Dollars in thousands)
<S>                                          <C>           <C>           <C>            <C>           <C>            <C>
          Regulatory capital                 $ 52,119      13.57%        $ 52,119       24.19%        $ 53,994       25.06%
          Capital requirement                  11,522       3.00            8,619        4.00           17,237        8.00
                                               ------      -----           ------       -----           ------       -----
          Excess                             $ 40,597      10.57%        $ 43,500       20.19%        $ 36,757       17.06%
                                               ======      =====           ======       =====           ======       =====
</TABLE>
<PAGE>
(12)    Pension Plan

        Substantially  all employees are included in a trusteed  defined benefit
        pension plan. The benefits  contemplated  by the plan are funded through
        payments to the Financial  Institutions  Retirement Fund, which operates
        as an  industry-wide  plan and does not report  relative plan assets and
        actuarial liabilities of the individual participating associations.  The
        cost of funding is charged to current  operations.  There is no unfunded
        liability  for past service.  Expense for the years ended  September 30,
        1996, 1995, and 1994 was $113,558, $102,304, and $75,703, respectively.

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

(13)    Employee Stock Ownership Plan, Stock Option
          Plan, and Recognition and Retention Plan

        During 1994,  the Company  established a  tax-qualified  ESOP.  The plan
        covers  substantially  all employees who have attained the age of 21 and
        completed  one year of service.  In connection  with the mutual  holding
        company  conversion,  the ESOP  purchased  144,000  shares of the Bank's
        common  stock at a  subscription  price of $10.00 per share  using funds
        loaned by the Bank.  As a result of the  Conversion,  these ESOP  shares
        were  converted  into 300,082  shares based on the  Exchange  Ratio.  In
        connection with the Conversion,  the ESOP purchased an additional 93,903
        shares of common stock at a subscription price of $10.00 per share using
        funds loaned by the Company.  All shares are held in a suspense  account
        for allocation among the participants as the loans are repaid with level
        principal  payments over 5 and 10 years,  respectively.  Shares released
        from the suspense  account are allocated  among the  participants  based
        upon their pro rata annual compensation.  The purchases of the shares by
        the ESOP were  recorded  by the  Company as  unearned  ESOP  shares in a
        contra  equity  account.  As ESOP shares are committed to be released to
        compensate  employees,  the contra  equity  account  is reduced  and the
        Company recognizes  compensation  expense equal to the fair market value
        of the shares  committed  to be released.  Dividends  on allocated  ESOP
        shares are  recorded as a reduction of retained  earnings;  dividends on
        unallocated  ESOP  shares  are  recorded  as  a  reduction  of  debt  or
        compensation  expense.  Compensation  expense  related  to the  ESOP was
        approximately  $763,000,  $547,000,  and  $365,000  for the years  ended
        September 30, 1996, 1995, and 1994, respectively.
<PAGE>
        The ESOP shares as of September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
                                                           1996           1995
                                                       ----------     ----------
<S>                                                    <C>            <C>
Allocated shares .................................        180,408        120,033
Committed to be released shares ..................          7,268           --
Unreleased shares ................................        209,669        180,049
                                                       ----------     ----------
                       Total ESOP shares .........        396,985        300,082
                                                       ==========     ==========

Fair value of unreleased shares ..................     $2,620,850     $1,879,200
                                                       ==========     ==========
</TABLE>
        In connection with the mutual holding company  conversion,  the Board of
        Directors  adopted the Charter Bank,  S.B. 1993  Incentive  Stock Option
        Plan which provided for the granting of options for a maximum of 144,000
        shares of common stock at $10.00 per share to  directors,  key officers,
        and employees. As a result of the Conversion,  the stock options and the
        price per share were  converted  based on the Exchange  Ratio.  Activity
        within the plan is summarized as follows:
<TABLE>
<CAPTION>
                                                         Number of
                                                          shares             Price
                                                          ------             -----
<S>                                                     <C>               <C>
Balance at September 30, 1994 .................          122,165          $   10.00
Granted .......................................               --                 --
Exercised .....................................             (965)             10.00
Cancelled .....................................             (840)             10.00
                                                        --------
Balance at September 30, 1995 .................          120,360              10.00
Exercised .....................................           (5,760)             10.00
Conversion into common stock
   of Charter Financial, Inc. .................          124,205               4.80
Granted .......................................               --                 --
Exercised .....................................             (728)              4.80
Cancelled .....................................             (730)              4.80
                                                        --------
Balance at September 30, 1996 .................          237,347               4.80
                                                        ========          =========
</TABLE>
<PAGE>
        Also, in connection  with the mutual  holding  company  conversion,  the
        Company   established  the  Charter  Bank,  S.B.  1993  Recognition  and
        Retention  Plan  which  acquired  48,000  shares  (2.2% of total  shares
        issued) of $1.00 par value stock at a  subscription  price of $10.00 per
        share.  The plan  provided  that such  common  stock  could be issued to
        directors and employees in key  management  positions to encourage  such
        key directors and employees to remain with the Company.  Interest in the
        plan for each participant  generally vested in three equal  installments
        beginning September 30, 1994. As of September 30, 1996, participants had
        become  fully  vested  and the  shares  of stock  were  released  to the
        appropriate  participants.  Prior to September  30, 1996,  the remaining
        portion  of  the  plan  which  was  not  vested  was  presented  in  the
        consolidated  balance  sheets as a contra  equity  account at historical
        cost.  Compensation  expense  related  to  vesting  in the plan  totaled
        approximately  $140,000,  $149,000,  and $183,000 during the years ended
        September 30, 1996, 1995, and 1994, respectively.

(14)    Financial Instruments With Off-Balance-Sheet Risk

        The Company is a party to financial  instruments with  off-balance-sheet
        risk in the normal course of business to meet the financing needs of its
        customers.  These financial  instruments  include  commitments to extend
        credit and financial guarantees.

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

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

        At  September  30,  1996,  the Company had  outstanding  commitments  to
        originate  residential  loans  of  approximately  $1,699,000,  of  which
        $1,097,000 were at fixed rates and $602,000 were at adjustable rates. In
        addition,  the Company had commitments to fund outstanding  credit lines
        of approximately $7,002,000 at September 30, 1996. Commitments to extend
        credit  may  involve  elements  of  interest  rate risk in excess of the
        amount recognized in the consolidated balance sheets. Interest rate risk
        on  commitments  to extend  credit  results  from the  possibility  that
        interest  rates may have  moved  unfavorably  from the  position  of the
        Company since the time the commitment was made.
<PAGE>
(15)    Commitments and Contingencies

        As  discussed  more  fully  in note  14,  the  Company  has  outstanding
        commitments to originate loans in the ordinary course of business.

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

(16)    Liquidation Account

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

        The estimated fair values of the Company's  interest-earning  assets and
        interest-bearing liabilities at September 30, 1996 are as follows:

<TABLE>
<CAPTION>
                                                      Carrying        Estimated
                                                       value         fair value
                                                   ------------     ------------
<S>                                                <C>              <C>
Interest-earning assets:
   Cash and cash equivalents .................     $  8,968,422     $  8,968,422
   Investment securities .....................       67,473,525       67,432,434
   Mortgage-backed securities ................       16,632,214       16,670,473
   Loans receivable ..........................      275,486,929      277,478,000
   Stock in Federal Home Loan Bank ...........        3,049,900        3,049,900
                                                   ------------     ------------
                                                   $371,610,990     $373,599,229
                                                   ============     ============

Interest-bearing liabilities:
   Deposits:
     Checking, money market demand,
       and passbooks .........................     $ 88,952,430     $ 88,952,430
     Certificates of deposit .................      159,770,197      160,203,852
   Borrowed money:
      Reverse repurchase agreements ..........       14,781,706       14,781,706
      Line-of-credit advances from FHLB ......       53,600,000       53,600,000
      Fixed-term advances from FHLB ..........        7,396,077        7,396,000
      ESOP ...................................          576,000          576,000
                                                   ------------     ------------
                                                   $325,076,410     $325,509,988
                                                   ============     ============

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

        Cash and Cash Equivalents

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

        Investment Securities

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

        Mortgage-Backed Securities

        Fair values are based on quoted market prices or dealer quotes.
<PAGE>
        Loans Receivable

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

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

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

        Stock in Federal Home Loan Bank

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

        Deposits

        The fair value of deposits  with no stated  maturity,  such as checking,
        money market  demand,  and passbook,  is equal to the amount  payable on
        demand at September 30, 1996.

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

        Borrowed Money

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

(18)    Recent Regulatory Developments

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

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

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

Earnings per share ......................................            $  .18            $  .21            $  .22            $  .06
                                                                     ======            ======            ======            ======


(1) Includes SAIF special assessment of $1.5 million.
</TABLE>
<PAGE>
        Selected quarterly  financial data for the year ended September 30, 1995
        is as follows:
<TABLE>
<CAPTION>


                                                                                       Quarter ended
                                                             ------------------------------------------------------------------ 
                                                             December 31,        March 31,         June 30,       September 30,
                                                                 1994              1995              1995             1995
                                                             ------------        ---------         --------       -------------
                                                                       (thousands of dollars, except per share data)
<S>                                                             <C>               <C>               <C>               <C>
Total interest income ......................................    $4,551            $4,941            $5,002            $5,514
Total interest expense .....................................     2,217             2,453             2,657             2,981
                                                                ------            ------            ------            ------
         Net interest income ...............................     2,334             2,488             2,345             2,533
Provision for losses on loans ..............................        30                30              --                 300
                                                                ------            ------            ------            ------
         Net interest income after
            provision for losses
            on loans .......................................     2,304             2,458             2,345             2,233
Noninterest income .........................................       382               379               274               375
Noninterest expense ........................................     1,470             1,439             1,511             1,472
                                                                ------            ------            ------            ------
         Income before income tax
            expense ........................................     1,216             1,398             1,108             1,136
Income tax expense .........................................       504               545               389               436
                                                                ------            ------            ------            ------
         Net income ........................................    $  712            $  853            $  719            $  700
                                                                ======            ======            ======            ======

Earnings per share .........................................    $  .17            $  .19            $  .17            $  .16
                                                                ======            ======            ======            ======
</TABLE>
(20)    Purchase Agreement

        On  August  13,  1996,  the  Company  and  Home  Federal  Savings  Bank,
        Carbondale,  Illinois  (Home  Federal)  announced  the  execution  of  a
        definitive  agreement  under the terms of which the  Company  intends to
        acquire  Home  Federal  at a purchase  price of $21.00  per  share.  The
        acquisition  price will  approximate  $6.3 million.  The acquisition has
        been  approved by regulatory  authorities  and is subject to approval by
        stockholders  of the  Company  and  Home  Federal.  The  transaction  is
        expected to close during the first calendar quarter of 1997.
<PAGE>
(21)    Parent Company Financial Information

        The following are a condensed balance sheet as of September 30, 1996 and
        a  condensed  statement  of income and cash  flows for the  period  from
        December  28, 1995 to  September  30, 1996 for Charter  Financial,  Inc.
        (parent company only):
<TABLE>
<CAPTION>
                             Condensed Balance Sheet

                                                                       1996
                                                                     -------
                                                                  (in thousands)
<S>                                                                 <C>
Assets:
   Cash ......................................................      $   268
   Repurchase agreements .....................................        4,401
   Investment in subsidiary ..................................       53,404
   Other assets ..............................................          275
                                                                    -------
                                                                    $58,348
Liabilities and stockholders' equity:
   Other liabilities .........................................        1,954
   Stockholders' equity ......................................       56,394
                                                                    $58,348

<CAPTION>
                          Condensed Statement of Income
                                                                       1996
                                                                      -------
                                                                  (in thousands)
<S>                                                                 <C>                             
Interest income ..............................................      $   401
Interest expense .............................................           55
                                                                    -------
                                                                        346
Operating expenses ...........................................           43
                                                                    -------
               Income before income taxes and
                  equity in undistributed
                  earnings of subsidiary .....................          303
Income tax expense ...........................................          116
               Income before equity in
                  undistributed earnings
                  of subsidiary ..............................          187
Equity in undistributed earnings of subsidiary ...............        2,871(1)
                                                                    -------
               Net income ....................................      $ 3,058
                                                                    =======
       

        (1) Includes  undistributed  earnings of  subsidiary  for the year ended
        September 30, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                        Condensed Statement of Cash Flows

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

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

MURPHYSBORO ADVISORY BOARD                Ronald L. Diel
                                          Vice President
James E. McCoskey
                                          Ronald W. Seymour
CORPORATE HEADQUARTERS                    Vice President

114 West Broadway                         Klay D. Tiemann
Sparta, IL  62286                         Vice President
(618) 443-2166
                                          Jerry K. Thomas
ANNUAL MEETING                            Vice President

Thursday, January 16, 1997                William H. Gardner
1:30 P.M.                                 Vice President
Charter Financial, Inc.
Corporate Headquarters                    Cynthia M. Calhoun
114 West Broadway                         Assistant Vice President
Sparta, IL 62286
                                          J. Doug Baker
STOCK LISTING                             Assistant Vice President
 
NASDAQ                                    Bruce N. Uchtman
Symbol:   CBSB                            Assistant Vice President
 
SPECIAL COUNSEL                           Larry D. Keller
                                          Assistant Vice President
Luse Lehman Gorman Pomerenk & Schick
5335 Wisconsin Avenue N.W.                Sandra J. Kowzan
Suite 400                                 Assistant Vice President
Washington, DC  20015
                                          Bonnie L. Meacham
INDEPENDENT AUDITORS                      Assistant Vice President and Assistant
                                          Secretary
KPMG Peat Marwick LLP                     
1010 Market Street                        Rosalyn K. Thies     
St. Louis, MO  63101                      Assistant Vice President and Assistant 
                                          Secretary    
TRANSFER AGENT                                      
Registrar and Transfer Company            Deborah J. Baird    
10 Commerce Drive                         Assistant Vice President and Assistant  
Cranford, NJ 07016                        Secretary            
(800) 368-5948         
<PAGE>
<CAPTION>
STOCKHOLDER INFORMATION

BOARD OF DIRECTORS                        OFFICERS
------------------                        --------
<S>                                       <C>
                                          Elizabeth H. Gearhart                                                                
                                          Assistant Secretary                        
                                                                                                        
                                          Marsha A. Pieron                                              
                                          Assistant Secretary                                 
                                                                                                        
                                          Theresa M. Richter                                            
                                          Assistant Secretary                                          
                                                                                      
                                          Mary E. Yeckley                                               
                                          Assistant Secretary                                 
                                                                                      
                                          Judith L. Batchelor                                           
                                          Assistant Secretary                        
                                                                                                        
                                          Kay L. Morrison                                               
                                          Assistant Secretary                                          
                                                                                      
                                          Franny R. Presutti                                            
                                          Assistant Secretary 
</TABLE>
GENERAL INQUIRIES AND REPORTS                                                  
                                                    
A copy of the  Company's  1996  Annual  Report to the  Securities  and  Exchange
Commission,  Form 10-K,  may be obtained  without  charge by written  request of
shareholders  to: Linda M. Johnson,  Senior Vice President,  Charter  Financial,
Inc., 114 West Broadway Sparta, IL 62286
 
FDIC  Disclaimer

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