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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 [Fee Required]

         For the fiscal year ended September 30, 1997

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934 [No Fee Required]


         Commission file number 0-25484

                           DAMEN FINANCIAL CORPORATION
               (Exact Name of Issuer as Specified in its Charter)

           Delaware                                              36-4029638
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

200 West Higgins Road, Schaumburg, Illinois                             60195
 (Address of principal executive offices)                             (Zip Code)

Issuer's telephone number, including area code: (847) 882-5320

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

                                      None

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

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

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

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-K contained in this form,  and no disclosure  will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

         As of December 12, 1997,  there were issued and  outstanding  3,119,187
shares of the Issuer's  Common Stock.  The aggregate  market value of the voting
stock held by non-affiliates of the Issuer, computed by reference to the closing
price of such stock on the Nasdaq  National  Market as of December  12, 1997 was
approximately  $43,447,422.  (The exclusion from such amount of the market value
of the shares owned by any person shall not be deemed an admission by the Issuer
that such person is an affiliate of the Issuer.)

                       DOCUMENTS INCORPORATED BY REFERENCE

PART II of Form  10-K--Annual  Report to Stockholders  for the fiscal year ended
September 30, 1997.

PART III of Form 10-K--Proxy Statement for the Annual Meeting of Stockholders to
be held in 1998 for the fiscal year ended September 30, 1997.

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<PAGE>



                                     PART I

Item 1.           Business

General

         Damen  Financial  Corporation,  a  Delaware  corporation  ("DFC" or the
"Company"),  was formed in 1995 at the direction of Damen  Federal  Savings Bank
(the  "Savings  Bank") for the purpose of  becoming a savings  and loan  holding
company and owning all of the  outstanding  stock of the Savings  Bank issued on
September 29, 1995 in connection  with the Savings  Bank's  conversion  from the
mutual to stock form of  organization  (the  "Conversion").  The Company  issued
3,967,500  shares of  Common  Stock at $10.00  per share in the  Conversion.  On
February 27, 1997, the Savings Bank converted from a federal savings association
to a national bank (the "Bank Conversion"),  and in connection therewith changed
its name to Damen National Bank ("Damen" or the "Bank").  Upon  consummation  of
the Bank  Conversion,  the Company de-  registered as a savings and loan holding
company and registered as a bank holding company.

         At September 30, 1997, the Company had total assets of $231.1  million,
deposits  of $125.7  million  and  stockholders'  equity of $45.9  million.  The
Company's  Common Stock is quoted on the Nasdaq National Market System under the
symbol "DFIN." Unless the context otherwise  requires,  all references herein to
the Bank or the  Company  include  the  Company  and the Bank on a  consolidated
basis.

         The Bank was originally chartered in 1916 to service a primarily Slovak
community on Chicago's South Side and became a federal savings bank in 1990. The
Company serves the financial needs of communities in its market area through its
main office  located in Schaumburg,  Illinois and two branch offices  located in
Chicago and Burbank, Illinois.

         The Company's  business involves  attracting  deposits from the general
public and using such deposits,  together with other funds, to originate one- to
four-family   residential   mortgage   loans  and,  to  a  much  lesser  extent,
multi-family,  commercial real estate and consumer loans primarily in its market
area. See " - Lending  Activities."  At September 30, 1997,  $79.6  million,  or
80.24% of the Damen's  total loan  portfolio  consisted of  residential  one- to
four-family mortgage loans.

         The Company also invests in mortgage-backed  and related securities and
investment  securities  and other  permissible  investments.  See " - Investment
Securities" and " - Mortgage- Backed and Related Securities."

         The  executive  offices of the  Company and the Bank are located at 200
West Higgins Road, Schaumburg,  Illinois 60195-3788, and the telephone number at
that address is (847) 882-5320.



                                        2

<PAGE>



Forward-Looking Statements

         When used in this Form 10-K and in future  filings by the Company  with
the Securities and Exchange Commission, in the Company's press releases or other
public  or  shareholder  communications,  and in oral  statements  made with the
approval of an authorized  executive officer,  the words or phrases "will likely
result," "are  expected  to," "will  continue,"  "is  anticipated,"  "estimate,"
"project"  or similar  expressions  are  intended to  identify  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995.  Such  statements  are  subject  to  certain  risks and  uncertainties,
including,  among other things,  changes in economic conditions in the Company's
market  area,  changes in  policies  by  regulatory  agencies,  fluctuations  in
interest rates,  demand for loans in the Company's  market area and competition,
that could cause actual results to differ  materially from  historical  earnings
and those  presently  anticipated  or projected.  The Company  wishes to caution
readers not to place  undue  reliance  on any such  forward-looking  statements,
which speak only as of the date made.  The Company wishes to advise readers that
the factors listed above could affect the Company's  financial  performance  and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements  expressed with respect to future periods in any
current statements.

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

Lending Activities

         General.  With the exception of a loan from the Company to its Employee
Stock Ownership Plan, all of the Company's  consolidated  lending activities are
conducted  through  the Bank.  The  principal  lending  activity  of the Bank is
originating  for its portfolio  primarily  fixed-rate  mortgage loans secured by
one- to  four-family  residences  located  primarily in Damen's  market area. In
addition,  in order to provide  more  comprehensive  financial  services  in its
market  area,  the Bank  also  originates  a  limited  amount  of  multi-family,
commercial real estate and consumer loans, primarily in its market area. See " -
Originations,  Purchases  and Sales of Loans  and  Mortgage-Backed  and  Related
Securities."  At September  30, 1997,  the Bank's total loans  receivable,  net,
totaled $97.2 million.

         Damen's  President  and Senior Vice  President  have the  authority  to
approve owner  occupied,  one- to four-family  residential  mortgage loans which
satisfy the following  criteria:  (i) the applicant and the property fall within
Damen's loan underwriting  guidelines;  (ii) the borrower is salaried; (iii) the
mortgage's loan-to-value ratio does not exceed 80%; and (iv) the mortgage amount
does not exceed $200,000.  All other loan applications are considered by Damen's
Loan  Committee  and those loans which satisfy the Bank's  lending  policies are
submitted to the Bank's Board of Directors for ratification.

         Under Damen's loan policy,  the loan officer  processing an application
is  responsible  for ensuring that all  documentation  is obtained  prior to the
submission of the application to the Loan

                                        3

<PAGE>



Committee. In addition, the loan officer verifies that the application meets the
underwriting guidelines described below.

         All of the  Bank's  lending  is  subject  to its  written  underwriting
standards and to loan origination procedures. Decisions on loan applications are
made on the basis of detailed  applications and property valuations  (consistent
with the Bank's appraisal policy).  The loan applications are designed primarily
to determine the borrower's  ability to repay and the more significant  items on
the  application  are  verified   through  use  of  credit  reports,   financial
statements, tax returns or confirmations.

         The Bank requires title insurance on its mortgage loans as well as fire
and  extended  coverage  casualty  insurance  in amounts  at least  equal to the
principal  amount  of the loan or the  value of  improvements  on the  property,
depending on the type of loan. The Bank also requires flood insurance to protect
the  property  securing  its  interest  when the  property is located in a flood
plain.



                                        4

<PAGE>
         Loan Portfolio Composition.  The following table sets forth information
concerning the  composition of the Bank's loan  portfolios in dollar amounts and
in  percentages  (before  deductions  for loans in  process,  deferred  fees and
discounts and allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>
                                                                       September 30,                              
                                 ---------------------------------------------------------------------------------
                                          1997                     1996                        1995               
                                 --------------------- -------------------------- --------------------------------
                                   Amount     Percent      Amount        Percent     Amount           Percent     
                                   ------     -------      ------        -------     ------           -------     
                                                        (Dollars in Thousands)                                    
Real Estate Loans:
<S>                               <C>          <C>        <C>             <C>       <C>                <C>        
 One- to four-family...........   $79,586      80.24%     $77,725         83.09%    $75,471            83.56%     
 Multi-family..................    12,237      12.34       12,239         13.08      12,060            13.35      
 Commercial....................     4,573       4.61        3,317          3.55       2,598             2.88      
 Construction..................       529        .53          ---           ---         ---              ---      
                                 --------    --------  ----------      --------    --------         --------      
  Total real estate loans......    96,925      97.72%      93,281         99.72%     90,129            99.79%     
                                  -------     ------     --------        ------     -------           ------      
Other Loans:                                                                                                      
 Consumer Loans:                                                                                                  
  Secured lines of credit......     2,010       2.03          ---           ---         ---             ---       
  Deposit account..............       227        .23          260           .28         188             .21       
  Other........................        24        .02          ---           ---         ---             ---       
                                ---------    -------   ----------      --------    --------         -------       
  Total consumer loans.........     2,261       2.28%         260           .28%        188             .21%      
                                 --------    -------     --------       -------     -------          ------       
  Total loans..................    99,186     100.00%      93,541        100.00%     90,317          100.00%      
                                              ======                     ======                      ======       
Less:                                                                                                             
 Loans in process..............       338                     466                       792                       
 Deferred fees and discounts...     1,272                   1,584                     1,694                       
 Allowance for losses..........       332                     345                       275                       
                                ---------                --------                   -------                       
  Total loans receivable, net..   $97,244                 $91,146                   $87,556                       
                                  =======                 =======                   =======                       
                                                                                                                  
</TABLE>
                                                  November 30,                
                                ----------------------------------------------
                                          1994                       1993     
                                ----------------------  ----------------------
                                  Amount      Percent       Amount     Percent
                                              (Dollars in Thousands)          
Real Estate Loans:                                                            
 One- to four-family...........  $76,736       84.71%      $77,460      86.41%
 Multi-family..................   11,218       12.38        10,171      11.34 
 Commercial....................    2,473        2.73         1,802       2.01 
 Construction..................      ---         ---           ---        --- 
                                --------     -------     ---------    ------- 
  Total real estate loans......   90,427       99.82%       89,433      99.76%
                                 -------       -----       -------      ----- 
Other Loans:                                                                  
 Consumer Loans:                                                              
  Secured lines of credit......      ---         ---           ---        --- 
  Deposit account..............      167         .18           219        .24 
  Other........................      ---         ---           ---        --- 
                                --------    --------     ---------   -------- 
  Total consumer loans.........      167         .18%          219        .24%
                                --------     -------      --------    ------- 
  Total loans..................   90,594      100.00%       89,652     100.00%
                                              ======                   ====== 
Less:                                                                         
 Loans in process..............      527                     3,007            
 Deferred fees and discounts...    1,717                     1,706            
 Allowance for losses..........      125                       125            
                                --------                  --------            
  Total loans receivable, net..  $88,225                   $84,814            
                                 =======                   =======            

 
                                        5
<PAGE>



         The following table shows the composition of the Bank's loan portfolios
by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
                                                          September 30,                                    November 30,
                                 ------------------------------------------------------------ --------------------------------------
                                        1997                  1996                1995                1994               1993
                                 ------------------ --------------------- ------------------- ------------------ -------------------
                                  Amount    Percent     Amount    Percent   Amount    Percent   Amount   Percent    Amount   Percent
                                  ------    -------     ------    -------   ------    -------   ------   -------    ------   -------
                                                                      (Dollars in Thousands)
<S>                              <C>         <C>       <C>         <C>     <C>         <C>     <C>        <C>      <C>        <C>   
Fixed-Rate Loans:
 Real estate:
  One- to four-family........... $79,440     80.09%    $77,577     82.93%  $75,321     83.40%  $76,509    84.45%   $76,857    85.73%
  Multi-family..................  12,237     12.34      12,239     13.08    12,060     13.35    11,218    12.38     10,171    11.34
  Commercial real estate........   4,573      4.61       3,317      3.55     2,598      2.88     2,473     2.73      1,802     2.01
  Construction..................     529       .53         ---       ---       ---       ---       ---      ---        ---      ---
                                 -------   -------   ---------  --------   -------  --------    ------  -------   --------  -------
   Total real estate loans......  96,779     97.57      93,133     99.56%   89,979     99.63    90,200    99.56     88,830    99.08
                                  ------    ------     -------    ------                                         
 Consumer.......................     227       .23         260       .28       188       .21       167      .18        219      .24
                                 -------   -------    --------   -------  --------   -------   -------  -------  ---------   ------
   Total fixed-rate loans.......  97,006     97.80      93,393     99.84    90,167     99.84    90,367    99.74     89,049    99.32
                                  ------    ------     -------    ------   -------    ------   -------   ------    -------    -----
Adjustable-Rate Loans:                                                                                           
 Real estate:                                                                                                    
  One- to four-family...........     146       .15         148       .16%      150       .16       227      .26        603      .68
Consumer:                                                                                                        
     Secured lines of credit....   2,010      2.03         ---       ---       ---       ---       ---      ---        ---      ---
     Other......................      24       .02         ---       ---       ---       ---       ---      ---        ---      ---
                                --------  --------   ---------  --------   -------  --------  -------- --------   --------  -------
   Total loans..................  99,186    100.00%     93,541    100.00%   90,317    100.00%   90,594   100.00%    89,652   100.00%
                                            ======                ======              ======             ======              ======
Less:                                                                                                            
 Loans in process...............     338                   466                 792                 527               3,007
 Deferred fees and discounts....   1,272                 1,584               1,694               1,717               1,706
 Allowance for loan losses......     332                   345                 275                 125                 125
                                --------              --------             -------            --------            --------
   Total loans receivable, net.. $97,244               $91,146             $87,556             $88,225             $84,814
                                 =======               =======             =======             =======             =======
                                                                                                                              
</TABLE>



                                        6

<PAGE>



        The following schedule sets forth the weighted average interest rate and
contractual  maturity of the Bank's loan  portfolio at September  30, 1997.  The
table  does  not  reflect   prepayments,   scheduled  principal   repayments  or
enforcement of due-on-sale clauses.  Loans which have adjustable or renegotiable
interest  rates are shown as maturing in the period during which the contract is
due.
<TABLE>
<CAPTION>

                                                Real Estate
                         ----------------------------------------------------
                                                  Multi-family and Construction
                             One- to Four-Family       Commercial real estate             Consumer                    Total
                         --------------------------  -------------------------  -------------------------  -------------------------
                                         Weighted                    Weighted                   Weighted                  Weighted
                                          Average                     Average                    Average                   Average
                             Amount         Rate        Amount          Rate       Amount          Rate       Amount         Rate
                         --------------------------  -------------------------  -------------------------  -------------------------
                                                                   (Dollars in Thousands)
       Due During        
      Twelve Months
  Ending September 30,
  --------------------
<S>                        <C>               <C>     <C>                 <C>     <C>                <C>    <C>                <C>  
1998....................   $    139          8.71%   $      62           8.75%   $     81           7.30%  $     282          8.32%
1999....................        394          8.49          586           8.28         119           7.65       1,099          8.29
2000 and 2001...........      4,250          7.42          604           8.17          24           8.52       4,878          7.52
2002 to 2004............     16,252          7.53        3,493           7.96          27           8.50      19,772          7.61
2005 to 2021............     44,139          7.42       12,594           8.31       2,010           8.90      58,743          7.66
2022 and following......     14,412          7.89          ---            ---         ---            ---      14,412          7.89
                            -------                    -------                     ------                    -------         -----
                            $79,586                    $17,339                     $2,261                    $99,186
                            =======                    =======                     ======                    =======
</TABLE>


         The total  amount of loans due after  September  30,  1998  which  have
predetermined  interest rates is  approximately  $96.2 million,  while the total
amount of loans due after such dates which have floating or adjustable  interest
rates is approximately $2.7 million.

         Under the Financial  Institutions Reform,  Recovery and Enforcement Act
of 1989 ("FIRREA"),  the aggregate amount of loans that the Bank is permitted to
make to any one borrower is generally  limited to 15% of unimpaired  capital and
surplus (25% if the security for such loan has a "readily ascertainable" value).
At September  30, 1997,  based on the above,  the Bank's  loans-to-one  borrower
limit was  approximately  $5.9 million.  On that date, the Bank had no borrowers
with  outstanding  balances in excess of this amount.  As of September 30, 1997,
the Bank had  committed a total of $2.9  million on a  condominium  construction
loan on Michigan  Avenue in Chicago  although  only $529,000 was disbursed as of
September  30, 1997.  The next two largest  dollar  amounts  outstanding  to one
borrower  or,  group of  related  borrowers,  were  approximately  $922,000  and
$888,000.  These loans are secured by both one- to four-family and  multi-family
properties  located primarily in the Bank's market area and, as of September 30,
1997,  were  performing  in  accordance  with their terms  except that the loans
totaling $922,000 were all one month delinquent at September 30, 1997.

         One- to Four-Family Residential Real Estate Lending. The cornerstone of
the Bank's lending  program is the  origination of loans secured by mortgages on
owner-occupied one- to four-family residences.  The Bank offers fixed-rate loans
with terms of 7, 10, 15, 20 and 30 years and

                                        7

<PAGE>



during  the  mid  1980s, originated  a  limited  amount  of one and  three  year
adjustable rate mortgage loans ("ARMs").  At September 30, 1997,  $79.6 million,
or 80.24% of the Bank's loan  portfolio  consisted of mortgage  loans on one- to
four-family  residences.  At that date, the average outstanding residential loan
balance was approximately $54,600.

         Substantially  all  of  the  one-  to  four-family   residential  loans
originated by Damen are secured by properties  located in the Bank's market area
and all mortgage  loans  originated by the Bank are retained and serviced by it.
Because  of  competitive  factors,  most  of  the  Bank's  one-  to  four-family
residential  loans have been made to persons  residing near its Chicago  office,
which is located in a low and moderate  income  community.  The Bank has been an
active  lender  in this  market  for many  years  and has  never  experienced  a
delinquency level on these loans which was significantly higher than that of its
loan portfolio as a whole.

         The Bank offers  fixed-rate  loans with maximum terms of up to 30 years
for  retention in its own  portfolio  as a central part of its lending  program.
However,  consistent with its asset/liability  management  philosophy,  the Bank
focuses its  fixed-rate  loan  origination  activities  on loans having terms to
maturity of 15 years or less. At September  30, 1997,  $79.6 million or 82.1% of
the Bank's  mortgage  loans had original terms of 15 years or less. The interest
rate on the  Bank's  fixed-rate  loans is  generally  set  based on  competitive
factors.

         During the mid 1980s,  the Bank originated a limited amount of ARMs for
retention in its own portfolio.  However,  as a result of strong competition and
price  cutting  on these  loans in its market  area,  the Board  concluded  that
continued efforts to originate ARMs were no longer justified. In the future, the
Board may consider  reinstating the Bank's ARM lending  program,  although there
can be no assurance as to when, if ever, this will be the case.

         In underwriting one- to four-family  residential real estate loans, the
Bank evaluates the  borrower's  ability to make  principal,  interest and escrow
payments, the value of the property that will secure the loan and the borrower's
debt to income ratios. Because of the economic conditions in parts of the Bank's
market area, the Bank's  underwriting  practices do not comply in every way with
those required by most purchasers in the secondary market. For instance, some of
the  Bank's  low and  moderate  income  borrowers  do not have the net  worth or
income/debt  service levels required by many secondary  market  purchasers.  The
non-compliance  of many of the Bank's  loans  with  secondary  market  standards
limits the Bank's  ability to build a  held-for-sale  portfolio,  which could be
useful for  asset/liability  management  structuring  and for the development of
non-interest  income.  Also,  such  non-compliance  may limit to some extent the
Bank's ability to use such loans as collateral for borrowings. However, the Bank
believes that  non-compliance with secondary market standards does not in and of
itself cause credit  problems since the Bank has engaged in this type of lending
for  many  years  and  its  delinquency  experience  on  these  loans  has  been
satisfactory to date.

         Properties  securing one- to four-family  residential real estate loans
made  by  Damen  are  appraised  by  independent  appraisers.  Damen  originates
virtually all of its  residential  mortgage loans with  loan-to-value  ratios of
less than 95%, and private mortgage insurance is obtained

                                        8

<PAGE>



in an amount  sufficient  to reduce the Bank's  exposure to not more than 80% of
the appraised value or sales price, where applicable.

         The Bank's residential  mortgage loans customarily  include due-on-sale
clauses  giving  the Bank the  right to  declare  the loan  immediately  due and
payable in the event that,  among other things,  the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.

         Many of the Bank's one- to  four-family  loans are on  properties  with
more than one unit. In some cases, at least one unit in the property is occupied
by the borrower while other one- to four-family loans are on non-owner  occupied
properties.

         Multi-Family  and Commercial Real Estate Lending.  During recent years,
Damen has modestly  increased  its  acquisition  of permanent  multi-family  and
commercial  real estate loans  secured by  properties  generally  located in its
market area. At September 30, 1997,  the Bank had $12.2 million in  multi-family
loans,  representing 12.34% of the Bank's total loan portfolio, and $4.6 million
in commercial real estate loans, or 4.61% of the Bank's total loan portfolio.

         The Bank's  multi-family  and  commercial  real estate  loan  portfolio
includes loans secured by apartment buildings and other non-residential building
properties.  Because of competitive factors, most of the Bank's multi-family and
commercial  real estate  loans are  originated  in the  southern  portion of the
Bank's market area.

         Permanent  multi-family  and commercial real estate loans are generally
originated for a maximum term of 15 years and have fixed rates. Multi-family and
commercial  real  estate  loans  are  written  in  amounts  of up to  75% of the
appraised value of the property.

         Appraisals on  properties  serving  multi-family  and  commercial  real
estate loans  originated by the Bank are performed by an  independent  appraiser
prior  to  the  time  the  loan  is  made.  All  appraisals  on  commercial  and
multi-family  real  estate are  reviewed  by the Bank's  management.  The Bank's
underwriting  procedures require  verification of the borrower's credit history,
income and  financial  statements,  banking  relationships.  The Bank  generally
requires  personal  guarantees on loans secured by  multi-family  and commercial
real estate. From time to time, the Bank has purchased interests in multi-family
and commercial real estate loans originated by other lenders. Prior to purchase,
such loans are  generally  subjected to the same  underwriting  standards as the
Bank's originated loans.

         Multi-family  and  commercial  real estate  loans  generally  present a
higher level of risk than loans secured by one- to four-family residences.  This
greater risk is due to several factors, including the concentration of principal
in a limited  number of loans and  borrowers,  the  effects of general  economic
conditions  on income  producing  properties  and the  increased  difficulty  of
evaluating and monitoring  these types of loans.  Furthermore,  the repayment of
loans secured by multi-family and commercial real estate is typically  dependent
upon the successful  operation of the related real estate  project.  If the cash
flow from the project is reduced  (for  example,  if leases are not  obtained or
renewed), the borrower's ability to repay the loan may be impaired. At September
30, 1997, the Bank had no multi-family loans and no commercial real estate loans
90 days or more delinquent.


                                        9

<PAGE>



         In the future,  the Bank intends to continue to make  multi-family  and
commercial real estate lending as well as other types of commercial loans.

         Consumer Lending. The only consumer loans (other than home equity lines
of credit,  as described below) offered by the Bank are those secured by certain
types of deposit  accounts.  At September  30, 1997,  consumer  loans secured by
deposit accounts totaled $227,000 or .23% of net loans outstanding.

         The Bank's  consumer  loans  secured by  deposit  accounts  are made in
amounts  not  to  exceed  90% of  the  deposit  holders  available  passbook  or
certificate  of deposit  balance  and carry a maximum  term of three  years when
secured by passbook  accounts and as of the maturity  date for loans  secured by
certificates  of deposit.  Such loans carry an interest rate which is 2.5% above
the stated  interest  rate for the pledged  account.  The Bank may  determine to
increase the types of consumer loan products offered.

         The Bank also offers an adjustable  home equity line of credit  secured
by real  estate  with an interest  rate at prime rate or a  percentage  over the
prime rate, as reported in The Wall Street Journal and is adjusted  monthly.  At
September  30, 1997,  such loans  totaled  $3.3 million with $2.0 million  being
drawn by borrowers which represents 2.03% of the Company's loan portfolio.

Originations,  Purchases  and Sales of Loans  and  Mortgage-Backed  and  Related
Securities

         Real estate  loans are  originated  by Damen's  staff of salaried  loan
officers through referrals from real estate brokers, attorneys and customers. In
addition,  in the future, the Bank may utilize  commissioned loan originators in
an attempt to increase loan production,  although there are no specific plans to
do so at this time. Loan applications are taken and processed at each of Damen's
offices.

         The Bank's ability to originate loans is dependent upon customer demand
for loans in its  market and to a limited  extent,  various  marketing  efforts.
Demand is affected by both the local economy and the interest rate  environment.
Historically,  all  loans  originated  by  Damen  are  retained  in  the  Bank's
portfolio.

         In order to  supplement  loan  originations,  the Company has  acquired
mortgage-backed  and  related  securities  which  are  held,  depending  on  the
investment   intent,  in  the   "held-to-maturity"   or  "available-   for-sale"
portfolios.  During the years ended  September  30,  1997 and 1996,  the Company
purchased $12.2 million and $23.2 million, respectively, of mortgaged-backed and
related securities.  During the same periods,  the Company sold $1.8 million and
$920,000,  respectively,  of mortgage-backed and related securities. In order to
supplement loan production,  the Bank purchased single-family loans from a third
party originator  totaling $1.1 million during the year ended September 30, 1997
compared to none in prior years. See " - Investment Activities - Mortgage-Backed
and Related Securities" and Notes 4 and 5 to the Notes to Consolidated Financial
Statements  in the  Annual  Report to  Stockholders  for the  fiscal  year ended
September 30, 1997 attached hereto as Exhibit 13 (the "Annual Report").


                                       10

<PAGE>



         The  following  table shows the loan  origination,  purchase,  sale and
repayment activities of the Company for the periods indicated.
<TABLE>
<CAPTION>

                                                                                                Ten Months
                                                                       Year Ended                  Ended
                                                                      September 30,            September 30,
                                                               -------------------------       -------------
                                                                 1997              1996            1995
                                                                 ----              ----            ----
                                                                        (In Thousands)
<S>                                                            <C>               <C>             <C>    
Originations by type:
 Fixed rate:         
  Real estate - one- to four-family..................          $15,514           $15,612         $ 9,280
                - multi-family.......................            3,594             2,137           2,051
                - commercial.........................            1,703             1,528             626
  Consumer and Other.................................              145               212             315
         Secured line of credit......................            2,763               ---             ---
                                                              --------           -------        --------
         Total loans originated......................           23,719            19,489          12,272
                                                              --------           -------        --------

Purchases:
  Mortgage-backed securities (excluding
   REMICs and CMOs)..................................           11,215            21,828          18,911
  REMICs and CMOs....................................              964             1,365           2,986
                                                              --------           -------         -------
         Total purchased.............................           12,179(1)         23,193          21,897
                                                              --------           -------         -------

Sales and Repayments:
  Mortgage-backed security sales.....................            1,816               920           1,288
                                                              --------          --------       ---------
         Total sales.................................            1,816               920           1,288
  Principal repayments...............................           33,093            31,888          20,212
                                                             ---------          --------       ---------
         Total reductions............................           34,909            32,808          21,500
Increase (decrease) in other items, net..............            1,621             (377)           1,111
                                                            ----------        ---------        ---------
         Net increase................................        $   2,610          $  9,497         $13,780
                                                             =========          ========         =======
</TABLE>

(1)  Includes  $4.1  million  of  adjustable-rate  mortgage-backed  and  related
     securities.


Delinquencies and Non-Performing Assets

         Delinquency  Procedures.  When a  borrower  fails  to  make a  required
payment on a loan,  the Bank attempts to cure the  delinquency by contacting the
borrower. A late notice is sent on all delinquent loans.  Additional written and
verbal  contacts may be made with the borrower  between 30 and 90 days after the
due date.  If the loan is  contractually  delinquent  90 days,  the Bank  either
arranges payment with the borrower or institutes appropriate action to foreclose
on the  property.  If a borrower  agrees to a payment plan to bring a delinquent
loan current,  a designated  officer  monitors the loan for compliance  with the
payment agreement. If foreclosed, the property is sold at sheriff's sale and may
be purchased by the Bank.  Delinquent  consumer loans are generally handled in a
similar  manner.  Once  a loan  has  been  set  to  Damen's  attorney  to  begin
foreclosure proceedings,  no payments are accepted without the prior approval of
Damen's President.


                                       11

<PAGE>



         Real estate  acquired by Damen as a result of foreclosure or by deed in
lieu of  foreclosure  is classified as real estate owned until it is sold.  When
property  is  acquired  by  foreclosure  or deed in lieu of  foreclosure,  it is
recorded at the lower of cost or  estimated  fair value less  estimated  selling
costs.  After  acquisition,  all costs incurred in maintaining  the property are
expensed.  Costs relating to the  development  and  improvement of the property,
however, are capitalized.

         The following table sets forth the Bank's loan  delinquencies  by type,
amount and percentage of type at September 30, 1997.
<TABLE>
<CAPTION>

                                                          Loans Delinquent For:
                                  -------------------------------------------------------------------
                                               60-89 Days                    90 Days and Over               Total Delinquent Loans
                                  --------------------------------    -------------------------------    ---------------------------
                                                           Percent                            Percent                        Percent
                                                          of Total                           of Total                       of Total
                                   Number     Amount        Loans     Number     Amount        Loans     Number     Amount    Loans
                                   ------     ------        -----     ------     ------        -----     ------     ------    -----
                                                                       (Dollars in Thousands)
Real Estate:
<S>                                    <C>     <C>           <C>          <C>     <C>           <C>         <C>      <C>       <C> 
  One- to four-family........          7       $207          .20%         7       $197          .20%        14       $404      .40%
  Multi-family...............          2         99          .10        ---        ---          ---          2         99      .10
  Commercial real estate.....        ---        ---          ---        ---        ---          ---        ---        ---      ---
  Construction...............        ---        ---          ---        ---        ---          ---        ---        ---      ---
Other........................        ---        ---          ---        ---        ---          ---        ---        ---      ---
                                    ----     ------         ----       ----     ------          ---       ----     ------
     Total                             9       $306          .30%         7       $197          .20%        16       $503      .50%
                                    ====       ====          ===       ====       ====          ===       ====       ====      ===
</TABLE>


         Classification  of  Assets.   Federal  regulations  require  that  each
national  bank  classify  its own assets on a regular  basis.  In  addition,  in
connection with  examinations of national banks,  examiners of the Office of the
Comptroller  of the Currency (the "OCC") and the FDIC have authority to identify
problem assets and, if  appropriate,  require them to be  classified.  There are
three  classifications  for  problem  assets:  Substandard,  Doubtful  and Loss.
Substandard  assets have one or more defined weaknesses and are characterized by
the  distinct   possibility  that  the  Bank  will  sustain  some  loss  if  the
deficiencies  are  not  corrected.   Doubtful  assets  have  the  weaknesses  of
Substandard assets, with the additional characteristics that the weaknesses make
collection  or  liquidation  in full on the basis of currently  existing  facts,
conditions and values questionable,  and there is a high possibility of loss. An
asset classified Loss is considered  uncollectible and of such little value that
continuance  as an  asset  on  the  balance  sheet  of  the  institution  is not
warranted.  Assets classified as Substandard or Doubtful require the institution
to establish prudent general  allowances for loan losses. If an asset or portion
thereof is classified as Loss, the institution  must either  establish  specific
allowances  for loan  losses in the  amount of 100% of the  portion of the asset
classified Loss, or charge off such amount.


                                       12

<PAGE>



         On the basis of  management's  review of its assets,  at September  30,
1997,  the Bank had classified a total of $276,000 of its loans and other assets
as follows:


                                                                At
                                                           September 30,
                                                               1997
                                                               ----
                                                          (In Thousands)

Special Mention.............................              $     ---
Substandard.................................                    276
Doubtful assets.............................                    ---
Loss assets.................................                    ---
                                                             ------
     Total..................................                    276
                                                               ====
General loss allowance......................                    332
                                                               ====
Specific loss allowance.....................                    ---
                                                              =====
Charge-offs.................................                     50
                                                               ====


         Damen's classified assets consist of the non-performing loans and loans
and other assets of concern discussed herein. As of the date hereof, these asset
classifications are materially consistent with those of the OCC and FDIC.

         Non-Performing  Assets.  Loans are  reviewed  monthly  and any loan the
collectibilty  of which is doubtful is placed on non-accrual  status.  Loans are
placed on  non-accrual  status when either  principal  or interest is 90 days or
more  past  due,  unless,  in the  judgment  of  management,  the  loan  is well
collateralized and in the process of collection.  Interest accrued and unpaid at
the time a loan is placed on  non-accrual  status is  charged  against  interest
income.  Subsequent  payments are either  applied to the  outstanding  principal
balance or recorded as  interest  income,  depending  on the  assessment  of the
ultimate  collectibility of the loan.  Restructured  loans include troubled debt
restructurings  (which involved  forgiving a portion of interest or principal on
any loans or making loans at a rate  materially  less than the market rate).  At
September 30, 1997, the Bank had one  foreclosed  property with an estimated net
realizable  value of $79,000.  The property is an eight unit apartment  building
and store located in southwest  Chicago.  The store and several  apartment units
are currently vacant. There were no structured loans as of September 30, 1997.


                                       13

<PAGE>



         Non-Performing  Assets.  The following table sets forth the amounts and
categories of non- performing assets in the Bank's portfolio.
<TABLE>
<CAPTION>

                                                                         September 30,                         November 30,
                                                         ----------------------------------------------- -----------------------
                                                               1997         1996               1995         1994          1993
                                                         ------------- -------------- ------------------ ------------ ----------
                                                                               (Dollars in Thousands)
Non-accruing loans:
<S>                                                           <C>          <C>                  <C>         <C>           <C> 
  One- to four-family................................         $ 197        $  99                $65         $109          $156
  Multi-family.......................................           ---          252                ---          ---           ---
  Commercial real estate.............................           ---          ---                ---          ---           ---
  Construction.......................................           ---          ---                ---          ---           ---
  Other..............................................           ---          ---                ---            7           ---
                                                            -------       ------              -----         ----         -----
     Total...........................................           197          351                 65          116           156
                                                             ------        -----                ---         ----          ----
Accruing loans delinquent more than 90 days:
     Total...........................................           ---          ---                ---          ---           ---
                                                            -------       ------               ----        -----         -----
Foreclosed assets:
  Commercial and multi-family real estate............            79          ---                ---          ---           ---
                                                             ------       ------               ----        -----         -----
     Total...........................................            79          ---                ---          ---           ---
                                                             ------       ------               ----        -----         -----
Total non-performing assets..........................         $ 276       $  351                $65         $116          $156
                                                              =====       ======                ===         ====          ====
Total as a percentage of total assets................           .12%         .15%               .03%         .06%          .09%
                                                              =====       ======                ===         ====          ====

</TABLE>
         For the years ended September 30, 1997 and 1996,  gross interest income
which  would have been  recorded  had the  non-accruing  loans  been  current in
accordance   with  their   original   terms  amounted  to  $16,500  and  $8,900,
respectively.

         Other Loans of Concern.  In addition to the  non-performing  assets set
forth in the table  above,  as of September  30, 1997,  there were no loans with
respect to which known  information  about the possible  credit  problems of the
borrowers or the cash flows of the security properties have caused management to
have  concerns as to the ability of the  borrowers  to comply with  present loan
repayment  terms and which may result in the future  inclusion  of such items in
the non-performing asset categories.

         Management has considered  the Bank's  non-performing  and "of concern"
assets in establishing its allowance for loan losses.


                                       14

<PAGE>



         Allowance  for  losses  on  loans.   The  following  table  sets  forth
information with respect to the Bank's allowance for loan losses for the periods
indicated.  During each of the periods  presented,  there were no  recoveries of
amounts charged off.
<TABLE>
<CAPTION>

                                                                                 Ten Months
                                                            Year Ended             Ended              Year Ended
                                                           September 30,        September 30,         November 30,
                                                    -------------------------- --------------- ---------------------------
                                                         1997        1996            1995          1994         1993
                                                    ----------- -------------- --------------- ------------ --------------
                                                                        (Dollars in Thousands)
<S>                                                     <C>          <C>             <C>           <C>          <C> 
Balance at beginning of period....................      $ 345        $275            $125          $125         $125
Charge-offs:
  One- to four-family.............................          5         ---               9           ---          ---
  Multi-family....................................         45         ---             ---           ---          ---
  Consumer........................................        ---         ---               4           ---          ---
                                                       ------       -----           -----         -----        -----
     Total........................................         50         ---              13           ---          ---
                                                        -----       -----           -----         -----        -----

Recoveries:
     Total........................................        ---         ---             ---           ---          ---
                                                       ------       -----           -----         -----        -----

Net charge-offs...................................         50         ---              13           ---          ---
                                                        -----       -----           -----         -----        -----
Additions charged to operations...................         37          70             163           ---          ---
                                                        -----       -----           -----         -----        -----
Balance at end of period..........................       $332        $345            $275          $125         $125
                                                         ====        ====            ====          ====         ====

Ratio of net charge-offs during the period to
 average loans outstanding during the period......        .05%        ---%            .01%          ---%         ---%
                                                         ====         ===             ===           ===          ===

Ratio of net charge-offs during the period to
 average non-performing assets....................      15.92%        ---%          11.21%          ---%         ---%
                                                        =====         ===           =====           ===          ===
</TABLE>




                                       15

<PAGE>


         The following  table sets forth the allocation of the Bank's  allowance
for loan losses by loan  category  and the percent of loans in each  category to
total loans receivable, net, at the end of the periods indicated. The portion of
the loan loss  allowance  allocated to each loan category does not represent the
total available for future losses which may occur within the loan category since
the total loan loss  allowance is a valuation  reserve  applicable to the entire
loan portfolio.
<TABLE>
<CAPTION>
                                                                September 30,                                                     
                             ---------------------------------------------------------------------------------------------------- 
                                          1997                             1996                              1995                 
                             -------------------------------- -------------------------------- ---------------------------------- 
                                                     Percent                          Percent                            Percent  
                                                    of Loans                         of Loans                           of Loans  
                                          Loan       in Each                Loan      in Each                 Loan       in Each  
                             Amount of   Amounts    Category   Amount of   Amounts   Category    Amount of   Amounts    Category  
                             Loan Loss     by       to Total   Loan Loss     by      to Total    Loan Loss     by       to Total  
                             Allowance   Category     Loans    Allowance   Category    Loans     Allowance   Category     Loans   
                             ---------   --------     -----    ---------   --------    -----     ---------   --------     -----   
                                                                    (In Thousands)                                                
<S>                             <C>      <C>           <C>        <C>      <C>         <C>         <C>      <C>           <C>     
One- to four-family......       $198     $79,586       80.24%     $201     $77,725     83.09%      $196     $75,471       83.56%  
Multi-family.............         61      12,237       12.34       119      12,239     13.08         57      12,060       13.35   
Commercial real estate...         35       4,573        4.61        25       3,317      3.55         19       2,598        2.88   
Construction.............          3         529         .53       ---         ---       ---        ---         ---         ---   
Secured line of credit...         15       2,010        2.03       ---         ---       ---        ---         ---         ---   
Consumer.................         16         251         .25       ---         260       .28        ---         188         .21   
Unallocated..............          4         ---         ---       ---         ---       ---          3         ---         ---   
                              ------     -------     -------      ----      ------  --------     ------       -----    --------   
     Total...............       $332     $99,186      100.00%     $345     $93,541    100.00%      $275     $90,317      100.00%  
                                ====     =======      ======      ====     =======    ======       ====     =======      ======   
                                                                                             
</TABLE>
<TABLE>
<CAPTION>
                                                        November 30,                           
                            -----------------------------------------------------------------  
                                          1994                             1993                
                            --------------------------------- -------------------------------  
                                                     Percent                          Percent  
                                                    of Loans                         of Loans  
                                          Loan       in Each                Loan      in Each  
                             Amount of   Amounts    Category    Amount of  Amounts   Category  
                             Loan Loss     by       to Total    Loan Loss    by      to Total  
                             Allowance   Category     Loans     Allowance  Category    Loans   
                             ---------   --------     -----     ---------  --------    -----   
                                                      (In Thousands)                           
<S>                            <C>      <C>           <C>        <C>      <C>          <C>     
One- to four-family......      $ 82     $76,736       84.71      $ 85     $77,460      86.41   
Multi-family.............        22      11,218       12.38        20      10,171      11.34   
Commercial real estate...         6       2,473        2.73         5       1,802       2.01   
Construction.............       ---         ---         ---       ---         ---        ---   
Secured line of credit...       ---         ---         ---       ---         ---        ---   
Consumer.................         1         167         .18       ---         219        .24   
Unallocated..............        14         ---         ---        15         ---        ---   
                              -----    --------     -------     -----     --------     -----   
     Total...............      $125     $90,594      100.00  %   $125      $89,652    100.00%  
                               ====     =======      ======      ====      =======    ======   
</TABLE>

                                      16                              
<PAGE>



         The  allowance for losses on loans is  established  through a provision
for losses on loans charged to earnings based on management's  evaluation of the
risk inherent in its entire loan  portfolio and changes in the nature and volume
of its loan activity.  Such evaluation,  which includes a review of all loans of
which full  collectibility  may not be reasonably  assured,  considers  specific
occurrences,  general and local economic conditions, loan portfolio composition,
historical and local  experience  and other factors that warrant  recognition in
providing for an adequate  allowance for loan losses. In determining the general
reserves under these policies, historical charge-offs and recoveries, changes in
the mix and levels of the various types of loans,  net  realizable  values,  the
current loan portfolio and current economic conditions are considered.  The Bank
also requires additional reserves for all classified loans.

         While management  believes that it uses the best information  available
to determine the allowance for losses on loans,  unforeseen  economic and market
conditions could result in adjustments to the allowance for losses on loans, and
net  earnings  could  be  significantly   affected,   if  circumstances   differ
substantially from the assumptions used in making the final determination.

Investment Activities

         General.  National  banks have the authority to invest in various types
of liquid assets,  including United States Treasury  obligations,  securities of
various federal agencies,  certain  certificates of deposit of insured banks and
savings institutions,  certain bankers'  acceptances,  repurchase agreements and
federal funds. Subject to various  restrictions,  national banks may also invest
their  assets in certain  investment  securities  and mutual funds the assets of
which  conform to the  investments  that a national  bank is  authorized to make
directly.

         Generally, the investment policy of DFC and the Bank is to invest funds
among  categories of investments and maturities based upon the Company's and the
Bank's asset/liability management policies, investment quality, loan and deposit
volume,  liquidity needs and performance objectives.  Prior to December 1, 1994,
the Company recorded its investments in its investment  securities  portfolio at
the lower of cost or current market value if  held-for-sale or at amortized cost
if  held-for-investment.  Unrealized  declines in the market value of securities
held-to-maturity  were  not  reflected  in the  financial  statements;  however,
unrealized losses in the market value of securities  held-for-sale were recorded
as a charge to current earnings. Effective December 1, 1994, the Company adopted
SFAS  115,  which  resulted  in a  one-time  charge to  stockholders'  equity of
approximately  $1.1  million,  while the  cumulative  effect  of this  change in
accounting  principle,  net of taxes,  resulted in a one-time $907,000 credit to
earnings.  As  required  by SFAS  115,  securities  are  classified  into  three
categories:  trading,  held-to-maturity and available-for-sale.  Securities that
are bought and held principally for the purpose of selling them in the near term
are  classified  as  trading  securities  and are  reported  at fair  value with
unrealized  gains and losses  included  in  trading  account  activities  in the
statement of operations. Securities that DFC has the positive intent and ability
to hold to maturity are classified as held-to-maturity and reported at amortized
cost. All other securities not classified as held-to-maturity  are classified as
available-for-sale.  At September  30, 1997,  DFC had no  securities  which were
classified as trading. Available-for-sale securities are reported at fair market
value with unrealized  gains and losses  included,  on an after-tax  basis, in a
separate component of stockholders' equity. At

                                       17

<PAGE>



September 30, 1997, $35.9 million of investment  securities and $56.7 million of
mortgage-backed and related securities were classified as available-for-sale.

         Investment  Securities.  The Company and the Bank have used  investment
securities to supplement loan volume and to provide adjustable rate and/or short
and intermediate-term  assets for asset/liability  management purposes. To date,
the Company's and the Bank's investments have been directed toward  high-quality
assets with various terms to maturity. In addition to federal agency obligations
and tax-exempt municipal bonds, but to a much lesser extent, the Company and the
Bank invest in FHLB stock, stock in the Federal Reserve Bank ("FRB") of Chicago,
equity  securities  and  mutual  funds.  At  September  30,  1997 and 1996,  the
Company's  investment  securities  portfolio  totaled  $41.4  million  and $48.2
million,  respectively.  At  September  30,  1997,  the  Company did not own any
investment  securities  of a single  issuer which  exceeded 10% of the Company's
equity, other than federal agency obligations. See Notes 2 and 3 of the Notes to
the  Consolidated  Financial  Statements  in the Annual  Report  for  additional
information regarding the Company's investment securities portfolio.

         As part of DFC's  asset/liability  management  strategy,  the Company's
investment securities portfolio contains both short- and intermediate-term (five
years or less) securities. At September 30, 1997, $14.0 million of the Company's
investment  securities  (excluding  FHLB and FRB stock) had terms to maturity or
were likely to be called in five years or less. See "Management's Discussion and
Analysis  of  Financial  Condition  and Results of  Operations  -Asset/Liability
Management" in the Annual Report.

         In the past  several  years,  DFC carried a portion of this  investment
portfolio  as  "held-for-sale",  contributing  to some  volatility  in earnings.
However,  subsequent to the adoption of SFAS 115 effective  December 1, 1994 and
the recording of a cumulative  effect  adjustment,  the effect of changes in the
value of securities  available-for-sale  caused by interest  rate  movements has
affected the Company's stockholders' equity and not results of operations.


                                       18

<PAGE>

         The  following  table sets forth the  carrying  value of the  Company's
investment  securities  and  FHLB  and FRB  stock  at the  dates  indicated.  At
September  30,  1997,  the  market  value  of  the  Company's   held-to-maturity
investment securities portfolio was $5.5 million.
<TABLE>
<CAPTION>

                                                                                    September 30,
                                                     ------------------------------------------------------------------------------
                                                                 1997                      1996                        1995
                                                     -------------------------  ---------------------------  ----------------------
                                                         Book          % of         Book            % of         Book        % of
                                                         Value         Total        Value           Total        Value       Total
                                                                               (Dollars in Thousands)
<S>                                                   <C>              <C>       <C>                <C>        <C>            <C>  
Investment securities:
  Held-to-Maturity:   
    Tax-Exempt securities(1)......................    $     ---          ---%    $     ---            ---%     $    ---        ---%
    FHLB stock....................................        3,121         7.54         3,110           6.45         2,570       6.88
    FRB stock.....................................          578         1.40           ---            ---           ---        ---
    Other.........................................        1,845         4.45         1,777           3.68         1,090       2.92
                                                       --------       ------       -------          -----       -------      -----
     Subtotal.....................................        5,544        13.39         4,887          10.13         3,660       9.80
                                                       --------       ------       -------         ------       -------      -----
                                                                                                               
    Tax-Exempt securities(1)......................      $22,493        54.31%      $24,905          51.64%      $20,478      54.83%
    Federal Agency Obligations....................       11,051        26.68        14,785          30.66        11,166      29.90
    Equity securities.............................        2,330         5.62         3,653           7.57         2,045       5.47
                                                      ---------      -------       -------         ------       -------     ------
     Subtotal.....................................       35,874        86.61        43,343          89.87        33,689      90.20
                                                       --------       ------       -------         ------       -------     ------
     Total investment securities..................      $41,418       100.00%      $48,230         100.00%      $37,349     100.00%
                                                        =======       ======       =======         ======       =======     ======
                                                                                                          
Average remaining life of investment securities
 (excluding FHLB and FRB stock and other
  equities).......................................    9.6 years                  9.4 years                   11.3 years

Other interest-earning assets:
  Interest-earning deposits with banks............      $ 1,591       100.00%     $  1,011         100.00%      $19,938     100.00%
                                                        =======       ======      ========         ======       =======     ======
</TABLE>

(1)  Effective  with the adoption of SFAS 115 on December 1, 1994, the Company's
     tax-exempt securities were classified as available-for-sale.

         The  following  table  sets forth  certain  information  regarding  the
composition and maturities of the securities  portfolio,  excluding FHLB and FRB
stock,  equity  securities and other items, at September 30, 1997. See Note 3 of
the Notes to the  Consolidated  Financial  Statements in the Annual Report for a
discussion of the Company's investment  securities  portfolio.  A portion of the
Company's  municipal bonds have been prerefunded and the maturity on these bonds
reflect the prerefunded maturity dates.
<TABLE>
<CAPTION>
                                                                                September 30, 1997
                                                  --------------------------------------------------------------------------------
                                                  Less Than      1 to 5        5 to 10      Over
                                                    1 Year        Years         Years     10 Years     Total Investment Securities
                                                    ------        -----         -----     --------     ---------------------------
                                                  Book Value   Book Value    Book Value  Book Value    Book Value    Market Value
                                                  ----------   ----------    ----------  ----------    ----------    -------------
                                                                          (Dollars in Thousands)
<S>                                                 <C>          <C>           <C>         <C>           <C>            <C>    
Municipal bonds.............................        $1,020       $4,911        $2,177      $14,385       $22,493        $22,493
Federal agency obligations..................         3,513        5,052         2,486          ---        11,051         11,051
                                                     -----        -----        ------     --------       -------      ---------
     Total investment securities
      (excluding FHLB and FRB
       stock, equity securities and
       other items).........................        $4,533       $9,963        $4,663      $14,385       $33,544        $33,544
                                                    ======       ======        ======      =======       =======        =======
Weighted average yield......................          6.80%        6.46%         6.91%        6.10%         6.33%          6.33%
</TABLE>


                                       19

<PAGE>



         Mortgage-Backed and Related Securities. In order to supplement loan and
investment  activities and achieve its  asset/liability  management  goals,  the
Company invests in mortgage-backed and related  securities.  As of September 30,
1997, all of the  mortgage-backed  and related  securities  owned by the Company
were issued,  insured or guaranteed  either  directly or indirectly by a federal
agency or rated "A" (in most cases "AAA") or higher by a  nationally  recognized
credit  rating  agency.  However,  it should be noted  that,  while a (direct or
indirect)  federal  guarantee or a high credit rating may indicate a high degree
of protection  against default,  such guarantee or rating does not mean that the
securities will be protected from declines in value based on changes in interest
rates or prepayment speeds.

         At September  30, 1997,  DFC had $84.6 million of  mortgage-backed  and
related  securities,  representing  36.6% of total  assets.  On that  date,  the
Company had $51.0 million of Federal  National  Mortgage  Association  ("FNMA"),
FHLMC  and  Government  National  Mortgage  Association  ("GNMA")  participation
certificates  and conventional  mortgage-backed  securities and $33.6 million of
collateralized mortgage obligations ("CMOs") and real estate mortgage investment
conduits  ("REMICs").  At September  30, 1997,  $44.2  million of the  Company's
mortgage-backed  securities  were issued by either  FHLMC,  FNMA or GNMA and the
remaining $6.8 million were privately issued mortgage-backed securities. On that
date, $11.6 million of the Company's CMOs and REMICs were issued either by FHLMC
or FNMA and the remaining $22.0 million were privately issued  securities.  None
of the Company's  privately  issued  mortgage-backed  or related  securities are
insured or guaranteed by FHLMC or FNMA. All of the privately  issued  securities
were rated "AA" or higher by a nationally recognized credit rating agency at the
time of purchase.

         Consistent with its asset/liability  management strategy,  at September
30, 1997, $37.5 million or 44.3% of DFC's mortgage-backed and related securities
had  adjustable  interest  rates.  In  addition,  the Company has a  substantial
portfolio  of CMOs and REMICs with  anticipated  average  lives of five years or
less.  For  information  regarding  the  Company's  mortgage-backed  and related
securities  portfolio,  see  Notes  4 and 5 of the  Notes  to  the  Consolidated
Financial Statements in the Annual Report.

         At September 30, 1997,  the Company had no  mortgage-backed  or related
securities in excess of 10% of  stockholders'  equity except for FNMA, FHLMC and
GNMA  issues,  amounting  to $17.6  million,  $7.3  million  and $30.9  million,
respectively.

         In addition to its conventional mortgage-backed securities, the Company
invests  in  CMOs  and  REMICs.  CMOs  and  REMICs  are  securities  derived  by
reallocating the cash flows from mortgage-backed securities or pools of mortgage
loans in order to create  multiple  classes,  or tranches,  of  securities  with
coupon rates and average lives that differ from the  underlying  collateral as a
whole.  The terms to maturity of any  particular  tranche is dependent  upon the
prepayment  speed of the  underlying  collateral as well as the structure of the
particular CMO or REMIC. Although a significant proportion of the Company's CMOs
are interests in tranches  which have been  structured  (through the use of cash
flow priority and "support"  tranches) to give  somewhat more  predictable  cash
flows, the cash flow and the value of CMOs and REMICs are subject to change.

                                       20

<PAGE>



         The Company  invests in CMOs and REMICs as an  alternative  to mortgage
loans and conventional mortgage-backed securities as part of its asset/liability
management  strategy.  Management  believes  that CMOs and REMICs can  represent
attractive investment alternatives relative to other investments due to the wide
variety of maturity and repayment options available through such investments. In
particular,  the  Company  has  from  time  to time  concluded  that  short  and
intermediate duration CMOs and REMICs (five year or less average life) represent
a better  combination of rate and duration than adjustable rate  mortgage-backed
securities.  Because the Company's  CMOs and REMICs (with the exception of those
classified  as "high  risk" at the time of  purchase,  as  described  below) are
purchased as an  alternative  to mortgage  loans and because the Company has the
ability and intent to hold such  securities  to  maturity,  all such  securities
(with the exception of those  classified as "high risk" at the time of purchase)
are  classified as  held-to-maturity.  At September  30, 1997,  the Company held
$33.6  million  of CMOs  and  REMICs,  including  $31.6  million  of  short  and
intermediate duration (five year or less average life) or adjustable rates.

         Substantially  all  mortgage  derivatives  recently  purchased  by  the
Company are not classified as "high-risk"  under  regulatory  guidelines and are
subject  to normal  effects  of  changes  in  interest  rates.  To assess  price
volatility,  the Federal Financial  Institutions  Examination  Council ("FFIEC")
adopted a policy in 1992 which  requires  an annual  "stress"  test of  mortgage
derivative  securities.  This policy,  which has been adopted by the OCC and the
OTS,  requires  the Bank to  annually  test its CMOs and other  mortgage-related
securities to determine  whether they are high-risk or nonhigh-risk  securities.
Mortgage  derivative products with an average life or price volatility in excess
of a benchmark  30-year  mortgage-backed  pass-through  security are  considered
high-risk mortgage  securities.  Under the policy,  national banks may generally
only invest in high-risk  mortgage  securities in order to reduce  interest rate
risk. In addition,  all high-risk mortgage securities acquired after February 9,
1992 which are  classified  as high risk at the time of purchase must be carried
in the institution's trading account or as assets  held-for-sale.  Additionally,
DFC's  investment  policy limits the amount of "high-risk" CMOs that the Company
may  purchase  to 12% of total  assets and  mandates  that these  assets must be
retested and monitored  quarterly.  At September 30, 1997, the Company held CMOs
and REMICs that did not meet the  criteria  established  by the FFIEC policy and
were classified as "high-risk" with a carrying value of $7.4 million  (including
$3.8 million of securities  which were held for investment  because there was an
ability and intent to hold to maturity and such  securities were either acquired
before February 9, 1992 or were not classified as high risk until sometime after
purchase)  and a market  value of $7.3  million.  While  the  Company's  current
investment  policy permits its investment,  subject to certain  limitations,  in
CMOs and REMICs classified as "high-risk," it is currently  anticipated that any
future investments in "high-risk"  securities will be minimal.  To date, neither
the OCC (after the Bank Conversion) nor the OTS (before the Bank Conversion) has
required the Company to dispose of any high-risk securities.



                                       21

<PAGE>



         The  following  table  sets  forth the  contractual  maturities  of the
Company's  mortgage-backed and related securities at the dates indicated.  These
securities  are  anticipated  to be  repaid  in  advance  of  their  contractual
maturities  as a result of projected  mortgage  loan  prepayments.  In addition,
under  the  structure  of  the  Company's  REMICs,   the  Company's  short-  and
intermediate-tranche  interests  have  repayment  priority  over the longer term
tranches  of the same  underlying  mortgage  pool.  The  amounts set forth below
represent  principal  balances only and do not include  premiums,  discounts and
market value adjustments.
<TABLE>
<CAPTION>

                                                                                                   September 30,
                                                                                                       1997
                                                         5 to 10     10 to 20       Over 20           Balance
                                                          Years        Years         Years          Outstanding
                                                          -----        -----         -----          -----------
                                                                            (In Thousands)

<S>                                                       <C>         <C>          <C>                <C>    
CMOs and REMICs.....................................      $ ---       $6,695       $26,968            $33,663
FNMA participation certificates.....................        ---          147         9,018              9,165
Conventional mortgage-backed securities.............        ---          ---         6,648              6,648
FHLMC participation certificates....................        ---          299         3,510              3,809
GNMA participation certificates.....................        ---          ---        30,273             30,273
                                                          -----     --------       -------           --------
     Total..........................................      $ ---       $7,141       $76,417            $83,558
                                                          =====       ======       =======            =======
                                                     
</TABLE>


         The Company's holdings of  mortgage-backed  and related securities have
increased in recent years as a result of loan  competition  and deposit  growth.
Since  federal  agency  mortgage-backed   securities  generally  carry  a  yield
approximately  50 to 100 basis  points below that of the  corresponding  type of
residential  loan  (due to the  implied  federal  agency  guarantee  fee and the
retention of a servicing  spread by the loan servicer),  and the Company's other
mortgage related  securities also carry lower yields (due to the implied federal
agency  guarantee  and  because  such  securities  tend to have  shorter  actual
durations than 30 year loans), in the event that the proportion of the Company's
assets  consisting of  mortgage-backed  and related  securities  increases,  the
Company's asset yields could be somewhat  adversely  affected.  The Company will
evaluate mortgage-backed and related securities purchases in the future based on
its  asset/liability  objectives,  market conditions and alternative  investment
opportunities.

         The  market   values  of  a   significant   portion  of  the  Company's
mortgage-backed and related securities  held-to-maturity  have been from time to
time  significantly  lower than their carrying  values.  However,  for financial
reporting  purposes,  such  declines in value are  considered to be temporary in
nature since they have been due to changes in interest  rates rather than credit
concerns.  See Note 4 of the Notes to the Consolidated  Financial  Statements in
the Annual Report.



                                       22

<PAGE>



         The  following  table sets forth the  carrying  value of the  Company's
mortgage-backed and related securities at the dates indicated.  At September 30,
1997, the market value of the Company's  mortgage-backed  and related securities
portfolio was $84.3 million.
<TABLE>
<CAPTION>

                                                                                     September 30,
                                                         ----------------------------------------------------------------------
                                                                  1997                    1996                     1995
                                                         ---------------------  -----------------------   ---------------------
                                                           Book        % of        Book        % of         Book         % of
                                                           Value       Total       Value       Total        Value        Total
                                                                                (Dollars in Thousands)
  Held-to-Maturity:
<S>                                                       <C>           <C>       <C>           <C>         <C>           <C>   
    CMOs and REMICs..................................     $27,870       32.94%    $35,504       40.30%      $42,533       51.75%
                                                          -------      ------     -------      ------       -------       -----
      Subtotal.......................................      27,870       32.94      35,504       40.30        42,533       51.75
                                                         --------      ------     -------      ------       -------       -----
                                                                                                         
  Available-for-Sale:                                                                                    
    CMOs and REMICs..................................      $5,742        6.79%    $ 4,458        5.06%      $ 3,636        4.42%
    FNMA participation certificates..................       9,332       11.03      10,928       12.40        13,711       16.68
    FHLMC participation certificates.................       3,994        4.72       5,149        5.85         7,232        8.80
    GNMA participation certificates..................      30,910       36.53      24,826       28.18         7,833        9.53
    Conventional mortgage-backed securities..........       6,762        7.99       7,233        8.21         7,247        8.82
                                                          -------     -------    --------      ------       -------      ------
     Subtotal........................................      56,740       67.06      52,594       59.70        39,659       48.25
                                                          -------     -------    --------      ------       -------      ------
     Total mortgage-backed securities................     $84,610      100.00%    $88,098      100.00%      $82,192      100.00%
                                                          =======      ======     =======      ======       =======      ======
                                                                                                      
</TABLE>

Sources of Funds

         General. The Company's primary sources of funds are deposits,  payments
(including  prepayments)  of  loan  principal,  interest  earned  on  loans  and
securities,  repayments  of  securities,  borrowings  and  funds  provided  from
operations.

         Deposits.  Damen  offers a variety  of deposit  accounts  having a wide
range of interest rates and terms. The Bank's deposits consist of passbook, NOW,
money  market and various  certificate  accounts.  The Bank relies  primarily on
competitive  pricing  policies and customer  service to attract and retain these
deposits.

         The variety of deposit  accounts  offered by the Bank has allowed it to
be competitive in obtaining funds and to respond with  flexibility to changes in
consumer demand. However, as customers have become more interest rate conscious,
the Bank has become  more  susceptible  to  short-term  fluctuations  in deposit
flows.



                                       23

<PAGE>



         The Bank  manages  the  pricing of its  deposits  in  keeping  with its
asset/liability  management,  profitability and growth objectives. For instance,
the Bank has recently  implemented  several  marketing  initiatives  in order to
attract  intermediate  and long term  deposits.  However,  the Bank has found it
difficult to increase rapidly its deposits on a cost effective basis as a result
of intense  competition  throughout its market area and slow economic  growth in
the community  located near its Chicago office.  For  information  regarding the
amount of the Bank's deposit accounts in prior periods, see Note 10 of the Notes
to the Consolidated Financial Statements in the Annual Report.

         The following table sets forth the savings flows at the Bank during the
periods indicated.

                                                                    Ten Months
                                               Year Ended              Ended
                                              September 30,        September 30,
                                        -----------------------    -------------

                                           1997          1996           1995
                                        ---------     ---------      -----------
                                                  (Dollars in Thousands)
Opening balance......................... $118,973      $126,632       $126,210
Deposits................................   80,169        66,969         67,709
Withdrawals.............................  (77,870)      (79,781)       (71,146)
Interest credited.......................    4,474         5,153          3,859
                                        ---------     ---------      ---------

Ending balance.......................... $125,746      $118,973       $126,632
                                         ========      ========       ========

Net increase (decrease).................  $ 6,773      $ (7,659)     $     422
                                          =======      ========      =========

Percent increase (decrease).............     5.69%       (6.05)%           .33%
                                          =======      =======       =========




                                       24

<PAGE>



         Deposits in the Bank as of  September  30,  1997 were made  pursuant to
various types of savings programs, described below.
<TABLE>
<CAPTION>

                                                                                      September 30,
                                                         -------------------------------------------------------------------------
                                                               1997                       1996                       1995
                                                         ---------------------  ------------------------  ------------------------
                                                                       Percent                  Percent                   Percent
                                                           Amount     of Total      Amount     of Total      Amount      of Total
                                                           ------     --------      ------     --------      ------      --------
                                                                                 (Dollars in Thousands)
Transactions and Savings Deposits:
<S>                                                      <C>            <C>       <C>            <C>        <C>            <C>   
Passbook Accounts 2.80%(1)..........................     $ 19,938       15.86%    $ 20,386       17.13%     $23,350        18.44%
NOW and Money Market Accounts 2.50 -                                                                      
 4.35%(1)...........................................       10,737        8.53       10,764        9.05       11,467         9.05
                                                         --------        ----    ---------      ------      -------       ------
                                                                                                          
     Total Non-Certificates.........................       30,675       24.39       31,150       26.18       34,817        27.49
                                                         --------      ------    ---------      ------      -------       ------
                                                                                                          
Certificates:                                                                                             
                                                                                                          
 2.00 -  3.99%......................................          ---         ---          ---         ---            1          .03
 4.00 -  5.99%......................................       62,938       50.05       63,143       53.07       54,536        43.05
 6.00 -  7.99%......................................       30,997       24.65       23,390       19.66       35,729        28.21
 8.00 -  9.99%......................................        1,136         .91        1,290        1.09        1,549         1.22
                                                        ---------    ---------   ---------     -------    ---------      -------
     Total Certificates.............................       95,071       75.61       87,823       73.82       91,815        72.51
                                                        ---------     -------    ---------      ------    ---------      -------
     Total Deposits.................................     $125,746      100.00%    $118,973      100.00%    $126,632       100.00%
                                                         ========      ======     ========      ======     ========       ======
                                                                                                           
</TABLE>

(1)  Rates in effect at September 30, 1997.


                                       25

<PAGE>



         The following table shows rate and maturity  information for the Bank's
certificates of deposit as of September 30, 1997.
<TABLE>
<CAPTION>

                                    4.00-      5.00-        6.00-        7.00-       8.00-       9.00-                 Percent
                                    4.99%      5.99%        6.99%        7.99%       8.99%       9.99%      Total      of Total
                                    -----      -----        -----        -----       -----       -----      -----      --------
Certificate accounts maturing 
in quarter ending:
<S>                                 <C>      <C>           <C>       <C>         <C>         <C>           <C>           <C>   
December 31, 1997............       $690     $19,434       $  379    $    ---    $    ---    $      7      $20,510       21.57%
March 31, 1998...............        ---      10,887        1,176         ---          75         ---       12,138       12.77
June 30, 1998................        ---       9,311        1,812         ---         359         438       11,920       12.54
September 30, 1998...........        ---       6,729        8,963         ---         ---         ---       15,692       16.50
December 31, 1998............        ---       3,927        2,294          80         ---         100        6,401        6.73
March 31, 1999...............        ---       6,519        1,318           8         ---         109        7,954        8.37
June 30, 1999................        ---       1,636        3,896         ---         ---          48        5,580        5.87
September 30, 1999...........        ---         603        3,391         ---         ---         ---        3,994        4.20
December 31, 1999............        ---         350          736         944         ---         ---        2,030        2.13
March 31, 2000...............        ---         589          518         491         ---         ---        1,598        1.68
June 30, 2000................        ---          24          767         ---         ---         ---          791         .83
September 30, 2000...........        ---         477        1,057           8         ---         ---        1,542        1.62
Thereafter...................        ---       1,761        3,160         ---         ---         ---        4,921        5.19
                                  ------     -------      -------   ---------  ----------   ---------     --------     -------
   Total.....................       $690     $62,247      $29,467      $1,531    $    434     $   702      $95,071      100.00%
                                    ====     =======      =======      ======    ========     =======      =======      ======
   Percent of total..........        .73%      65.47%       30.99%       1.61%        .46%        .74%
                                  ======      ======       ======       =====      ======    ========
</TABLE>



                                       26

<PAGE>



         The following table indicates the amount of the Bank's  certificates of
deposit of $100,000 or more by time remaining until maturity as of September 30,
1997.
<TABLE>
<CAPTION>

                                                                 Maturity
                                                  ------------------------------------------
                                                              Over         Over
                                                  3 Months   3 to 6      6 to 12     Over
                                                  or Less    Months       Months   12 months      Total
                                                  -------    ------       ------   ---------      -----
<S>                                               <C>       <C>          <C>        <C>          <C>    
Certificates of deposit less than $100,000...     $ 9,838   $ 8,517      $19,439    $24,992      $62,786

Certificates of deposit of $100,000 or more..       3,304     1,790        8,073      9,819       22,986
(excluding Public Funds)

Public funds(1)..............................     $ 7,368   $ 1,831    $     100  $     ---      $ 9,299

Total certificates of deposit................     $20,510   $12,138      $27,612    $34,811      $95,071
                                                  =======   =======      =======    =======      =======
</TABLE>


(1)  Deposits from governmental and other public entities.



         For  additional  information  regarding the  composition  of the Bank's
deposits,  see Note 10 of the Notes to the Consolidated  Financial Statements in
the Annual Report.

         Borrowings.  The  Bank's  other  available  sources  of  funds  include
advances from the FHLB of Chicago and other borrowings.  As a member of the FHLB
of Chicago, the Bank is required to own capital stock in the FHLB of Chicago and
is authorized  to apply for advances from the FHLB of Chicago.  Each FHLB credit
program has its own interest rate, which may be fixed or variable,  and range of
maturities.  The FHLB of Chicago may  prescribe  the  acceptable  uses for these
advances,  as well as  limitations  on the size of the  advances  and  repayment
provisions.

         Consistent with its asset/liability  management strategy,  the Bank may
utilize FHLB advances to extend the term to maturity of its  liabilities.  Also,
the  Bank  uses  FHLB  borrowings  to fund  loan  demand  and  other  investment
opportunities  and to offset deposit  outflows.  At September 30, 1997, the Bank
had $56.5 million of FHLB advances  outstanding with a weighted average interest
rate of 6.24%. See Note 11 of the Notes to the Consolidated Financial Statements
in the Annual Report.


                                       27

<PAGE>



         The  following  table  sets forth the  maximum  month-end  balance  and
average  balance  of FHLB  advances  and all other  borrowings  for the  periods
indicated.


                                                                  Ten Months
                                              Year Ended             Ended
                                             September 30,       September 30,
                                      -----------------------    -------------
                                        1997           1996          1995
                                        ----           ----          ----
                                                 (In Thousands)
Maximum Balance:
  FHLB advances...................... $59,800        $61,800       $51,400

Average Balance:
  FHLB advances...................... $58,323        $51,950       $45,949


         The  following  table sets forth certain  information  as to the Bank's
FHLB advances at the dates indicated.
<TABLE>
<CAPTION>
                                                                              September 30,
                                                                   ---------------------------------
                                                                      1997          1996        1995
                                                                      ----          ----        ----
                                                                         (Dollars in Thousands)
<S>                                                                <C>            <C>         <C>    
FHLB advances.............................................         $ 56,500       $59,600     $45,500
                                                                   --------       -------     -------
     Total borrowings.....................................         $ 56,500       $59,600     $45,500
                                                                   ========       =======     =======
Weighted average interest rate of FHLB advances...........            6.24%         6.05%       6.33%
</TABLE>


Subsidiary Activities

         The Bank is permitted by OCC regulations to invest unlimited amounts in
subsidiaries that are engaged in activities in which the parent bank may engage.
In addition,  a national bank may invest limited  amounts in  subsidiaries  that
provide  banking  services,   such  as  data  processing,   to  other  financial
institutions.

         At September 30, 1997, Damen had one wholly-owned  service corporation,
Dasch,   Incorporated   ("Dasch"  or  the  "Subsidiary").   Dasch,  an  Illinois
corporation,  was  incorporated on March 25, 1976 for the purpose of operating a
retail insurance  agency selling  primarily  homeowners and mortgage  disability
insurance.  The insurance agency was sold in August 1985 and since that time the
Subsidiary has remained inactive.

         At September 30, 1997, the Subsidiary's  assets  consisted  entirely of
$188,400 in a savings and a money  market  account at Damen.  At that date,  the
Subsidiary had  liabilities of $3,200 and equity  consisted of $5,000 of capital
stock owned by Damen and $180,200 of retained earnings. Net income for the years
ended September 30, 1997 and 1996 was $2,999 and $3,895, respectively.


                                       28

<PAGE>



Competition

         The Bank faces strong  competition  both in originating real estate and
consumer loans and in attracting  deposits.  Competition  in  originating  loans
comes primarily from other savings institutions, commercial banks, credit unions
and  mortgage  bankers  which also make loans  secured  primarily by real estate
located in the Bank's market area.  The Bank competes for loans  principally  on
the basis of the interest rates and loan fees it charges,  the types of loans it
originates and the quality of services it provides to borrowers.

         The Bank  attracts  its deposits  through its main and branch  offices,
primarily from the  communities  in which those offices are located;  therefore,
competition for those deposits is principally  from other savings  institutions,
commercial  banks,  credit unions,  mutual funds and securities firms located in
the same  communities.  The ability of the Bank to attract  and retain  deposits
depends on its ability to provide an investment  opportunity  that satisfies the
requirements  of investors  as to rate of return,  liquidity,  risk,  convenient
locations and other factors.  The Bank competes for these deposits by offering a
variety of deposit  accounts at competitive  rates,  convenient  business hours,
interbranch deposit and withdrawal privileges and a customer oriented staff. The
Bank's share of the loan and deposit markets in its market area is less than 1%.

Employees

         At  September  30,  1997,  the  Company  had a  total  of 36  full-time
employees.  None of the Company's  employees are  represented  by any collective
bargaining agreement. Management considers its employee relations to be good.

Executive Officers

         Information concerning the executive officers of the Registrant who are
not also  directors of the  Registrant  is contained in Part I of this Form 10-K
under the caption "Executive Officers Who Are Not Directors.

Executive Officers Who Are Not Directors

         The  following is a description  of the Company's and Bank's  executive
officers who were not also directors as of September 30, 1997.

         Gerald J.  Gartner.  Mr.  Gartner,  age 54, has served as Treasurer and
Chief  Financial  Officer  of the Bank  since  1975 and the  Company  since  its
incorporation in 1995.

         Kenneth D. Vanek. Mr. Vanek, age 67, has served as a branch manager and
Senior  Vice  President  of the Bank since 1988,  and of the  Company  since its
incorporation in 1995. Mr. Vanek joined Damen in 1971 as an accounting clerk.




                                       29

<PAGE>



                                   REGULATION

General

         The Company is a  registered  bank  holding  company,  subject to broad
federal  regulation  and  oversight  by the Board of  Governors  of the  Federal
Reserve System (the "Federal Reserve  Board").  The Bank is a national bank, the
deposits of which are federally  insured and backed by the full faith and credit
of the  United  States  Government.  Accordingly,  the Bank is  subject to broad
federal regulation and oversight extending to all its operations by the OCC, the
FDIC and the  Federal  Reserve  Board.  The Bank is also a member of the FHLB of
Chicago.  The Bank is a member  of the  SAIF  and the  deposits  of the Bank are
insured by the FDIC.

         Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.

Federal Regulation of National Banks

         The OCC has extensive  authority over the operations of national banks.
As part of this  authority,  the Bank is required to file periodic  reports with
the OCC and is subject to periodic  examinations  by the OCC. All national banks
are subject to a  semi-annual  assessment,  based upon the  institution's  total
assets, to fund the operations of the OCC.

         The OCC also has  extensive  enforcement  authority  over all  national
banks,  including the Bank. This  enforcement  authority  includes,  among other
things, the ability to assess civil money penalties,  to issue  cease-and-desist
or  removal  orders  and to  initiate  injunctive  actions.  In  general,  these
enforcement  actions may be initiated for violations of laws and regulations and
unsafe or unsound  practices.  Other  actions or inactions may provide the basis
for enforcement action,  including misleading or untimely reports filed with the
OCC. Except under certain circumstances,  public disclosure of final enforcement
actions by the OCC is required.

         The Bank's  loans-to-one  borrower limit is generally limited to 15% of
unimpaired  capital  and  surplus  (except  for loans  fully  secured by certain
readily  marketable  collateral,  in which  case this  limit is raised to 25% of
unimpaired capital and surplus). At September 30, 1997, the maximum amount which
the  Bank  could  have  loaned  under  this  limit to any one  borrower  and the
borrower's  related entities was  approximately  $5.9 million.  At September 30,
1997,  the Bank  had no loans or  groups  of  loans to  related  borrowers  with
outstanding balances in excess of this amount.

         The OCC, as well as the other  federal  banking  agencies,  has adopted
guidelines  establishing  safety and soundness standards on such matters as loan
underwriting and  documentation,  internal controls and audit systems,  interest
rate risk exposure and compensation and other employee benefits. Any institution
which fails to comply with these  standards  must submit a  compliance  plan.  A
failure to submit a plan or to comply  with an  approved  plan will  subject the
institution to further enforcement action. The OCC and the other federal banking

                                       30

<PAGE>



agencies have also proposed additional  guidelines on asset quality and earnings
standards.  No assurance can be given as to whether or in what form the proposed
regulations will be adopted.

Insurance of Accounts and Regulation by the FDIC

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

         The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured  depository  institutions  are placed into one of
nine  categories  and  assessed  insurance  premiums  based upon their  level of
capital and supervisory evaluation. Under the system, institutions classified as
well  capitalized  (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to  risk-weighted  assets  ("Tier 1  risk-based  capital") of at
least 6% and a risk-based  capital ratio of at least 10%) and considered healthy
pay the  lowest  premium  while  institutions  that  are  less  than  adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based  capital  ratio  of less  than  8%)  and  considered  of  substantial
supervisory concern pay the highest premium.  Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.

         In order to equalize the deposit  insurance  premium schedules for SAIF
insured  institutions  and  institutions  with  deposits  insured  by  the  Bank
Insurance Fund (the "BIF"),  the FDIC imposed a one-time  special  assessment on
all  SAIF-assessable  deposits held as of March 31, 1995 pursuant to legislation
enacted on September  30, 1996.  The  Company's  special  assessment,  which was
$860,000,  was paid in  November  1996 but  accrued  for the  fiscal  year ended
September 30, 1996.  Effective January 1, 1997, the premium schedule for BIF and
SAIF  insured   institutions  ranged  from  0  to  27  basis  points.   However,
SAIF-insured  institutions  are required to pay a Financing  Corporation  (FICO)
assessment,  in order to fund the  interest  on bonds  issued to resolve  thrift
failures  in the  1980s,  equal to 6.48 basis  points for each $100 in  domestic
deposits,  while BIF-insured  institutions pay an assessment equal to 1.52 basis
points for each $100 in  domestic  deposits.  The  assessment  is expected to be
reduced to 2.43 no later than  January 1, 2000,  when BIF  insured  institutions
fully  participate in the assessment.  These  assessments,  which may be revised
based upon the level of BIF and SAIF  deposits,  will  continue  until the bonds
mature in the year 2017.

         Regulatory  Capital  Requirements.  The Bank is subject to the  capital
regulations of the OCC. The OCC's  regulations  establish two capital  standards
for national banks: a leverage requirement and a risk-based capital requirement.
In addition,  the OCC may, on a case-by-case basis, establish individual minimum
capital requirements for a national bank that vary from the

                                       31

<PAGE>



requirements which would otherwise apply under OCC regulations.  A national bank
that fails to  satisfy  the  capital  requirements  established  under the OCC's
regulations  will be subject to such  administrative  action or sanctions as the
OCC deems appropriate.

         The leverage ratio adopted by the OCC requires a minimum ratio of "Tier
1 capital" to adjusted total assets of 3% for national  banks rated  composite 1
under the CAMEL rating system for banks.  National  banks not rated  composite 1
under the CAMEL rating system for banks are required to maintain a minimum ratio
of Tier 1 capital to adjusted total assets of 4% to 5%, depending upon the level
and nature of risks of their  operations.  For  purposes  of the OCC's  leverage
requirement,  Tier 1 capital generally consists of common  stockholders'  equity
and retained  income and certain  non-cumulative  perpetual  preferred stock and
related  income,  except  that no  intangibles  and certain  purchased  mortgage
servicing  rights and  purchased  credit card  relationships  may be included in
capital.

         The   risk-based   capital   requirements   established  by  the  OCC's
regulations require national banks to maintain "total capital" equal to at least
8% of  total  risk-weighted  assets.  For  purposes  of the  risk-based  capital
requirement,  "total  capital"  means Tier 1 capital (as  described  above) plus
"Tier 2 capital,"  provided that the amount of Tier 2 capital may not exceed the
amount of Tier 1 capital,  less certain assets. The components of Tier 2 capital
include certain  permanent and maturing capital  instruments that do not qualify
as core capital and general  valuation  loan and lease loss  allowances  up to a
maximum of 1.25% of risk-weighted assets.

         The OCC has revised its risk-based  capital  requirements to permit the
OCC to require  higher  levels of  capital  for an  institution  in light of its
interest  rate risk. In addition,  the OCC has proposed  that a bank's  interest
rate risk exposure would be quantified  using either the measurement  system set
forth in the proposal or the  institution's  internal  model for measuring  such
exposure,  if such  model is  determined  to be  adequate  by the  institution's
examiner.  Small  institutions  that are  highly  capitalized  and have  minimal
interest rate risk would be exempt from the rule unless otherwise  determined by
the OCC.  Management  of the Bank has not  determined  what effect,  if any, the
OCC's proposed  interest rate risk component would have on the Bank's capital if
adopted as proposed.

         Prompt  Corrective  Action.  The OCC is authorized  and,  under certain
circumstances required, to take certain actions against national banks that fail
to meet their capital requirements. The OCC is generally required to take action
to restrict  the  activities  of an  "undercapitalized  association"  (generally
defined to be one with less than  either a 4% core  capital  ratio,  a 4% Tier 1
risked-based  capital  ratio  or an  8%  risk-based  capital  ratio).  Any  such
association  must  submit a  capital  restoration  plan and  until  such plan is
approved by the OCC may not increase its assets,  acquire  another  institution,
establish a branch or engage in any new  activities,  and generally may not make
capital   distributions.   The  OCC  is  authorized  to  impose  the  additional
restrictions that are applicable to significantly undercapitalized associations.


                                       32

<PAGE>



         Any national banking  association that fails to comply with its capital
plan or is  "significantly  undercapitalized"  (i.e.,  Tier 1 risk-based or core
capital  ratios of less than 3% or a risk-based  capital  ratio of less than 6%)
must  be  made  subject  to one or  more of  additional  specified  actions  and
operating restrictions which may cover all aspects of its operations and include
a forced  merger  or  acquisition  of the  Bank.  An  association  that  becomes
"critically  undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly  undercapitalized associations. In addition, the OCC
must appoint a receiver (or conservator  with the concurrence of the FDIC) for a
bank,  with  certain  limited  exceptions,  within  90  days  after  it  becomes
critically  undercapitalized.  Any undercapitalized  bank is also subject to the
general  enforcement  authority  of the  OCC,  including  the  appointment  of a
conservator or a receiver.

         The OCC is also generally  authorized to reclassify a bank into a lower
capital category and impose the restrictions  applicable to such category if the
institution  is  engaged in unsafe or  unsound  practices  or is in an unsafe or
unsound condition.

         The imposition by the OCC of any of these measures on the Bank may have
a substantial  adverse effect on the Bank's operations and profitability and the
value of the Company's Common Stock.

Limitations on Dividends and Other Capital Distributions

         The Bank's  ability to pay  dividends is governed by the National  Bank
Act and OCC regulations.  Under such statute and regulations, all dividends by a
national  bank  must be paid out of  current  or  retained  net  profits,  after
deducting  reserves  for losses and bad debts.  The  National  Bank Act  further
restricts the payment of dividends out of net profits by  prohibiting a national
bank from  declaring  a cash  dividend  on its shares of common  stock until the
surplus fund equals the amount of capital stock or, if the surplus fund does not
equal the amount of capital stock, until one-tenth of the Bank's net profits for
the preceding  half year in the case of quarterly or semi-annual  dividends,  or
the  preceding  two  half-year  periods  in the case of  annual  dividends,  are
transferred  to the surplus fund. In addition,  the prior approval of the OCC is
required for the payment of a dividend if the total of all dividends declared by
a national  bank in any calendar  year would exceed the total of its net profits
for the year combined with its net profits for the two preceding years, less any
required  transfers  to surplus or a fund for the  retirement  of any  preferred
stock.

         The OCC has the  authority  to prohibit  the payment of  dividends by a
national  bank when it  determines  such  payment  to be an unsafe  and  unsound
banking practice.  In addition,  the Bank would be prohibited by federal statute
and the OCC's  prompt  corrective  action  regulations  from  making any capital
distribution  if, after  giving  effect to the  distribution,  the Bank would be
classified as "undercapitalized" under the OCC's regulations.  See "-- Insurance
of Accounts and Regulation by the FDIC-- Prompt Corrective Action." Finally, the
Bank would not be able to pay  dividends  on its  capital  stock if its  capital
would thereby be reduced below the remaining balance of the liquidation  account
established in connection with the Conversion.


                                       33

<PAGE>



Accounting

         The OCC requires  that  investment  activities of a national bank be in
compliance with approved and documented investment policies and strategies,  and
must  be  accounted  for  in  accordance  with  generally  accepted   accounting
principles ("GAAP"). Accordingly,  management must support its classification of
and accounting for loans and securities (i.e., whether held for investment, sale
or trading) with appropriate documentation. The Bank is in compliance with these
requirements.

Community Reinvestment Act

         Under the  Community  Reinvestment  Act  ("CRA"),  every  FDIC  insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking  practices to help meet the credit needs of its entire  community,
including  low and moderate  income  neighborhoods.  The CRA does not  establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's  discretion to develop the types of products and services
that it believes are best suited to its particular  community,  consistent  with
the CRA. The CRA requires the OCC, in  connection  with the  examination  of the
Bank,  to assess the  institution's  record of meeting  the credit  needs of its
community  and to take such record  into  account in its  evaluation  of certain
applications, such as a merger or the establishment of a branch, by the Bank. An
unsatisfactory  rating may be used as the basis for the denial of an application
by the OCC.

         The federal banking agencies,  including the OCC, have recently revised
the CRA  regulations  and  the  methodology  for  determining  an  institution's
compliance with the CRA. Due to the heightened  attention being given to the CRA
in the past few years,  the Bank may be required to devote  additional funds for
investment  and lending in its local  community.  The Bank was  examined for CRA
compliance in 1996 and received a rating of "Satisfactory."

Transactions with Affiliates

         Generally, transactions between a national bank or its subsidiaries and
its  affiliates  are  required  to be on  terms  as  favorable  to the  bank  as
transactions with  non-affiliates.  In addition,  certain of these transactions,
such as loans to an  affiliate,  are  restricted  to a percentage  of the Bank's
capital.  Affiliates  of the Bank  include  any  company  which is under  common
control with the Bank. In addition,  the Bank may not acquire the  securities of
most affiliates.  Subsidiaries of the Bank are not deemed  affiliates.  However,
the Federal  Reserve Board has the discretion to treat  subsidiaries of national
banks as affiliates on a case-by-case basis.

         Certain  transactions with directors,  officers or controlling  persons
("Insiders") are also subject to conflict of interest rules enforced by the OCC.
These  conflict  of  interest   regulations   and  other  statutes  also  impose
restrictions on loans to such persons and their related  interests.  Among other
things,  as  a  general  matter,  loans  to  Insiders  must  be  made  on  terms
substantially the same as for loans to unaffiliated individuals.


                                       34

<PAGE>



Federal Reserve System

         The Federal  Reserve  Board  requires all  depository  institutions  to
maintain  non-interest  bearing  reserves  at  specified  levels  against  their
transaction accounts (primarily checking,  NOW and Super NOW checking accounts).
At  September  30,  1997,  the Bank had  $578,000  in FRB  stock,  which  was in
compliance with these reserve requirements.

         National banks are authorized to borrow from the FRB "discount window,"
but Federal  Reserve Board  regulations  require  associations  to exhaust other
reasonable  alternative  sources of funds,  including  FHLB  borrowings,  before
borrowing from the FRB.

         The Bank is a member of the Federal Reserve System.

Holding Company Regulation

         General.  The Company is a bank holding  company,  registered  with the
Federal  Reserve  Board.  Bank holding  companies  are subject to  comprehensive
regulation by the Federal  Reserve  Board under the Bank Holding  Company Act of
1956, as amended (the"BHCA"),  and the regulations of the Federal Reserve Board.
As a bank  holding  company,  the Company is required to file  reports  with the
Federal  Reserve Board and such  additional  information as the Federal  Reserve
Board may require,  and will be subject to regular  examinations  by the Federal
Reserve  Board.  The  Federal  Reserve  Board  also  has  extensive  enforcement
authority  over bank  holding  companies,  including,  among other  things,  the
ability to assess  civil money  penalties,  to issue cease and desist or removal
orders and to require that a holding company divest subsidiaries  (including its
bank  subsidiaries).  In  general,  enforcement  actions  may be  initiated  for
violations of law and regulations and unsafe or unsound practices.

         Under Federal  Reserve Board policy,  a bank holding company must serve
as a source of strength for its subsidiary banks.  Under this policy the Federal
Reserve  Board may require,  and has required in the past, a holding  company to
contribute additional capital to an undercapitalized subsidiary bank.

         Under the BHCA, a bank  holding  company  must obtain  Federal  Reserve
Board  approval  before:  (i) acquiring,  directly or  indirectly,  ownership or
control of any voting  shares of another bank or bank holding  company if, after
such acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such  shares);  (ii)  acquiring  all or
substantially  all of the assets of another  bank or bank  holding  company;  or
(iii) merging or consolidating with another bank holding company.

         The  BHCA  also  prohibits  a  bank  holding   company,   with  certain
exceptions,  from acquiring direct or indirect ownership or control of more than
5% of the  voting  shares  of any  company  which is not a bank or bank  holding
company,  or from engaging directly or indirectly in activities other than those
of  banking,  managing or  controlling  banks,  or  providing  services  for its
subsidiaries.  The principal  exceptions to these  prohibitions  involve certain
non-bank  activities which, by statute or by Federal Reserve Board regulation or
order, have been identified as

                                       35

<PAGE>



activities closely related to the business of banking or managing or controlling
banks.  The list of activities  permitted by the Federal Reserve Board includes,
among other things,  operating a savings institution,  mortgage company, finance
company,  credit card  company or  factoring  company;  performing  certain data
processing  operations;  providing  certain  investment  and  financial  advice;
underwriting   and  acting  as  an   insurance   agent  for  certain   types  of
credit-related  insurance;  leasing  property  on a  full-payout,  non-operating
basis; selling money orders,  travelers' checks and United States Savings Bonds;
real  estate and  personal  property  appraising;  providing  tax  planning  and
preparation services; and, subject to certain limitations,  providing securities
brokerage services for customers.

         Interstate   Banking  and   Branching.   On  September  29,  1994,  the
Riegle-Neal Interstate Banking and Branching Act of 1994 (the "Act") was enacted
to ease restrictions on interstate  banking.  Effective  September 29, 1995, the
Act allows the Federal  Reserve Board to approve an application of an adequately
capitalized  and adequately  managed bank holding company to acquire control of,
or acquire all or substantially  all of the assets of, a bank located in a state
other than such  holding  company's  home state,  without  regard to whether the
transaction  is prohibited by the laws of any state.  The Federal  Reserve Board
may not approve the  acquisition  of the bank that has not been in existence for
the minimum time period (not  exceeding  five years)  specified by the statutory
law of the host state.  The Act also  prohibits  the Federal  Reserve Board from
approving  an  application  if the  applicant  (and its  depository  institution
affiliates)  controls or would control more than 10% of the insured  deposits in
the United States or 30% or more of the deposits in the target bank's home state
or in any state in which the target bank  maintains  a branch.  The Act does not
affect the authority of states to limit the percentage of total insured deposits
in the state which may be held or controlled  by a bank or bank holding  company
to the extent such limitation does not discriminate  against  out-of-state banks
or bank holding  companies.  Individual states may also waive the 30% state-wide
concentration limit contained in the Act.

         Additionally,  on June 1, 1997,  the federal  banking  agencies  became
authorized to approve interstate merger  transactions  without regard to whether
such transaction is prohibited by the law of any state, unless the home state of
one of the  banks  opted  out of the Act by  adopting  a law  after  the date of
enactment  of the Act and prior to June 1, 1997  which  applies  equally  to all
out-of-state  banks  and  expressly  prohibits  merger  transactions   involving
out-of-state banks.  Interstate  acquisitions of branches will be permitted only
if  the  law  of  the  state  in  which  the  branch  is  located  permits  such
acquisitions. Interstate mergers and branch acquisitions will also be subject to
the nationwide and statewide  insured deposit  concentration  amounts  described
above.  The State of Illinois  has  authorized  interstate  merger  transactions
effective June 1, 1997.

         The Act authorizes the OCC and FDIC to approve interstate  branching de
novo  by  national  and  state  banks,   respectively,   only  in  states  which
specifically allow for such branching.

         Dividends.  The Federal Reserve Board has issued a policy  statement on
the payment of cash  dividends by bank holding  companies,  which  expresses the
Federal  Reserve  Board's  view  that a bank  holding  company  should  pay cash
dividends only to the extent that the holding  company's net income for the past
year is  sufficient  to  cover  both the cash  dividends  and a rate of  earning
retention that is consistent  with the holding  company's  capital needs,  asset
quality and overall

                                       36

<PAGE>



financial  condition.  The Federal Reserve Board also indicated that it would be
inappropriate for a company  experiencing  serious financial  problems to borrow
funds  to  pay  dividends.  Furthermore,  under  the  prompt  corrective  action
regulations  adopted by the Federal Reserve Board, the Federal Reserve Board may
prohibit a bank  holding  company  from  paying  any  dividends  if the  holding
company's   bank   subsidiary  is  classified  as   "undercapitalized".   See  "
--Regulatory Capital Requirements -- Prompt Corrective Action."

         Bank holding  companies are required to give the Federal  Reserve Board
prior written  notice of any purchase or redemption  of its  outstanding  equity
securities  if the gross  consideration  for the  purchase or  redemption,  when
combined with the net  consideration  paid for all such purchases or redemptions
during the  preceding 12 months,  is equal to 10% or more of their  consolidated
net  worth.  The  Federal  Reserve  Board  may  disapprove  such a  purchase  or
redemption  if it  determines  that the proposal  would  constitute an unsafe or
unsound  practice or would violate any law,  regulation,  Federal  Reserve Board
order,  or any  condition  imposed by, or written  agreement  with,  the Federal
Reserve Board. This notification  requirement does not apply to any company that
meets the  well-capitalized  standard  for  commercial  banks,  has a safety and
soundness  examination  rating  of at  least  a "2"  and is not  subject  to any
unresolved supervisory issues.

         Capital Requirements. The Federal Reserve Board has established capital
requirements  for bank holding  companies  that  generally  parallel the capital
requirements  for national banks. For bank holding  companies with  consolidated
assets of less than $150 million,  compliance is measured on a bank-only  basis.
See "--  Regulatory  Capital  Requirements  - National  Banks." At September 30,
1997, the Company satisfied the Federal Reserve Board's capital requirements for
bank holding companies.

Federal Home Loan Bank System

         The  Bank is a  member  of the  FHLB  of  Chicago,  which  is one of 12
regional FHLBs that  administers  the home financing  credit function of savings
associations.  Each FHLB  serves as a reserve  or central  bank for its  members
within its assigned  region.  It is funded  primarily from proceeds derived from
the sale of  consolidated  obligations  of the FHLB  System.  It makes  loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB which are subject to the  oversight of the
Federal  Housing  Finance  Board.  All advances from the FHLB are required to be
fully secured by  sufficient  collateral as determined by the FHLB. In addition,
all  long-term  advances  are  required to provide  funds for  residential  home
financing.

         As a member, the Bank is required to purchase and maintain stock in the
FHLB of Chicago. At September 30, 1997, the Bank had $3.1 million in FHLB stock,
which was in  compliance  with this  requirement.  In past  years,  the Bank has
received  substantial  dividends on its FHLB stock.  Over the past five calendar
years such dividends have averaged 6.47% and were 6.75% for calendar year 1996.


                                       37

<PAGE>



         Under  federal  law the FHLBs are  required  to  provide  funds for the
resolution  of  troubled  savings  associations  and to  contribute  to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income  housing
projects.  These  contributions  have  affected  adversely  the  level  of  FHLB
dividends  paid and could continue to do so in the future.  These  contributions
could also have an adverse  effect on the value of FHLB stock in the  future.  A
reduction  in value of the  Bank's  FHLB  stock may  result  in a  corresponding
reduction in the Bank's capital.

Federal and State Taxation

         Federal Taxation. In addition to the regular income tax,  corporations,
including  the Bank,  are  generally  subject to a minimum  tax. An  alternative
minimum  tax is  imposed  at a minimum  tax rate of 20% on  alternative  minimum
taxable income, which is the sum of a corporation's regular taxable income (with
certain adjustments) and tax preference items, less any available exemption. The
alternative  minimum tax is imposed to the extent it exceeds  the  corporation's
regular  income  tax and net  operating  losses  can  offset no more than 90% of
alternative  minimum taxable income.  For taxable years beginning after 1986 and
before  1996,  corporations,   such  as  the  Bank,  were  also  subject  to  an
environmental  tax equal to 0.12% of the excess of alternative  minimum  taxable
income for the taxable year  (determined  without regard to net operating losses
and the deduction for the environmental tax) over $2 million.

         The Company and its  subsidiaries  filed  separate  federal  income tax
returns on a fiscal year basis using the accrual method of accounting.

         Neither  the Company nor its  subsidiary  have been  audited by the IRS
with respect to their federal income tax returns  during the last ten years.  In
the opinion of  management,  any  examination  of still open returns  (including
returns of  subsidiaries  and  predecessors  of, or entities  merged  into,  the
Company)  would not result in a deficiency  which could have a material  adverse
effect on the financial condition of the Company on a consolidated basis.

         Illinois  Taxation.  For Illinois  income tax purposes,  the Company is
taxed at an effective rate equal to 7.18% of Illinois taxable income.  For these
purposes,  "Illinois  Taxable  Income"  generally  means federal taxable income,
subject to certain  adjustments  (including  the addition of interest  income on
state and municipal  obligations  and the exclusion of interest income on United
States Treasury obligations).  The exclusion of income on United States Treasury
obligations  has had the effect of eliminating  Illinois  taxable income for the
Company.

         The  Company's  accounting  activities  are  maintained  on an in-house
computer system and its  record-keeping  activities are maintained on an on-line
basis with an independent service bureau.

         Delaware  Taxation.  As a  Delaware  holding  company,  the  Company is
exempted  from Delaware  corporate  income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware.  The Company is also
subject to an annual franchise tax imposed by the State of Delaware.


                                       38

<PAGE>



Item 2.           Description of Properties

         DFC conducts its business at its main office and two other locations in
its market area. The following table sets forth  information  concerning each of
DFC's offices as of September  30, 1997.  At September  30, 1997,  the total net
book  value of DFC's  premises  and  equipment  (including  land,  building  and
leasehold improvements, and furniture, fixtures and equipment) was approximately
$3.5 million.


                                 Year            Owned or      Net Book Value at
             Location          Acquired           Leased      September 30, 1997
-------------------------  ---------------  ----------------  ------------------

Main Office:
200 West Higgins Road          1993(1)            Owned            $1,947,000
Schaumburg, Illinois                           
                                               
Full Service Branches:                         
5100 South Damen Avenue        1964               Owned               181,000
Chicago, Illinois                              
                                               
5750 West 87th Street          1991               Owned               739,000
Burbank, Illinois                             


(1)  Office first occupied in 1975.

         The Company  believes that its current  facilities are adequate to meet
the  present  and  foreseeable  future  needs  of  the  Company.  The  Company's
Schaumburg office currently has  approximately  12,000 square feet of unoccupied
office space which Damen intends to lease to third parties.

         The Bank's  depositor and borrower  customer files are maintained by an
independent data processing  company.  The net book value of the data processing
and  computer  equipment  utilized  by the  Company at  September  30,  1997 was
approximately  $290,000.  The Company  upgraded its data processing and computer
equipment during fiscal 1996 at a cost of $333,000.

Item 3.           Legal Proceedings

         From time to time, DFC is involved as plaintiff or defendant in various
legal  proceedings  arising  in the  normal  course of its  business.  While the
ultimate  outcome of these various legal  proceedings  cannot be predicted  with
certainty,  it is the opinion of management  that the  resolution of these legal
actions should not have a material effect on DFC's financial position or results
of operations.

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

         No matter was  submitted  to a vote of  security  holders,  through the
solicitation  of proxies or otherwise,  during the quarter  ended  September 30,
1997.


                                       39

<PAGE>



                                     PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

         The  information  under the caption  "Stock  Listing" on page 46 of the
attached 1997 Annual Report to Stockholders is herein incorporated by reference.

Item 6. Selected Financial Data

         Pages 6 and 7 of the attached  1997 Annual  Report to  Stockholders  is
herein incorporated by reference.

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

         Pages 8 through 21 of the attached 1997 Annual  Report to  Stockholders
is herein incorporated by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

         The  information  required by this item  contained in the attached 1997
Annual Report to Stockholders is herein incorporated by reference.

Item 8. Financial Statements and Supplementary Data

         The following  information  appearing in the Company's Annual Report to
Stockholders for the year ended September 30, 1997, is incorporated by reference
in this Annual Report on Form 10-K as Exhibit 13.
<TABLE>
<CAPTION>

                                                                                                             Pages in
                                                                                                              Annual
Annual Report Section                                                                                         Report
---------------------                                                                                         ------
<S>                                                                                                              <C>
Report of Independent Auditors.......................................................................            22

Consolidated Statement of Financial Condition as of September 30, 1997 and
  September 30, 1996.................................................................................            23

Consolidated Statement of Earnings for the Periods  Ended September 30, 1997
  September 30, 1996 and September 30, 1995..........................................................     24 and 25

Consolidated Statement of Changes in Stockholders' Equity for the Periods Ended
  September 30, 1997, September 30, 1996 and September 30, 1995......................................            26

Consolidated Statement of Cash Flows for the Periods Ended September 30, 1997,
  September 30, 1996 and September 30, 1995..........................................................     27 and 28

Notes to Consolidated Financial Statements........................................................... 29 through 45
</TABLE>

                                       40

<PAGE>




Item  9.  Changes  In and  Disagreements  With  Accountants  on  Accounting  and
          Financial Disclosure

         There has been no  Current  Report  on Form 8-K filed  within 24 months
prior to the date of the most recent financial  statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.


                                    PART III

Item 10. Directors and Executive Officers of the Registrant

Directors

         Information  concerning  directors of the  Registrant  is  incorporated
herein by reference from the Company's definitive Proxy Statement for the Annual
Meeting of  Stockholders  to be held in 1998,  a copy of which will be filed not
later than 120 days after the close of the fiscal year.

Executive Officers

         Information concerning the executive officers of the Registrant who are
not also  directors of the  Registrant  is contained in Part I of this Form 10-K
under the caption "Executive Officers Who Are Not Directors."

Section 16(a) Beneficial Ownership Reporting Compliance

         Section 16(a) of the Exchange Act requires the Company's  directors and
executive  officers,  and persons who own more than 10% of a registered class of
the Company's equity  securities,  to file with the SEC reports of ownership and
reports of changes in ownership of common stock and other equity  securities  of
the Company. Officers,  directors and greater than 10% stockholders are required
by SEC  regulation to furnish the Company with copies of all Section 16(a) forms
they file.

         To the Company's  knowledge,  based solely on a review of the copies of
such reports furnished to the Company and written  representations that no other
reports were  required,  during the fiscal year ended  September  30, 1997,  the
Registrant complied with all Section 16(a) filing requirements applicable to its
officers,  directors and greater than 10 percent  beneficial owner were complied
with.



                                       41

<PAGE>



Item 11. Executive Compensation

         Information concerning executive compensation is incorporated herein by
reference  from  the  definitive  Proxy  Statement  for the  Annual  Meeting  of
Stockholders  to be held in 1998,  a copy of which  will be filed not later than
120 days after the close of the fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         Information  concerning security ownership of certain beneficial owners
and management is  incorporated  herein by reference  from the definitive  Proxy
Statement for the Annual Meeting of  Stockholders  to be held in 1998, a copy of
which will be filed not later than 120 days after the close of the fiscal year.

Item 13. Certain Relationships and Related Transactions

         Information  concerning certain  relationships and related transactions
is incorporated  herein by reference from the definitive Proxy Statement for the
Annual Meeting of Stockholders to be held in 1998, a copy of which will be filed
not later than 120 days after the close of the fiscal year.



                                       42

<PAGE>



Item 14.          Exhibits and Reports on Form 8-K

(a)      Exhibits



                                                                  Reference to
 Regulation                                                     Prior Filing or
S-K Exhibit                                                      Exhibit Number
   Number                          Document                      Attached Hereto
---------- ---------------------------------------------------- ----------------
     2     Plan of acquisition, reorganization, arrangement,          None
           liquidation or succession
    3(a)   Articles of Incorporation                                   *
    3(b)   By-Laws                                                     *
     4     Instruments defining the rights of security holders,        *
           including debentures
     9     Voting Trust Agreement                                     None
     10    Material contracts
             Profit Sharing Plan and Trust                             *
             Money Purchase Plan and Trust                             *
             Form of 1995 Stock Option and Incentive Plan              *
             Employment Agreements of Mary Beth Poronsky               *
              Stull, Janine M. Poronsky, Gerald J. Gartner and
              Kenneth D. Vanek
             Form of Recognition and Retention Plan                    **
             Employee Severance Compensation Plan                      **
     11    Statement regarding computation of per share earnings      None
     13    Annual Report to Security Holders                           13
     16    Letter regarding change in certifying accountants          None
     18    Letter regarding change in accounting principles           None
     21    Subsidiaries of Registrant                                  21
     22    Published report regarding matters submitted to vote       None
           of security holders
     23    Consents of Experts                                         23
     24    Power of Attorney                                          None
     27    Financial Data Schedule                                     27
     99    Additional Exhibits                                        None

*        Filed as  exhibits to the  Company's  Form S-1  registration  statement
         filed on June 23, 1995 (File No. 33-93868) pursuant to Section 5 of the
         Securities  Act of 1933.  All of such  previously  filed  documents are
         hereby  incorporated herein by reference in accordance with Item 601 of
         Regulation S-K.

**       Filed  as  exhibits  to the  Company's  Amendment  No.  1 to  Form  S-1
         registration  statement  filed on August 4,  1995  (File No.  33-93868)
         pursuant  to  Section  5 of the  Securities  Act of  1933.  All of such
         previously filed documents are hereby  incorporated herein by reference
         in accordance with Item 601 of Regulation S-K.



                                       43

<PAGE>



b)   Reports on Form 8-K

         During the quarter  ended  September  30,  1997,  the Company  filed no
Current Reports on Form 8-K.



                                       44

<PAGE>

                                   SIGNATURES

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

                           DAMEN FINANCIAL CORPORATION


                           By:      /s/ Mary Beth Poronsky Stull
                                    ----------------------------
                                    Mary Beth Poronsky Stull, Chairman of the
                                    Board, President and Chief Executive Officer
                                    (Duly Authorized Representative)

Date: December 29, 1997

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

/s/ Mary Beth Poronsky Stull
---------------------------------------
Mary Beth Poronsky Stull, Chairman of the
 Board, President and Chief Executive
 Officer
(Principal Executive and Operating Officer)

Date:             December 29, 1997

/s/ Janine M. Poronsky
---------------------------------------
Janine M. Poronsky, Vice President,
 Corporate Secretary and Director

Date:             December 29, 1997

/s/ Gerald J. Gartner
---------------------------------------
Gerald J. Gartner, Treasurer and
 Chief Financial Officer
(Principal Financial and Accounting Officer)

Date:             December 29, 1997

/s/ Nicholas J. Raino
---------------------------------------
Nicholas J. Raino, Director

Date:             December 29, 1997

/s/ Charles J. Caputo
---------------------------------------
Charles J. Caputo, Director

Date:             December 29, 1997

/s/ Edward R. Tybor
---------------------------------------
Edward R. Tybor, Director

Date:             December 29, 1997

/s/  Carol A. Diver
---------------------------------------
Carol A. Diver, Director

Date:             December 29, 1997


                                       45