SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-KSB
(Mark One):

[X]   ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
      ACT OF 1934 [FEE REQUIRED] For the fiscal year ended September 30, 1996,

|_|   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period 
      from ____________________ to _________________.
      

Commission File No. 0-27714
                    -------

                     CRAZY WOMAN CREEK BANCORP INCORPORATED
                 ----------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

Wyoming                                                    83-0315410
-------------------------------                         ------------------
(State or Other Jurisdiction of                          I.R.S. Employer
Incorporation or Organization)                          Identification No.

106 Fort Street, Buffalo, Wyoming                             82834
---------------------------------------                     ----------
(Address of Principal Executive Offices                     (Zip Code)

Issuer's Telephone Number, Including Area Code:           (307) 684-5591
                                                          --------------

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 $0.10 per share
                    ---------------------------------------
                               (Title of Class)

      Check whether the issuer:  (1) has filed all reports  required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days.      YES  X   NO ___.

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

      State issuer's revenues for its most recent fiscal year. $3,391,000

      As of December 6, 1996, there were issued and outstanding 1,058,000 shares
of the registrant's Common Stock.

      The  Registrant's  voting stock trades on the Nasdaq SmallCap Market under
the symbol  "CRZY."  The  aggregate  market  value of the  voting  stock held by
non-affiliates  of the  registrant,  based on the average bid and asked price of
the registrant's  Common Stock on December 6, 1996, was $10,752,846  ($11.50 per
share based on 935,030 shares of Common Stock outstanding).

Transition Small Business Disclosure Format (check one)
YES      NO  X

                      DOCUMENTS INCORPORATED BY REFERENCE

      1.  Portions  of the Annual  Report to  Stockholders  for the Fiscal  Year
          ended September 30, 1996. (Parts I, II, and IV)
      2.  Portions   of  the  Proxy   Statement   for  the  Annual   Meeting  of
          Stockholders. (Part III)


                                      1

<PAGE>



ITEM I

Business of the Company

      Crazy  Woman  Creek  Bancorp  Incorporated  (the  "Company")  is a Wyoming
corporation  organized  in December  1995 at the  direction  of Buffalo  Federal
Savings  Bank (the  "Bank") to acquire  all of the  capital  stock that the Bank
issued upon its  conversion  from the mutual to stock form of ownership on March
29, 1996. The Company is a unitary savings and loan holding company which, under
existing laws,  generally is not restricted in the types of business  activities
in which it may engage provided that the Bank retains a specified  amount of its
assets in housing-related  investments.  The Company does not conduct any active
business.  The  Company  does not employ any  persons  other than  officers  but
utilizes the support staff of the Bank from time to time.

Business of the Bank

      The Bank attracts  deposits from the general public and uses such deposits
primarily to originate  fixed-rate  loans secured by first  mortgages on one- to
four-family  residences in its market area.  The Bank also  originates  consumer
loans, commercial loans and loans secured by savings accounts.

      The  principal  sources of funds for the  Bank's  lending  activities  are
deposits, the amortization,  repayment, and maturity of loans and FHLB advances.
Principal  sources of income are interest on loans,  mortgage-backed  securities
and investment securities and principal expense is interest paid on deposits and
FHLB advances.

      The Bank's Primary Market Area consists of all of Johnson County, Wyoming.
The Bank also attracts  customers from the Banner/Story area which is located in
Southern  Sheridan  County.  The  Johnson  County  economy  has its roots in the
agriculture and mining industries. Agriculture continues to play a major role in
overall  Johnson  County  revenues,   most  notably  in  the  cattle  and  sheep
industries. In fact, Johnson County has the largest concentration of sheep among
all of the counties in Wyoming.  Mining has steadily  declined as an  employment
sector in Johnson  County,  a reflection of the general  decline of the U.S. oil
and gas industry over the past decade. Most of the  non-agricultural  employment
in  Johnson  County is found in and around  Buffalo,  primarily  within  service
industries,  state and local government,  and retail trade. The largest employer
in the  Johnson  County is the public  school  system,  followed  by the Johnson
County  Memorial  Hospital.  Tourism  also  provides  a major  boost  to jobs in
services and retail trade in Johnson  County,  as Buffalo is located at the edge
of the Big Horn National Forest and the area is a popular destination for people
seeking outdoor recreation.  The three-way junction of Interstates 90 and 25 and
State Highway 16 also brings a large number of travelers through Buffalo.

      Buffalo, the largest town in Johnson County, has a population estimated at
3,800  (approximately 54 percent of the county population resides in the Buffalo
area).  Because  Johnson County is primarily a rural area where most of the land
is  used  for  agricultural  purposes,  Buffalo  acts as  somewhat  of a hub for
commerce in Johnson  County.  Economic  growth in the Bank's market area remains
dependent upon the local economy. In addition,  the deposit and loan activity of
the Bank is significantly affected by economic conditions in its market area.


                                      2

<PAGE>



Competition

      The Bank is the only savings and loan  association  in its Primary  Market
Area.  There are,  however,  two commercial  banks  headquartered in the Primary
Market Area and a branch of a larger out- of-area commercial bank.

      The Bank believes it is a primary source of residential  mortgage loans in
the  community.  The Bank has  competition  from all three banks in  originating
residential mortgage loans along with some competition from a mortgage banker in
a city thirty  five miles away.  All of the  competition  sells the  majority of
their residential  mortgage loans on the secondary market, while Buffalo Federal
has been traditionally placing mortgage loan originations in their portfolio.

      There is also extensive  competition for deposits.  Based on data provided
periodically by the Office of Thrift  Supervision  ("OTS"),  Buffalo Federal has
been able to maintain a market share of approximately  25% of the total deposits
in financial  institutions in the community.  Insurance companies and securities
dealers offer further competition for deposits.  The competition for deposits is
expected to continue in the future.

Lending Activities

      Analysis of Loan  Portfolio.  The following  table sets forth  information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages of the total loan portfolio (before deductions for loans in process,
net deferred  loan  origination  fees and  allowance  for loan losses) as of the
dates indicated.

<TABLE>
<CAPTION>

                                                        At September 30,
                                           --------------------------------------------
                                                 1996                     1995
                                           -------------------     --------------------
                                                      Percent                  Percent
                                           Amount     of Total     Amount      of Total
                                           ------     --------     ------      --------

                                                         (In Thousands)
Type of Loans:
<S>                                      <C>          <C>         <C>          <C>   
  One- to four-family..................  $ 20,002      75.86%     $17,715       75.30%
  Residential construction.............       513       1.95          601        2.56
  Multi-family.........................       571       2.16          403        1.71
  Commercial real estate(1)............     1,758       6.67        1,975        8.40
  Commercial...........................       163       0.62          227        0.96
  Consumer:
    Automobile.........................     1,043       3.96          863        3.67
    Home equity/Line of credit.........     1,317       5.00          925        3.93
    Share..............................       425       1.61          341        1.45
    Other..............................       573       2.17          475        2.02
                                           ------     ------       ------      ------ 
      Total consumer...................     3,358      12.74%       2,604       11.07

      Total loans......................    26,365     100.00%      23,525      100.00%
                                           ======     ======       ======      ====== 

Less:
  Loans in process.....................       (85)                   (111)
  Net deferred loan origination fees...      (145)                   (133)
  Allowance for loan losses............      (276)                   (275)
                                          -------                 -------
Total loans, net.......................   $25,859                 $23,006
                                          =======                 =======

</TABLE>


--------------------------------
(1)   Includes agricultural real estate loans.

                                      3

<PAGE>




      Origination,  Purchase and Sale of Loans.  The following  table sets forth
the Bank's loan  organizations  and loan sales and principal  repayments for the
periods indicated.

                                   Year Ended September 30,
                                   ------------------------
                                     1996            1995
                                   --------       ---------
                                        (In Thousands)
Total gross loans receivable at     
   beginning of period.........      $23,525      $22,984
Loans originated:
  One- to four-family..........      $ 5,386      $ 3,187
  Multi-family.................          215           40
  Commercial real estate.......          131           12
  Construction.................          591          578
  Commercial...................           69           80
  Consumer.....................        2,515        1,806
                                     -------      -------
Total loans originated.........      $ 8,907      $ 5,703
                                     =======      =======

Loans sold:
Total loans sold...............      $    --      $    --

Loan principal repayments......      $ 6,067      $ 5,162
Net loan activity..............      $ 2,840      $   541
                                     =======      =======
Total gross loans receivable at
    end of period..............      $26,365      $23,525
                                     =======      =======



                                      4

<PAGE>



      Loan  Maturity  Tables.  The  following  table sets forth the  maturity of
Buffalo  Federal's  loan  portfolio  at September  30, 1996.  The table does not
include prepayments or scheduled principal repayments. Prepayments and scheduled
principal  repayments on loans  totaled $6.1 million and $5.2  million,  for the
years ended September 30, 1996 and 1995, respectively.  Adjustable-rate mortgage
loans are shown as maturing based on contractual maturities.


<TABLE>
<CAPTION>

                                                                Commercial    Residential
                                     1-4 Family  Multi-family   Real Estate  Construction   Commercial    Consumer      Total
                                     ----------  ------------   -----------  ------------   ----------    --------      -----
                                                                            (In Thousands)
<S>                                   <C>         <C>           <C>           <C>            <C>         <C>          <C>    
Non-performing loans   ............   $    10     $   --        $   --        $   --         $  --       $    22      $    32
Amounts Due:                                                                                                          
Within 3 months ...................         1         --           232           308            50           574      
                                                                                                                         1,165
                                                                                                                      
3 months to 1 year ................         3         --            24           205            27           289           548
                                                                                                                      
After 1 year:                                                                                                         
  1 to 3 years ....................       845        200           933            --            24           861         2,863
  3 to 5 years ....................     1,015         --           119            --            34         1,454         2,622
  5 to 10 years ...................     3,660         12           212            --            28           158         4,070
  10 to 20 years ..................    13,956        359           238            --            --            --        14,553
  Over 20 years ...................       512         --            --            --            --            --           512
                                      -------     ------        ------           ---        ------       -------       -------

Total due after one year ..........    19,988        571         1,502            --            86         2,473        24,620
                                      -------     ------        ------           ---        ------       -------       -------

Total amount due ..................   $20,002     $  571        $1,758           513        $  163       $ 3,358       $26,365
                                      =======     ======        ======           ===        ======       =======       =======
                                                                                                                      
Less:                                                                                                                 
Allowance for loan loss ...........       132          4        $   40             5            10            85           276
                                                                                                                      
Loans in process ..................        --         --            --            77             8            --            85
Net deferred loan fees ............       138          4             3            --            --            --           145
                                      -------     ------        ------           ---        ------       -------       -------
  Loans receivable, net............   $19,732     $  563        $1,715           431        $  145         3,273       $25,859      
                                      =======     ======        ======           ===        ======       =======       =======
                                                                                                                   
</TABLE>


      The next table sets forth at September 30, 1996,  the dollar amount of all
loans due one year after  September 30, 1996 which have fixed interest rates and
have floating or adjustable interest rates.

                                           Floating or
                                Fixed      Adjustable
                                Rates        Rates         Total
                                -----      -----------     -----
                                        (In Thousands)

One- to four-family.....      $19,811       $   177       $19,988
Multi-family............          571             -           571
Construction............            -             -             -
Commercial real estate..        1,502             -         1,502
Commercial..............           86             -            86
Consumer................       $2,185           288       $ 2,473
                              -------       -------       -------
     Total..............      $24,155       $   465       $24,620
                              =======       =======       =======



                                      5

<PAGE>



      One- to Four-Family Residential Loans. The Bank's primary lending activity
consists of the  origination of one- to four-family  residential  mortgage loans
secured  by  property  located  in the  Bank's  Primary  Market  Area.  The Bank
generally  originates one- to four-family  residential mortgage loans in amounts
up to 80% of the lesser of the appraised value or selling price of the mortgaged
property. Loans in excess of 80% of the lesser of the appraised value or selling
price of property  require  private  mortgage  insurance for the  borrower.  The
Bank's  strategy is to originate for its portfolio  adjustable-rate  loans,  and
five-year  balloon  loans  as  well as  20-year  or less  fixed-rate  loans  for
retention  in its  portfolio.  The Bank  intends to sell  fixed-rate  loans with
maturities of greater than 20 years in the secondary  market,  without  recourse
and servicing released.

      The Bank offers  adjustable-rate loans using primarily a one-year constant
maturity treasury  interest rate index.  During fiscal 1996, the Bank originated
one  adjustable  rate loan that  totalled  $100,000.  Interest  rates charged on
mortgage  loans are  competitively  priced  based on market  conditions  and the
Bank's cost of funds. Generally, the Bank's standard underwriting guidelines for
mortgage loans conform to secondary market guidelines.  It is the current policy
of the Bank to remain a  portfolio  lender.  At  September  30,  1996,  the Bank
serviced loans for others totalling $81,000.

      Loan originations are generally obtained from existing customers,  members
of the  local  community,  and  referrals  from  realtors,  past  customers  and
contractors  within the Bank's lending area.  Mortgage loans originated and held
by the Bank in its portfolio generally include due-on-sale clauses which provide
the Bank with the contractual right to deem the loan immediately due and payable
in the event that the borrower  transfers  ownership of the property without the
Bank's consent.

      The Bank  originates  five-year  balloon  mortgage  loans  with a  30-year
amortization  period.  Management  believes  that  balloon  loans have a pricing
characteristic  that helps offset the detrimental affect that rising rates could
have on net interest income. At September 30, 1996,  balloon mortgages  totalled
$1.48 million, or 5.61% of the Bank's loan portfolio.

      Residential Construction Loans. Residential construction loans are made on
one- to  four-family  residential  property to the  individuals  who will be the
owners and occupants upon completion of construction.  These loans are made on a
short  term  basis and  permanent  long-term  financing  is  available  to these
borrowers.  No principal  payments are required during the construction  period,
however,  interest is due  monthly.  The maximum  loan to value ratio is 80%. If
permanent  financing  is obtained  from the Bank,  these loans are made on terms
similar  to those of the  Bank's  single  family  residential  loans  and may be
amortized over terms of up to 30 years.

      In addition to loans  originated for the  construction  of a residence for
which the ultimate  purchaser has been  identified,  the Bank on a limited basis
originates  speculative  loans to  residential  builders  who  have  established
business relationships with the Bank. These speculative loans are typically made
for a 12 month period and require  interest only payments during the term of the
loan. In  underwriting  such loans,  the Bank considers the number of units that
the  builder  has on a  speculative  bid basis that  remain  unsold.  The Bank's
experience  during the past three years has been that most speculative loans are
repaid  well  within  the 12  month  period.  Speculative  loans  are  generally
originated with a loan to value ratio that does not exceed 80%. At September 30,
1996, there were no speculative construction loans.

      Construction lending is generally considered to involve a higher degree of
credit risk than long-term financing of residential properties.  The Bank's risk
of loss on a  construction  loan is  dependent  largely upon the accuracy of the
initial estimate of the property's value at completion of construction or

                                      6

<PAGE>



development  and  the  estimated  cost  of  construction.  If  the  estimate  of
construction  cost and the  marketability of the property upon completion of the
project prove to be inaccurate,  the Bank may be compelled to advance additional
funds to complete the development.  Furthermore, if the estimate of value proves
to be inaccurate, the Bank may be confronted, at or prior to the maturity of the
loan,  with a  property  with a  value  that  is  insufficient  to  assure  full
repayment.  For  speculative  loans  originated to builders,  the ability of the
builder to sell  completed  dwelling units will depend,  among other things,  on
demand,  pricing  and  availability  of  comparable  properties,   and  economic
conditions.

      Commercial  Real Estate Loans.  At September 30, 1996, the commercial real
estate  portfolio  totalled $1.76 million,  or 6.67% (of which $625,000 or 2.37%
were  agricultural  land  loans)  of the loan  portfolio.  In order to serve its
community and enhance yields on its assets, the Bank originates loans secured by
commercial real estate.  The commercial real estate loans originated by the Bank
have generally been made to individuals,  small  businesses,  and  partnerships.
They have primarily been secured by first  mortgages on a motel and  restaurant,
office  buildings and other  properties  located in its Primary Market Area. The
Bank benefits from  originating  such loans due to higher  origination  fees and
shorter term  maturities.  Buffalo  Federal's  commercial  real estate loans are
fixed-rate and balloon loans with terms of 15 years or less, with  loan-to-value
ratios not exceeding 75%.

      Loans secured by commercial real estate generally involve a greater degree
of risk than  residential  mortgage loans and carry larger loan  balances.  This
increased   credit  risk  is  a  result  of  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  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, the borrower's ability to
repay  the loan may be  impaired.  To  minimize  these  risks,  Buffalo  Federal
generally  limits  loans of this type to its market area and to  borrowers  with
which it has substantial experience or who are otherwise well known to the Bank.
The Bank's underwriting procedures require verification of the borrower's credit
history, income, financial statements, banking relationships, credit references,
and income  projections for the property.  It is the Bank's current  practice to
obtain personal guarantees from all principals  obtaining this type of loan. The
Bank also obtains  appraisals  on each property in  accordance  with  applicable
regulations and appraisal policies. All appraisals on commercial real estate are
reviewed by the Bank's management.

      Agricultural  Loans.  Buffalo  Federal engages in lending on improved farm
land  with  no  dwelling,  building  lots  and  building  acreage  sites.  These
properties must have good road access.  The loan to value ratio for this type of
loan is 75% or less with a maximum loan term of 15 years.

      Buffalo  Federal  also  engages  in loans  for  improved  farm  land  with
dwelling.  The loan to value  ratio  for this type of loan is 75% or less with a
maximum term of 20 years. These loans can be set up with payment of intervals of
interest  collected  semi-annually  and  principal  annually  as well as monthly
principal and interest  payments.  As of September 30, 1996,  agricultural  farm
loans constituted approximately $625,000, or 2.37% of the Bank's loan portfolio.
Agricultural  land loans are included in commercial real estate loan total.  See
also "-- Commercial Real Estate Loans."

      Multi-Family  Loans.  The Bank also makes  multi-family  loans,  including
loans  on  apartment  complexes  located  in the  Bank's  Primary  Market  Area.
Multi-family  loans generally provide higher interest rates than can be obtained
from  single-family  mortgage  loans.  Multi-family  lending,  however,  entails
significant  additional  risks  compared  with one- to  four-family  residential
lending. For example,

                                      7

<PAGE>



multi-family loans typically involve larger loan balances to single borrowers or
groups of related  borrowers,  the payment experience on such loans typically is
dependent  on the  successful  operation of the real estate  project,  and these
risks can be  significantly  impacted  by supply  and demand  conditions  in the
market for  multi-family  residential  units and commercial  office,  retail and
warehouse space.

      Consumer  Loans.  The Bank's  consumer  loans consist of home equity loans
secured by second  mortgages on  single-family  residences  in the Bank's market
area, automobiles, demand loans secured by savings accounts at the Bank, student
loans and other loans.  The Bank has increased its emphasis on consumer  lending
in recent years,  including  new and used  automobile  loans,  to provide a wide
range of financial  services to the Bank's customers while increasing the Bank's
portfolio yields.

      The Bank makes second mortgage loans secured by the borrower's  residence.
These loans,  combined with the first mortgage  loan,  which usually is from the
Bank, generally are limited to 80% of the appraised value of the residence.

      The  Bank  generally  makes  savings  account  loans  for up to 90% of the
balance of the account. The interest rate on these loans generally is indexed to
the rate paid on the secured savings  account,  and interest is due at maturity.
These loans are payable on demand, and the account must be pledged as collateral
to secure the loan.

      Consumer  loans  generally  involve more risk than first  mortgage  loans.
Repossessed  collateral for a defaulted loan may not provide an adequate  source
of repayment  of the  outstanding  loan  balance as a result of damage,  loss or
depreciation,  and the  remaining  deficiency  often  does not  warrant  further
substantial   collection  efforts  against  the  borrower.  In  addition,   loan
collections are dependent on the borrower's continuing financial stability,  and
thus are more likely to be adversely affected by job loss,  divorce,  illness or
personal bankruptcy. Further, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered. These loans may also give rise to claims and defenses by
a borrower  against  the Bank and a borrower  may be able to assert  against the
Bank  claims and  defenses  which it has  against  the seller of the  underlying
collateral.  In underwriting  consumer loans,  the Bank considers the borrower's
credit history,  an analysis of the borrower's  income,  expenses and ability to
repay the loan and the value of the collateral.

      Commercial  Loans.  The  Bank on  occasion  will  make  commercial  loans,
primarily to existing  customers.  At  September  30,  1996,  commercial  loans,
consisted  primarily of small  business loans  (primarily  secured by livestock,
office equipment, and machinery).

      Loan Approval Authority and Underwriting. The Bank's Loan Committee, which
consists of the three senior  officers,  has  authority  to approve  loans up to
$125,000.  Loans  in  excess  of  $125,000  requires  approval  by the  Board of
Directors. Individual loan officers have lending authority for consumer loans up
to $20,000.

      Upon receipt of a completed loan application from a prospective  borrower,
a credit  report is ordered,  income and certain other  information  is verified
and, if necessary,  additional financial information is requested.  An appraisal
of the real  estate  intended to be used as security  for the  proposed  loan is
obtained.  Appraisals are conducted by four  independent  appraisers  which have
been  approved  by the  Bank.  The Bank  makes  construction/permanent  loans on
individual properties.  Funds advanced during the construction phase are held in
a loan-in-process account and disbursed based upon various

                                      8

<PAGE>



stages of completion in accordance  with the results of inspection  reports that
are based upon physical  inspection of the  construction by a loan officer.  For
real estate loans,  the Bank requires a title  commitment.  Borrowers  must also
obtain fire and  casualty  insurance  (for loans on property  located in a flood
zone, flood insurance is required) prior to the closing of the loan.

      The  Bank  receives  fees  in  connection  with  loan  originations,  loan
modifications,   late  payments  and  changes  of  property  ownership  and  for
miscellaneous   services  related  to  its  loans.  Loan  origination  fees  are
calculated as a percentage of the loan  principal.  The Bank typically  receives
fees of up to 2 points (one point being equivalent to 1% of the principal amount
of  the  loan)  in  connection   with  the   origination   of   fixed-rate   and
adjustable-rate  residential  mortgage  loans.  The  excess,  if  any,  of  loan
origination fees over direct loan origination  expenses is deferred and credited
into income over the contractual life of the loan using the level-yield  method.
If a loan is prepaid,  refinanced  or sold,  all  remaining  deferred  fees with
respect to such loan are taken into income at such time.

      Loan  Commitments.  The Bank  issues  verbal  commitments  to  prospective
borrowers on all approved real estate loans. Generally,  the commitment requires
acceptance  within 60 days of the date of issuance.  At September 30, 1996,  the
Bank  had  $708,000  of  commitments  to  cover   originations  and  $85,000  in
undisbursed funds for loans in process.  Management  believes that virtually all
of the Bank's commitments will be funded.

      Loans-to-One  Borrower.  Regulations  limit  loans-to-one  borrower  in an
amount equal to 15% of unimpaired  capital and  unimpaired  surplus of the Bank.
The Bank is authorized to lend up to an additional 10% of unimpaired capital and
unimpaired   surplus  if  the  loan  is  fully  secured  by  readily  marketable
collateral.  The Bank's maximum  loan-to-one  borrower  limit was  approximately
$1.62 million at September 30, 1996.

      At September 30, 1996,  the Bank's largest amount of loans to one borrower
were all performing  residential  and commercial  real estate loans  aggregating
approximately  $511,000,  secured by  single-family  residential  and commercial
properties located in the Bank's Primary Market Area.

Non-Performing and Problem Assets

      Loan Delinquencies.  The Bank's collection  procedures provide that when a
mortgage loan is 30 days past due, a notice of nonpayment is sent. If payment is
still  delinquent  after 60 days,  the  customer  will  receive a letter  and/or
telephone call and may receive a visit from a representative of the Bank. If the
delinquency  continues,  similar  subsequent  efforts are made to eliminate  the
delinquency.  If the loan continues in a delinquent  status for 90 days past due
and no repayment plan is in effect,  a notice of right to cure default is mailed
to the customer  giving 30 additional  days to bring the account  current before
foreclosure is commenced.  The loan committee  meets regularly to determine when
foreclosure  proceedings  should be initiated  and the customer is notified when
foreclosure has been commenced.  At September 30, 1996,  loans past due 30 to 89
days totalled $208,000.

      Loans are  reviewed  on a  monthly  basis  and are  generally  placed on a
non-accrual  status when the loan becomes more than 90 days  delinquent or when,
in the opinion of management, the collection of additional interest is doubtful.
Interest  accrued and unpaid at the time a loan is placed on non-accrual  status
is charged against interest income.  Subsequent  interest payments,  if any, are
either  applied to the  outstanding  principal  balance or  recorded as interest
income, depending on the assessment of the ultimate collectibility of the loan.

                                      9

<PAGE>



      Non-Performing   Assets.   The  following  table  sets  forth  information
regarding  non-accrual  loans,  real estate owned, and certain other repossessed
assets and loans.

                                                               At September 30,
                                                               1996       1995
                                                                (In Thousands)
Loans accounted for on a non-accrual basis:
  One- to four-family ..................................       $ 10        $ --
  Commercial real estate ...............................         --          --
  Construction .........................................         --          68
  Commercial ...........................................         --          --
  Consumer .............................................         22          --
                                                               ----        ----
Total ..................................................       $ 32        $ 68
                                                               ====        ====
REO ....................................................       $ --        $ 55
                                                               ----        ----
Other non-performing assets ............................       $ --        $ --
                                                               ----        ----
Total non-performing assets ............................       $ 32        $123
                                                               ====        ====
Total non-performing loans to net
  loans ................................................       0.12%       0.30%
                                                               ====        ====
Total non-performing assets to total
  assets ...............................................       0.06%       0.33%
                                                               ====        ====


      Interest  income that would have been recorded on loans accounted for on a
non-accrual  basis under the original terms of such loans was immaterial for the
year ended  September 30, 1996.  Amounts  included in the Bank's interest income
for the year ended September 30, 1996 were, likewise, immaterial.

      Classified Assets. OTS regulations provide for a classification system for
problem assets of insured  institutions  which covers all problem assets.  Under
this  classification   system,   problem  assets  of  insured  institutions  are
classified  as  "substandard,"  "doubtful,"  or "loss."  An asset is  considered
substandard if it is inadequately  protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. Substandard assets
include  those  characterized  by the  "distinct  possibility"  that the insured
institution  will sustain  "some loss" if the  deficiencies  are not  corrected.
Assets  classified  as  doubtful  have all of the  weaknesses  inherent in those
classified  substandard,  with the  added  characteristic  that  the  weaknesses
present  make  "collection  or  liquidation  in full," on the basis of currently
existing facts,  conditions,  and values,  "highly questionable and improbable."
Assets  classified  as loss are  those  considered  "uncollectible"  and of such
little value that their  continuance  as assets without the  establishment  of a
specific  loss  reserve  is not  warranted.  Assets may be  designated  "special
mention"  because  of  potential   weaknesses  that  do  not  currently  warrant
classification in one of the aforementioned categories.

      When  an  insured   institution   classifies   problem  assets  as  either
substandard or doubtful,  it may establish general allowances for loan losses in
an amount  deemed  prudent by  management.  General  allowances  represent  loss
allowances which have been established to recognize the inherent risk associated
with lending activities,  but which, unlike specific  allowances,  have not been
allocated to particular problem assets. When an insured  institution  classifies
problem assets as loss, it is required either to

                                      10

<PAGE>



establish a specific  allowance  for losses equal to 100% of that portion of the
asset so classified or to charge off such amount. An institution's determination
as to  the  classification  of its  assets  and  the  amount  of  its  valuation
allowances is subject to review by the OTS, which may order the establishment of
additional  general or  specific  loss  allowances.  A portion  of general  loss
allowances  established to cover possible losses related to assets classified as
substandard  or  doubtful  may  be  included  in  determining  an  institution's
regulatory  capital,   while  specific  valuation  allowances  for  loan  losses
generally do not qualify as regulatory capital.

      At  September  30,  1996,  the Bank had  $63,000 of assets  classified  as
substandard  (which  consisted of one home loan and eight small dollar  consumer
loans) and no assets classified as doubtful or loss.
Furthermore, the Bank had no special mention loans at that date.

      Foreclosed  Real Estate.  Real estate  acquired by the Bank as a result of
foreclosure  or by deed in lieu of  foreclosure is classified as REO until it is
sold.  When property is acquired it is recorded at the fair value at the date of
foreclosure less estimated costs of disposition. At September 30, 1996, the Bank
had no repossessed assets.

      Allowances  for Loan  Losses.  It is  management's  policy to provide  for
unidentified losses on loans in its loan portfolio.  A provision for loan losses
is charged to  operations  based on  management's  evaluation  of the  potential
losses that may be incurred in the Bank's loan portfolio. Such evaluation, which
includes  a review of all loans of which full  collectibility  of  interest  and
principal  may not be  reasonably  assured,  considers the Bank's past loan loss
experience,  known and inherent risks in the portfolio,  adverse situations that
may affect the borrower's  ability to repay,  estimated  value of any underlying
collateral and current economic conditions.

      The amount of provisions  recorded in future periods may be  significantly
greater or lesser than the provisions  taken in the past. The allowance for loan
losses, as a ratio of total net loans was 1.06% at September 30, 1996.

      Management  will continue to review the entire loan portfolio to determine
the extent,  if any, to which further  additional  loss provisions may be deemed
necessary.  There can be no  assurance  that the  allowance  for losses  will be
adequate  to cover  losses  which may in fact be realized in the future and that
additional provisions for losses will not be required.

      Allocation  of Allowance for Loan Losses.  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  for the periods
indicated.  The  portion  of the loan  loss  allowance  allocated  to each  loan
category does not represent the total available for future losses that may occur
within the loan  category  because the total loan loss  allowance is a valuation
reserve applicable to the entire loan portfolio.

                                      11

<PAGE>



                                                At September 30,
                                   -------------------------------------------
                                         1996                   1995
                                   -------------------------------------------
                                            Percent of             Percent of
                                             Loans to               Loans to
                                   Amount   Total Loans  Amount    Total Loans
                                   ------   -----------  ------    -----------

                                             (Dollars in Thousands)
At end of period allocated to:
One-to four-family.....             $ 132       75.86%     $132       75.30%
                                
Multi-family...........                 4        2.16         4        1.71
Commercial real estate.                40        6.67        40        8.40
Construction...........                 5        1.95         5        2.56
Commercial.............                10        0.62        10        0.96
Consumer...............                85       12.74        84       11.07
                                    ------     ------      ----      ------ 
Total allowance........             $  276     100.00%     $275      100.00%
                                    ======     ======      ====      ====== 
                            

      Analysis of the Allowance for Loan Losses.  The following table sets forth
information  with respect to the Bank's  allowance  for loan losses at the dates
indicated:

                                                       Year Ended September 30,
                                                      -------------------------
                                                        1996            1995
                                                      ----------      ---------
                                                        (Dollars in Thousands)

Total loans outstanding ........................      $ 26,365        $ 23,525

Allowance balances (at beginning of
period) ........................................           275             207
Provision (loan loss benefit):
  One- to four-family ..........................            --              50
  Commercial real estate .......................            --              --
  Commercial ...................................            --              --
  Consumer .....................................            --              (8)
                                                         -----           -----  
    Net provision (loan loss benefit) ..........            --              42
Net charge-offs (recoveries):
  One- to four-family ..........................           (11)            (13)
  Commercial real estate .......................            --              --
  Commercial ...................................            --              (4)
  Consumer .....................................            10              (9)
                                                         -----           -----  
    Net charge-offs (recoveries) ...............            (1)            (26)
                                                         -----           -----  

Allowance balance (at end of period)$ ..........           276        $    275
                                                         =====           =====  
Allowance for loan losses to total
  loans, net ...................................          1.06 %          1.18 %
                                                         =====           =====  

Net charge-offs (recoveries) to
   loans receivable, net .......................         (0.01)%         (0.11)%
                                                         =====           =====  




                                   12

<PAGE>



Investment Activities

      General. Buffalo Federal is required under federal regulations to maintain
a minimum amount of liquid assets which may be invested in specified  short-term
securities  and certain  other  investments.  See also " -- Bank  Regulation  --
Federal Home Loan Bank System." The Bank has maintained a liquidity portfolio in
excess  of  regulatory  requirements.  Liquidity  levels  may  be  increased  or
decreased  depending  upon  the  yields  on  investment  alternatives  and  upon
management's  judgment as to the  attractiveness of the yields then available in
relation to other  opportunities  and its expectation of future yield levels, as
well as  management's  projections as to the  short-term  demand for funds to be
used in the Bank's loan origination and other activities. At September 30, 1996,
the Bank's investment portfolio policy allowed investments in only U.S. Treasury
obligations,  U.S.  Agency  securities,  mortgage-backed  securities,  municipal
securities,  federally-insured  certificates  of deposit,  federal funds,  FHLMC
stock and FHLB overnight and term deposits. The Board of Directors may authorize
additional investments.

      Mortgage-Backed  Securities.  Primarily to supplement lending  activities,
Buffalo   Federal   invests   in   residential    mortgage-backed    securities.
Mortgage-backed  securities can serve as collateral for borrowings and,  through
repayments,  as a source  of  liquidity.  Investment  decisions  are made by the
Bank's Investment Committee, which consists of the three senior officers. Two of
the three committee members must agree on all decisions.

      Mortgage-backed securities represent a participation interest in a pool of
single-family mortgages, the principal and interest payments on which are passed
from   the   mortgage    originators,    through    intermediaries    (generally
quasi-governmental agencies) that pool and repackage the participation interests
in  the   form  of   securities,   to   investors   such  as  the   Bank.   Such
quasi-governmental  agencies,  which  guarantee  the  payment of  principal  and
interest  to  investors,  primarily  include  the  Federal  Home  Loan  Mortgage
Corporation  ("FHLMC"),  Government National Mortgage Bank ("GNMA"), and Federal
National Mortgage Bank ("FNMA").  Pass-through certificates typically are issued
with  stated  principal  amounts,  and the  securities  are  backed  by pools of
mortgages that have loans with interest  rates and maturities  that are within a
specified  range.  The  underlying  pool of mortgages  can be composed of either
fixed-rate mortgage loans or ARM loans. Mortgage-backed securities are generally
referred to as mortgage participation certificates or pass-through certificates.
As a result,  the interest rate risk  characteristics  of the underlying pool of
mortgages, (i.e., fixed-rate or adjustable-rate) as well as prepayment risk, are
passed on to the certificate holder. The life of a mortgage-backed  pass-through
security  is  equal  to the life of the  underlying  mortgages.  Mortgage-backed
securities issued by FHLMC, FNMA and GNMA make up a majority of the pass-through
market.

      Mortgage-backed  securities  provide for monthly payments of principal and
interest  and  generally  have  contractual  maturities  ranging from five to 30
years.  However,  due to expected repayment terms being  significantly less than
the underlying mortgage loan pool contractual maturities, the estimated lives of
these securities could be significantly shorter.

      The Bank also purchases  mortgage-backed  securities  issued by government
agencies  which are  currently  qualified  under the Internal  Revenue  Code, as
amended  (the  "Code") as REMICs.  REMICs  have been  developed  in  response to
investor  concerns  regarding the uncertainty of cash flows  associated with the
prepayment  option  of the  underlying  mortgagor  and are  typically  issued by
governmental  agencies,  governmental  sponsored enterprises and special purpose
entities, such as trusts, corporations or partnerships, established by financial
institutions or other similar institutions. Some REMIC instruments are most like
traditional  debt  instruments  because they have stated  principal  amounts and
traditionally  defined  interest-rate  terms.  Purchasers of certain other REMIC
instruments  are entitled to the excess,  if any, of the issuer's  cash inflows,
including  reinvestment  earnings,  over the cash  outflows for debt service and
administrative   expenses.   These  mortgage  related  instruments  may  include
instruments  designated  as  residual  interests,   which  represent  an  equity
ownership  interest in the underlying  collateral,  subject to the first lien of
the investors in the other classes of the REMIC. Certain

                                      13

<PAGE>



residual REMIC interests may be riskier than many regular REMIC interests to the
extent  that  they  could  result  in the  loss  of a  portion  of the  original
investment.  Moreover,  cash flows from residual interests are very sensitive to
prepayments and, thus, contain a high degree of interest-rate risk.

      At September 30, 1996, all of the Bank's investment in REMICs consisted of
regular interests and did not include any residual interests or interest-only or
principal-only  securities.  As a matter of policy,  the Bank does not invest in
residuals or interest-only and principal-only securities. The REMICs held by the
Bank at  September  30,  1996  consisted  solely  of  fixed-rate  tranches.  The
securities  are backed by  mortgages  on one- to  four-family  residential  real
estate and have  contractual  maturities up to 30 years. The securities are PACs
(Planned  Amortization Classes) and are designed to provide a specific principal
and interest cash-flow.

      At  September  30, 1996,  the Bank had REMICs with an  aggregate  carrying
amount (including  discounts and premiums) of $1.58 million,  of which none were
privately issued.

      Mortgage-backed  securities  generally  yield  less than the  loans  which
underlie  such  securities   because  of  their  payment  guarantees  or  credit
enhancements which offer nominal credit risk. In addition,  mortgage-backed  and
related  securities are more liquid than individual  mortgage loans and are used
to collateralize  borrowings of the Bank.  Mortgage-backed  securities issued or
guaranteed by the GNMA,  FNMA or the FHLMC (except  interest-only  securities or
residuals) are weighted at no more than 20.0% for risk-based  capital  purposes,
compared  to a weight of 50.0% to 100.0%  for  residential  loans.  See "-- Bank
Regulation -- Regulatory Capital Requirements."

      During periods of rising  mortgage  interest rates, if the coupon rates of
the  underlying  mortgages are less that the  prevailing  market  interest rates
offered  for  mortgage  loans,  refinancings  generally  decrease  and  slow the
prepayment of the underlying  mortgages and the related securities.  Conversely,
during periods of falling  mortgage  interest  rates, if the coupon rates of the
underlying  mortgages  exceed the prevailing  market  interest rates offered for
mortgage loans,  refinancing  generally increases and accelerates the prepayment
of  the   underlying   mortgages   and  the  related   securities.   Under  such
circumstances,  the Bank may be  subject  to  reinvestment  risk  because to the
extent that the Bank's  mortgage-related  securities  amortize or prepay  faster
than  anticipated,  the Bank may not be able to  reinvest  the  proceeds of such
repayments and prepayments at a comparable rate.

      Step-Up  Bonds and  Structured  Notes.  The Bank  previously  invested  in
step-up  bonds  issued  by  the  FHLB  and  FNMA.  These  securities   represent
obligations  of the FHLB or the FNMA to repay  principal  with  interest that is
either fixed or fluctuates in accordance with a formula tied to various indices.
Certain  of  these  securities   involved  certain  risks  not  associated  with
investments in a conventional debt security.  The Bank had purchased the step-up
bonds in an effort to decrease the Bank's  sensitivity to rising interest rates.
At September 30, 1996, the bonds had an amortized cost of $1.35 million,  with a
market value of $1.34 million.

      The Bank's  step-up  bonds have  step-up  periods  ranging from one to two
years.  The bonds are  callable  at the time they  step-up.  The Bank's  current
intention is to discontinue purchases of step-up bonds.

      In addition,  the Bank maintains in its investment  portfolio a structured
note issued by the FNMA. This note represents an obligation of the FNMA to repay
principal and interest that  fluctuates in accordance  with an interest  formula
tied to the Ten-year Constant  Maturity  Treasuries  ("CMT").  The interest rate
floor on the note is 5%. The note,  with an  amortized  cost of  $500,000  and a
market value of $471,000 at September  30, 1996 has a maturity date of April 21,
2000.  The Bank  invested in this note (an "inverse  floater") to hedge  against
falling interest rates.


                                      14

<PAGE>



      Investments  in such notes and bonds entail  certain risks not  associated
with investments in a conventional debt security. If the interest rate on a note
is indexed,  the change in the interest rate may result in an interest rate that
is less than that payable on a conventional  fixed-rate  debt security issued at
the same time.  Moreover,  the  secondary  market for such notes is  affected by
factors  independent of the  creditworthiness of the issuer and the value of the
index,  including other interest rates, the volatility of the index to which the
notes  is tied,  time  remaining  to  maturity,  and the  amount  of such  notes
outstanding.  The value of the index to which  interest on the notes is tied may
depend on a number of interrelated factions, including,  economical,  financial,
and political events over which the issuer has no control.  Structured notes may
also expose  institutions  to greater  interest rate risk due to the presence of
imbedded call options as well as interest rate caps and floors.

      Investment  Securities  Portfolio.  The  following  table  sets  forth the
carrying  value  of  the  Bank's  investment  securities  portfolio,  securities
available for sale portfolio, short-term investments and FHLB stock at the dates
indicated.  At  September  30, 1996,  the market value of the Bank's  investment
securities  portfolio  was $10.18  million  and  securities  available  for sale
portfolio was $13.37.

                                                             At September 30,
                                                             ----------------
                                                             1996        1995
                                                             ----        ----
                                                              (In Thousands)

Investment securities held to
  maturity
 U.S. Agency securities ............................       $ 5,751       $ 6,491
 Municipal securities ..............................           223           215
 FHLMC preferred stock .............................           100           100
 GNMA ..............................................         1,695         1,544
 FNMA ..............................................           775           869
 FHLMC .............................................         1,749           721
 Other pass-throughs ...............................            10            15
                                                           -------       -------
   Total investment securities held to
    maturity .......................................       $10,303       $ 9,955
                                                           =======       =======
Securities available for sale(1)(2).................        11,898           700
REMICS available for sale(2) .......................         1,567         1,522
                                                           -------       -------
   Total securities available for sale..............       $13,465       $ 2,222
                                                           =======       =======
Interest-bearing deposits ..........................            99           693
FHLB stock .........................................           400           371
                                                           -------       -------
   Total ...........................................       $24,267       $13,241
                                                           =======       =======

---------------------------------
      (1) Includes  U.S.  Agency  securities,  GNMA  and  FHLMC  mortgage-backed
          securities.
      (2) Amounts shown at amortized costs, but carried at fair value.

                                      15

<PAGE>



      The  following  table  sets  forth  information  regarding  the  scheduled
maturities,  carrying  value,  market value and weighted  average yields for the
Bank's investment securities at September 30, 1996.

<TABLE>
<CAPTION>

                                                                       As of September 30, 196
                               ----------------------------------------------------------------------------------------------------
                                                                                                                      Total 
                                One Year or Less  One to Five Years   Five to Ten Years More than Ten Years   Investment Securities
                               -----------------  -----------------   ----------------- -------------------   ---------------------
                               Amortized Average Amoritized Average Amortized  Average Amortized  Average  Amortized Average  Market
                                  Cost    Yield     Cost     Yield    Cost     Yield     Cost      Yield      Cost    Yield    Value
                               --------- ------- ---------- ------- ---------  ------- ---------  -------  --------- -------  ------
                                                                           (Dollars in Thousands)
Investment securities held to 
 maturity:
<S>                              <C>       <C>      <C>       <C>    <C>        <C>     <C>          <C>    <C>        <C>   <C>    
U. S. Agency securities .......  $   --        %    $2,853    6.00%  $ 2,898    6.68%   $   --           %  $ 5,751    6.34% $ 5,625
Municipal securities ..........      --                 20    9.30       203    5.70        --                  223    6.02      228
Mortgage-backed securities and
 other pass-throughs ..........      --                 10    7.50       437    8.20     3,782       5.83     4,229    6.81    4,226

FHLMC stock ...................     100    7.90         --      --        --      --        --                  100    7.90      102
Securities available for sale(1)     --              3,450    6.73     4,400    7.39     4,048       5.83    11,898    6.67   11,846
REMICs available for sale .....      --                500    6.63       360    5.75       707       6.50     1,567    6.37    1,519
                                 ------    ----     ------    ----   -------    ----    ------       ----   -------    ----  -------
  Total .......................  $  100    7.90%    $6,833    6.42%  $ 8,298    7.07%   $8,537       6.26%  $23,768    6.61% $23,546
                                 ======    ====     ======    ====   =======    ====    ======       ====   =======    ====  =======

</TABLE>

-------------------------
      (1)  Includes U.S. Agency securities and mortgage-backed securities.



                                            16

<PAGE>



Sources of Funds

      General.  Deposits are the major  external  source of the Bank's funds for
lending  and other  investment  purposes.  Buffalo  Federal  derives  funds from
amortization  and  prepayment  of loans and, to a lesser  extent,  maturities of
investment securities,  borrowings, maturities of mortgage-backed securities and
operations.  Scheduled loan principal  repayments are a relatively stable source
of  funds,   while  deposit  inflows  and  outflows  and  loan  prepayments  are
significantly  influenced  by  general  interest  rates and  market  conditions.
Buffalo  Federal also  utilizes  FHLB  advances to meet  liquidity and investing
needs.

      Deposits.  Deposits  are  attracted  principally  from  within  the Bank's
primary  market area through the offering of a selection of deposit  instruments
including regular savings  accounts,  money market accounts,  NOW accounts,  and
term certificate  accounts.  The Bank also offers IRA accounts.  Deposit account
terms vary according to the minimum balance required,  the time period the funds
must remain on deposit, and the interest rate, among other factors.

      The  interest  rates  paid by the Bank on  deposits  are set weekly at the
direction of senior  management.  The Bank determines the interest rate to offer
the public on new and maturing  accounts by reviewing the market  interest rates
offered by competitors and the national market.  The Bank reviews,  weekly,  the
interest rates being offered by other financial  institutions within its primary
market area.

      Passbook  savings,  money  market  and  NOW  accounts  constituted  $10.05
million,  or 34.2%,  of the Bank's  deposit  portfolio  at  September  30, 1996.
Certificates of deposit (or time deposits)  constituted $19.32 million, or 65.8%
of the  deposit  portfolio  of which  $5.04  million,  or  17.2% of the  deposit
portfolio were  certificates of deposit with balances of $100,000 or more. As of
September 30, 1996, the Bank had no brokered deposits.

      Time Deposits by Rate. The following table sets forth the time deposits in
the Bank classified by interest rate as of the dates indicated.


                                            At September 30,
                                            ----------------
                                            1996       1995
                                            ----       ----
                                             (In Thousands)

Interest Rate
2.01 - 4.00%............................   $     --    $    --
4.01 - 6.00%............................     16,574     13,486
6.01 - 8.00%............................      2,748      5,668
8.01 -10.00%............................        -            4
                                            -------     ------
                  Total.................   $ 19,322    $19,158
                                            =======     ======




                                      17

<PAGE>



     Time Deposits Maturity Schedule.  The following table sets forth the amount
and maturities of time deposits at September 30, 1996.

<TABLE>
<CAPTION>

                                                          Amount Due
                             ---------------------------------------------------------------------
                                                                             After
                             September 30,  September 30,  September 30,  September 30,
Interest Rate                    1997           1998           1999           2000           Total
-------------                    -----         ------         ------         ------         ------
                                                        (In Thousands)

<S>                            <C>            <C>            <C>             <C>           <C>      
4.01-6.00%...............      $  13,267      $   2,007      $   1,107       $    193      $  16,574
6.01-8.00%...............            938          1,008            642            160          2,748
8.01-10.00%..............              -              -              -              -              -
                               ---------      ---------      ---------       --------      ---------

      Total..............      $  14,205      $   3,015      $   1,749       $    353      $  19,322
                               =========      =========      =========       ========      =========

</TABLE>

      Jumbo Certificates of Deposit. 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, 1996.

                                                                 Certificates
Maturity Period                                                   of Deposit
---------------                                                  --------------
                                                                 (In Thousands)
Within three months ...........................................      $1,132
More than three through six months.............................         983
More than six through twelve months............................       2,620
Over twelve months ............................................         305
   Total ......................................................      $5,040
                                                                     ======


     Savings  Deposit  Activity.  The  following  table sets  forth the  savings
activities of the Bank for the periods indicated:


                                       Year Ended
                                      September 30,
                                     ---------------
                                     1996       1995
                                     ----       ----
                                       (In Thousands)
Net increase (decrease)
  before interest credited.....    $   (9)   $(1,764)
Interest credited..............     1,171        993
                                     -----     ------
Net increase (decrease) in
  savings deposits.............    $ 1,162   $  (771)
                                     =====    ======




      Borrowings.  The Bank may  obtain  advances  from the FHLB of  Seattle  to
supplement its supply of lendable  funds.  Advances from the FHLB of Seattle are
typically  secured by a pledge of the Bank's  stock in the FHLB of Seattle and a
portion of the Bank's first  mortgage  loans and certain other assets.  The Bank
utilizes  short-term FHLB advances  primarily to fund loan originations and as a
hedge  against  interest  rates  whereby  funds from  advances  are  invested in
callable  government agencies with terms to maturity of three to ten years. Each
FHLB credit program has its own interest rate, which may be fixed

                                      18

<PAGE>



or variable,  and range of  maturities.  The Bank, if the need arises,  may also
access the Federal  Reserve Bank  discount  window to  supplement  its supply of
lendable  funds and to meet deposit  withdrawal  requirements.  At September 30,
1996,  the Bank had $6.11  million of  borrowings  from the FHLB of Seattle that
consisted of $6.00 million in fixed-rate  advances with rates of 5.26% to 6.54%,
and a $113,000  amortizing advance at 4.36%. FHLB advances have been utilized by
the Bank to fund loan demand and to purchase investment securities. The Bank has
used FHLB  advances  to fund the  purchase  of  investment  and  mortgage-backed
securities  with the goal of earning  income on the interest  rate  differential
between the rate earned on the  investment  securities  and the rate paid on the
FHLB advances.

      The following  table sets forth  information  concerning  only  short-term
borrowings  (those  maturing  within  one year or less) the Bank had  during the
periods indicated.


                                                    Year ended September 30,
                                                    ------------------------
                                                        1996         1995
                                                    -----------   ----------

Short-term FHLB advances:
  Average balance outstanding                       $3,723,000    $1,439,000

  Maximum amount outstanding at any month-end
    during the period                               $5,500,000    $2,469,000

  Weighted average interest rate during the period        5.58%         4.70%

Total short-term borrowings at end of period        $5,213,000    $2,469,000



Personnel

      At  September  30,  1996  the  Bank had ten  full-time  and two  part-time
employees.  None  of  the  Bank's  employees  are  represented  by a  collective
bargaining  group. The Bank believes that its relationship with its employees is
good.

Regulation

      Set forth below is a brief description of certain laws which relate to the
regulation of the Bank and the Company.  The description  does not purport to be
complete and is qualified  in its entirety by reference to  applicable  laws and
regulations.

Bank Regulation

      General. As a federally chartered,  SAIF-insured savings association,  the
Bank is  subject  to  extensive  regulation  by the OTS  and the  FDIC.  Lending
activities and other  investments must comply with various federal statutory and
regulatory   requirements.   The  Bank  is  also  subject  to  certain   reserve
requirements promulgated by the Board of Governors of the Federal Reserve System
("Federal Reserve System").

      The OTS, in  conjunction  with the FDIC,  regularly  examines the Bank and
prepares  reports for the  consideration of the Bank's Board of Directors on any
deficiencies that they find in the Bank's

                                      19

<PAGE>



operations.  The Bank's  relationship  with its depositors and borrowers is also
regulated to a great extent by federal  law,  especially  in such matters as the
ownership of savings  accounts  and the form and content of the Bank's  mortgage
documents.

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

      Insurance of Deposit Accounts.  The Bank's deposit accounts are insured by
the SAIF to a maximum of $100,000 for each insured member (as defined by law and
regulation).  If an  institution  has no  tangible  capital,  the  FDIC  has the
authority,  should it initiate proceedings to terminate an institution's deposit
insurance,  to suspend the  insurance  of any such  institution.  However,  if a
savings association has positive capital when it includes qualifying  intangible
assets,  the FDIC cannot  suspend  deposit  insurance  unless  capital  declines
materially, the institution fails to enter into and remain in compliance with an
approved  capital plan or the  institution  is operating in an unsafe or unsound
manner.

      Regardless of an institution's capital level, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or  unsound  practices,  is  in an  unsafe  or  unsound  condition  to  continue
operations  or has violated  any  applicable  law,  regulation,  rule,  order or
condition  imposed  by the  FDIC or the  institution's  primary  regulator.  The
management of the Bank is unaware of any practice,  condition or violation  that
might lead to termination of its deposit insurance.

      The FDIC charges an annual  assessment for the insurance of deposits based
on the risk a particular  institution poses to its deposit insurance fund. Under
this system as of  September  30,  1996,  SAIF members paid within a range of 23
cents  to  31  cents  per  $100  of  domestic   deposits,   depending  upon  the
institution's  risk  classification.  This  risk  classification  is based on an
institution's capital group and supervisory subgroup assignment. Pursuant to the
Economic  Growth  and  Paperwork  Reduction  Act of 1996 (the  "Act"),  the FDIC
imposed a special  assessment  on SAIF  members  to  capitalize  the SAIF at the
designated  reserve  level of 1.25% as of October  1, 1996.  Based on the Bank's
deposits as of March 31, 1995,  the date for measuring the amount of the special
assessment  pursuant to the Act, the Bank paid a special  assessment of $186,569
on November  27, 1996 to  recapitalize  the SAIF.  This  expense was  recognized
during the fourth  quarter of fiscal  1996.  The FDIC is  expected  to lower the
premium for deposit  insurance to a level  necessary to maintain the SAIF at its
required reserve level;  however,  the range of premiums has not been determined
at this time.

      Pursuant to the Act, the Bank will pay, in addition to its normal  deposit
insurance  premium as a member of the SAIF, an amount equal to approximately 6.4
basis points toward the  retirement of the  Financing  Corporation  bonds ("Fico
Bonds")  issued in the 1980's to assist in the  recovery of the savings and loan
industry. A member of the Bank Insurance Fund ("BIF"), by contrast, will pay, in
addition to their normal  deposit  insurance  premium,  approximately  1.3 basis
points.  Based on total  deposits as of September 30, 1996,  had the Act been in
effect,  the Bank's Fico Bond premium would have been  approximately  $19,000 in
addition  to its  normal  deposit  insurance  premium.  Beginning  no later than
January  1,  2000,  the rate paid to  retire  the Fico  Bonds  will be equal for
members of the BIF and the

                                      20

<PAGE>



SAIF.  The Act also  provides for the merging of the BIF and the SAIF by January
1, 1999 provided there are no financial  institutions still chartered as savings
associations  at that time.  Should the insurance funds be merged before January
1, 2000,  the rate paid by all members of this new fund to retire the Fico Bonds
would be equal.

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

      Tangible  capital is defined as core  capital less all  intangible  assets
(including  supervisory  goodwill),  plus purchased  mortgage  servicing  rights
valued  at the lower of the  maximum  percentage  established  by the OTS or the
amount   includable  in  core  capital.   Core  capital  is  defined  as  common
stockholders'  equity (including  retained  earnings),  noncumulative  perpetual
preferred  stock and minority  interests in the equity  accounts of consolidated
subsidiaries, and qualifying supervisory goodwill, less nonqualifying intangible
assets.

      The OTS  requires a core  capital  ratio of at least 3% for those  savings
associations  in the strongest  financial and  managerial  condition.  All other
savings  associations  are required to maintain minimum core capital of at least
4% of total adjusted  assets,  with a maximum core capital ratio  requirement of
5%. In determining the required minimum core capital ratio, the OTS assesses the
quality of risk management and the level of risk in each savings  association on
a case-by-case basis.

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



                                      21

<PAGE>



      Set forth below is information  regarding the Bank's regulatory capital at
September 30, 1996.

                                          Percent of
                            Amount      Adjusted Assets
                           -------      ---------------
                                  (In Thousands)

GAAP Capital               $10,523


Tangible Capital:
Regulatory requirement         774            1.50%
Actual capital              10,589           20.51%
  Excess                     9,815           19.01%

Core Capital:
Regulatory requirement       1,549            3.00%
Actual capital              10,589           20.51%
  Excess                     9,040           17.51%

Risk-Based Capital:
Regulatory Requirement       1,655            8.00%
Actual capital              10,847           52.42%
  Excess                     9,192           44.43%





      Net Portfolio  Value.  In order to encourage  associations to reduce their
interest rate risk, the OTS adopted a rule  incorporating  an interest rate risk
("IRR") component into the risk-based  capital rules. Using data from the Bank's
quarterly reports to the OTS, the Bank receives a report which measures interest
rate risk by  modeling  the change in the Net  Portfolio  Value  ("NPV")  over a
variety of interest  rate  scenarios.  NPV is the present value of expected cash
flows from assets,  liabilities and off-balance sheet contracts. The calculation
is intended to  illustrate  the change in NPV that will occur in the event of an
immediate  change in interest  rates of at least 200 basis points with no effect
given to any steps  which  management  might take to counter  the effect of that
interest rate movement. Under the OTS regulations, an institution with a greater
than "normal"  level of interest  rate risk will be subject to a deduction  from
total capital for purposes of calculating its risk-based  capital.  Institutions
with assets of less than $300  million and a  risk-based  capital  ratio of more
than 12.0% are exempt.  The Bank meets these  qualifications  and  therefore  is
exempt.  Assuming this proposed rule was in effect at September 30, 1996 and the
Bank was not exempt from the rule,  the Bank's  level of interest rat risk would
have  caused it to be treated  as an  institution  with  greater  than  "normal"
interest rate. This would have resulted in a reduction in the risk-based capital
ratio from the September 30, 1996  calculation of 52.42% to 48.22%,  which is in
excess of the required minimum of 8.00%.  Utilizing the NPV measurement concept,
at September 30, 1996,  this would have resulted in a $2.79  million,  or 24.49%
decrease  in the Bank's  NPV,  assuming a 200 basis  point  increase in interest
rates with no effect given to steps management may take to counter the effect of
that interest rate movement.


                                      22

<PAGE>



      The following  table is provided by the OTS and  illustrates the change in
NPV at September  30,  1996,  based on OTS  assumptions,  that will occur in the
event of an immediate  change in interest rate with no effect given to any steps
which  management  might  take to  counter  the  effect  of that  interest  rate
movement.

<TABLE>
<CAPTION>


                                                            Net Portfolio as % of
                            Net Portfolio Value           Portfolio Value of Assets
                            --------------------          -------------------------
Basis Point ("bp")
 Change in Rates   $ Amount    $ Change(1)   % Change     NPV Ratio (2)   Change(3)
-----------------  ---------  ------------  -----------  --------------  ----------
                               (Dollars in Thousands)
<S>                   <C>        <C>             <C>          <C>        <C>    
           400 bp      5,880     (5,509)         (48)         12.69%     (900)bp
           300 bp      7,204     (4,185)         (37)         15.06      (662)bp
           200 bp      8,600     (2,790)         (24)         17.41      (427)bp
           100 bp     10,017     (1,372)         (12)         19.65      (203)bp
             0 bp     11,389                                  21.68
         (100) bp     12,613      1,223           11          23.39       170 bp
         (200) bp     13,579      2,189           19          24.65       296 bp
         (300) bp     14,414      3,025           27          25.68       400 bp
         (400) bp     15,395      4,005           35          26.86       517 bp

</TABLE>

-----------------
(1)   Represents  the increase  (decrease) of the estimated NPV at the indicated
      change  in  interest  rates  compared  to the NPV  assuming  no  change in
      interest rates.
(2)   Calculated as the  estimated  NPV divided by the portfolio  value of total
      assets  ("PV").  The  Bank's PV is the  estimated  present  value of total
      assets.  The PV of the Bank as of September 30, 1996,  assuming no changes
      in interest rates, was $52.53 million.
(3)   Calculated  as the  increase  (decrease)  of the NPV  ratio  assuming  the
      indicated  change in interest  rates over the estimated NPV ratio assuming
      no change in interest rates.

      Under the OTS interest rate risk capital  rule,  those  institutions  with
greater  than  "normal"  levels of  interest  rate risk  will be  subject  to an
interest rate risk component in calculating  their risk-based  capital ratio. An
institution  with a "normal" level of interest rate risk is defined as one whose
"Measured Interest Rate Risk" is less than 2.0%.


                                      23

<PAGE>



      The  following  table  is  provided  by  the  OTS  and  is  based  on  the
calculations  in the above table.  It sets forth the IRR capital  component that
will be deducted from risk-based  capital in determining the level of risk-based
capital.  At September 30, 1996,  the change in NPV as a percentage of portfolio
value of total assets is negative  5.31%,  which is greater than negative  2.0%,
indicating  that the Bank has a greater  than  "normal"  level of interest  rate
risk.  As  mentioned  earlier,  the Bank is exempt from any  additional  capital
requirements;  however,  had the Bank been subject to the IRR capital component,
its IRR capital component at September 30, 1996 would be approximately $869,000.


                                                 September 30,    September 30,
                                                      1996            1995
                                                 -------------    -------------



RISK MEASURES: 200 BP RATE SHOCK:

Pre-Shock NPV Ratio: NPV as % of PV of Assets         21.68%          15.95%

Exposure Measure: Post-Shock NPV Ratio......          17.41%          13.26%

Sensitivity Measure: Change in NPV Ratio....         (427)bp        (269) bp



CALCULATION OF CAPITAL COMPONENT:

Change in NPV as % of PV of Assets..........         (5.31)%         (3.24)%

Interest Rate Risk Capital Component ($000) (1)         --              --

--------------------
(1)   No amounts are shown on the  interest  rate risk  capital  component  line
      because the Bank is exempt from the IRR capital component.

      Certain  shortcomings  are inherent in the  methodology  used in the above
table.  Modeling changes in NPV requires the making of certain  assumptions that
may tend to oversimplify  the manner in which actual yields and costs respond to
changes in market interest rates.  First, the models assume that the composition
of  the  Bank's  interest  sensitive  assets  and  liabilities  existing  at the
beginning of a period remains  constant over the period being measured.  Second,
the models  assume  that a  particular  change in  interest  rates is  reflected
uniformly  across the yield  curve  regardless  of the  duration  to maturity or
repricing  of specific  assets and  liabilities.  Accordingly,  although the NPV
measurements  do provide an indication of the Bank's interest rate risk exposure
at a particular  point in time, such  measurements are not intended to provide a
precise forecast of the effect of changes in market interest rates on the Bank's
net interest  income.  Furthermore,  in times of decreasing  interest rates, the
value of fixed-rate  assets could  increase in value and the lag in repricing of
interest rate  sensitive  assets could be expected to have a positive  effect on
the Bank.

      Management  believes that the NPV method of assessing the Bank's  exposure
to interest  rate risk and  potential  reductions  in net  interest  income is a
useful  tool for  measuring  risk.  Management  also  believes  that  strategies
employed  to  respond  to  changing   interest  rate  environments  can  have  a
significant  impact  upon  the net  value  of  assets  and  extent  of  earnings
fluctuations.  Also,  management  believes that a strong equity capital position
and  existence  of the  corporate  authority  to  raise  additional  capital  as
necessary act as valuable tools to absorb interest rate risk.

                                      24

<PAGE>




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

      OTS  regulations  impose  limitations  upon all capital  distributions  by
savings  institutions,  such  as  cash  dividends,  payments  to  repurchase  or
otherwise acquire its shares, payments to shareholders of another institution in
a cash-out  merger and other  distributions  charged against  capital.  The rule
establishes  three tiers of  institutions,  based primarily on an  institution's
capital  level.  An  institution  that  exceeds  all  fully  phased-in   capital
requirements  before  and  after  a  proposed  capital   distribution  ("Tier  1
institution")  and has not  been  advised  by the OTS that it is in need of more
than the normal  supervision can, after prior notice but without the approval of
the OTS, make capital  distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the  calendar  year plus the amount
that would reduce by one-half its "surplus  capital  ratio" (the excess  capital
over its fully phased-in capital  requirements) at the beginning of the calendar
year,  or (ii) 75% of its net income over the most recent four  quarter  period.
Any additional  capital  distributions  require prior regulatory  notice.  As of
September 30, 1996, the Bank was a Tier 1 institution.

      In the event the Bank's capital fell below its fully phased-in requirement
or the OTS notified it that it was in need of more than normal supervision,  the
Bank would become a Tier 2 or Tier 3 institution  and, as a result,  its ability
to make capital  distributions could be restricted.  Tier 2 associations,  which
are  associations  that before and after the  proposed  distribution  meet their
current minimum capital requirements,  may only make capital distributions of up
to  75%  of net  income  over  the  most  recent  four  quarter  period.  Tier 3
associations,  which are  associations  that do not meet current minimum capital
requirements,  that  propose  to  make  any  capital  distribution,  and  Tier 2
associations that propose to make a capital  distribution in excess of the noted
safe harbor level,  must obtain OTS approval prior to making such  distribution.
In  addition,  the OTS could  prohibit a proposed  capital  distribution  by any
institution,  which would otherwise be permitted by the  regulation,  if the OTS
determines  that  such  distribution  would  constitute  an  unsafe  or  unsound
practice.  The OTS has  proposed  rules  relaxing  certain  approval  and notice
requirements for well-capitalized institutions.

      A savings association is prohibited from making a capital distribution if,
after making the distribution, the savings association would be undercapitalized
(i.e.,  not  meet  any  one of its  minimum  regulatory  capital  requirements).
Further,  a savings  association  cannot distribute  regulatory  capital that is
needed for the liquidation account.

      Qualified Thrift Lender Test.  Savings  institutions must meet a Qualified
Thrift  Lender  ("QTL")  test.  If the Bank  maintains an  appropriate  level of
Qualified  Thrift  Investments  ("QTIs")  (primarily  residential  mortgages and
related  investments,   including  certain   mortgage-related   securities)  and
otherwise  qualifies  as a  QTL,  it  will  continue  to  enjoy  full  borrowing
privileges from the FHLB of Seattle.  The required  percentage of QTIs is 65% of
portfolio assets (defined as all assets minus intangible  assets,  property used
by the  institution in conducting its business and liquid assets equal to 10% of
total assets).  Certain assets are subject to a percentage  limitation of 20% of
portfolio assets. In addition,  savings associations may include shares of stock
of the Federal Home Loan Banks  ("FHLBs"),  FNMA and FHLMC as  qualifying  QTIs.
Compliance  with the QTL test is  determined  on a monthly  basis in nine out of
every 12 months.  As of September 30, 1996, the Bank was in compliance  with its
QTL requirement with 77.37% of its assets invested in QTIs.


                                      25

<PAGE>



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

      Liquidity Requirements.  All savings associations are required to maintain
an average daily  balance of liquid assets equal to a certain  percentage of the
sum of its  average  daily  balance of net  withdrawable  deposit  accounts  and
borrowings payable in one year or less. The liquidity  requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings  associations.  At September 30, 1996, the Bank's liquidity
ratio was  18.88%.  Monetary  penalties  may be imposed  upon  associations  for
violations of liquidity requirements.

      Federal  Home  Loan  Bank  System.  The  Bank is a  member  of the FHLB of
Seattle,  which is one of 12 regional  FHLBs that  administer the home financing
credit function of savings associations and other financial  institutions.  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.

      As a member,  the Bank is required to purchase and  maintain  stock in the
FHLB of  Seattle  in an  amount  equal to at least  1% of its  aggregate  unpaid
residential  mortgage loans, home purchase  contracts or similar  obligations at
the beginning of each year. At September 30, 1996, the Bank had $400,000 in FHLB
stock,  which was in compliance with this requirement.  The FHLB imposes various
limitations  on advances  such as limiting  the amount of certain  types of real
estate  related  collateral to 20% of a member's total assets and limiting total
advances to a member. At September 30, 1996, this limit was approximately $10.30
million for the Bank.

      The FHLBs are  required to provide  funds for the  resolution  of troubled
savings  associations  and to contribute to affordable  housing programs through
direct loans or interest subsidies on advances targeted for community investment
and  low-  and  moderate-income  housing  projects.   These  contributions  have
adversely  affected the level of FHLB dividends paid and could continue to do so
in the future. For the year ended September 30, 1996, dividends paid by the FHLB
of Seattle to the Bank totalled $29,000.

      Federal Reserve System. The Federal Reserve System requires all depository
institutions  to maintain  non-interest  bearing  reserves at  specified  levels
against  their  transaction  accounts  (primarily  checking,  NOW and  Super NOW
checking  accounts) and non-personal time deposits.  The balances  maintained to
meet the reserve  requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity  requirements that are imposed by the OTS. At September
30, 1996, the Bank's total transaction accounts were below the minimum level for
which the Federal Reserve System requires a reserve.

      Savings  associations  have  authority to borrow from the Federal  Reserve
System "discount  window," but Federal Reserve System policy generally  requires
savings  associations  to exhaust all other sources  before  borrowing  from the
Federal  Reserve  System.  The Bank had no borrowings  from the Federal  Reserve
System at September 30, 1996.

                                      26

<PAGE>




      Community  Reinvestment.  Under the Community Reinvestment Act ("CRA"), as
implemented  by OTS  regulations,  a savings  association  has a continuing  and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire  community,  including  low and  moderate  income
neighborhoods.  The CRA does not  establish  specific  lending  requirements  or
programs  for  financial   institutions  nor  does  it  limit  an  institution's
discretion  to develop the types of products and  services  that it believes are
best  suited  to its  particular  community,  consistent  with the CRA.  The CRA
requires the OTS, in connection with its  examination of a savings  institution,
to assess the institution's  record of meeting the credit needs of its community
and to take such record into account in its  evaluation of certain  applications
by such institution.  Current law requires public disclosure of an institution's
CRA  rating  and  requires  the  OTS  to  provide  a  written  evaluation  of an
institution's CRA performance utilizing a four-tiered  descriptive rating system
in lieu of the existing  five-tiered  numerical rating system.  The OTS reported
that Buffalo  Federal had a  "satisfactory  record of meeting  community  credit
needs," in its examination dated September 5, 1995.

Company Regulation

      General. The Company is a unitary savings and loan holding company subject
to regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation  and  examination  by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries,  should such subsidiaries be formed, which
also permits the OTS to restrict or prohibit  activities  that are determined to
be a serious risk to the subsidiary  savings  association.  This  regulation and
oversight is intended primarily for the protection of the depositors of the Bank
and not for the  benefit  of  stockholders  of the  Company.  The  Company is be
required to file certain reports with, and otherwise  comply with, the rules and
regulations of the OTS and the Securities and Exchange Commission ("SEC").

      QTL Test.  As a unitary  savings  and loan  holding  company,  the Company
generally  will not be  subject  to  activity  restrictions,  provided  the Bank
satisfies  the QTL test.  If the  Company  acquires  control of another  savings
association  as a separate  subsidiary,  it would become a multiple  savings and
loan  holding  company,  and  the  activities  of  the  Company  and  any of its
subsidiaries (other than the Bank or any other SAIF-insured savings association)
would become subject to  restrictions  applicable to bank holding  companies and
those activities  specified by the OTS as permissible for a multiple savings and
loan holding company unless such other  associations  each also qualify as a QTL
or were acquired in a supervised acquisition.

      Restrictions  on  Acquisitions.  The Company must obtain approval from the
OTS  before  acquiring  control  of any  other  SAIF-insured  association.  Such
acquisitions  are generally  prohibited if they result in a multiple savings and
loan holding company  controlling  savings  associations in more than one state.
However,  such  interstate  acquisitions  are permitted  based on specific state
authorization or in a supervisory acquisition of a failing savings association.

      Federal  law  generally  provides  that no  "person,"  acting  directly or
indirectly or through or in concert with one or more other persons,  may acquire
"control," as that term is defined in OTS  regulations,  of a federally  insured
savings  institution  without  giving at least 60 days written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.  In
addition,  no company may acquire  control of such an institution  without prior
OTS approval.

      Federal  Securities Law. The Company's Common Stock is registered with the
SEC under the  Exchange  Act. The Company is subject to the  information,  proxy
solicitation,  insider trading  restrictions,  and other  requirements under the
Exchange Act.


                                      27

<PAGE>



Other Regulatory Events

      Recapture of Post-1987  Bad-Debt  Reserves.  Prior to the enactment of the
Small  Business  Jobs  Protection  Act,  which was signed into law on August 21,
1996,  certain  thrift  institutions  such as the Bank were  allowed  income tax
deductions  for bad debts under  methods more  favorable  than those  granted to
other taxpayers. The Small Business Job Protection Act repealed the Code Section
593 reserve method of accounting for bad debts by thrift institutions, effective
for tax years  beginning  after 1995.  Thrift  institutions  that are treated as
small banks are  allowed to utilize the  experience  method  applicable  to such
institutions,  while thrift  institutions that are treated as large banks (banks
with assets of more than $500  million)  are  required to use only the  specific
charge off method.

      The amount of the applicable  excess  reserves will be included in taxable
income ratably over a six taxable year period,  beginning with the first taxable
year  beginning  after  1995.   However,   because  the  Company  meets  certain
residential  loan  requirements  it will  defer the  beginning  of such six year
period for two years.

      For the Bank,  a small bank,  the amount of the  institution's  applicable
excess  reserves  generally is the excess of (i) the balances of its reserve for
losses  on  qualifying  real  property  loans  and its  reserve  for  losses  on
nonqualifying  loans as of the close of its last taxable year  beginning  before
January  1, 1996,  over (ii) the  greater  of the  balance  of (a) its  pre-1988
reserves  or (b) what the  Bank's  reserves  would have been at the close of its
last tax year  beginning  before  January 1, 1996,  had the Bank always used the
experience  method.  At September  30,  1996,  the Bank had $398,000 of pre-1988
bad-debt  reserves (base year  reserve).  Since the percentage of taxable income
method for tax bad debt deduction and the corresponding  increase in the tax bad
debt  reserve  in  excess  of the base year  have  been  recorded  as  temporary
differences pursuant to SFAS No. 109, this change in the tax law will not have a
material effect on the Company's financial statements.

Item  2.  Description of Property

      (a) Properties.

      The Company  owns no real  property  but  utilizes the office owned by the
Bank.  The Bank owns and  operates  from its office  located at 106 Fort Street,
Buffalo,  Wyoming 82834.  The Bank has a total investment in office property and
equipment of $972,000 with a net book value of $502,000 at September 30, 1996.

      (b) Investment Policies.

      See  "Item 1.  Business"  above for a general  description  of the  Bank's
investment  policies and any  regulatory  or Board of  Directors'  percentage of
assets limitations  regarding certain investments.  All of the Bank's investment
policies are  reviewed  and approved by the Board of Directors of the Bank,  and
such  policies,  subject to  regulatory  restrictions  (if any),  can be changed
without a vote of stockholders. The Bank's investments are primarily acquired to
produce income, and to a lesser extent, possible capital gain.

     (1)  Investments  in Real Estate or Interests in Real Estate.  See "Item 1.
Business -- Lending  Activities,"  "Item 1. Business -- Regulation of the Bank,"
and "Item 2. Description of Property. (a) Properties" above.

     (2) Investments in Real Estate Mortgages.  See "Item 1. Business -- Lending
Activities" and "Item 1. Business -- Regulation of the Bank."

                                      28

<PAGE>




     (3) Investments in Securities of or Interests in Persons  Primarily Engaged
in Real Estate Activities.  See "Item 1. Business -- Lending  Activities," "Item
1.  Business --  Regulation  of the Bank," and "Item 1.  Business --  Subsidiary
Activity."

      (c)  Description of Real Estate and Operating Data.

      Not Applicable.

Item  3.  Legal Proceedings

      The Company, from time to time, is a party to ordinary routine litigation,
which arises in the normal course of business,  such as claims to enforce liens,
condemnation  proceedings  on  properties  in  which  the  Bank  holds  security
interests, claims involving the making and servicing of real property loans, and
other  issues  incident  to the  business  of the  Company.  In the  opinion  of
management,  currently  there are no such claims or  lawsuits  that would have a
material  adverse  effect on the  Company's  results of  operations or financial
condition.

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

      The Company held a special meeting of stockholders on October 2, 1996 (the
"Special  Meeting").  The purpose of the Special Meeting was to seek stockholder
approval of the Company's  stock option plan (the "Option  Plan") and the Bank's
management  stock bonus plan ("MSBP").  The following table indicates the voting
on each matter considered.

                         For       Against     Abstain
                       -------------------------------
      Option Plan      588,858     203,603      30,358
      MSBP             687,616     106,316      30,358


                                    PART II

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

      The  information  contained  under the  section  captioned  "Stock  Market
Information" in the Company's  Annual Report to Stockholders for the fiscal year
ended  September  30, 1996 (the  "Annual  Report"),  is  incorporated  herein by
reference.

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

      The  required   information   is   contained  in  the  section   captioned
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" in the Annual Report and is incorporated herein by reference.

Item  7.  Financial Statements

      The  Company's  consolidated  financial  statements  required  herein  are
contained in the Annual Report and are incorporated herein by reference.


                                      29

<PAGE>



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

      Not Applicable.


                                   PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(b) of the Exchange Act

      The  information   contained  under  the  sections  captioned  "Filing  of
Beneficial  Ownership  Reports"  and  "Information  with Respect to Nominees for
Director,  Directors  Continuing  in  Office,  and  Executive  Officers"  in the
Company's  definitive  proxy  statement  for the  Company's  Annual  Meeting  of
Stockholders (the "Proxy Statement") is incorporated herein by reference.

Item 10.  Executive Compensation

      The  information  contained  under the  section  captioned  "Director  and
Executive Officer Compensation" in the Proxy Statement is incorporated herein by
reference.

Item 11.  Security Ownership of Certain Beneficial Owners and Management

      (a)   Security Ownership of Certain Beneficial Owners

            Information   required  by  this  item  is  incorporated  herein  by
            reference to the section captioned "Voting  Securities and Principal
            Holders Thereof" in the Proxy Statement.

      (b)   Security Ownership of Management

            Information   required  by  this  item  is  incorporated  herein  by
            reference  to the section  captioned  "Information  with  Respect to
            Nominees for Director, Directors Continuing in Office, and Executive
            Officers" in the Proxy Statement.

      (c)   Management  of the Company knows of no  arrangements,  including any
            pledge by any person of securities of the Company,  the operation of
            which may at a subsequent  date result in a change in control of the
            Registrant.

Item 12.  Certain Relationships and Related Transactions

      The information  required by this item is incorporated herein by reference
to the section captioned  "Certain  Relationships and Related  Transactions" and
"Voting Securities and Principal Holders Thereof" in the Proxy Statement.


                                      30

<PAGE>



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

(a) Exhibits are either attached as part of this Report or  incorporated  herein
    by reference.

      3.1 Articles of Incorporation of Crazy Woman Creek Bancorp Incorporated*

      3.2 Bylaws of Crazy Woman Creek Bancorp Incorporated*

      10  Employment contract with Crazy Woman Creek Bancorp Incorporated*

      11  Statement  regarding  computation of earnings per share (see Note 1 to
          the Notes to Consolidated Financial Statements in the Annual Report)

      13  Annual Report to Stockholders  for the fiscal year ended September 30,
          1996.

      21  Subsidiaries  of the Registrant (See "Item 1. Business of the Company"
          and "-- Business of the Bank".)

      27  Financial Data Schedule

(b)   Reports on Form 8-K.

     None.


*     Incorporated by reference to the  Registrant's  Registration  Statement on
      Form SB-2 (33-80557)  declared effective by the Commission on February 12,
      1996.

                                      31

<PAGE>




                                  SIGNATURES

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


                              CRAZY WOMAN CREEK BANCORP INCORPORATED



                              By:  /s/ Deane D. Bjerke
                                   ------------------------------------
                                   Deane D. Bjerke
                                   President and Chief Executive Officer
                                   (Duly Authorized Representative)


      In accordance with the requirement of the Securities Exchange Act of 1934,
this  Report has been  signed  below by the  following  persons on behalf of the
Registrant in the capacities and on the dates indicated.




Deane D. Bjerke                           Dalen C. Slater
President and Chief Executive Officer     Senior Vice President
(Principal Executive Officer)             (Principal Financial and Accounting 
                                             Officer)
Dated:  December 27, 1996                 Dated:  December 27, 1996



Richard Reimann                           Douglas D. Osborn
Chairman of the Board                     Director
Dated:  December 27, 1996                 Dated:  December 27, 1996



Greg L. Goddard                           Thomas J. Berry
Director                                  Director
Dated:  December 27, 1996                 Dated:  December 18, 1996



Sandra K. Todd
Director
Dated:  December 18, 1996

                                      32