<PAGE>   1
                                                                      Exhibit 13

                            FOUNDATION BANCORP, INC.

                    Parent Company of Foundation Savings Bank

                            (Foundation Bancorp logo)

                                      1998

                                  ANNUAL REPORT

<PAGE>   2

     TO OUR SHAREHOLDERS:

     On behalf of the Board of Directors of Foundation Bancorp, Inc.
     ("Foundation"), I am pleased to present Foundation's second annual report.
     September 25, 1998 was the second anniversary of our initial public
     offering.

     Foundation paid its second annual dividend to shareholders on August 25,
     1998. This dividend, for the fiscal year ended June 30, 1998, was $.40 per
     share. Last fiscal year's dividend was $.25 per share.

     Net income for the 1998 fiscal year ended June 30, 1998 was $232,113, up
     from the $111,956 for the 1997 fiscal year. The 1998 fiscal year results
     included a charge to earnings in the amount of $34,268. This charge relates
     to the market value of the 6,232 shares allocated in the ESOP during the
     year. The shares were originally purchased at $10 per share, but the
     average market price was $15.50 per share at allocation, resulting in a
     compensation expense charge of $5.50 per share. The effect of this charge
     is to reduce earnings and earnings per share, with no tax benefit, and
     increase paid-in capital and book value per share. This is not a true cash
     expense, but the effect of an accounting pronouncement designed to reflect
     the market cost of the ESOP. Shareholders' equity was still enhanced by the
     full $266,381 earned before the ESOP accounting treatment.

     The current economy has resulted in what is known as a "flat yield curve",
     whereby short term interest rates are trading within 30 basis points of the
     long bond. This economic environment has begun to impact Foundation's
     earnings as borrowers refinance to obtain lower interest rates. This has
     resulted in a decline in the yield on long-term interest-earning assets
     with little corresponding decrease in the short-term rates paid on
     deposits. Foundation views investing in the current low yields on long-term
     mortgages to be undesirable and has reinvested the proceeds from payoffs in
     short-term liquid obligations, resulting in a decrease in net interest
     income. Foundation, however, is experiencing its best lending year ever,
     resulting in a substantial increase in gains on sales of loans.

     Foundation intends to continue to originate fixed-term mortgages primarily
     for sale in the secondary market, rather than for its portfolio in the
     current interest rate environment. Loans held for investment decreased $4.5
     million during the 1998 fiscal year as a result of this strategy.
     Short-term liquidity has more than doubled, which has reduced
     interest-rate-risk and positioned Foundation to benefit from an increase in
     long-term interest rates. In the short run, we expect net earnings to be
     negatively impacted, the extent of which is dependent on the duration and
     extent of the current rate environment in which interest rates are
     continuing to decline to historic levels.

     Thank you for being a shareholder of Foundation Bancorp.


<PAGE>   3


                      BUSINESS OF FOUNDATION BANCORP, INC.
================================================================================

Foundation Bancorp, Inc. (the "Company"), a unitary savings and loan holding
company incorporated under the laws of the State of Ohio, owns all of the issued
and outstanding common shares of Foundation Savings Bank ("Foundation"), a
savings association chartered under the laws of the State of Ohio. In September
1996, the Company acquired all of the common shares issued by Foundation upon
its conversion from a mutual savings association to a permanent capital stock
savings association (the "Conversion"). Since its formation, the Company's
activities have been limited primarily to holding the common shares of
Foundation.

As a savings and loan holding company, the Company is subject to regulation,
supervision and examination by the Office of Thrift Supervision of the United
States Department of the Treasury (the "OTS"). As a savings association
incorporated under the laws of Ohio, Foundation is subject to regulation,
supervision and examination by the OTS and the Ohio Department of Commerce,
Division of Financial Institutions (the "Division") and the Federal Deposit
Insurance Corporation. Foundation is also a member of the Federal Home Loan Bank
(the "FHLB") of Cincinnati.


                          MARKET PRICE OF THE COMPANY'S
                  COMMON SHARES AND RELATED SHAREHOLDER MATTERS
================================================================================

There were 462,875 common shares of the Company outstanding on June 30, 1998,
and held of record by approximately 152 shareholders. Price information with
respect to the Company's common shares is quoted on the National Daily Quotation
Service ("NDQS"). The high and low bids for the common shares of the Company for
the periods indicated, as quoted by NDQS, were as follows:

<TABLE>
<CAPTION>

   Fiscal 1997                                             Cash dividends
  Quarter Ended               High             Low            declared
-----------------            ------           ------       --------------
<S>                          <C>              <C>              <C>   
December 31, 1996            $11.00           $10.50           $    -
March 30, 1997               $12.50           $11.00                -
June 30, 1997                $12.75           $12.50                -

   Fiscal 1998
  Quarter Ended
-----------------
September 30, 1997           $15.00           $13.00           $  .25
December 31, 1997            $15.50           $14.50                -
March 31, 1998               $19.00           $15.00                -
June 30, 1998                $18.25           $15.50                -
</TABLE>

The income of the Company consists of dividends which may periodically be
declared and paid by the Board of Directors of Foundation on the common shares
of Foundation held by the Company and earnings on the net proceeds retained by
the Company from the sale of the Company's common shares in connection with the
Conversion. In addition to certain federal income tax considerations, OTS
regulations impose

                                       1

<PAGE>   4


limitations on the payment of dividends and other capital distributions by
savings associations. Under OTS regulations applicable to converted savings
associations, Foundation is not permitted to pay a cash dividend on its common
shares if its regulatory capital would, as a result of the payment of such
dividend, be reduced below the amount required for the liquidation account
(which was established for the purpose of granting a limited priority claim on
the assets of Foundation, in the event of a complete liquidation, to those
members of Foundation before the Conversion who maintain a savings account at
Foundation after the Conversion) or applicable regulatory capital requirements
prescribed by the OTS.

OTS regulations applicable to all savings associations provide that a savings
association which immediately prior to, and on a pro forma basis after giving
effect to, a proposed capital distribution (including a dividend) has total
capital (as defined by OTS regulations) that is equal to or greater than the
amount of its capital requirements is generally permitted without OTS approval
(but subsequent to 30 days' prior notice to the OTS) to make capital
distributions, including dividends, during a calendar year in an amount not to
exceed the greater of (1) 100% of such association's net earnings to date during
the calendar year, plus an amount equal to one-half the amount by which its
total capital to assets ratio exceeded its required capital to assets ratio at
the beginning of the calendar year, or (2) 75% of its net earnings for the most
recent four-quarter period. Savings associations which have total capital in
excess of the capital requirements, but which have been notified by the OTS that
they are in need of more than normal supervision, will be subject to
restrictions on dividends. A savings association that fails to meet current
minimum capital requirements is prohibited from making any capital distributions
without the prior approval of the OTS.

Foundation currently meets all of its regulatory capital requirements and,
unless the OTS determines that Foundation is an institution requiring more than
normal supervision, Foundation may pay dividends in accordance with the
foregoing provisions of the OTS regulations.

                                       2
<PAGE>   5

                              SELECTED CONSOLIDATED
                      FINANCIAL INFORMATION AND OTHER DATA
================================================================================

The following table sets forth certain information concerning the consolidated
financial condition, earnings and other data regarding the Company at the dates
and for the periods indicated.
<TABLE>
<CAPTION>

                                                                     At June 30,
                                        --------------------------------------------------------------------
SELECTED FINANCIAL CONDITION:             1998           1997           1996            1995           1994
                                        -------        -------        -------         -------        -------
                                                                   (In thousands)

<S>                                     <C>            <C>            <C>             <C>            <C>    
Total amount of:

    Assets                              $36,189        $35,271        $30,835         $31,849        $31,056
    Cash and cash equivalents             6,196          3,289          1,172           3,943          2,462
    Investment securities                 3,568          1,245          1,179           1,310          2,691
    Mortgage-backed securities            3,966          4,288          4,641           5,532          6,593
    Loans receivable, net (1)            21,846         25,939         23,267          20,511         18,794
    Deposits                             28,023         27,292         26,951          27,737         27,348
    FHLB advances                           680            754            825           1,192            955
    Shareholders' equity (2)              7,140          6,934          2,793           2,706          2,581


                                                                 Year ended June 30,
                                        --------------------------------------------------------------------
SUMMARY OF EARNINGS:                      1998           1997           1996            1995           1994
                                        -------        -------        -------         -------        -------
                                                                   (In thousands)

Interest income                         $ 2,698        $ 2,558        $ 2,359         $ 2,162        $ 2,069
Interest expense                          1,641          1,530          1,592           1,368          1,339
                                        -------        -------        -------         -------        -------
Net interest income                       1,057          1,028            767             794            730
Provision for loan losses                    12             15             44              12             33
                                        -------        -------        -------         -------        -------
Net interest income after
   provision for loan losses              1,045          1,013            723             782            697
Other income                                116             63             64              70            204
General, administrative and other
  expense                                   792            919            674             679            627
                                        -------        -------        -------         -------        -------
Earnings before income taxes                369            157            113             173            274
Federal income taxes                        137             45             27              48             79
                                        -------        -------        -------         -------        -------
Net earnings                            $   232        $   112        $    86         $   125        $   195
                                        =======        =======        =======         =======        =======
</TABLE>
-----

(1)      Includes $475,000 of loans held for sale at June 30, 1998.

(2)      Consisted solely of retained earnings at June 30, 1994, 1995 and 1996.


                                       3

<PAGE>   6
<TABLE>
<CAPTION>

                                                                               At June 30,
                                                      ------------------------------------------------------------
SELECTED FINANCIAL RATIOS:                             1998           1997        1996          1995         1994
                                                      ------         ------      ------        ------       ------

<S>                                                     <C>           <C>          <C>           <C>          <C>  
Performance ratios:

   Return on average assets                             0.63%         0.33%        0.27%         0.41%        0.62%
   Return on average equity                             3.31          1.82         3.11          4.72         7.92
   Interest rate spread                                 1.82          2.10         2.04          2.25         2.02
   Net interest margin                                  2.92          3.06         2.48          2.66         2.35
   Non-interest expense to average total assets         2.16          2.68         2.13          2.23         1.99
   Average equity to average assets                    19.12         17.89         8.72          8.71         7.80
   Equity to assets, end of period                     19.73         19.66         9.06          8.50         8.32
Asset quality ratios:
   Nonperforming assets to average total assets         0.15             -            -          0.64         0.29
   Nonperforming loans to total loans                      -             -            -          0.95         0.49
   Allowance for loan losses to total loans             0.63          0.48         0.47          0.47         0.38
   Allowance for loan losses to nonperforming
     loans                                                 -             -            -         50.52        77.42
   Net (charge-offs) recoveries to
     average loans                                         -             -        (0.14)          .07         (.32)
   Average interest-earning assets to average
     interest-bearing liabilities                     124.17         121.15      108.51        108.92       107.70
</TABLE>

                                       4

<PAGE>   7


                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================

                                     GENERAL
--------------------------------------------------------------------------------

The following discussion and analysis of the financial condition and results of
operations of the Company and Foundation should be read in conjunction with and
with reference to the consolidated financial statements and the notes thereto
presented in this Annual Report.

The Company was incorporated for the purpose of owning all of the outstanding
common shares of Foundation following the Conversion. As a result, the
discussion and analysis that follows pertains primarily to the financial
condition and results of operations of Foundation.


                               FINANCIAL CONDITION
--------------------------------------------------------------------------------

At June 30, 1998, assets totaled $36.2 million, an increase of $0.9 million, or
2.6%, compared to June 30, 1997 totals. Cash and cash equivalents increased $2.9
million, or 88.4%, investment securities increased $2.0 million, and
certificates of deposit in other financial institutions increased $300,000.
These increases were offset somewhat by decreases in mortgage-backed securities
and loans resulting from borrowers refinancing for lower-rate, fixed-term
instruments. The increase in total assets was funded by an increase in deposits
of $731,149, or 2.7%, plus an increase in shareholders' equity of $205,771, or
3.0%, primarily as a result of net earnings for the fiscal year.

Mortgage-backed securities decreased $321,840, or 7.5%, as a result of
repayments, and loans receivable decreased $4.1 million, or 15.8%. Although
Foundation originated $11.4 million in new loans during the 1998 fiscal year,
borrowers repaid $8.3 million due to refinances for lower rates, sales of
property or scheduled monthly payments, and Foundation sold $7.2 million of
lower-rate, fixed-term current period loan production in the secondary market.

Retained earnings increased $116,395, or 4.0%, as a result of fiscal 1998 net
earnings of $232,113 less the August 1997 dividend to shareholders of $115,718.
Unallocated shares held by the Foundation Bancorp, Inc. Employee Stock Ownership
Plan (the "ESOP") decreased $55,108, or 17.7%, resulting from the 1997 calendar
year allocation, and additional paid-in capital increased $34,268, or 0.8%,
resulting from the market adjustment of the 1997 ESOP allocation.

Nonperforming assets at June 30, 1998, consisted of one loan, totaling $347,
over sixty days delinquent and one piece of real estate owned acquired through
foreclosure, which had a book value of $54,231. The foreclosures proceeding was
Foundation's first foreclosure in the last four years. The allowance for loan
losses totaled $138,147 at June 30, 1998, an increase of $12,000, or 9.5%, as a
result of the provision for the year.

                                       5

<PAGE>   8

                       COMPARISON OF RESULTS OF OPERATIONS
                   FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
--------------------------------------------------------------------------------

Net earnings for the year ended June 30, 1998, totaled $232,113, an increase of
$120,157, or 107.3%, from the $111,956 in net earnings for the year ended June
30, 1997. The increase in net earnings was comprised of an increase in net
interest income of $29,567, or 2.9%, an increase in total other income of
$52,559, or 83.0%, a decrease in the provision for loan losses of $3,000, or
20%, and a decrease in general, administrative and other expense of $127,074, or
13.8%. These amounts were partially offset by an increase in total interest
expense of $110,924, or 7.2%, and an increase in federal income taxes of
$92,043, or 204.3%.

Total interest income increased $140,491, or 5.5%. The increase was attributable
to an increase in interest on loans of $35,122, or 1.7%, an increase in interest
on investment securities of $12,063, or 15.6%, and an increase in interest on
interest-bearing deposits and other of $121,186, or 61.3%, all of which were due
to higher weighted average balances. These increases were partially offset by a
decrease in interest on mortgage-backed securities of $27,880, or 10.4%, the
result of a smaller portfolio.

The increase in total interest expense was the result of an increase in interest
expense on deposits of $114,846, or 7.7%, due to a higher weighted average
balance during fiscal 1998, partially offset by a decrease in interest expense
on borrowings of $3,922, or 9.0%, resulting from scheduled repayments. The
provision for loan losses decreased $3,000, or 20.0%, due to continued asset
quality.

Other operating income increased $52,559, or 83.0%, the result of an increase in
gains on sales of loans of $52,391, or 1,023.1%, as fixed-rate loans originated
in the prevailing low interest rate environment were sold in the secondary
market.

The decrease in general, administrative and other expense was the result of a
decrease in occupancy and equipment of $2,329, or 2.9%, and a decrease in
federal deposit insurance premiums of $187,251, or 91.4%. The expense for 1997
included the one-time charge of $170,000 related to the Savings Association
Insurance Fund (the "SAIF") recapitalization in September 1996. The further
reduction in insurance premiums from 1997 to 1998 was due to the lower regular
deposit insurance premiums that were established following the SAIF
recapitalization. These reductions were partially offset by an increase in
franchise taxes of $22,287, or 60.7%, the result of franchise taxes doubling for
the second half of fiscal 1998 due to higher capital levels, and an increase in
other operating expenses of $39,032, or 34.9%, primarily the result of expenses
related to the operation of a public stock company. Employee compensation and
benefits expense experienced only a slight increase from year to year. Federal
income taxes increased $92,043, or 204.3%, the result of higher earnings.

                                       6

<PAGE>   9


                       COMPARISON OF RESULTS OF OPERATIONS
                   FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
--------------------------------------------------------------------------------

Net earnings for the year ended June 30, 1997, totaled $111,956, an increase of
$25,508, or 29.5%, from the $86,448 in net earnings for the year ended June 30,
1996. The increase in net earnings was comprised of an increase in total
interest income of $198,945, or 8.4%, a decrease in total interest expense of
$61,262, or 3.8%, and a decrease in the provision for loan losses of $28,990, or
65.9%. These were partially offset by a decrease in other income of $1,162, or
1.8%, an increase in general, administrative and other expense of $244,312, or
36.2%, and an increase in federal income taxes of $18,215, or 67.9%.

The increase in total interest income was attributable to an increase in
interest on loans of $206,583, or 11.4%, the result of a larger portfolio, an
increase in interest on investments of $7,739, or 11.1%, attributable to a
higher average yield, and an increase in interest on interest-bearing deposits
of $19,983, or 10.9%, attributable to a larger average balance. These increases
were partially offset by a decrease in interest on mortgage-backed securities of
$34,760, or 11.4%, resulting from a smaller portfolio.

The decrease in total interest expense was attributable to a decrease in
interest expense on deposits of $54,001, or 3.5%, resulting from the combined
effects of a decline in deposit balances and lower average rates paid on
savings, plus a decrease in interest expense on borrowings of $7,261, or 14.2%,
as the amount owed declined during the fiscal year. The provision for loan
losses decreased $28,990, or 65.9%, due to declining delinquencies.

Other operating income decreased $1,162, or 1.8%, primarily the result of lower
gains on sales of loans of $2,768, or 35.1%, as loan production was utilized to
invest the funds from the Conversion. The increase in general, administrative
and other expense was primarily attributable to the increase in deposit
insurance of $142,439, or 228.4%, resulting from the SAIF recapitalization fee
of approximately $170,000. Employee compensation and benefits increased $89,325,
or 24.7%, which was primarily the expensing of the ESOP. Occupancy and equipment
increased $2,303, or 2.9%, franchise taxes increased $2,572, or 7.5%, due to
higher capital levels, and other operating expense increased $7,064, or 6.7%,
primarily due to expenses related to operating a public company. Federal income
taxes increased $18,215, or 67.9%, the result of higher earnings.

                                       7

<PAGE>   10

YIELDS EARNED AND RATES PAID. The following table sets forth certain average
balance sheet information, including the average yield on interest-earning
assets and the average cost of interest-bearing liabilities for the years
indicated. Such yields and costs are derived by dividing income or expense by
the average monthly balance of interest-earning assets or interest-bearing
liabilities, respectively, for the years presented. Average balances are derived
from monthly balances, which include nonaccruing loans in the loan portfolio.

<TABLE>
<CAPTION>

                                                                                   Year ended June 30,
                                                        ----------------------------------------------------------------------------
                                                                        1998                                    1997                
                                                        -----------------------------------    ------------------------------------ 
                                     Weighted average     Average     Interest      Average      Average      Interest      Average 
                                        yield/rate      outstanding    earned/      yield/     outstanding     earned/      yield/  
                                     at June 30, 1998     balance       paid         rate        balance        paid         rate   
                                     ----------------   -----------   --------     --------    -----------    --------     -------- 

<S>                                        <C>          <C>           <C>            <C>       <C>            <C>            <C>    
Interest-earning assets:
  Interest-bearing deposits                6.29%        $  5,809      $  319         5.49%     $   3,511      $   198        5.64%  
  Investment securities                    6.17            1,451          89         6.13            949           77        8.11   
  Mortgage-backed securities               6.44            4,020         241         6.00          4,413          269        6.10   
  Loans receivable                         8.07           24,871       2,049         8.24         24,710        2,014        8.15   
                                                        -----------   --------                 -----------    --------              
    Total interest-earning assets          7.39           36,151       2,698         7.46         33,583        2,558        7.62   

Non-interest-earning assets                                  517                                     728                            
                                                        -----------                            -----------                          

    Total assets                                        $ 36,668                                $ 34,311                            
                                                        ===========                             ==========                          

Interest-bearing liabilities:
  Deposits                                 5.64         $ 28,400       1,606         5.65        $26,935        1,486        5.52   
  FHLB advances                            5.53              714          35         4.90            787           44        5.59   
                                                        -----------   --------                 -----------    --------              
    Total interest-bearing                 5.64           29,114       1,641         5.64         27,721        1,530        5.52   
     liabilities                                                      --------                                --------              

Non-interest-bearing liabilities                             542                                     453                            
                                                        -----------                            -----------                          

    Total liabilities                                     29,656                                  28,174                            

Stockholders' equity                                       7,012                                   6,137                            
                                                        -----------                            -----------                          

    Total liabilities and
     stockholders' equity                                  $36,668                                $34,311                           
                                                        ===========                               =======                           

Net interest income                                                   $1,057                                  $ 1,028               
                                                                      ========                                ========              
Interest rate spread                       1.75%                                     1.82%                                  2.10%   
                                         ======                                    ======                                 =======   
Net interest margin (net interest
  income as a percentage of average
  interest-earning assets)                                                           2.92%                                  3.06%   
                                                                                   ======                                 ======    
Average interest-earning assets to
  average interest-bearing               124.16%                                   124.17%                                121.14%   
  liabilities                            ======                                    ======                                 ======    
</TABLE>

<TABLE>
<CAPTION>

                                                 Year ended June 30,
                                       -----------------------------------------
                                                      1996
                                       -----------------------------------
                                         Average     Interest      Average
                                       outstanding    earned/      yield/
                                         balance       paid         rate
                                       -----------   --------     --------

<S>                                    <C>           <C>            <C>  
Interest-earning assets:
  Interest-bearing deposits            $  2,979      $  178         5.97%
  Investment securities                     987          70         7.10
  Mortgage-backed securities              5,109         304         5.95
  Loans receivable                       21,833       1,807         8.28
                                       -----------   --------
    Total interest-earning assets        30,908       2,359         7.63

Non-interest-earning assets                 761
                                       -----------

    Total assets                       $ 31,670
                                       ===========

Interest-bearing liabilities:
  Deposits                               $27,580       1,541       5.59
  FHLB advances                              906          51       5.63
                                       -----------   --------
    Total interest-bearing                28,485       1,592       5.59
     liabilities                                     --------

Non-interest-bearing liabilities             423
                                       ----------

    Total liabilities                     28,909

Stockholders' equity                       2,766
                                       ----------

    Total liabilities and
     stockholders' equity               $ 31,670
                                        =========

Net interest income                                   $   767
                                                     ========
Interest rate spread                                               2.04%
                                                                 ======
Net interest margin (net interest
  income as a percentage of average
  interest-earning assets)                                         2.48%
                                                                 ======
Average interest-earning assets to
  average interest-bearing                                       108.51%
  liabilities                                                    ======
</TABLE>

                                       8



<PAGE>   11


The table below describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing liabilities
have affected the interest income and interest expense of Foundation during the
years indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided for changes attributable
to (i) increases and decreases in volume (change in volume multiplied by prior
year rate), (ii) increases and decreases in rate (change in rate multiplied by
prior year volume) and (iii) total increases and decreases in rate and volume.
The combined effects of changes in both volume and rate, which cannot be
separately identified, have been allocated proportionately to the change due to
volume and the change due to rate.

<TABLE>
<CAPTION>

                                                                Year ended June 30,
                                      -------------------------------------------------------------------------
                                                 1998 vs. 1997                          1997 vs. 1996
                                      ----------------------------------     ----------------------------------
                                           Increase                              Increase     
                                      (decrease) due to         Total        (decrease) due to         Total
                                      -----------------        increase      -----------------        increase
                                      Volume       Rate       (decrease)     Volume       Rate       (decrease)
                                      ------     ------       ----------     ------     ------       ----------
<S>                                    <C>        <C>           <C>          <C>         <C>           <C>  
Interest income attributable to:

   Interest-bearing deposits           $127       $ (6)         $121         $  32       $(12)         $  20
   Investments                           35        (23)           12            (3)        10              7
   Mortgage-backed securities           (24)        (4)          (28)          (41)         6            (35)
   Loans receivable                      13         22            35           238        (31)           207
                                      ------     ------       ----------     ------     ------       ----------
     Total interest income              151        (11)          140           226        (27)           199

Interest-bearing liabilities
   Deposits                              83         37           120           (36)       (19)           (55)
   FHLB advances                         (4)        (5)           (9)           (7)         -             (7)
                                      ------     ------       ----------     ------     ------       ----------
     Total interest expense              79         32           111           (43)       (19)           (62)
                                      ------     ------       ----------     ------     ------       ----------
Increase (decrease) in net
  interest income                      $ 72       $(43)         $ 29         $ 269      $  (8)        $  261
                                      ======     ======       ==========     ======     ======       ==========

</TABLE>


                         ASSET AND LIABILITY MANAGEMENT
-------------------------------------------------------------------------------

Foundation, like other financial institutions, is subject to interest rate risk
to the extent that its interest-earning assets reprice differently than its
interest-bearing liabilities. As part of its effort to monitor and manage
interest rate risk, Foundation uses the "net portfolio value" ("NPV")
methodology adopted by the OTS as part of its capital regulations. Although
Foundation is not currently subject to the NPV regulation because such
regulation does not apply to institutions with less than $300 million in assets
and risk-based capital in excess of 12%, the application of the NPV methodology
illustrates certain aspects of Foundation's interest rate risk.

Generally, NPV is the discounted present value of the difference between
incoming cash flows on interest-earning and other assets and outgoing cash flows
on interest-bearing and other liabilities. The application of the methodology
attempts to quantify interest rate risk as the change in the NPV which would
result from a theoretical 200 basis point (1 basis point equals .01%) change in
market interest rates.

                                       9

<PAGE>   12


Presented below, as of June 30, 1998, is an analysis of Foundation's interest
rate risk as measured by changes in NPV for instantaneous and sustained parallel
shifts of 100 basis points in market interest rates. The table also contains the
policy limits set by the Board of Directors of Foundation as the maximum change
in NPV that the Board of Directors deems advisable in the event of various
changes in interest rates. Such limits have been established with consideration
of the dollar impact of various rate changes and Foundation's strong capital
position.

<TABLE>
<CAPTION>
                                                          June 30, 1998
                                                   ---------------------------
  Change in interest rate      Board limit         $ change           % change
       (basis points)           % change            in NPV             in NPV
  -----------------------      -----------         --------           --------
                                 (Dollars in thousands)

<S>         <C>                    <C>             <C>                <C>  
            +400                   (70)%           $(2,323)           (37)%
            +300                   (55)             (1,675)           (27)
            +200                   (35)             (1,035)           (17)
            +100                   (20)               (447)            (7)
               0                     0                   0              0
            -100                   (20)                221              4
            -200                   (35)                326              5
            -300                   (55)                492              8
            -400                   (70)                730             12
</TABLE>


As illustrated by the table, Foundation's NPV is more sensitive to rising rates
than declining rates. Such difference in sensitivity occurs principally because,
as rates rise, borrowers do not prepay fixed-rate loans as quickly as they do
when interest rates are declining. Thus, in a rising interest rate environment,
because Foundation has a significant amount of fixed-rate loans in its loan
portfolio, the amount of interest Foundation would receive on its loans would
increase relatively slowly as loans are slowly prepaid and new loans are made at
higher rates. Moreover, the interest Foundation would pay on its deposits would
increase rapidly because Foundation's deposits generally have shorter periods to
repricing.

As with any method of measuring interest rate risk, certain shortcomings are
inherent in the NPV approach. For example, although certain assets and
liabilities may have similar maturities or periods of repricing, they may react
in different degrees to changes in market interest rates. Also, the interest
rates on certain types of assets and liabilities may fluctuate in advance of
changes in market interest rates, while interest rates on other types may lag
behind changes in market rates. Further, in the event of a change in interest
rates, expected rates of prepayment on loans and mortgage-backed securities and
early withdrawal levels from certificates of deposit would likely deviate
significantly from those assumed in making the risk calculations.

A decrease or a significant increase in interest rates from the recent levels
could be expected to affect negatively the net interest income of Foundation.
Moreover, rising interest rates could negatively affect the earnings of
Foundation due to diminished loan demand. Foundation attempts to mitigate
interest rate risk by originating adjustable-rate loans.

                                       10

<PAGE>   13

                         LIQUIDITY AND CAPITAL RESOURCES
--------------------------------------------------------------------------------

Foundation's liquidity, primarily represented by cash and cash equivalents, is a
result of the funds used in or provided by Foundation's operating, investing and
financing activities. These activities are summarized below for the years ended
June 30, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
                                                                            Year ended June 30,
                                                          ---------------------------------------------------
                                                            1998                  1997                 1996
                                                          --------              --------             --------
                                                                             (In thousands)

<S>                                                       <C>                   <C>                  <C>     
       Net income                                         $    232              $    112             $     86
       Adjustments to reconcile net income to
          net cash from operating activities                    36                   103                   60
                                                          --------              --------             --------
       Net cash from operating activities                      268                   215                  146

       Net cash provided by (used in)
          investment activities                              2,098                (2,386)              (1,764)
       Net cash provided by (used in)
          financing activities                                 541                 4,288               (1,153)
                                                          --------              --------             --------
       Net change in cash and cash equivalents               2,907                 2,117               (2,771)
       Cash and cash equivalents at
          beginning of period                                3,289                 1,172                3,943
                                                          --------              --------             --------
       Cash and cash equivalents at
          end of period                                   $  6,196              $  3,289             $  1,172
                                                          ========              ========             ========
</TABLE>

The principal sources of funds for Foundation are deposits, loan and
mortgage-backed security repayments, maturities of investment securities and
funds generated through operations. Foundation also has the ability to borrow
from the FHLB of Cincinnati. While scheduled loan repayments and maturing
investments are relatively predictable, deposit flows and loan prepayments are
heavily influenced by interest rates, general economic conditions and
competition. Foundation maintains a level of investment in liquid assets which
is based upon management's assessment of (i) the need for funds, (ii) expected
deposit flows, (iii) the yields available on short-term liquid assets and (iv)
the objectives of the asset and liability management program of Foundation.

OTS regulations presently require Foundation to maintain an average daily
balance of liquid assets, which may include, but are not limited to, investments
in U. S. Treasury and federal agency obligations and other investments having
maturities of five years or less, in an amount equal to 5% of the sum of
Foundation' average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement, which may be
changed from time to time by the OTS to reflect changing economic conditions, is
intended to provide a source of relatively liquid funds upon which Foundation
may rely if necessary to fund deposit withdrawals or other short-term funding
needs. At June 30, 1998, Foundation liquid assets totaled approximately $9.2
million, which exceeded the OTS minimum requirements by $8.0 million. At such
date, Foundation had commitments to originate loans and loans in process
totaling $711,300 and a commitment to sell one loan, with a balance of
approximately $215,200. Foundation considers its liquidity and capital reserves
sufficient to meet its outstanding short-term and long-term needs.

                                       11

<PAGE>   14


                                  OTHER MATTERS
--------------------------------------------------------------------------------

As with most providers of financial services, Foundation's operations are
heavily dependent on information technology systems. Foundation is addressing
the potential problems associated with the possibility that the computers that
control or operate Foundation's information technology system and infrastructure
may not be programmed to read four-digit date codes and, upon arrival of the
year 2000, may recognize the two-digit code "00" as the year 1900, causing
systems to fail to function or to generate erroneous data. Foundation is working
with the companies that supply or service its information technology systems to
identify and remedy any year 2000 related problems.

The Company's primary data processing applications are handled by a third-party
service bureau which has advised the Company that it has transferred to a fully
year 2000-compliant processing system that will be fully tested by January 1,
1999.

The Company has not identified any material specific expenses that are
reasonably likely to be incurred by Foundation in connection with this issue and
does not expect to incur significant expense to implement the necessary
corrective measures. No assurance can be given, however, that significant
expense will not be incurred in future periods. In the event that Foundation is
ultimately required to purchase replacement computer systems, programs and
equipment, or incur substantial expense to make Foundation's current systems,
programs and equipment year 2000 compliant, the Company's net earnings and
financial condition could be adversely affected. While Foundation is endeavoring
to ensure that its computer-dependent operations are year 2000 compliant, no
assurance can be given that some year 2000 problems will not occur.

In addition to possible expense related to its own systems, the Company could
incur losses if year 2000 issues adversely affect Foundation's depositors or
borrowers. Such problems could include delayed loan payments due to year 2000
problems affecting any significant borrowers or impairing the payroll systems of
large employers in Foundation's primary market area. Because Foundation's loan
portfolio is highly diversified with regard to individual borrowers and types of
businesses and Foundation's primary market area is not significantly dependent
upon one employer or industry, Foundation does not expect any significant or
prolonged difficulties that will affect net earnings or cash flow.

                                       12




<PAGE>   15


                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------
The Board of Directors
Foundation Bancorp, Inc.:

We have audited the consolidated statements of financial condition of Foundation
Bancorp, Inc. (formerly Foundation Savings Bank) and its subsidiary as of June
30, 1998 and 1997, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended June 30, 1998. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Foundation Bancorp, Inc. and
its Subsidiary as of June 30, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended June 30,
1998, in conformity with generally accepted accounting principles.

Clark, Schaefer, Hackett & Co.

Cincinnati, Ohio
July 16, 1998


<PAGE>   16
                            FOUNDATION BANCORP, INC.

                        Statements of Financial Condition

                             June 30, 1998 and 1997

                                     Assets
                                     ------
<TABLE>
<CAPTION>
                                                                                              June 30,
                                                                                     -------------------------
                                                                                         1998          1997

<S>                                                                                  <C>            <C>        
Cash                                                                                 $     83,517   $   170,153
Interest-bearing deposits in other financial institutions                               6,112,853     3,119,122
                                                                                      -----------   -----------
                                                                                        6,196,370     3,289,275

Certificates of deposit                                                                   300,000             -
Investment securities - at amortized cost (fair value of $2,943,614 and
     $948,715 at June 30, 1998 and 1997, respectively)                                  2,947,033       945,840
Mortgage-backed securities - at amortized cost (fair value of $3,905,172
     and $4,167,556 at June 30, 1998 and 1997, respectively)                            3,966,396     4,288,236
Loans receivable, net                                                                  21,370,702    25,850,300
Loans held for sale                                                                       474,850        89,200

Accrued interest receivab1e:
     Loans                                                                                 98,084       104,415
     Investments and interest bearing deposits                                             37,406         8,732
     Mortgage-backed securities                                                            29,644        33,226
Real estate owned                                                                          54,231             -
Federal Home Loan Bank stock - at cost                                                    320,800       298,800
Property and equipment, net                                                               285,391       298,934
Prepaid expenses and other assets                                                         108,699        64,478
                                                                                     ------------   -----------

     Total assets                                                                     $36,189,606   $35,271,436
                                                                                      ===========   ===========

                     Liabilities and Stockholders' Equity
                     ------------------------------------

Deposits                                                                              $28,022,914   $27,291,765
Advances from Federal Home Loan Bank                                                      680,037       754,403
Advances by borrowers for taxes, insurance and other                                       61,033        65,271
Accrued expenses                                                                          145,057       145,782
Accrued federal income tax                                                                 69,533        26,454
Deferred federal income tax                                                                71,400        53,900
                                                                                     ------------   -----------
     Total liabilities                                                                 29,049,974    28,337,575

Common stock, no par value, 2,000,000 shares authorized, 462,875 shares
         issued and outstanding as of June 30, 1998                                             -             -
Paid in capital                                                                         4,375,394     4,341,126
Retained earnings, substantially restricted                                             3,020,911     2,904,516
Less unallocated ESOP shares                                                             (256,673)     (311,781)
                                                                                    ------------- -------------
     Total stockholders' equity                                                         7,139,632     6,933,861
                                                                                    ------------- -------------

         Total liabilities and stockholders' equity                                   $36,189,606   $35,271,436
                                                                                      ===========   ===========
</TABLE>

See accompanying notes to financial statements.
<PAGE>   17

                            FOUNDATION BANCORP, INC.

                              Statements of Income

                         Three Years Ended June 30, 1998

<TABLE>
<CAPTION>
                                                                                       June 30,
                                                                         ------------------------------------
                                                                         1998              1997          1996
                                                                         ----              ----          ----
Interest income:
<S>                                                                   <C>              <C>           <C>       
         Loans                                                        $2,049,037       $2,013,915    $1,807,332
         Mortgage-backed securities                                      241,195          269,075       303,835
         Investment securities                                            89,255           77,192        69,453
         Interest-bearing deposits                                       318,907          197,721       178,338
                                                                    ------------      -----------   -----------

         Total interest income                                         2,698,394        2,557,903     2,358,958
                                                                     -----------      -----------   -----------

Interest expense:

         Deposits                                                      1,601,380        1,486,534     1,540,535
         Borrowings                                                       39,834           43,756        51,017
                                                                    ------------     ------------  ------------

         Total interest expense                                        1,641,214        1,530,290     1,591,552
                                                                      ----------       ----------    ----------

Net interest income                                                    1,057,180        1,027,613       767,406
Provision for loan losses                                                 12,000           15,000        43,990
                                                                    ------------     ------------  ------------

         Net interest income after provision for loan losses           1,045,180        1,012,613       723,416
                                                                      ----------       ----------     ---------

Other income:

         Gain on sale of loans                                            57,512            5,121         7,889
         Net investment property income                                   53,639           53,935        49,495
         Other operating income                                            4,696            4,232         7,066
                                                                      ----------       ----------     ---------

              Total other income                                         115,847           63,288        64,450
                                                                      ----------      -----------    ----------

General, administrative and other expense:

         Employee compensation and benefits                              452,083          451,558       362,233
         Occupancy and equipment                                          78,539           80,868        78,565
         Deposit insurance                                                17,541          204,792        62,353
         Franchise tax                                                    59,032           36,745        34,173
         Computer processing costs                                        33,618           32,956        32,347
         Other operating expense                                         151,001          111,969       104,905
                                                                     -----------       ----------    ----------

         Total general, administrative and other operating expenses      791,814          918,888       674,576
                                                                     -----------       ----------    ----------

         Income before income taxes                                      369,213          157,013       113,290
                                                                     -----------       ----------    ----------

Federal income taxes (credits):

         Current                                                         119,600           51,957        26,642
         De1erred                                                         17,500           (6,900)          200
                                                                     -----------     --------------------------
                                                                         137,100           45,057        26,842
                                                                      ----------     ------------   -----------
          Net income                                                   $ 232,113       $  111,956    $   86,448
                                                                       =========       ==========    ==========

Basic and diluted eamings per share (since conversion)                    $0.53             $0.49           N/A
                                                                          =====             =====           ===
</TABLE>

See accompanying notes to financial statements.


<PAGE>   18


                            FOUNDATION BANCORP, INC.

                       Statements of Stockholders' Equity

                         Three Years Ended June 30, 1998
<TABLE>
<CAPTION>

                                                Additional                             Unallocated
                                 Common          Paid-In             Retained            ESOP
                                  Stock          Capital             Earnings           Shares          Total
                                 -------       -----------          ------------       ----------      -----------
<S>                             <C>             <C>                  <C>              <C>             <C>
Balance at June 30, 1995        $      -                 -             2,706,112                -        2,706,112


Net income for the
     year ended
     June 30. 1996                     -                 -                86,448                -           86,448
                                 -------       -----------          ------------       ----------      -----------

Balance at June 30. 1996               -                 -             2,792,560                -        2,792,560

Reorganization to a stock
     compariy with the
     issuance of common
     stock                             -         4,341,126                     -         (370,300)       3,970,826

ESOP shares to be
     allocated at average
     market price                      -                 -                     -           58,519           58,519

Net income for the
     year ended
     June 30. 1997                     -                 -               111,956                -          111,956
                                 -------       -----------               -------       ----------         --------


Balance at June 30. 1997               -         4,341,126             2,904,516         (311,781)       6,933,861

ESOP shares to be
     allocated at average
     market price                      -            34,268                     -           55,108           89,376


     Dividends paid                    -                 -              (115,718)               -         (115,718)

Net income for the
     year ended
     June 30, 1998                     -                 -               232,113                -          232,113
                                 -------       -----------               -------       ----------       ----------
Balance at June 30, 1998        $      -        $4,375,394            $3,020,911        $(256,673)      $7,139,632
                                ========        ==========            ==========        =========       ==========
</TABLE>

See accompanying notes to financial statements.


<PAGE>   19


                            FOUNDATION BANCORP, INC.

                            Statements of Cash Flows

                         Three Years Ended June 30, 1998
<TABLE>
<CAPTION>

                                                                                    Years Ended June 30,
                                                                           --------------------------------------
                                                                            1998             1997          1996
                                                                            ----             ----          ----

<S>                                                                     <C>             <C>             <C>       
Cash flows from operating activities:
         interest received                                              $2,665,353      $2,548,220      $2,335,168
         interest paid                                                  (1,642,190)     (1,530,345)     (1,589,414)
         Cash paid to suppliers and employees                             (756,657)       (857,817)       (677,971)
         Fees and commissions received                                       4,696           4,232           7,066
         income taxes (paid) refunded                                      (76,521)        (22,981)          2,763
         Rental income received                                             73,200          73,200          68,400
                                                                      ------------     -----------   -------------

              Net cash provided by operating

              activities                                                   267,881         214,509         146,012
                                                                       -----------      ----------    ------------

Cash flows from investing activities:

         Purchase of mortgage-backed securities                           (454,477)       (236,237)        (82,714)
         Repayments of mortgage-backed secunties                           758,290         573,592         944,043
         Purchase of certificates of deposit                              (300,000)              -               -
         Purchase of investment securities                              (2,801,193)       (446,153)       (499,687)
         Maturities of investment securities                               800,000         400,000         650,000
         Loan disbursements                                            (11,418,611)     (7,503,939)     (8,706,053)
         Loan principal repayments                                       8,285,610       3,748,061       5,235,414
         Proceeds from sale of loans                                     7,228,530       1,081,556         701,447
         Purchase of property and equipment                                      -          (3,227)         (5,803)
                                                                      ------------   -------------   -------------

Net cash provided by (used in)

         investing activities                                            2,098,149      (2,386,347)     (1,763,353)
                                                                       -----------     -----------     -----------

Cash flows from financing activities:

         Net increase (decrease) in deposits                               731,149         340,981        (786,420)
         Repayment of Federal Home Loan Bank

          advances                                                         (74,366)        (70,444)       (366,730)
         Proceeds from conversion to stock
          company                                                                -       4,018,087               -
         Dividends paid                                                   (115,718)              -               -
                                                                         ---------      ----------      ----------

         Net cash provided by (used in)

              financing activities                                         541,065       4,288,624      (1,153,150)
                                                                       -----------     -----------     -----------

Net increase (decrease) in cash and

         cash equivalents                                                2,907,095       2,116,786      (2,770,491)

Cash and cash equivalents at beginning

         of period                                                       3,289,275       1,172,489       3,942,980
                                                                       -----------     -----------     -----------

Cash and cash equivalents at end ofperiod                               $6,196,370      $3,289,275      $1,172,489
                                                                        ==========      ==========      ==========
</TABLE>


See accompanying notes to financial statements.


<PAGE>   20



                            FOUNDATION BANCORP, INC.

                             Statement of Cash Flows

                         Three Years Ended June 30, 1998

                    Reconciliation of Net income to Net Cash

                        Provided Bv Operating Activities
                        --------------------------------

<TABLE>
<CAPTION>
                                                                                1998          1997         1996
                                                                                ----          ----         ----
<S>                                                                         <C>           <C>          <C>      
Net income                                                                  $232,113      $111,956     $  86,448
     Adjustments to reconcile net income to net cash
       provided by operating activities:
         Gain on sale of loans                                               (57,512)       (5,121)       (7,889)
         Depreciation                                                         13,545        17,574        16,295
         Amortization of premiums and discounts
            on mortgage-backed securities                                     18,027        14,918        30,561
         Federal Home Loan Bank stock dividends                              (22,000)      (20,000)      (18,400)
         Provision for loan losses                                            12,000        15,000        43,990
         Amortization of deferred loan fees                                  (10,302)       (8,393)      (23,032)
         Deferred federal income tax                                          17,500        (6,900)          200
         ESOP expense                                                         89,376        58,519             -
         Effects of change in operating assets and liabilities:

               Accrued interest receivable                                   (18,761)        3,792       (12,919)
               Refundable federal income tax                                                 2,522        29,405
               Prepaid expenses and other assets                             (44,221)         (701)      (50,988)
               Advances by borrowers for taxes,

                 insurance and other                                          (4,238)       (4,908)       31,103
               Accrued expenses                                                 (725)        9,797        21,238
               Accrued federal income tax                                     43,079        26,454             -
                                                                           ---------     ---------      --------

Net cash provided by operating
     activities                                                             $267,881      $214,509      $146,012
                                                                            ========      ========      ========
</TABLE>



Supplemental disclosure of non-cash investing activities
--------------------------------------------------------

The Company acquired real estate in settlement of above receivable of $54,231
during the year ended June 30, 1998.

See accompanying notes to financial statements.



<PAGE>   21


                            FOUNDATION BANCORP, INC.

                          Notes to Financial Statements

                 Three Years Ended June 30, 1998, 1997 and 1996

1.     ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

       The following describes the organization and the significant accounting
       policies followed in the preparation of these consolidated financial
       statements.

           NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION

           Foundation Bancorp, Inc. (the Company) is a holding company formed in
           1996 in conjunction with the conversion of Foundation Savings Bank
           from a mutual savings bank to a stock savings bank in September 1996.
           The conversion culminated in the Corporation's issuance of 462,875
           shares. The Company's financial statements include the accounts of
           its wholly-owned subsidiary, Foundation Savings Bank (the Savings
           Bank). All significant intercompany transactions have been
           eliminated.

           The Savings Bank is a state chartered savings and loan association
           and a member of the Federal Home Loan Bank System and subject to
           regulation by the Office of Thrift Supervision (OTS), an office of
           the U. S. Department of the Treasury. As a member of this system, the
           Savings Bank maintains a required investment in capital stock of the
           Federal Home Loan Bank of Cincinnati. The Savings Bank provides loans
           to customers and receives deposits from customers primarily in the
           metropolitan Cincinnati area.

           Savings accounts are insured by the Savings Association Insurance
           Fund (SAIF), administered by the Federal Deposit Insurance
           Corporation (FDIC), within certain limitations. An annual premium is
           required by the SAIF for the insurance of such savings accounts.

           CASH AND CASH EQUIVALENTS

           For the purpose of reporting cash flows, the Company considers all
           highly liquid debt instruments with original maturity when purchased
           of three months or less to be cash equivalents.

           INVESTMENT AND MORTGAGE-BACKED SECURITIES

           Investments and mortgage backed securities are classified upon
           acquisition into one of three categories; held to maturity, trading,
           and available for sale. Debt securities that the Savings Bank has the
           positive intent and ability to hold to maturity are classified as
           held to maturity securities and reported at amortized 

<PAGE>   22


           cost. Presently, the Savings Bank classified all investments
           and mortgage backed securities as held to maturity.

           Premiums and discounts on investment securities and mortgage-backed
           securities are amortized and accreted using the interest method over
           the expected lives of the related securities.

           LOANS RECEIVABLE

           Loans held in portfolio are stated at the principal amount
           outstanding, adjusted for deferred loan origination fees and costs,
           and the allowance for loan losses.

           Loan origination fees and certain direct origination costs are
           capitalized and recognized as an adjustment of the yield on the
           related loan over the contractual life of the loan.

           Interest is accrued as earned unless the collectibility of the loan
           is in doubt. Uncollectible interest on loans that are contractually
           past due is charged off, or an allowance is established based on
           management's periodic evaluation. The allowance is established by a
           charge to interest income equal to all interest previously accrued,
           and income is subsequently recognized only to the extent that cash
           payments are received until, in management's judgment, the borrower's
           ability to make periodic interest and principal payments has returned
           to normal, in which case the loan is returned to accrual status.

           Loans held for sale are carried at the lower of cost or market,
           determined in the aggregate. In computing cost, deferred loan
           origination fees and costs are aggregated with the principal balances
           of the related loans.

           It is the Savings Bank's policy to provide valuation allowances for
           estimated losses on loans based on past loss experience, trends in
           the level of delinquent and problem loans, adverse situations that
           may affect the borrower's ability to repay, the estimated value of
           any underlying collateral and current and anticipated economic
           conditions in the primary lending area. When the collection of a loan
           becomes doubtful, or otherwise troubled, the Savings Bank records a
           loan loss provision equal to the difference between the fair value of
           the property securing the loan and the loan's carrying value. Major
           loans and major lending areas are reviewed periodically to determine
           potential problems at an early date. The allowance for loan losses is
           increased by charges to earnings and decreased by charge-offs (net of
           recoveries). The amount of actual write-offs could differ from the
           estimate. Because of uncertainties inherent in the estimation
           process, management's estimate of credit losses inherent in the loan
           portfolio and the related allowance may change in the near term.
           However, the amount of the change that is reasonably possible cannot
           be estimated.


<PAGE>   23

           For impairment recognized in accordance with SFAS No. 114, as
           amended, the entire change in present value of expected cash flows is
           reported as bad debt expense in the same manner in which impairment
           initially was recognized or as a reduction in the amount of bad debt
           expense that otherwise would be reported. Interest on impaired loans
           is reported on the cash basis. Impaired loans are loans that are
           considered to be permanently impaired in relation to principal or
           interest based on the original contract. Impaired loans would be
           charged off in the same manner as all loans subject to charge off.
           The Savings Bank considers its investment in one to four family and
           multi-family residential loans, non-residential loans and consumer
           loans to be homogeneous and therefore excluded from separate
           identification for evaluation of impairment. The Savings Bank's
           policy is that collateral dependent loans, which are more than ninety
           days delinquent, are considered to constitute more than a minimum
           delay in repayment and are evaluated for impairment under SFAS No.
           114 at that time. For the years ended June 30, 1998 and 1997, the
           Savings Bank had no loans that were impaired as described in the
           pronouncement and therefore no interest income was recognized or
           received on impaired loans.

           REAL ESTATE ACQUIRED THROUGH FORECLOSURE

           Real estate acquired through foreclosure results when property
           collateralizing a loan is foreclosed upon or otherwise acquired by
           the Savings Bank in satisfaction of the loan. Real estate acquired in
           settlement of loans is recorded at the lower of the recorded
           investment in the loan satisfied or the fair value of the assets
           received at the time of acquisition less estimated costs to sell at
           the date of foreclosure. The fair value of the assets received is
           based upon a current appraisal adjusted for estimated carrying and
           selling costs. Valuations are periodically performed by management,
           and an allowance for losses is established by a charge to operations
           if the carrying value of a property exceeds its estimated net
           realizable value. The Savings Bank acquired $54,231 through
           foreclosure at June 30, 1998 and $0 in 1997.

           PROPERTY AND EQUIPMENT

           Property and equipment is stated at cost. Depreciation of property
           and equipment is provided by the straight-line method over the
           estimated useful lives (range of lives five to fifteen years) of the
           related classes of assets.

           INCOME TAXES

           Deferred income tax assets and liabilities are computed annually for
           differences between the financial statement and tax basis of assets
           and liabilities that will result in taxable or deductible amounts in
           the future based on enacted tax laws and rates applicable to the
           periods in which the differences are expected to affect taxable
           income. Deferred tax assets are reduced by a valuation allowance
           when, in the opinion of management, it is more likely than not that
           some portion 


<PAGE>   24

           or all of the deferred tax assets will not be realized. Deferred tax
           assets and liabilities are adjusted for the effects of changes in tax
           laws and rates on the date of enactment. Income tax expense is the
           tax payable or refundable for the period plus or minus the change
           during the period in deferred tax assets and liabilities.

           ACCOUNTING ESTIMATES

           The presentation of financial statements in conformity with generally
           accepted accounting principles requires management to make estimates
           and assumptions that affect the reported amounts of assets and
           liabilities and disclosure of contingent assets and liabilities at
           the date of the financial statements and the reported amounts of
           revenues and expenses during the reporting period. Actual results
           could differ from those estimates.

           CONCENTRATIONS OF CREDIT RISK

           The Savings Bank grants first mortgage and other loans to customers
           located primarily in the metropolitan Cincinnati area. Accordingly, a
           substantial portion of its debtors' ability to honor their contracts
           is dependent upon the financial health of the local economy and
           market.

           Management may at times, maintain deposit accounts with financial
           institutions in excess of federal deposit insurance limits.

           EMPLOYEE STOCK OWNERSHIP PLAN

           Shares committed to be allocated to the Employee Stock Ownership Plan
           (ESOP) are charged to expense at the average market price for the
           year. The excess of average market value over cost is added to
           additional paid-in capital.

           RECENT ACCOUNTING PRONOUNCEMENTS

           In March 1997, the FASB issued SFAS No. 128, "Earnings Per Share,"
           which is effective for periods ending after December 15, 1997,
           including interim periods. SFAS No. 128 simplifies the calculation of
           earnings per share ("EPS") by replacing primary EPS with basic EPS.
           It also requires dual presentation of basic EPS and diluted EPS for
           entities with complex capital structures. Basic EPS includes no
           dilution and is computed by dividing income available to common
           shareholders by the weighted-average common shares outstanding for
           the period. Diluted EPS reflects the potential dilution of securities
           that could share in earnings such as stock options, warrants or other
           common stock equivalents. All prior period EPS have been restated to
           conform with the new presentation.
<PAGE>   25

           In February 1997, the FASB issued SFAS No. 129, "Disclosures of
           Information about Capital Structure." SFAS No. 129 consolidates
           existing accounting guidance relating to disclosure about a company's
           capital structure. Public companies generally have always been
           required to make disclosures now required by SFAS No. 129 and,
           therefore, SFAS No. 129 had no impact on the Company. SFAS No. 129 is
           effective for financial statements for periods ending after December
           15, 1997.

           In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
           Income." SFAS No. 130 establishes standards for reporting and display
           of comprehensive income and its components (revenues, expenses, gains
           and losses) in a full set of general purpose financial statements.
           SFAS No. 130 requires that all items that are required to be
           recognized under accounting standards as components of comprehensive
           income be reported in a financial statement that is displayed with
           the same prominence as other financial statements. It does not
           require a specific format for that financial statement but requires
           that an enterprise display an amount representing total comprehensive
           income for the period in that financial statement.

           SFAS No. 130 requires that an enterprise (1) classify items of other
           comprehensive income by their nature in a financial statement and (2)
           display the accumulated balance of other comprehensive income
           separately from retained earnings and additional paid-in capital in
           the equity section of a statement of financial position. SFAS No. 130
           is effective for fiscal years beginning after December 15, 1997.
           Reclassification of financial statements for earlier periods provided
           for comparative purpose is required.

           In June 1997, the FASB issued SFAS No. 131, "Disclosures about
           Segments of an Enterprise and Related Information." SFAS No. 131
           significantly changes the way that public business enterprises report
           information about operating segments in annual financial statements
           and requires that those enterprises report selected information about
           reportable segments in interim financial reports issued to
           shareholders. It also establishes standards for related disclosures
           about products and services, geographic areas and major customers.
           SFAS No. 131 uses a "management approach" to disclose financial and
           descriptive information about an enterprise's reportable operating
           segments which is based on reporting information the way that
           management organizes the segments within the enterprise for making
           operating decisions and assessing performance. For many enterprises,
           the management approach will likely to result in more segments being
           reported. In addition, SFAS No. 131 requires significantly more
           information to be disclosed for each reportable segment than is
           presently being reported in annual financial statements and requires
           that selected information be reported in interim financial
           statements. SFAS No. 131 is effective for financial statements for
           periods beginning after December 15, 1997. Because the Company has no
           non-banking subsidiaries, SFAS No. 131 will not affect the Company.
<PAGE>   26

           EARNINGS PER SHARE

           Earnings per common share have been computed on the basis of weighted
           average number of common shares outstanding, and when applicable,
           those stock options that are dilutive. Earnings per share for the
           period ended June 30, 1997 is based on the Company's net income for
           the nine months ended since the effective date of the Savings Bank's
           mutual-to-stock conversion divided by weighted average shares
           outstanding. Weighted-average shares outstanding do not include
           unallocated shares purchased by the ESOP. Disclosure of earnings per
           share for 1996 is not applicable, as the Company completed its
           conversion from mutual to Stock form in September 1996.

2.     INVESTMENT SECURITIES:

       The amortized cost, gross unrealized gains, gross unrealized losses and
       fair values of investment securities are as follows:
<TABLE>
<CAPTION>

                                                                              June 30, 1998
                                                  ----------------------------------------------------------------
                                                                        Gross            Gross
                                                    Amortized         Unrealized        Unrealized          Fair
                                                       Cost             Gains            Losses            Value
                                                  -------------       ----------        ----------       ---------
       <S>                                        <C>                 <C>               <C>              <C>
       Obligations of U.S.
           Government agencies                    $  2,947,033          3,450              6,869         2,943,614
                                                  =============       ==========        ==========       =========




                                                                              June 30, 1998
                                                  ----------------------------------------------------------------
                                                                        Gross            Gross
                                                    Amortized         Unrealized        Unrealized          Fair
                                                       Cost             Gains            Losses            Value
                                                  -------------       ----------        ----------       ---------

       Obligations of U.S.
           Government agencies                    $ 945,840             2,875                  -           948,715
                                                  =============       ==========        ==========       =========
</TABLE>

       The amortized cost and fair value of investment securities at June 30,
       1998 and 1997 by contractual maturity are shown below. Actual maturities
       may differ from contractual maturities because borrowers may have the
       right to call or prepay obligations with or without call or prepayment
       penalties.

<PAGE>   27
<TABLE>
<CAPTION>
                                                                              June 30, 1998
                                                                -------------------------------------
                                                                  Amortized                   Fair
                                                                    Cost                      Value
                                                                ------------                ---------
       <S>                                                      <C>                         <C>      
       Due or callable in one year or less                      $ 2,947,033                 2,943,614

</TABLE>

     Included in investments at June 30, 1998, are $500,000 of callable notes
     with a final maturity in 2003, $1,000,000 of callable notes with a final
     maturity of 2001 and $1,450,000 of callable notes with final maturity of
     2000.

<TABLE>
<CAPTION>

                                                                           June 30, 1997
                                                                -------------------------------------
                                                                  Amortized                   Fair
                                                                    Cost                      Value
                                                                ------------                ---------
<S>                                                               <C>                        <C>    
       Due or callable in one year or less                        $ 795,840                  798,850
       Due after one year through five years                        150,000                  149,865
                                                                  ---------                 -------- 
                                                                           
                                                                  $ 945,840                  948,715
                                                                  =========                 ======== 
</TABLE>

       Included in investments at June 30, 1997, are $150,000 of callable notes
       with final maturity in the year 2002, $500,000 of callable notes with a
       final maturity in the year 2001 and $150,000 in callable notes with
       maturity in the year 2000.

3.     MORTGAGE-BACKED SECURITIES:

       The amortized cost, gross unrealized gains, gross unrealized losses and
       fair value of mortgage-backed securities are as follows:

<TABLE>
<CAPTION>
                                                                              June 30, 1998
                                                  ----------------------------------------------------------------
                                                                        Gross             Gross
                                                    Amortized         Unrealized        Unrealized          Fair
                                                       Cost             Gains             Losses            Value
                                                  -------------       ----------        ----------       ---------
       <S>                                        <C>                 <C>               <C>              <C>

       Federal Home Loan Mortgage Corp.           $ 1,848,860           3,615             31,638         1,820,837
       Federal National Mortgage Association        1,969,424           6,823             43,978         1,932,269
       Government National Mortgage
           Association                                148,112           3,954                  -           152,066
                                                  -------------       ----------        ----------     -----------
                                                  $ 3,966,396          14,392             75,616         3,905,172
                                                  =============       ==========        ==========     ===========

</TABLE>

<PAGE>   28

<TABLE>
<CAPTION>


                                                                              June 30, 1997
                                                  ----------------------------------------------------------------
                                                                        Gross             Gross
                                                    Amortized         Unrealized        Unrealized          Fair
                                                       Cost             Gains             Losses            Value
                                                  -------------       ----------        ----------       ---------
       <S>                                        <C>                 <C>               <C>              <C>

       Federal Home Loan Mortgage Corp.           $ 2,003,877               -             53,687         1,950,190
       Federal National Mortgage Association        2,094,513               -             68,185         2,026,328
       Government National Mortgage
           Association                                189,846           1,192                  -           191,038
                                                  ------------        ----------        ----------      ----------

                                                  $ 4,288,236           1,192            121,872         4,167,556
                                                  ============        ==========        ==========      ==========
</TABLE>

       The maturity of the mortgage-backed securities is based on the repayment
       terms of the underlying mortgages.

4.     LOANS RECEIVABLE:

       Loans receivable consists of the following:
<TABLE>
<CAPTION>

                                                                                              June 30
                                                                                -----------------------------------
                                                                                      1998                1997
                                                                                ---------------          ----------

       <S>                                                                         <C>                   <C>       
       Residential one-to-four family real estate                                  $ 19,278,199          23,816,788
       Multi-family residential real estate                                           1,285,385             967,949
       Commercial real estate                                                         1,268,962           1,118,283
       Consumer                                                                         132,035             389,459
       Passbook                                                                          25,732              26,933
                                                                                ---------------          ----------          
                                                                                     21,990,313          26,319,412
       Less:

                Loans in process                                                            -              (237,042)
                Allowance for loan losses                                              (138,147)           (126,147)
                Deferred loan fees                                                       (6,614)            (16,723)
                                                                                ---------------          ----------
                                                                                   $ 21,845,552          25,939,500
                                                                                ===============          ==========
</TABLE>

       At June 30, 1998 and 1997, adjustable rate loans approximated $7,207,000
       and $9,175,000.


<PAGE>   29



       Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>

                                                                               Year Ended June 30,
                                                                 ----------------------------------------------
       <S>                                                       <S>               <C>               <C> 
                                                                     1998             1997              1996
                                                                 ----------        ----------        ----------
       Beginning balance                                          $ 126,147           111,147           98,138
       Provision for loan losses                                     12,000            15,000           43,990
       Write-offs net of recoveries                                     -                  -           (30,981)
                                                                 ----------        ----------        ----------

       Ending balance                                             $ 138,147           126,147          111,147
                                                                 ==========        ==========        ========= 
</TABLE>

       Gross proceeds on sales of loans were $7,228,530, $1,081,556 and $701,447
       for the years ended June 30, 1998, 1997 and 1996, respectively. Net
       realized gains on sales of loans were $57,512, $5,121 and $7,889 for the
       years ended June 30, 1998, 1997 and 1996. Loans serviced for others as of
       June 30, 1998, 1997 and 1996, were $-0-, $249,270, and $251,280,
       respectively.

       At June 30, 1998 and 1997, the Company had no non-accrual loans.

       Loans to officers, directors and employees totaled $ -0- and $5,038 at
       June 30, 1998 and 1997, respectively. An analysis of loan activity to
       such persons for the fiscal year ended June 30, 1998 and 1997, is as
       follows:
<TABLE>
<CAPTION>

                                                                                             June 30
                                                                                  ---------------------------
                                                                                     1998              1997
                                                                                  ---------         ---------

<S>                                                                                <C>              <C>   
       Outstanding balance, beginning                                              $ 5,038           93,521
       New loans issued                                                                -                -
       Repayments                                                                    5,038           88,483
                                                                                   -------           ------
                                                                                  
       Outstanding balance, ending                                                 $   -              5,038
                                                                                   =======          =======
</TABLE>

5.     PROPERTY AND EQUIPMENT:

       Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
                                                                                      1998              1997
                                                                                      ----              ----

<S>                                                                                 <C>               <C>    
       Real estate owned - investment property                                      $ 251,847          251,847
       Furniture and equipment                                                        141,387          141,387
       Leasehold improvements                                                          34,246           34,246
                                                                                     --------         --------
                                                                                      427,480          427,480
       Less accumulated depreciation                                                  142,089          128,546
                                                                                      -------          -------

                                                                                    $ 285,391          298,934
                                                                                    =========          =======
</TABLE>

<PAGE>   30

       The Company leases its office facility under a ten year non-cancelable
       lease which expires in March, 2001 with additional renewal options. Rent
       expense for each of the years ended June 30, 1998, 1997 and 1996, was
       $53,355.

       Minimum commitments under the term of the lease are as follows:
<TABLE>
<CAPTION>

                Year Ended June 30,
                -------------------

<S>                    <C>                                 <C>       
                       1999                                $   51,628
                       2000                                    51,628
                       2001                                    38,722
                                                             --------

                                                            $ 141,978
                                                            =========
</TABLE>

6.     INVESTMENT PROPERTY:

       The Savings Bank acquired real estate at the southeast corner of Eighth
       and Vine Streets in 1980. The Savings Bank has a lease agreement on the
       property as a parking lot under a three year lease beginning July 1,
       1997. The lease payments are $6,100 per month. Rent income for the years
       ended June 30, 1998, 1997 and 1996, was $73,200, $73,200 and $68,400,
       respectively.

7.     DEPOSITS:

       Deposits consist of the following:
<TABLE>
<CAPTION>

                                                                            June 30,
                                                ----------------------------------------------------------------
                                                            1998                               1997
                                                -----------------------------      -----------------------------
                                                 Weighted                           Weighted
                                                  Average                            Average
                                                   Rate             Amount            Rate             Amount
                                                ---------      -------------       ---------      --------------
<S>                                                <C>         <C>                    <C>         <C>           
       Passbook                                    2.56%       $     713,897          2.56%       $      791,290
       NOW and money market accounts               2.28            1,464,449          2.45             1,732,157
                                                                ------------                      --------------

                                                   2.37            2,178,346          2.48             2,523,447
                                                                ------------                      --------------

       Certificates of deposit:

           3 months                                4.65              167,294          5.03                59,765
           6 months                                5.24            1,046,989          5.58             1,361,002
           10/11 months                                                  -            2.81                23,618
           12 months                               5.76            9,945,849          5.87            10,272,679
           18 months                               2.45               34,470          2.47                33,624
           2 years                                 6.13           11,090,406          6.07             9,844,447
           3 years                                 6.10            1,392,242          6.11             1,364,492
           4 years                                 5.86              203,170          5.41               221,198
           5 years                                 6.00            1,964,148          5.92             1,587,493
                                                                ------------                      --------------

                                                   5.92           25,844,568          5.94            24,768,318
                                                                ------------                      --------------

                                                   5.64         $ 28,022,914          5.60%       $   27,291,765
                                                                ============                      ==============
</TABLE>

<PAGE>   31


       Maturities of outstanding certificates of deposit are summarized as
       follows:
<TABLE>
<CAPTION>

                                                                                     June 30,
                                                                                     --------
                                                                              1998               1997
                                                                              ----               ----
                                                                                  (In Thousands)

<S>                                                                         <C>                  <C>   
                  One year or less                                          $ 18,978              15,201
                  1 - 2 years                                                  4,718               7,740
                  2 - 3 years                                                    786                 727
                  Over 3 years                                                 1,363               1,100
                                                                            --------             -------

                                                                            $ 25,845              24,768
                                                                            ========             =======
</TABLE>

       Interest expense on deposits is summarized as follows:

<TABLE>
<CAPTION>
                                                                                 Year Ended June 30,
                                                                                 -------------------
                                                                     1998             1997              1996
                                                                     ----             ----              ----

<S>                                                              <C>                 <C>              <C>   
       Passbook                                                  $    18,300            26,805           33,469
       NOW and money market accounts                                  43,819            48,140           54,233
       Certificates of deposit                                     1,539,261         1,411,589        1,452,833
                                                                   ---------         ---------        ---------

                                                                 $ 1,601,380         1,486,534        1,540,535
                                                                   =========         =========        =========
</TABLE>

       The  aggregate  amount of  certificates  of deposits in  denominations of
       $100,000 or more was  $2,752,562  and  $2,541,599  at June 30, 1998 and
       1997, respectively. Deposit accounts exceeding $100,000 are not federally
       insured.

8.     ADVANCES FROM FEDERAL HOME LOAN BANK:

       The Savings Bank borrowed $1,000,000 in 1994 from the Federal Home Loan
       Bank under a mortgage matched advance program. Interest is charged on the
       advance at a weighted average rate of 5.50% and is due in 120 to 180
       monthly installments of $9,517 including interest.

       Future maturities on the advance are as follows:
<TABLE>
<CAPTION>

                               Year Ended June 30,
                               -------------------

<S>                            <C>                                         <C>       
                                      1999                                 $  78,506
                                      2000                                    82,878
                                      2001                                    87,494
                                      2002                                    92,368
                                      2003                                    97,512
                               2004 and subsequent                           241,279
                                                                             -------

                                                                           $ 680,037
</TABLE>
<PAGE>   32

       The advances are collateralized by a blanket agreement on residential
       mortgage loans held by the Savings Bank. The Savings Bank has also
       pledged its Federal Home Loan Bank stock and mortgage notes with unpaid
       principal balances of approximately $1,020,000 for future advances.

9.     FINANCIAL INSTRUMENTS:

       The following fair value disclosures are made in accordance with the
       requirements of SFAS No. 107, "Disclosures About Fair Value of Financial
       Instruments." SFAS No. 107 requires the disclosure of fair value
       information about both on-and-off-balance sheet financial instruments
       where it is practical to estimate that value. In cases where quoted
       market prices were not available, fair values were based on estimates
       using present value or other valuation methods, as described below. The
       use of different assumptions (e.g., discount rates and cash flow
       estimates) and estimation methods could have a significant effect on fair
       value amounts. Accordingly, the estimates presented herein are not
       necessarily indicative of the amounts the Company could realize in a
       current market exchange. Because SFAS No. 107 excludes certain financial
       instruments and all non-financial instruments from its disclosure
       requirements, any aggregation of the fair value amounts presented would
       not represent the underlying value of the Company.

       The following methods and assumptions were used in estimating the fair
       values of financial instruments, cash, interest bearing deposits and
       investment in FHLB stock. The carrying value of cash and interest bearing
       deposits approximates those assets' fair value.

           INVESTMENTS AND MORTGAGE-BACKED SECURITIES

           For investment securities (debt instruments) and mortgage-backed
           securities, fair values are based on quoted market prices, where
           available. If a quoted market price is not available, fair value is
           estimated using quoted market prices of comparable instruments.

           LOANS RECEIVABLE

           The fair value of the loan portfolio is estimated by evaluating
           homogeneous categories of loans with similar financial
           characteristics. Loans are segregated by types, such as residential
           mortgage, commercial real estate and consumer. Each loan category is
           further segmented into fixed and adjustable rate interest, terms, and
           by performing and nonperforming categories.

           The fair value of performing loans, except residential mortgage
           loans, is calculated by discounting contractual cash flows using
           estimated market discount rates which reflect the credit and interest
           rate risk inherent in the loan. For performing residential mortgage
           loans, fair value is estimated by discounting contractual cash flows
           adjusted for prepayment estimates using discount rates based on
           secondary market sources. The fair value for significant

<PAGE>   33

           nonperforming loans is based on recent internal or external
           appraisals. Assumptions regarding credit risk, cash flow, and
           discount rates are subjectively determined by using available market
           information.

           SAVINGS ACCOUNTS

           The fair values of passbook accounts, NOW accounts, and money market
           savings and demand deposits approximates their carrying values. The
           fair value of fixed maturity certificates of deposit is estimated
           using a discounted cash flow calculation that applies interest rates
           currently offered for deposits of similar remaining maturities.

           OFF-BALANCE SHEET ITEMS

           Carrying value is a reasonable estimate of fair value. These
           instruments are generally variable rate or short-term in nature, with
           minimal fees charged.

       The estimated fair values of the Company's financial instruments were as
       follows at :
<TABLE>
<CAPTION>

                                                                                   June 30, 1998
                                                                                   -------------

                                                                            Carrying              Fair
                                                                             Amount               Value
                                                                             ------               -----

<S>                                                                      <C>                     <C>      
       Financial assets:
              Cash and due from banks, interest bearing
                  deposits with banks and federal funds sold             $   6,196,370           6,196,370

              Investment securities                                          2,947,033           2,943,614
              Mortgage-backed securities                                     3,966,396           3,905,172
              Loans receivable                                              21,845,552          22,217,000
              Accrued interest receivable                                      165,134             165,134

       Financial liabilities:

              Deposit liabilities                                           28,022,914          28,148,000
              Federal Home Loan Bank advances                                  680,037             668,000

       Off balance sheet items                                                     -                   -

</TABLE>


<PAGE>   34
<TABLE>
<CAPTION>



                                                                                   June 30, 1997
                                                                                   -------------

                                                                            Carrying             Fair
                                                                             Amount              Value
                                                                             ------              -----

<S>                                                                     <C>                      <C>
       Financial assets:
              Cash and due from banks, interest bearing
                  deposits with banks and federal funds sold             $   3,289,275           3,289,275

       Investment securities                                                   945,840             948,715
              Mortgage-backed securities                                     4,288,236           4,167,556
              Loans receivable                                              25,939,500          26,252,000
              Accrued interest receivable                                      146,373             146,373

       Financial liabilities:
              Deposit liabilities                                           27,291,765          27,349,000
              Federal Home Loan Bank advances                                  754,403             624,000

       Off balance sheet items                                                     -                   -
</TABLE>

10.    CAPITAL REQUIREMENTS:

       In connection with the insurance of savings deposits by SAIF, the Savings
       Bank is subject to minimum regulatory capital requirements promulgated by
       the Office of Thrift Supervision (OTS).

       In general, the capital standards established for savings institutions
       must be no less stringent than capital standards applicable to national
       banks set by the Office of the Comptroller of the Currency. At June 30,
       1998, the core capital requirement provides for minimum core capital
       (tangible capital plus certain forms of supervisory goodwill and other
       qualifying intangible assets) equal to 4.0% of adjusted total assets. The
       risk-based capital requirement at June 30, 1998 provides for the
       maintenance of core capital plus general loss allowances equal to 8.0% of
       risk-weighted assets. In computing risk-weighted assets, the Savings Bank
       multiplies the value of each asset on its statement of financial
       condition by a defined risk-weighing factor, e.g., one-to-four family
       residential loans carry a risk-weighted factor of 50%.


<PAGE>   35



       The Savings Bank's regulatory capital exceed all minimum capital
       requirements as shown in the following table:
<TABLE>
<CAPTION>

                                                                            June 30, 1998
                                                         ----------------------------------------------------
                                                                         Regulatory Capital
                                                                                         Risk-
                                                          Core                           based
                                                         Capital           %            Capital          %
                                                         -------        ------          -------       ------
                                                                             (in Thousands)
                                                                               (Unaudited)
<S>                                                      <C>            <C>             <C>           <C>
       Capital under generally accepted
           accounting principles                         $ 5,754                          5,754
       General valuation allowances                         -                               138
                                                         -------                        -------
       Regulatory capital computed                         5,754          15.9            5,892         37.8
       Minimum capital requirements                        1,447           4.0            1,247          8.0
                                                         -------        ------          -------       ------
       Regulatory capital-excess                         $ 4,307          11.9            4,645         29.8
                                                         =======        ======          =======       ======
</TABLE>

       Capital ratios for June 30, 1997 are shown in the following table.  The
       ratios for 1997 included a tangible capital ratio is currently not
       required.
<TABLE>
<CAPTION>

                                                                            June 30, 1997
                                                    ----------------------------------------------------------------
                                                                         Regulatory Capital
                                                                                                    Risk-
                                                    Tangible                  Core                  based
                                                    Capital           %       Capital      %       Capital       %
                                                    -------        ------    --------   -------    ------     ------
                                                                             (in Thousands)
                                                                               (Unaudited)
<S>                                                  <C>           <C>         <C>        <C>       <C>       <C>

       Capital under generally accepted
           accounting principles                      $ 5,532                  5,532                5,532
       General valuation allowances                       -                      -                    126
                                                     --------                  -----                -----
       Regulatory capital computed                      5,532       15.7       5,532      15.7      5,658      34.1
       Minimum capital requirements                       529        1.5       1,058       3.0      1,325       8.0
                                                     --------      -----       -----      ----      -----     -----
       Regulatory capital-excess                      $ 5,003       14.2       4,474      12.7      4,333      26.1
                                                     ========      =====       =====      ====      =====     =====

</TABLE>



<PAGE>   36



11.    COMMITMENTS:

       At June 30, 1998, the Savings Bank had commitments to originate loans
       totaling $711,300. The entire amount was for fixed rate loans. No portion
       of these loans were disbursed prior to June 30, 1998, and the financial
       statements do not reflect any liability for such commitments. Management
       anticipates that all originations will be funded from existing liquidity
       and normal monthly cash flows. Loan commitments as of June 30, 1997 were
       $654,450.

12.    RETIREMENT PLANS:

       The Savings Bank had a 401(k) Salary Savings Plan with the Ohio Savings
       and Loan League. The plan was terminated as of June 30, 1996. During the
       year ended June 30, 1996, retirement expense amounted to $ 12,700. The
       plan covered all employees having completed one year of service and
       having attained the age of 21. The employee could contribute up to nine
       percent with the employer matching contribution of three percent and a
       discretionary three percent employer matching contribution.

       Concurrent with the Savings Bank's conversion from the mutual to stock
       form of organization, in September 1996, the Company established an ESOP
       which provides retirement benefits for substantially all employees who
       have completed one year of service and have attained age 21. The ESOP
       initially acquired 37,030 common shares in the conversion offering. The
       funds used by the ESOP to purchase the stock were provided by a loan from
       the Company which will be repaid by contributions to the ESOP by the
       Company in the future. Management intends to allocate these shares to
       eligible employees' accounts over the next five to seven years. Expense
       for shares committed to be allocated during 1998 and 1997 was $89,376 and
       $53,451, respectively.  Remaining unearned shares at June 30, 1998 and 
       1997 was 25,453 and 31,685.

13.    FEDERAL INCOME TAXES:

       The Company has qualified under provisions of the Internal Revenue Code
       which permit the Savings Bank to deduct from taxable income an allowance
       for bad debts based on a percentage of taxable income before such
       deduction. The Tax Reform Act of 1969 gradually reduced this reduction to
       40% for years beginning in 1979. The Tax Reform Act of 1986 reduced this
       deduction to 8% beginning in 1988 and starting in 1997, the percentage of
       taxable income method is no longer allowed.

       Appropriated and unappropriated retained income at June 30, 1998 included
       earnings of approximately $653,000, representing such bad debt deductions
       for which no provision for federal income taxes has been made. In the
       future, if the Company does not meet the federal income tax requirements
       necessary to permit it to deduct an allowance for bad debts, the Company
       will be subject to federal income tax at the then current corporate rate.
       Management does not contemplate any action which would cause such
       pre-1988 cumulative bad debt deduction to be subject to federal income
       taxes, although it is possible

<PAGE>   37


       that changes in legislation could, at a future date require recapture 
       of all or part of this bad debt deduction.

       An analysis of income tax expense, setting forth the reasons for the
       variations from the statutory rate is as follows:
<TABLE>
<CAPTION>

                                                                                Year Ended June 30
                                                                      --------------------------------------
                                                                      1998              1997            1996
                                                                      ----              ----            ----

<S>                                                               <C>                  <C>              <C>   
       Federal income taxes at the statutory
           rate of 34%                                             $ 125,532            53,385           38,519
       Employee stock ownership plan                                  11,568               -                -
       Other, primarily surtax exemptions                                -              (8,328)         (11,677)
                                                                   ---------            ------          -------

       Federal income taxes per consolidated

           financial statements                                    $ 137,100            45,057           26,842
                                                                   =========            ======           ======

       Effective tax rate                                              37.2%             28.7%             23.7%
                                                                   =========           =======           =======
</TABLE>

       The tax effect of temporary differences that give rise to significant
       portions of deferred tax assets and deferred tax liabilities are as
       follows:
<TABLE>
<CAPTION>

                                                                                     June 30
                                                                 --------------------------------------------
                                                                      1998              1997            1996
                                                                 -----------           -------       ----------

<S>                                                              <C>                    <C>              <C>   
       Deferred tax assets arising from:
           Allowance for loan losses                             $    35,900            31,800           26,800
           Deferred loan fees and costs                                5,300             8,000           11,100
           Basis of investments                                        2,000             2,000            2,000
                                                                 -----------           -------       ----------
                    Total deferred tax assets                         43,200            41,800           39,900
                                                                 -----------           -------       ----------
       Deferred tax liabilities arising from:
           Accrual to cash conversion                                 38,800            23,700           32,300
               Depreciation                                           13,300            17,000           20,200
               FHLB stock                                             62,500            55,000           48,200
                                                                 -----------           -------       ----------
                    Total deferred tax liabilities                  (114,600)          (95,700)        (100,700)
                                                                 -----------           -------       ----------

       Net deferred tax liability                                $    71,400            53,900           60,800
                                                                 ===========           =======       ==========
</TABLE>

       The Savings Bank has not recorded a valuation allowance, as the deferred
       tax assets are presently considered to be realizable based on the level
       of anticipated future taxable income. Net deferred tax liabilities and
       federal income tax expense in future years can be significantly affected
       by changes in enacted tax rates.

<PAGE>   38

       The components of deferred income tax expense (credit) are as follows:
<TABLE>
<CAPTION>

                                                                                Year Ended June 30
                                                                   ------------------------------------------
                                                                      1998               1997             1996
                                                                   ---------            -------         -------

<S>                                                                <C>                  <C>             <C>  
       Loan origination fees                                       $   2,600             3,100            4,400
       FHLB stock dividend                                             7,500             6,800            6,200
       Depreciation                                                   (3,700)           (3,300)            (600)
       Accrual to cash conversion                                     15,200            (8,300)           2,000
       Bad debt reserves and other                                    (4,100)           (5,200)         (11,800)
                                                                   ---------            -------         --------

                                                                   $  17,500            (6,900)             200
                                                                   =========            =======         ========
</TABLE>

14.    SAIF SPECIAL ASSESSMENT:

       The deposits of the Savings Bank are presently insured by the SAIF, which
       together with the Bank Insurance Fund (BIF), are the two insurance funds
       administered by the FDIC. On November 8, 1995, the FDIC revised the
       premium schedule for BIF-insured banks to provide a range of .00% to .31%
       of deposits (as compared to the current range of .23% to .31% of deposits
       for SAIF-insured institutions) due to the BIF achieving its statutory
       reserve ratio. As a result, BIF members generally would pay substantially
       lower premiums than SAIF members. It was previously anticipated that the
       SAIF would not be adequately recapitalized until 2002, absent a
       substantial increase in premium rates or the imposition of special
       assessments or other significant developments.

       On September 30, 1996, the President signed an omnibus appropriations
       package which included the recapitalization of the SAIF. All SAIF members
       were required to pay a one-time assessment of 65.7 cents per $100 in
       deposits held on March 31, 1995. The Savings Bank's special assessment
       was approximately $168,000. The assessment was charged against earnings
       during the 1997 year. Beginning January 1, 1997, SAIF members were
       assessed a premium of 6.4 cents per $100 of deposits. Other provisions of
       the appropriations package require the Treasury Department to provide
       Congress, by March 31, 1997, with a report on merging of the bank and
       thrift charters and merging the SAIF and BIF by January 1, 1999, provided
       the bank and thrift charters have been merged by that date. It also
       required BIF and SAIF members to begin sharing the FICO obligation on a
       pro-rata basis at the earlier of January 1, 2000, or when the BIF and
       SAIF funds are merged.

15.    BAD DEBT RESERVE RECAPTURE:

       A bill repealing the thrift bad debt reserve was signed into law and is
       effective for taxable years beginning after December 31, 1995. All
       savings banks and thrifts are required to account for tax reserves for
       bad debts in the same manner as banks. Such entities with assets less
       than $500 million will be required to maintain a moving average
       expense-based reserve and no longer will be able to calculate a reserve
       based on a percentage of taxable income.

<PAGE>   39

       Tax reserves accumulated after 1987 will automatically be subject to
       recapture. The recapture will occur in equal amounts over six years
       beginning in 1997 and can be deferred up to two years, depending on the
       level of loans originated.

       As a result of the tax law change, the Company is expected to ultimately
       recapture approximately $32,500 of tax reserves accumulated after 1987,
       resulting in additional tax payments of $11,000. The recapture of these
       reserves will not result in any significant income statement effect to
       the Company. Pre-1988 tax reserves will not have to be recaptured unless
       the thrift or its successor institution liquidates, redeems shares or
       pays a dividend in excess of earnings and profits.

16.    CONVERSION AND LIQUIDATION ACCOUNT:

       On May 31, 1996, the Savings Bank's Board of Directors adopted an overall
       plan of conversion and reorganization (the Plan) whereby the Savings Bank
       would convert to the stock form of ownership, followed by the issuance of
       all of the Savings Bank's outstanding common shares to the Company.

       In September 1996, the Savings Bank completed its conversion to the stock
       form of ownership and issued all of its outstanding common shares to the
       Company.

       In connection with the conversion, the Company sold 462,875 at a price of
       $10.00 per share which, after consideration of offering expenses totaling
       $287,624 and shares purchased by employee benefit plans, resulted in net
       cash proceeds of $3.97 million.

       At the time of the conversion in September 1996, the Savings Bank
       established a liquidation account in an amount of $2,772,105, which is
       equal to the Savings Bank's regulatory capital at March 31, 1996. The
       liquidation account will be maintained for the benefit of eligible
       savings account holders who maintain their savings account in the Savings
       Bank after conversion.

       In the event of a complete liquidation (and only in such event), each
       eligible savings account holder will be entitled to receive a liquidation
       distribution from the liquidation account in the amount of the then
       current adjusted balance of savings accounts held before any liquidation
       distribution may be made with respect to capital stock. Except for the
       repurchase of shares and payment of dividends by the Company, the
       existence of the liquidation account will not restrict the use or
       application of such related earnings.

       The Savings Bank may not declare or pay a cash dividend on/or repurchase
       any of, its capital stock if the effect thereof would cause the
       regulatory capital of the Savings Bank to be reduced below either the
       amount required for the liquidation account or the regulatory capital
       requirements imposed by the FDIC.
<PAGE>   40

17. SUMMARIZED FINANCIAL INFORMATION OF THE PARENT COMPANY:

                            FOUNDATION BANCORP, INC.

                        Statements of Financial Condition
                        ---------------------------------
<TABLE>
<CAPTION>
                                  June 30, 1998

                                                                                 1998              1997
                                                                            ------------        ---------
<S>                                                                         <C>                 <C>    
       Assets:

              Cash                                                          $     11,007          109,679
              Certificate of deposit                                             137,666                -
              Accrued interest receivable                                             10                -
              Investment in Foundation Savings Bank                            2,970,826        2,970,826
              Note receivable-Foundation Savings Bank                          1,000,000        1,000,000
              Prepaid expenses                                                     3,591                -
                                                                            ------------        ---------

                                                                            $  4,123,100        4,080,505
                                                                            ============        =========

       Liabilities and stockholders' equity:
              Liabilities:

                  Accrued expenses                                          $     10,150                -
                  Federal income taxes payable - current                          15,100           19,952
                  Federal income taxes payable - deferred                         (2,200)               -

              Stockholders' equity:

              Common stock                                                             -                -
              Additional paid in capital                                       4,341,126        4,341,126
              Retained earnings                                                   15,597           31,208
              Less unearned ESOP shares                                         (256,673)        (311,781)
                                                                            ------------        ---------

                                                                               4,100,050        4,060,553
                                                                            ------------        ---------

                                                                            $  4,123,100        4,080,505
                                                                            ============        =========

</TABLE>

<TABLE>
<CAPTION>
                              Statements of Income
                              --------------------
                                                                             Year Ended         Year Ended
                                                                            June 30, 1998      June 30, 1997
                                                                            -------------      -------------

<S>                                                                         <C>                 <C>   
       Interest income                                                      $     75,925           57,350
       Dividend income                                                            75,000                -
       Professional fees                                                         (36,284)          (6,140)
       Other expenses                                                             (1,633)             (50)
       Income taxes                                                              (12,900)         (19,952)
                                                                            ------------       ---------- 

                                                                            $    100,108           31,208
                                                                            ============       ========== 
</TABLE>

<PAGE>   41

18.  EARNINGS PER SHARE

       Earnings per share for the years ended June 30, 1998 and 1997 is
       calculated as follows. Earning per share for the period ended June 30,
       1997 is based on the Company's net income for the nine months ended since
       the effective date of the Savings Bank's mutual-to-stock conversion.

       Basic and diluted earnings per share
<TABLE>
<CAPTION>

                                                     Income                  Shares          Per Share
                                                  (Numerator)             (Denominator)       Amount
                                                  -----------             ------------       ---------
<S>                                                <C>                      <C>               <C>  
                  June 30, 1998                     $232,113                 438,547           $ .53

                  June 30, 1997                     $210,926                 432,456           $ .49
</TABLE>


19.    QUARTERLY FINANCIAL INFORMATION (UNAUDITED):

       Summarized quarterly financial information for the year ended June 30,
       1998 is as follows:
<TABLE>
<CAPTION>

                                                                        Year Ended June 30, 1998
                                                    --------------------------------------------------------------
                                                     First            Second              Third            Fourth
                                                    Quarter           Quarter            Quarter           Quarter
                                                    -------           -------            -------           -------
<S>                                                 <C>               <C>                <C>              <C>
       Interest income                                $682              691                671              654
       Interest expense                                407              414                409              411
                                                    -------           -------            -------          -------
           Net interest income                         275              277                262              243

       Other income                                     18               25                 36               36
       Other expenses                                  185              185                199              234
                                                    -------           -------            -------          -------
           Income before
               provision for income taxes              108              117                 99               45

       Provision for income taxes                       37               40                 34               26
                                                    -------           -------            -------          -------
           Net income                               $   71               77                 65               19
                                                    =======           =======            =======          =======

       Basic and diluted earnings
               per share                            $ 0.16             0.17               0.16             0.04
                                                    =======           =======            =======          =======
</TABLE>

<PAGE>   42

       Summarized 1997 quarterly financial information for the periods ending
       after the conversion is as follows:
<TABLE>
<CAPTION>

                                                    Quarter Ended            Quarter Ended          Quarter Ended
                                                  December 31, 1996         March 31, 1997          June 30, 1997
                                                  -----------------         --------------          -------------

<S>                                                   <C>                        <C>                    <C>
       Interest income                                $  640                      649                    663
       Interest expense                                  372                      379                    389
                                                  -----------------         --------------          -------------

           Net interest income                           268                      270                    274
       Other income                                       18                       16                     15
       Other expenses                                    187                      188                    183
                                                  -----------------         --------------          -------------
           Income before
                provision for income taxes                99                       98                    106
       Provision for income taxes                         32                       31                     29
                                                  -----------------         --------------          -------------

           Net income                                 $   67                       67                     77
                                                  =================         ==============          =============

       Basic and diluted earnings
                per share                             $ 0.16                     0.16                   0.17
                                                  =================         ==============          =============
</TABLE>

<PAGE>   43
================================================================================

                                  DIRECTORS OF
                            FOUNDATION BANCORP, INC.
                                       AND
                             FOUNDATION SAVINGS BANK

<TABLE>
<CAPTION>

<S>                                                 <C>
LAIRD L. LAZELLE                                     MARDELLE DICKHAUT
President, Foundation Bancorp, Inc.                  Retired from Foundation Savings Bank.
and Foundation Savings Bank.

RUTH C. EMDEN                                        ROBERT E. LEVITCH
Retired. Currently active in community work.         Corrections Officer with the Hamilton County
Sheriff's Office.

MICHAEL S. SCHWARTZ                                  PAUL L. SILVERGLADE
Attorney at law practicing in Cincinnati             Retired Corporate Office Personnel
and operating a title insurance agency.              Director for Federated Department Stores.

IVAN J. SILVERMAN
Investment Consultant and Associate Vice
President with Gradison Division of McDonald
& Company Securities, Inc.  Mr. Silverman is
a former Mayor of the City of Montgomery.


                              EXECUTIVE OFFICERS OF
                            FOUNDATION BANCORP, INC.

LAIRD L. LAZELLE                                     DIANNE K. RABE, CPA
President and Chief Executive Officer                Secretary and Treasurer


                              EXECUTIVE OFFICERS OF
                             FOUNDATION SAVINGS BANK

LAIRD L. LAZELLE                                     DIANNE K. RABE, CPA
President and Chief Executive Officer                Vice President

MICHAEL S. SCHWARTZ                                  MARDELLE DICKHAUT
Chairman of the Board                                Secretary

MARGO A. LIEBERT                                     MICHELLE BARTH
Treasurer                                            Assistant Secretary

================================================================================
</TABLE>

<PAGE>   44


                            FOUNDATION BANCORP, INC.
                                       AND
                             FOUNDATION SAVINGS BANK

                              CORPORATE INFORMATION

                                CORPORATE OFFICES
                                -----------------
                                25 Garfield Place
                             Cincinnati, Ohio 45202
                              Phone (513) 721-0120
                               Fax (513) 721-0140

                       STOCK TRANSFER AGENT AND REGISTRAR
                       ----------------------------------
                                Fifth Third Bank
                           Corporate Trust Operations
                                Mail Drop 1090F5
                            38 Fountain Square Plaza
                             Cincinnati, Ohio 45263
                           Toll Free # (800) 837-2755

                             CORPORATE LEGAL COUNSEL
                             -----------------------
                       Vorys, Sater, Seymour and Pease LLP
                              Suite 2100 Atrium Two
                             221 East Fourth Street
                           Cincinnati, Ohio 45201-0236

                              INDEPENDENT AUDITORS
                              --------------------
                       Clark, Schaefer, Hackett & Company
                                   Suite 1600
                             105 East Fourth Street
                             Cincinnati, Ohio 45202

                                  MARKET MAKERS
                                  -------------
                                   Ernst & Co.
                        Friedman, Billings, Ramsey & Co.
                          Keefe, Bruyette & Woods, Inc.
                                Monroe Securities
                                The Ohio Company

                                 TRADING SYMBOL
                                 --------------

       Price quotations for the common shares of Foundation Bancorp, Inc.,
              are available on the National Daily Quotation Service
                                  "Pink Sheets"
                            under the symbol "FOUN".

A COPY OF THE FORM 10-KSB OF FOUNDATION BANCORP, INC. FOR THE FISCAL YEAR ENDED
JUNE 30, 1998, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WILL BE
FURNISHED WITHOUT CHARGE TO SHAREHOLDERS UPON WRITTEN REQUEST TO LAIRD L.
LAZELLE, PRESIDENT, FOUNDATION BANCORP, INC., 25 GARFIELD PLACE, CINCINNATI,
OHIO 45202.