<PAGE> 1


                                UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D. C. 20549

                                  FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
      SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended December 31, 1997

                                      or

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
      SECURITIES EXCHANGE ACT OF 1934

 For the transition period from                       to                  
                               -----------------------   ----------------------

                        Commission File Number 0-25664

                              SGV BANCORP, INC.
-------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

DELAWARE                                                             95-4524789
-------------------------------------------------------------------------------
(State or other jurisdiction                                 (I. R. S. Employer
of incorporation or organization)                            Identification No.)

225 NORTH BARRANCA STREET, WEST COVINA, CALIFORNIA                        91791
-------------------------------------------------------------------------------
(Address of principal executive offices)

                                (626) 859-4200
-------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)

                                Not Applicable
-------------------------------------------------------------------------------
               (Former name, former address and former fiscal year,
                           if changed since last report)

      Indicate by check mark  whether the  registrant  (1) has filed all reports
require  to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.         /x/ Yes  / / No
                                                  --       --   

                       APPLICABLE ONLY TO CORPORATE ISSUERS:
      Indicate the number of shares  outstanding of each of the issuer's classes
of common stock, as of the latest  practicable date:  2,345,340 shares of common
stock, par value $0.01 per share, were outstanding as of February 6, 1998.



<PAGE> 2



                              SGV BANCORP, INC.
                                  FORM 10-Q
                                    INDEX


PART I    FINANCIAL INFORMATION                                             PAGE
                                                                            ----

Item 1    Consolidated Statements of Financial Condition:
          December 31, 1997 (unaudited) and June 30, 1997.....................1

          Consolidated Statements of Operations (unaudited):
          For the Six Months Ended December 31, 1997 and 1996 and for the
          Three Months Ended December 31, 1997 and 1996 ......................2

          Consolidated Statements of Cash Flows (unaudited):
          For the Six Months Ended December 31, 1997 and 1996.................3

          Notes to Consolidated Financial Statements..........................5

Item 2    Management's Discussion and Analysis of
          Results of Operations and Financial Condition.......................7

PART II   OTHER INFORMATION

Item 1    Legal Proceedings..................................................19

Item 2    Changes in Securities..............................................19

Item 3    Defaults Upon Senior Securities....................................19

Item 4    Submission of Matters to a Vote of Security Holders................19

Item 5    Other Information..................................................19

Item 6    Exhibits and Reports on Form 8-K...................................20

SIGNATURES...................................................................21









<PAGE> 3

<TABLE>
<CAPTION>


SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
--------------------------------------------------------------------------------------------------------------
                                                                                    DECEMBER 31,     JUNE 30,
                                                                                        1997           1997
                                                                                        ----           ----
<S>                                                                                  <C>            <C>
ASSETS:                                                                             (Unaudited)
 Cash and cash equivalents, including short-term bank obligations of
   $6,200 at December 31, 1997 and $18,600 at June 30, 1997                          $   9,610      $  22,664
 Investment securities available for sale, amortized cost of $13,749
   at December 31, 1997 and $12,500 at June 30, 1997                                    13,734         12,467
 Mortgage-backed securities available for sale, amortized cost of
  $19,437 at December 31, 1997 and $37,323 at June 30, 1997                             19,411         37,164
 Mortgage-backed securities held to maturity, estimated fair value of
  $36,183 at December 31, 1997 and $38,783 at June 30, 1997                             36,063         39,072
 Loans receivable held for sale                                                            458            230
 Loans receivable held for investment, net of allowance for estimated
  loan losses of $1,330 at December 31, 1997 and $1,263 at June 30, 1997               315,398        284,608
 Accrued interest receivable                                                             2,827          2,911
 Stock of Federal Home Loan Bank of San Francisco, at cost                               4,113          3,987
 Real estate acquired through foreclosure, net                                           1,363          1,150
 Premises and equipment, net                                                             3,704          3,866
 Prepaid expenses and other assets, net                                                  1,140          1,221
                                                                                  ------------   ------------   
     Total assets                                                                    $ 407,821      $ 409,340
                                                                                  ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY

 LIABILITIES:
 Deposit accounts                                                                    $ 295,551      $ 288,339
 Federal Home Loan Bank advances                                                        71,221         77,907
 Securities sold under agreements to repurchase                                          6,000          9,430
 Accrued expenses and other liabilities                                                  4,259          3,761
                                                                                  ------------   ------------
     Total liabilities                                                                 377,031        379,437

 STOCKHOLDERS' EQUITY:
 Preferred stock, $.01 par value; 2,000,000 shares authorized; none
  issued
 Common stock, $.01 par value; 10,000,000 shares authorized;
  2,727,656 issued; 2,345,340 shares outstanding at December 31, 1997 and
  2,342,176 shares outstanding at June 30, 1997                                             27             27
 Additional paid-in capital                                                             20,915         20,789
 Retained earnings, substantially restricted                                            15,766         15,201
 Net unrealized loss on investment securities and mortgage-backed
  securities available for sale, net of taxes                                              (23)          (110)
 Deferred stock compensation                                                            (1,805)        (1,880)
 Treasury stock, 382,316 shares at December 31,1997 and
   385,480 shares at June 30, 1997                                                      (4,090)        (4,124)
                                                                                  ------------   ------------
     Total stockholders' equity                                                         30,790         29,903
                                                                                  ------------   ------------
     Total liabilities and stockholders' equity                                      $ 407,821      $ 409,340
                                                                                  ============   ============

</TABLE>
                                                       1




<PAGE> 4

<TABLE>
<CAPTION>

SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED)
-------------------------------------------------------------------------------------------------------------------

                                                            FOR THE THREE MONTHS             FOR THE SIX MONTHS
                                                              ENDED DECEMBER 31,             ENDED DECEMBER 31,
                                                              1997         1996              1997           1996
                                                         ------------  ------------   -------------  -------------
<S>                                                          <C>           <C>            <C>             <C>     
INTEREST INCOME:
  Interest on loans                                          $  5,980      $  5,063       $  11,458       $  9,973
  Interest on investment securities                               263           263             576            575
  Interest on mortgage-backed securities                          985           964           2,253          1,703
  Other                                                           231           151             496            298
                                                         ------------  ------------   -------------  -------------
      Total interest income                                     7,459         6,441          14,783         12,549

                                                         ------------  ------------   -------------  -------------
INTEREST EXPENSE:
  Interest on deposit accounts                                  3,558         2,902           7,033          5,698
  Interest on borrowings                                        1,282         1,218           2,624          2,285
                                                         ------------  ------------   -------------  -------------
      Total interest expense                                    4,840         4,120           9,657          7,983
                                                         ------------  ------------   -------------  -------------

Net interest income before provision
  for estimated loan losses                                     2,619          2,321          5,126          4,566
PROVISION FOR ESTIMATED LOAN LOSSES                               268            105            343            294
                                                         ------------  -------------  -------------  -------------
Net interest income after provision for
  estimated loan losses                                         2,351          2,216          4,783          4,272


OTHER INCOME (EXPENSE):
  Loan servicing and other fees                                   137            114            263            223
  Secondary marketing activity, net                                14            (16)             9            (26)
  Gain (loss) on sale or redemption of securities
    available for sale, net                                                      161             37            161
  Other income                                                    176            103            345            245
  Net loss on real estate acquired through foreclosure            (75)           (12)           (63)           (69)
                                                         ------------  -------------  -------------  -------------
      Total other income                                          252            350            591            534
                                                         ------------  -------------  -------------  -------------

GENERAL AND ADMINISTRATIVE EXPENSES:
  Compensation and other employee expenses                      1,194            982          2,382          1,894
  Office occupancy                                                272            181            541            370
  Data Processing and Equipment                                   275            187            529            370
  Advertising                                                      26             40             78             70
  FDIC insurance premiums                                          45            134             89            261
  FDIC special assessment                                                                                    1,332
  Other operating expenses                                        387            316            776            585
                                                         ------------  -------------  -------------  -------------
      Total general and administrative expense                  2,199          1,840          4,395          4,882
                                                         ------------  -------------  -------------  -------------

EARNINGS(LOSS) BEFORE INCOME TAXES                                404            726            979            (76)
INCOME TAXES                                                      170            310            414            (28)
                                                         ------------  -------------  -------------  -------------
     NET EARNINGS(LOSS)                                     $     234     $      416     $      565     $      (48)
                                                         ============  =============  =============  =============
EARNINGS(LOSS) PER SHARE - Basic                            $    0.10     $     0.16     $     0.24     $    (0.02)
                                                         ============  =============  =============  =============
EARNINGS(LOSS) PER SHARE - Diluted                          $    0.09     $     0.16     $     0.23     $    (0.02)
                                                         ============  =============  =============  =============
</TABLE>


                                                       2


<PAGE> 5


<TABLE>
<CAPTION>


SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
-------------------------------------------------------------------------------------------------------------
                                                                                   FOR THE SIX MONTHS
                                                                                    ENDED DECEMBER 31,
                                                                                 1997                1996
                                                                          -----------------------------------
<S>                                                                         <C>                  <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net earnings (loss)                                                        $       565          $       (48)
 Adjustments to reconcile net earnings to net
  cash provided by operating activities:
   Depreciation and amortization                                                    328                  165
   Loans originated for sale                                                     (7,258)              (3,295)
   Proceeds from sale of loans                                                    7,055                3,301
   Gain on sale of loans, net                                                       (25)                  (6)
   Gain on sale of investments available for sale, net                               (7)
   Gain on sale of mortgage-backed securities available for sale, net               (31)                (161)
   Federal Home Loan Bank stock dividend                                           (126)                (117)
   Decrease (increase) in prepaid expenses and other assets                          20                 (401)
   Amortization of deferred loan fees                                               (36)                  (9)
   Deferred loan origination costs                                                 (121)                (115)
   Increase in accrued expenses and other liabilities                               435                  186
   Provision for estimated loan losses                                              343                  294
   Provision for estimated real estate losses                                        56                   30
   Premium amortization, net                                                        118                  108
   Decrease (increase) in accrued interest receivable                                84                 (160)
   Other, net                                                                      (125)                 270
                                                                          -------------        -------------
    Net cash provided by operating activities                                     1,275                   42

CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of investment securities available for sale                           (21,748)             (28,651)
 Proceeds from sale and redemption of investment securities
  available for sale                                                             20,507               31,650
 Purchase of mortgage-backed securities available for sale                                           (19,999)
 Proceeds from sale of mortgage-backed securities available for sale             14,480                9,866
 Principal repayments on mortgage-backed securities                               6,328                3,873
 Loans funded, net                                                              (13,267)             (14,682)
 Loans purchased, net                                                           (40,623)             (29,894)
 Principal repayments on loans                                                   21,778               14,637
 Proceeds from sale of real estate                                                1,069                2,168
 Purchase of premises and equipment                                                (113)                 (90)
 Other, net                                                                         (69)                  (3)
                                                                          -------------        -------------
    Net cash used in investing activities                                       (11,658)             (31,125)

</TABLE>




                                                     3

<PAGE> 6


<TABLE>
<CAPTION>

SGV BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)(CONTINUED)
-----------------------------------------------------------------------------------------------------------------
                                                                                       FOR THE THREE MONTHS
                                                                                         ENDED DECEMBER 31,
                                                                                      1997               1996
                                                                                 --------------------------------
<S>                                                                               <C>               <C>         
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net (decrease) increase in certificate accounts                                  $    (5,985)      $      9,811
 Net increase in passbook , money market savings
   NOW and noninterest-bearing accounts                                                13,197              4,610
 Proceeds from Federal Home Loan Bank advances                                                            29,000
 Repayment of Federal Home Loan Bank advances                                          (6,686)           (19,206)
 Proceeds from reverse repurchase agreements, net                                                          9,600  
 Repayment of securities sold under agreements to repurchase                           (3,430)
 Purchase of treasury stock                                                                                 (669)
 Other, net                                                                               233                112
                                                                                 ------------      -------------
    Net cash (used in) provided by financing activities                                (2,671)            33,258

NET (DECREASE) INCREASE  IN CASH AND CASH
EQUIVALENTS
    EQUIVALENTS                                                                       (13,054)             2,175

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                         22,664              8,884
                                                                                 ------------      -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                          $     9,610       $     11,059
                                                                                 ============      =============


SUPPLEMENTAL CASH FLOW DISCLOSURES
 Cash paid during the period for:
Interest                                                                          $     9,652       $      8,117
Income taxes, net                                                                         536

NONCASH INVESTING ACTIVITIES DURING THE PERIOD:
Real estate acquired through foreclosure                                                1,312              1,469
Change in net unrealized loss on investment securities and
  mortgage-backed securities available for sale, net of taxes                              87                136

</TABLE>






                                                       4












<PAGE> 7




                       SGV BANCORP, INC. AND SUBSIDIARY
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              DECEMBER 31, 1997
                                 (UNAUDITED)

1.    Basis of Presentation:
      ---------------------

      SGV  Bancorp,   Inc.  ("SGV")  is  a  savings  and  loan  holding  company
incorporated  in the state of  Delaware  that was  organized  for the purpose of
acquiring all of the capital stock of First Federal Savings and Loan Association
of San Gabriel Valley ("the  Association")  upon its conversion from a federally
chartered  mutual savings and loan  association to a federally  chartered  stock
savings  and loan  association.  On June 28,  1995,  SGV  completed  its sale of
2,727,656  shares  of  its  common  stock  through  subscription  and  community
offerings to the Association's depositors, the Employee Stock Ownership Plan and
the public and used  approximately  60% of the net  proceeds  from such sales to
purchase  all of the  Association's  common  stock  issued in the  Association's
conversion  to stock  form.  Such  business  combination  was  accounted  for at
historical cost in a manner similar to a pooling of interests.

      SGV  engages  only in  limited  business  operations  primarily  involving
investments in federal agency securities and mortgage-backed  securities, and as
a result,  substantially all of the net earnings and performance  figures herein
reflect the results of the Association.

      The  Association  is primarily  engaged in  attracting  deposits  from the
general public in the areas in which its branches are located and investing such
deposits  and other  available  funds  primarily  in mortgage  loans  secured by
one-to-four  family residences.  To a lesser extent, the Association  invests in
multi-family  residential  mortgages,  commercial  real  estate,  land and other
loans. The Association's  revenues are derived  principally from interest on its
mortgage loans, and to a lesser extent, interest and dividends on its investment
and mortgage-backed securities and income from loan servicing. The Association's
primary sources of funds are deposits, principal and interest payments on loans,
advances from the Federal Home Loan Bank of San  Francisco  (the FHLB) and, to a
lesser  extent,  proceeds from the sale of loans.  As of December 31, 1997,  the
Association operated eight branch offices located in the San Gabriel Valley.

      The consolidated financial statements include the accounts of SGV Bancorp,
Inc. and its wholly-owned subsidiary, First Federal Savings and Loan Association
of San Gabriel  Valley and its  wholly-owned  subsidiary,  First Covina  Service
Company,  which is  substantially  inactive  (collectively,  the  Company).  All
material   intercompany  balances  and  transactions  have  been  eliminated  in
consolidation.

      The accompanying  consolidated  financial statements have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information and with the  instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly,  they do not include  all of the  information  and  footnotes
required by generally  accepted  accounting  principles  for complete  financial
statements.  In the opinion of management all necessary adjustments,  consisting
only of normal recurring adjustments necessary for a fair presentation have been



                                        5


<PAGE> 8


included.  The results of operations for the  three-month  period ended December
31, 1997 are not necessarily  indicative of the results that may be expected for
the entire fiscal year.

      These  consolidated  financial  statements and the  information  under the
heading  "Management's  Discussion  and  Analysis of Results of  Operations  and
Financial Condition" should be read in conjunction with the audited consolidated
financial  statements and notes thereto of SGV Bancorp,  Inc. for the year ended
June 30,  1997  included  in the  Company's  Annual  Report on Form 10-K for the
fiscal year ended June 30, 1997.

2.    Earnings Per Share
      ------------------

      As required in SFAS No. 128,  EARNINGS PER SHARE,  which became  effective
for periods  ending after  December 15, 1997,  basic  earnings per share for the
three months ended and six months ended  December 31, 1997 and 1996 are based on
the weighted average common shares outstanding, net of treasury stock. The total
issued  shares of 2,727,656  have been adjusted for the average  treasury  stock
outstanding  of 384,580 and 163,880 for the three months ended December 31, 1997
and 1996,  respectively,  and  384,966  and  152,094  for the six  months  ended
December 31, 1997 and 1996,  respectively.  Diluted earnings per share represent
basic  earnings  per share  adjusted for the common  stock  equivalent  of stock
options granted and  unexercised.  The common stock  equivalent  shares of stock
options for diluted  earnings per share  calculations  are 128,568 for the three
months ended December 31, 1997 and 122,880 for the six months ended December 31,
1997. The numerator for earnings per share for all periods is represented by net
earnings (or loss) with no adjustments.

3.    Accounting Principles
      ---------------------

      In February  1997,  the FASB issued SFAS No. 128,  which is effective  for
financial  statements  issued for periods  ending after  December  15, 1997.  It
replaces the presentation of primary earnings per share with the presentation of
basic earnings per share. It also requires the  presentation of diluted earnings
per share for entities with complex  capital  structures.  Diluted  earnings per
share takes into account the  potential  dilution that could occur if securities
or other  contracts to issue common stock,  such as options,  were  exercised or
converted into common stock. The Company adopted SFAS No. 128 effective with the
financial  reports of December 31, 1997.  Previous periods have been restated to
reflect the requirements of this statement.

      In February 1997, the FASB issued SFAS No. 129,  DISCLOSURE OF INFORMATION
ABOUT CAPITAL  STRUCTURE.  The statement  establishes  standards for  disclosing
information about an entity's capital structure.  The disclosure requirements of
SFAS No. 129 are  effective  for periods  ending after  December  15, 1997.  The
Company  does  not  believe  that the  adoption  of SFAS  No.  129  will  have a
significant impact on its financial statements.

      In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME
and SFAS No.  131,  DISCLOSURES  ABOUT  SEGMENTS  OF AN  ENTERPRISE  AND RELATED
INFORMATION.  SFAS No. 130  establishes  standards  for reporting and display of
comprehensive  income  and  its  components  in a full  set  of  general-purpose
financial  statements.  SFAS No.  131  establishes  standards  of  reporting  by
publicly-held   business   enterprises   and  disclosure  of  information  about


                                       6




<PAGE> 9


operating segments in annual financial statements to a lesser extent, in interim
financial reports issued to shareholders. SFAS No. 130 and 131 are effective for
fiscal years  beginning  after  December 15, 1997.  As both SFAS No. 130 and 131
deal with financial statement  disclosure,  the Company does not anticipate that
the adoption of these new standards will have a material impact on its financial
statements.

4.    Use of Estimates in the Preparation of Financial Statements
      -----------------------------------------------------------

      The  preparation  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.

5.    Approved Stock Compensation Plans
      ---------------------------------

      At the Company's  Annual Meeting of Shareholders on November 20, 1997, the
shareholders  approved the SGV Bancorp,  Inc. 1997  Stock-Based  Incentive Plan.
This  plan  authorizes  the  granting  of  options  to  purchase  Common  Stock,
option-related  awards and awards of Common Stock  equivalent  to one percent of
the adjusted average Common Stock outstanding used to calculate diluted earnings
per share as  reported  in the  annual  report for the  preceding  year for each
calendar year from 1997 through 2006. In no event will more than 230,000  shares
be granted under this plan which is available to all officers,  other  employees
and outside Directors. This plan became effective November 20, 1997.

6.    Recent Developments
      -------------------

      The Year 2000 Issue  concerns the  potential  impact of historic  computer
software code that only utilizes two digits to represent the calendar year (e.g.
"98"  for  "1998").   Software  so  developed   could   produce   inaccurate  or
unpredictable  results  upon  January 1, 2000,  when  current  and future  dates
present a lower two digit  year  number  than  dates in the prior  century.  The
Company,  similar to most financial services providers, is significantly subject
to the potential  impact of the "Year 2000 Issue" due to the nature of financial
information. Potential impacts to the Company may arise from software, hardware,
and  equipment  both  within the  Company's  direct  control  and outside of the
Company's ownership,  yet with which the Company electronically or operationally
interfaces (e.g. vendors providing credit bureau information).

      Financial institution  regulators have recently increased their focus upon
Year 2000 issues,  issuing guidance  concerning the  responsibilities  of senior
management and directors. Year 2000 testing and certification is being addressed
as a key safety and soundness issue in conjunction with regulatory exams.




                                       7




<PAGE> 10



      In order to address the Year 2000 issue,  the  Company has  developed  and
implemented a five phase plan divided into the following major components:

   o     awareness
   o     assessment
   o     renovation
   o     validation
   o     implementation

      The  Company  has  completed  the  first  two  phases  of the  plan and is
currently  working  internally  and with  external  vendors  on the final  three
phases.  Because the Company  outsources its data processing and item processing
operations,  a  significant  component  of the Year  2000  plan is to work  with
external  vendors to test and  certify  their  systems  as Year 2000  compliant.
Another  important  segment  of the Year 2000  plan is to  identify  those  loan
customers whose possible lack of Year 2000 preparedness might expose the Bank to
financial loss.

      The Company expects its Year 2000 date conversion  project to be completed
on a timely  basis.  During the execution of this project the Company will incur
internal  staff  costs as well as  consulting  and  other  expenses  related  to
enhancements  necessary to prepare the systems for the Year 2000. The expense of
the Year 2000 project as well as the related  potential  effect on the Company's
earnings is not expected to have a material effect on its financial  position or
results of operations.

Item 2.     Management's Discussion and  Analysis of  Results  of Operations and
            --------------------------------------------------------------------
            Financial Condition
            -------------------

      This  Management's  Discussion and Analysis  should be read in conjunction
with the Management's  Discussion and Analysis contained in the Company's Annual
Report on Form 10-K,  which focuses upon relevant  matters  occurring during the
year ended June 30, 1997.  Accordingly,  the ensuing discussion focuses upon the
material  matters at and for the three months and six months ended  December 31,
1997.

      In addition to historical information,  this Form 10-Q may include forward
looking  statements  based on current  management  expectations.  The  Company's
actual  results  could differ  materially  from those  management  expectations.
Factors  that  could  cause  future  results  to vary  from  current  management
expectations  include,  but are not limited  to,  general  economic  conditions,
legislative and regulatory changes,  monetary and fiscal policies of the federal
government, changes in tax policies, rates and regulations of federal, state and
local tax  authorities,  changes in interest rates,  deposit flows,  the cost of
funds,  demand for loan products,  demand for financial  services,  competition,
changes in the  quality or  composition  of the  Company's  loan and  investment
portfolios, changes in accounting principles,  policies or guidelines, and other
economic,  competitive,  governmental and  technological  factors  affecting the
Company's operations, markets products, services and prices. Further description
of the risks and  uncertainties  to the  business of the Company are included in
detail in the Company's Form 10-K for the fiscal year ended June 30, 1997.


                                       8



<PAGE> 11


GENERAL
-------

      The principal  business of the Company is attracting  retail deposits from
the general public and investing those  deposits,  together with funds generated
from  operations and  borrowings,  primarily in one- to four-family  residential
mortgage loans. To a lesser extent,  the Company engages in secondary  marketing
activities and invests in  multi-family,  commercial real estate,  construction,
land and  consumer  loans.  Loan sales  come from  loans  held in the  Company's
portfolio  designated as being held for sal or originated  during the period and
being so designated.  The Company retains  virtually all the servicing rights of
loans sold. The Company's revenues are derived  principally from interest on its
mortgage loans, and to a lesser extent, interest and dividends on its investment
and  mortgage-backed  securities and income from loan  servicing.  The Company's
primary sources of funds are deposits, principal and interest payments on loans,
advances from the FHLB, securities sold under agreements to repurchase and, to a
lesser extent, proceeds from the sale of loans.

RESULTS OF OPERATIONS
---------------------

      The Company  posted net  earnings of $234,000  for the three  months ended
December  31, 1997  compared to net  earnings of $416,000  for the three  months
ended  December 31,  1996.  For the six months  ended  December  31,  1997,  the
Company's net earnings were  $565,000,  as compared to a net loss of $48,000 for
the six months ended  December 31, 1996. For the three months ended December 31,
1997, the net earnings were $0.10 per share - basic, compared to $0.16 per share
- basic for the three months ended  December 31, 1996.  For the six months ended
December 31, 1997, the net earnings were $0.24 per share - basic,  compared to a
net loss of $0.02 per share - basic for the six months ended  December 31, 1996.
The loss for the six months  ended  December  31, 1996 was due to the payment of
the one-time  special  assessment to recapitalize  the SAIF insurance fund. This
one-time special  assessment (of approximately  $1.3 million on a pre-tax basis)
represented  65.7 basis points of the  deposits  held by the  Association  as of
March 31, 1995. A discussion  of the specific  components of net earnings is set
forth in the Notes to Consolidated Financial Statements.

Net Interest Income
-------------------

      Net interest  income before the  provision  for estimated  loan losses was
$2.6  million for the three  months  ended  December  31, 1997  compared to $2.3
million for the three months ended  December 31, 1996.  For the six months ended
December 31, 1997, net interest income was $5.1 million compared to $4.6 million
for the six months ended December 31, 1996.

Interest Income
---------------

      Total  interest  income for the three months  ended  December 31, 1997 was
$7.5 million, an increase of $1.1 million from the comparable period a year ago.
The increase in interest income was primarily due to the $48.5 million  increase
in the  average  balance of  interest-earning  assets to $397.5  million for the
three  months ended  December 31, 1997 from $349.0  million for the three months
ended December 31, 1996. The interest  income on loans increased to $6.0 million
for the three  months  ended  December  31, 1997 from $5.1 million for the three
months ended

                                       9


<PAGE> 12


December 31, 1996.  The increase in interest on loans was due to the increase in
the average  balance of loans  receivable  outstanding to $310.0 million for the
three  months ended  December 31, 1997 from $267.9  million for the three months
ended  December 31, 1996.  The increase in interest on loans was also due to the
increase in the yield on loans to 7.72% for the three months ended  December 31,
1997 from 7.56% for the three  months  ended  December  31, 199  resulting  from
repricing of adjustable  rate  mortgages as a result of the increase in the Cost
of Funds Index (COFI).  The interest  income on  mortgage-backed  securities was
relatively  unchanged as it totaled $985,000 for the three months ended December
31, 1997 compared to $964,000 for the three months ended  December 31, 1996. The
total yield on total  interest-earning  assets  increased to 7.51% for the three
months  ended  December 31, 1997 as compared to 7.38% for the three months ended
December 31, 1996.

      Total interest income for the six months ended December 31, 1997 was $14.8
million,  an increase of $2.2 million from the comparable period a year ago. The
increase in interest  income was primarily due to the $55.9 million  increase in
the average  balance of  interest-earning  assets to $396.5  million for the six
months  ended  December  31, 1997 from $340.6  million for the six months  ended
December 31, 1996. The interest  income on loans  increased to $11.5 million for
the six months  ended  December  31, 1997 from $10.0  million for the six months
ended  December  31,  1996.  The  increase  in  interest on loans was due to the
increase  in the  average  balance  of loans  receivable  outstanding  to $298.6
million for the six months ended  December 31, 1997 from $262.8  million for the
six months ended  December 31, 1996.  The increase in interest on loans was also
due to the  increase  in the  yield on loans to 7.68% for the six  months  ended
December  31,  1997 from  7.59%  for the six  months  ended  December  31,  1996
resulting from repricing of adjustable rate mortgages,  primarily as a result of
the  increase  in  COFI.  The  interest  income  on  mortgage-backed  securities
increased to $2.3 million for the six months ended December 31, 1997 compared to
$1.7  million for the six months ended  December  31,  1996.  The total yield on
total  interest-earning  assets  increased  to 7.46%  for the six  months  ended
December  31, 1997 as compared to 7.37% for the six months  ended  December  31,
1996.

Interest Expense
----------------

      Total  interest  expense for the three months ended  December 31, 1997 was
$4.8 million, an increase of $0.7 million from $4.1 million for the three months
ended December 31, 1996.  The increase in interest  expense was primarily due to
the increase in the average  balance of  interest-bearing  liabilities to $368.5
million for the six months ended  December 31, 1997 from $322.2  million for the
six months ended  December 31,  1996.  The increase in average  interest-bearing
liabilities  was comprised  primarily of the $46.2  million  increase in average
interest-bearing  savings accounts as average borrowings remained unchanged. The
increase in interest-bearing  savings accounts was partially due to the purchase
of a $20 million branch from another financial  institution in February 1997 and
the  establishment  of a de novo  branch  in  March  1997  which  has  generated
approximately  $12.0  million in total  deposits as of December  31,  1997.  The
average cost of funds increased to 5.25% for the three months ended December 31,
1997 from 5.12% for the three  months ended  December 31, 1996 due  primarily to
the higher cost of funds paid on new and renewing certificates of deposit.



                                       10

<PAGE> 13


      Total interest  expense was $9.7 million for the six months ended December
31, 1997 as compared to $8.0 million for the six months ended December 31, 1996.
The  increase  in expense was  primarily  due to the $54.8  million  increase in
average interest-bearing  liabilities to $368.2 million for the six months ended
December  31, 1997 from $313.4  million  for the  comparable  period a year ago.
Interest expense on interest-bearing  savings accounts increased by $1.3 million
as a result of the  increase  in average  interest-bearing  savings  accounts to
$285.8  million for the six months ended December 31, 1997 as compared to $238.5
million for the six months ended  December 31, 1996 due  partially to the branch
acquisition  and  growth of the de novo  branch.  Interest  expense  on  savings
accounts  also  increased  due to the  increase in the  average  cost of savings
accounts to 4.92% for the six months ended  December 31, 1997 from 4.78% for the
same period a year ago.  Interest expense from borrowings  increased by $339,000
due to the increase in average  borrowings  to $82.4  million for the six months
ended  December  31, 1997  compared to $74.9  million for the same period a year
ago.

Analysis of Net Interest Income
-------------------------------

      The  following  table sets forth average  interest  rates on the Company's
interest-earning assets and interest-bearing liabilities for the three month and
six month periods ended  December 31, 1997 and December 31, 1996 (dollars are in
thousands and average balances are based on month-end amounts):

<TABLE>
<CAPTION>

                                             Three Months Ended December 31,         Six Months Ended December 31,
                                             -------------------------------         -----------------------------
                                                 1997                1996                1997               1996
                                                 ----                ----                ----               ----
                                           Average   Yield    Average    Yield    Average    Yield    Average   Yield
                                           Balance    Rate    Balance     Rate    Balance     Rate    Balance    Rate
                                           ---------------    ----------------    ----------------    ---------------

<S>                                        <C>        <C>     <C>         <C>     <C>         <C>     <C>        <C>  
ASSETS:
 Interest-earning assets:
  Loans receivable                         $309,957   7.72%   $267,871    7.56%   $298,555    7.68%   $262,766   7.59%
  Mortgage-backed securities                 57,057   6.91      55,403    6.96      64,890    6.94      50,338   6.77
  Investment securities and other            30,468   6.49      25,734    6.44      33,052    6.49      27,538   6.34
                                           --------           --------            --------            --------    
      Total interest-earning assets         397,482   7.51%    349,008    7.38%    396,497    7.46%    340,642   7.37%
Noninterest-earning assets                   13,269             11,682              13,288              11,061
                                           --------           --------            --------            --------
      Total assets                         $410,751           $360,690            $409,785            $351,703
                                           ========           ========            ========            ========

LIABILITIES AND EQUITY:
Interest-bearing liabilities:
  Savings accounts                         $288,287   4.94%   $242,093    4.79%   $285,773    4.92%   $238,515    4.78%
  Borrowings                                 80,194   6.39      80,076    6.08      82,377    6.37      74,861    6.10
                                           --------           --------            --------            --------
      Total interest-bearing liabilities    368,481   5.25%    322,169    5.12%    368,150    5.25%    313,376    5.09%
Noninterest-bearing liabilities              11,678              7,248              11,255               6,868
Stockholders' equity                         30,592             31,273              30,380              31,459
                                           --------           --------            --------            --------
      Total liabilities and equity         $410,751           $360,690            $409,785            $351,703
                                           ========           ========            ========            ========

Net interest rate spread                              2.26%               2.26%               2.21%               2.28%
Net interest margin                                   2.64%               2.66%               2.59%               2.68%
Ratio of interest-earning assets
 to interest-bearing liabilities             107.87%            108.33%             107.70%             108.70%

</TABLE>


      The Company's  average net interest  spread was unchanged at 2.26% for the
three  months ended  December  31, 1997 to the three  months ended  December 31,
1996.   Although  the  actual   spread  did  not  change,   both  the  yield  on
interest-earning  assets  and  the  cost  of  interest-bearing 


                                      11


<PAGE> 14


liabilities  did increase by 13 basis points in the three months ended  December
31, 1997 as compared to the same period a year ago. In regards to the six months
ended December 31, 1997, the net interest  spread declined by seven basis points
to 2.21% from 2.28% for the  comparable  period a year ago. The decrease was due
primarily  to the  increase in the cost of  interest-bearing  liabilities  which
increased to 5.25% for the six months ended December 31, 1997 from 5.09% for the
six months ended December 31, 1996. The increase in the cost of interest-bearing
liabilities  was due to the  increase in the rates  offered on new and  renewing
certificates of deposit and on promotional rates offered to attract customers to
money market accounts at the de novo branch.

      The average  yield on loans  receivable  increased  to 7.72% for the three
months ended  December  31, 1997 from 7.56% for the three months ended  December
31, 1996.  The increase in yield was due  partially to the increase in yields on
new loans originated or purchased which have adjustable rate features, primarily
indexed to COFI and the repricing of adjustable rate loans,  indexed to COFI and
to the One-Year  Treasury  Constant  Maturity  Index (CMT),  resulting in higher
current  rates.  The  average  yield  on  mortgage-backed  securities  decreased
slightly to 6.91% for the three  months  ended  December 31, 1997 from 6.96% for
the three months ended December 31, 1996.

      The majority of the  Association's  savings  accounts are relatively short
term (less than two years) and  therefore  the average cost of deposits  adjusts
relatively  rapidly  to market  rates.  The  average  cost of  savings  accounts
increased by 15 basis  points to 4.94% for the three  months ended  December 31,
1997 from 4.79% for the three months ended December 31, 1996. As stated earlier,
the  increase  was  due  to  the  higher  rates  offered  on  new  and  renewing
certificates of deposits and to promotional rate an account offerings related to
the new branch.  The average  balance of savings  accounts  increased  to $288.3
million for the three months ended December 31, 1997 from $242.1 million for the
three months ended  December 31, 1996 due  partially to the purchase of a branch
from another  institution  and the growth in deposits in a de novo branch opened
at the end of March 1997.  Also, the average balance of borrowings,  principally
from the FHLB, remained virtually unchanged with $80.2 million in borrowings for
the three  months  ended  December  31, 1997  compared to $80.1  million for the
comparable  period a year ago.  Although the balance remained  approximately the
same,  the cost of  borrowings  increased  to 6.39% for the three  months  ended
December  31,  1997  from  6.08%  for the same  period a year ago as a result of
lengthening  the average  maturity of such  borrowings  to reduce the  Company's
sensitivity to changes in interest rates.

      The net  interest  spread  declined  to  2.21%  for the six  months  ended
December 31, 1997 from 2.28% for the comparable period a year ago primarily as a
result of the increase in the average cost of interest-bearing  liabilities. The
average  cost of interest  bearing  liabilities  increased by 16 basis points to
5.25% for the six months  ended  December 31, 1997 from 5.09% for the six months
ended  December 31, 1996.  As stated  above,  the increase was due to the higher
cost of  deposits on new and  renewing  certificates,  promotional  rates on new
accounts for a new branch and due to the lengthening of the average  maturity of
the Company's borrowings.


                                       12

<PAGE> 15

Provision for Estimated Loan Losses
-----------------------------------

      The  provision  for  estimated  loan  losses  for the three  months  ended
December 31, 1997 was $268,000 compared with $105,000 for the three months ended
December 31, 1996.  The increase in the provision for estimated  loan losses was
due primarily to an increase in charge-offs  related to fair value writedowns of
four non-performing  assets of approximately  $200,000 in the three months ended
December 31, 1997 as compared to no charge-offs for the comparable period a year
ago. For the six months ended  December 31, 1997,  the  provision  for estimated
loan losses totaled  $343,000 as compared to $294,000 for the same period a year
ago.  The increase  was due to an increase in fair value  writedowns  in the six
months  ended  December  31, 1997 as compared to the same period a year ago. See
"Financial Condition."

Other Income
------------

      Other income decreased to $252,000 for the three months ended December 31,
1997 from  $350,000 for the three months ended  December 31, 1996.  The decrease
was  partially  due to the increase in the net loss  resulting  from real estate
owned  operations  to $75,000 for the three months ended  December  31,1997 from
$12,000 for the same period a year ago. Also, the Company  realized  $161,000 in
net gains on sales of investments  and  mortgage-backed  securities in the three
months  ended  December  31,  1996  which did not recur in the  current  period.
Partially   offsetting  these  decreases  was  the  increase  in  other  income,
specifically  fees from savings deposit  activities,  which totaled $176,000 for
the three months  ended  December  31, 1997 versus  $103,000 for the  comparable
period a year ago.  For the six months ended  December  31,  1997,  other income
increased to $591,000  from  $534,000  primarily  as a result of  increased  fee
income on savings account activities. See "Financial Condition."

General and Administrative Expenses
-----------------------------------

      For the three months ended December 31, 1997,  general and  administrative
expenses  increased to $2.2 million from $1.8 million for the three months ended
December 31, 1996.  The increase was primarily  due to the $212,000  increase in
compensation and benefits expense related to stock  compensation  programs which
increased as a result of the  appreciation in the Company's  Common Stock and to
the  increase  in  personnel  related  to the  addition  of two  branches.  Also
contributing to the increased general and administrative expenses were increases
in the costs for building,  equipment and data processing  associated with these
two additional  branches as well as increases in  depreciation  expenses for the
purchase of new hardware to replace outdated  equipment in coordination with the
transfer to a new data processor.  Included in the expenses for the three months
ended  December  31,  1997 was  $27,000  in  amortization  of the  core  deposit
intangible related to the deposits purchased in February 1997.

      For the six months  ended  December 31, 1997,  the  Company's  general and
administrative  expenses  increased  to $4.4 million as compared to $3.6 million
(excluding the $1.3 million  one-time  special  assessment to  recapitalize  the
insurance  fund) for the  comparable  period a year  ago.  The  increase  in the
current  period was due to the increase in costs  related to stock  compensation
programs,  two  additional  branches  and the  amortization  of the core deposit
intangible. Partially

                                       13



<PAGE> 16

offsetting  these increases was the reduction in FDIC assessments as a result of
the lowering of premiums  subsequent  to the  recapitalization  of the insurance
fund.

Income Taxes
------------

      The Company  recorded  $170,000 in income taxes for the three months ended
December 31, 1997  compared to $310,000 for the three months ended  December 31,
1996.  The effective tax rates for the three months ended  December 31, 1997 and
December 31, 1996 were approximately 42.1% and 42.7%, respectively.  For the six
months  ended  December  31,  1997,  the income  taxes  recorded was $414,000 as
compared to a tax benefit of $28,000 for the same period a year ago.

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

      The  Company's  total  assets were $407.8  million at December 31, 1997, a
slight  decrease from the $409.3  million in total assets at June 30, 1997.  The
Company's  loans  receivable  held for investment  increased by $30.8 million to
$315.4  million at December  31, 1997 as compared to $284.6  million at June 30,
1997.  The  increase is due  primarily to the  purchase of  approximately  $30.4
million in adjustable rate mortgage loans and $10.4 million in home equity lines
of credit  indexed to COFI.  The Company  reduced its  investment  in  overnight
federal  funds sold and sold  approximately  $14.5  million  in  mortgage-backed
securities to aid in the funding of these purchases.  The Company  purchased the
loans  with  the  intent  on  increasing  interest  income  and  to  reduce  its
sensitivity to changes in interest rates.

      During the six months ended December 31, 1997, the Company  originated and
purchased  for  investment a total of $53.4  million in mortgage and home equity
loans as compared to the $44.6 million purchased and originated in the six month
period  ended  December 31,  1996.  The loans  purchased in the six months ended
December  31,  1997 were  adjustable  rate and  primarily  indexed to COFI.  The
Company also originated and sold approximately $7.2 million in mortgage loans to
the secondary  market during the six months ended  December 31, 1997 as compared
to approximately $3.3 million for the same period a year ago.

      The Company's  non-performing  assets totaled $4.2 million at December 31,
1997 compared to $2.8 million at June 30, 1997.  The increase in  non-performing
assets was due  primarily to the increase in the amount of loans on  non-accrual
status to $2.9 million at December 31, 1997 compared to $1.7 million at June 30,
1997.  The  increase  in  non-accrual  loans was due to the  continuation  of an
uncertain local real estate market.  Also, real estate owned increased  slightly
to $1.4 million at December 31, 1997  compared to $1.1 million at June 30, 1997.
The  overall  result was an increase in the  Company's  ratio of  non-performing
assets to total  assets to 1.04% at  December  31,  1997 from  0.70% at June 30,
1997.


                                       14


<PAGE> 17

The following  table sets forth the  non-performing  assets at December 31, 1997
and June 30, 1997:

<TABLE>
<CAPTION>
                                                  December 31, 1997   June 30, 1997
                                                  -----------------   -------------
                                                        (dollars in thousands)

      <S>                                              <C>               <C>
      Non-accrual loans                                $2,872            $1,699
      Real estate acquired through foreclosure          1,363             1,150
                                                       ------            ------
            Non-performing assets                      $4,235            $2,849
                                                       ======            ======

      Non-performing assets as a percent of total
        assets                                           1.04%            0.70%

      Non-performing loans as a percent of gross
        loans receivable                                 0.90%            0.59%

</TABLE>

      The Company considers a loan impaired when it is probable that the Company
will be unable to collect all contractual  principal and interest payments under
the terms of the loan  agreement.  Loans are evaluated for impairment as part of
the Company's  normal  internal asset review  process.  The Company  applies the
measurement  provisions of SFAS No. 114 to all loans in its  portfolio  with the
exception of one- to four-family  residential  mortgage loans and consumer lines
of credit which are evaluated on a collective basis for impairment.  Also, loans
which have  delays in  payments  of less than four  months  are not  necessarily
considered  impaired  unless other  factors  apply to the loans.  The accrual of
interest income on impaired loans is discontinued when, in management's opinion,
the  borrower  may be unable  to meet  payments  as they  become  due.  When the
interest  accrual is  discontinued,  all unpaid  accrued  interest is  reversed.
Interest income is subsequently  recognized only to the extent cash payments are
received. Where impairment is considered temporary, an allowance is established.
Impaired loans which are performing under the contractual  terms are reported as
performing  loans,  and cash payments are allocated to principal and interest in
accordance  with the terms of the loan.  At December 31,  1997,  the Company had
classified  one loan with a balance of  $610,000 as  impaired  with  $100,000 in
specific  reserves set aside as of December 31, 1997 as determined in accordance
with SFAS No. 114. In comparison as of June 30, 1997, the Company had classified
$530,000  of its loans as  impaired  with  $100,000  in  specific  reserves.  In
addition,  as of December 31, 1997,  the Company had $2.3 million in loans which
were collectively  evaluated for impairment compared to $1.7 million at June 30,
1997.  The average  recorded  investment in impaired  loans,  inclusive of those
evaluated  collectively,  during the three months ended  December 31, 1997,  was
$2.8 million,  whereas, the average for the twelve months ended June 30, 199 was
$1.6 million.

     The Company, in consideration of the current local economic environment and
the condition of the loan portfolio, maintained the allowance for estimated loan
losses at  December  31, 1997 at $1.3  million.  Although  loans on  non-accrual
status have  increased to $2.9 million at December 31, 1997 from $1.7 million at
June 30, 1997,  the  allowance  for  estimated  loan losses is  maintained at an
amount  management  considers  adequate  to  cover  estimated  losses  in  loans
receivable which are deemed probable and estimable.  The allowance is based upon
a  number  of  factors,  including  current  economic  conditions,  actual  loss
experience and industry trends. The Company's non-performing loans are primarily
made up of one- to four-family residential

                                       15



                                       
<PAGE> 18


mortgage  loans.  The  following  table sets forth the activity in the Company's
allowance  for  estimated  loan losses for the three months  ended  December 31,
1997:

<TABLE>
<CAPTION>

                                             Activity for the three months ended
                                                      December 31, 1997
                                                      -----------------

      <S>                                                <C>       
      Balance at June 30, 1997                           $1,263,000
      Add:
            Provision for estimated loan losses             343,000
            Recoveries of previous charge-offs                 -
      Less:
            Charge-offs                                     276,000
                                                         ----------
      Balance at December 31, 1997                       $1,330,000
                                                         ==========
</TABLE>

      The Company's total  liabilities  decreased  slightly to $377.0 million at
December 31, 1997 from $379.4 million at June 30, 1997.  Total deposit  accounts
increased  $7.3  million to $295.6  million at  December  31,  1997 from  $288.3
million  at June 30,  1997,  primarily  as a result  of the  growth  in  deposit
accounts at the de novo branch and due to interest credited to accounts.  Of the
total  increase  in  deposits,  approximately  $13.7  million  represented  core
deposits  as  the  Company  is  continuing  to  focus  on  increasing   customer
relationships  with checking,  passbook and money market savings accounts.  Core
deposits  increased  to  approximately  $80  million at  December  31, 1997 from
approximately  $66 million at June 30,  1997.  The growth in core  deposits  was
partially  offset by the $6.0  million  decrease in  certificates  of deposit to
$216.4  million at December 31, 1997 from $222.4  million at June 30, 1997. As a
result of the net  increase  in the  Company's  deposit  accounts,  the  Company
reduced its  borrowings  from th FHLB by $6.7  million and its  securities  sold
under  agreements  to  repurchase  by $3.4  million  during the six months ended
December 31, 1997. The Company continues to utilize FHLB advances and securities
sold  under  agreements  to  repurchase  as  part  of its  asset  and  liability
management strategy.

      The Company's  stockholders' equity increased to $30.8 million at December
31, 1997 from $29.9  million at June 30, 1997  primarily due to the net earnings
from  operations  and the  reduction of the net  unrealized  loss on  securities
available for sale.

MANAGEMENT OF INTEREST RATE RISK
--------------------------------

      The  Company's  profitability  is dependent to a large extent upon its net
interest  income,  which  is the  difference  between  its  interest  income  on
interest-earning assets, such as loans and investments, and its interest expense
on interest-bearing  liabilities, such as deposits and borrowings. To manage its
interest  rate risk,  the Company has  utilized the  following  strategies : (i)
emphasizing  the  origination  and/or  purchase  of   adjustable-rate   one-  to
four-family  mortgage loans for portfolio;  (ii) selling to the secondary market
substantially all fixed-rate mortgage loans originated;  (iii) holding primarily
short-term  mortgage-backed  and investment  securities;  and (iv) attempting to
reduce the overall  interest rate sensitivity of liabilities by emphasizing core
and  longer-term  deposits,  utilizing FHLB advances and  securities  sold under
agreements to repurchase.

                                       16     


<PAGE> 19


LIQUIDITY
---------

      The  Company's  primary  sources  of funds  are  deposits,  principal  and
interest  payments  on loans  and  mortgage-backed  securities,  FHLB  advances,
securities sold under agreements to repurchase,  increases in deposits and, to a
lesser extent, proceeds from the sale of loans and investments. While maturities
and scheduled  amortization of loans are predictable  sources of funds,  deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions and competition.

     The  Association,  by regulation,  must maintain its liquidity  ratio at no
less than 4.0% of deposits and short-term borrowings.  Liquidity represents cash
and  certain  investments  which  are  not  committed  or  pledged  to  specific
liabilities. The Association's average liquidity ratio for December 31, 1997 and
December 31, 1996 was 8.18% and 9.41%, respectively.

COMMITMENTS AND CONTINGENT LIABILITIES
--------------------------------------

      At December  31,  1997,  there were no material  changes to the  Company's
commitments  or  contingent  liabilities  from the period ended June 30, 1997 as
discussed  in the  Company's  notes  to the  consolidated  financial  statements
reflected in the audited consolidated financial statements of SGV Bancorp, Inc.,
for the year ended June 30, 1997  included in the Annual Report on Form 10-K for
the year ended June 30, 1997. At December 31, 1997, the Company had  outstanding
commitments to originate or purchase  mortgage loans of $2.0 million as compared
to $1.4 million at June 30, 1997.

REGULATORY CAPITAL
------------------

     The Office of Thrift Supervision (OTS) capital  regulations require savings
institutions to meet three minimum capital requirements: a 1.5% tangible capital
ratio, a 3% leverage  (core  capital) ratio and an 8% risk-based  capital ratio.
The core capital  requirement has been  effectively  increased to 4% because the
prompt corrective action  legislation  provides that institutions with less than
4% core capital will be deemed  "undercapitalized".  In addition, the OTS, under
the prompt  corrective  action  regulation  can impose  various  constraints  on
institutions   depending   on  their  level  of   capitalization   ranging  from
well-capitalized  to  critically  undercapitalized.  At December 31,  1997,  the
Association was considered "well-capitalized".






                                       17



                                       
<PAGE> 20


     The Association  was in compliance with the capital  requirements in effect
as of December 31, 1997. The following  table  reflects the required  ratios and
the actual capital ratios of the Association at December 31, 1997:

<TABLE>
<CAPTION>
                                                                 Capital
                                                                 -------
                    Actual      Required      Excess        Actual      Required
                    Capital     Capital       Amount       Percent      Percent
                    -------     -------       ------       -------      -------
                        (dollars in thousands)

      <S>           <C>          <C>          <C>           <C>          <C>
      Tangible      $26,598      $ 6,084      $20,514        6.56%       1.50%

      Core          $26,598      $12,168      $14,430        6.56%       3.00%

      Risk-based    $27,828      $16,170      $11,658       13.72%       8.00%

</TABLE>










                                       18



<PAGE> 21




PART II. OTHER INFORMATION


Item 1.           Legal Proceedings
                  -----------------

      The Company is involved as plaintiff or defendant in various legal actions
incident to its business, none of which is believed by management to be material
to the financial condition of the Company.

Item 2.           Changes in Securities
                  ---------------------
                  None.

Item 3.           Defaults in Securities
                  ----------------------
                  None.

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

     The Company held its Annual Meeting of  Shareholders  on November 20, 1997.
At the Annual Meeting, the shareholders elected Barrett G. Andersen and Royce A.
Stutzman to three year terms.  Directors  Irven G.  Reynolds,  Benjamin S. Wong,
Thomas  Patronite and John D. Randall have terms of office that continued  after
the Annual Meeting.  The shareholders  also approved the SGV Bancorp,  Inc. 1997
Stock-Based Incentive Plan and ratified the appointment of Deloitte & Touche LLP
as independent auditors of the Company for the year ending June 30, 1998.

<TABLE>
<CAPTION>

      The vote on each matter was as follows:

1. For Directors:                                                                    BROKER
                                          FOR          WITHHELD         ABSTAIN     NON-VOTES
<S>                                     <C>             <C>             <C>         <C>
Barrett G. Andersen                     1,922,303        71,212           --           --
Royce A. Stutzman                       1,922,663        70,852           --           --

2. Other Matters:

Approval of SGV Bancorp, Inc.
1997 Stock-Based Incentive Plan         1,209,137       189,648         20,100      574,630

Ratification of the appointment
of Deloitte & Touche LLP as
independent auditors for the
Company                                 1,942,935        47,580          3,000          --

</TABLE>

Item 5.           Other Information
                  -----------------
                        None.


                                       19


                                     
<PAGE> 22




Item 6.        Exhibits and Reports on Form 8-K
               --------------------------------

      (a)      The following exhibits are filed as part of this report:

        3.1 Certificate of Incorporation of SGV Bancorp, Inc. *
        3.2 Bylaws of SGV Bancorp, Inc. *
       11.0 Computation of per share earnings (filed herewith).
       27.0 Financial data schedule (filed herewith).
      (b)     Reports on Form 8-K
                    None.
-------------------
*      Incorporated  herein by reference  from the Exhibits to the  Registration
       Statement on  Form S-1, as  amended,  filed on March 6, 1995 and declared
       effective on May 9, 1995, Registration No. 33-90018.

















                                       20

<PAGE> 23



                                  SIGNATURES


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


                                          SGV BANCORP, INC.




February 9, 1998                          /s/  Barrett G. Andersen
------------------------------------      -------------------------------------
              Date                        Barrett G. Andersen
                                          President and Chief Executive Officer



February 9, 1998                          /s/ Ronald A. Ott
-------------------------------------     -------------------------------------
              Date                        Ronald A. Ott
                                          Executive Vice President
                                          Chief Financial Officer and Treasurer










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