SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM l0-KSB

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


                For the fiscal year ended December 31, 1998

[ ]     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        Act Of 1934.

                  For the transition period from               to

                        Commission File Number 000-24907

                                IBL BANCORP, INC.
                                -----------------
                 (Name of small business issuer in its charter)

   LOUISIANA                                                   72 - 1421499
   ---------                                                   ------------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                             Identification No.)

                23910 RAILROAD AVE., PLAQUEMINE, LOUISIANA 70764
                ------------------------------------------------ 
                    (Address of principal executive offices)

          Issuer's telephone number, including area code: (225)687-6337

           Securities registered pursuant to Section 12(b) of the Act:
                                 Not Applicable

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.0l per share
                     --------------------------------------
                                (Title of Class)

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

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

Issuer's revenues for the fiscal year ended December 31, 1998: $1,837,024

As of March 19, 1999, the aggregate market value of the 150,976 shares of Common
Stock of the Issuer held by non-affiliates, which excludes 59,894 shares held by
all directors,  executive officers and employee benefit plans of the Issuer, was
approximately  $1.5 million.  This figure is based on the average of the bid and
asked prices of $10.00 per share of the Issuer's Common Stock on March 19, 1999.

Number of shares of Common Stock outstanding on March 19, 1998:      210,870
Transitional Small Business Disclosure Format (check one): Yes [   ]  No [ X ]
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE:

         (1) Portions of the Annual  Report to  Stockholders  for the year ended
December 31, 1998 are incorporated into Part II, Items 5 through 8 and Part III,
Item 13 of this Form l0-KSB.

         (2)  Portions of the  definitive  proxy  statement  for the 1999 Annual
Meeting of Stockholders  filed on March 19, 1999 are incorporated into Part III,
Items 9 through 12 of this Form l0-KSB.

                                       2
<PAGE>
                    PART I.

                    Item 1. Description of Business.

                    IBL Bancorp, Inc. (the "Company") is a Louisiana corporation
      organized in June 1998 by Iberville  Building  and Loan  Association  (the
      "Association")  for the purpose of becoming a unitary  holding  company of
      the  Association.  The only  significant  assets  of the  Company  are the
      capital stock of the Association, the Company's loan to its Employee Stock
      Ownership  Plan  (the  "ESOP"),  and the  remainder  of the  net  proceeds
      retained  by  the  Company  in  connection  with  the  conversion  of  the
      Association  from  mutual  to  stock  form  on  September  30,  1998  (the
      "Conversion").  The  business  and  management  of the  Company  primarily
      consists of the business and  management of the  Association.  The Company
      neither  owns nor leases any  property,  but  instead  uses the  premises,
      equipment and furniture of the Association. The Company does not intend to
      employ any persons other than officers of the Association, and the Company
      utilizes  the  support  staff  of  the  Association  from  time  to  time.
      Additional  employees  will be  hired as  appropriate  to the  extent  the
      Company expands or changes its business in the future.

                    The Association is a  Louisiana-chartered  stock savings and
      loan  association  that was  originally  formed in 1915.  The  Association
      conducts  business from its office in Plaquemine,  Louisiana.  At December
      31, 1998, the Company had $23.9 million of total assets,  $20.5 million of
      total liabilities,  including $20.0 million of deposits,  and $3.4 million
      of total stockholders' equity (representing 14.02% of total assets).

                    The Association is primarily engaged in attracting  deposits
      from the  general  public and using those and other  available  sources of
      funds to originate  loans secured  primarily by  single-family  residences
      (one-to-four  units)  located mainly in the parishes of Iberville and West
      Baton Rouge. To a lesser extent, the Association also originates  consumer
      loans,  construction  loans and commercial  real estate loans. At December
      31, 1998,  the  Company's  net loans  receivable  totaled $17.2 million or
      72.1% of the Company's total assets.  Conventional first mortgage, one- to
      four-family  residential loans (excluding  construction loans) amounted to
      $12.5 million or 67.5% of the Company's  total loan  portfolio at December
      31,  1998.  In  addition,  the  Association  invests  in  mortgaged-backed
      securities and  certificates  of deposit.  The Company had $3.6 million of
      mortgage-backed securities at December 31, 1998, representing 15.0% of the
      Company's  total  assets.  The  Company  had $3.6  million  of  investment
      securities (excluding FHLB stock) at December 31, 1998, representing 15.0%
      of total assets.  Of the $3.6 million of investment  securities,  $608,000
      mature within five years of December 31, 1998.  Also at December 31, 1998,
      the  Association  had  $795,000 in  certificates  of  deposits  with other
      financial  institutions  all of which  will  mature  within the next three
      years.

                    The Association is a community-oriented savings institution,
      which emphasizes retail lending and deposit products, customer service and
      convenience.  The  Association has generally  sought to achieve  long-term
      financial  strength  and  stability  by  (i)  increasing  the  amount  and
      stability  of its net  interest  income,  (ii)  managing  its  assets  and
      liabilities to reduce its  vulnerability to changes in interest rates, and
      (iii)


                                       3
<PAGE>
      maintaining  a low  level  of  non-performing  assets.  Highlights  of the
      Association's business strategy include the following.

                    Capital  Position.  As of December 31, 1998, the Association
      had total  stockholder's  equity of $ 2.7 million and  exceeded all of its
      regulatory  capital  requirements,  with  tangible,  core  and  risk-based
      capital ratios of 14.2%, 14.2% and 28.4%, respectively, as compared to the
      minimum requirements of 1.5%, 3.0% and 8.0%, respectively.

                    Profitability.  The Company has been  profitable  in each of
      the last  three  years.  Net income  increased  from  $164,000  in 1997 to
      $195,000 in 1998. Net income  declined in 1996 to $78,000 from $166,000 in
      1995 due to a special assessment paid for SAIF insurance which amounted to
      $75,000 on an after-tax basis.

                    Asset Quality. The Company total non-performing  assets were
      1.0% of total  assets at December  31,  1998  compared to 1.5% and 1.2% of
      total  assets at  December  31, 1997 and 1996  respectively.  Non-accruing
      single-family residential loans and consumer loans represented 100% of the
      total  non-performing  assets at  December  31,  1998,  1997 and 1996.  At
      December 31, 1998,  the Company's  allowance  for loan losses  amounted to
      $412,000 or 2.2% of the total loan portfolio.

                    Interest  Rate Risk.  The primary  elements of the Company's
      strategy to manage its  interest  rate risk  include (i)  emphasizing  the
      origination  of  adjustable-rate   mortgages  ("ARMs"),   (ii)  purchasing
      adjustable-rate   mortgage-backed   securities,   (iii)  since   mid-1996,
      originating  fixed-rate  single-family  residential loans to meet customer
      demand, and (iv) maintaining  lower-costing  passbook and negotiable order
      of withdrawal ("NOW") accounts.  Based upon certain repricing assumptions,
      the Company's  interest-earning  assets  repricing or maturing  within one
      year   exceeded   its    interest-bearing    liabilities    with   similar
      characteristics  by $4.6  million  or 19.1% of total  assets  at  December
      31,1998.

                    Community  Orientation.  The Company is committed to meeting
      the financial  needs of the  communities in which it operates.  Management
      believes  the  Association  is large  enough to  provide  a full  range of
      personal  financial  services,  yet  small  enough  to be able to  provide
      services on a personalized and efficient basis. At December 31, 1998, most
      of the  Company's  loans were to residents  of its primary  market area of
      Iberville and West Baton Rouge  parishes.  The Company intends to continue
      its  practice  of  investing  in  loans  in its  primary  market  area  in
      accordance with its underwriting standards, subject to economic conditions
      and the availability of reasonable investment alternatives.

                    The Association is subject to examination and  comprehensive
      regulation  by the  Louisiana  Office of Financial  Institutions  ("OFI"),
      which is the  Association  chartering  authority,  and by the  Office of
      Thrift  Supervision  ("OTS"),  which is the Association's  primary federal
      regulator.  The  Association  is also  regulated  by the  Federal  Deposit
      Insurance   Corporation   ("FDIC"),   the  administrator  of  the  Savings
      Association  Insurance  Fund  ("SAIF"),  which  insures  deposits  in  the
      Association to the maximum extent provided by law. The Association is also
      subject  to  certain  reserve  requirements  established  by the  Board of
      Governors  of the Federal  Reserve  System 


                                       4
<PAGE>
      ("FRB") and is a member of the Federal Home Loan Bank  ("FHLB") of Dallas,
      which is one of the 12 regional banks comprising the FHLB System.

                    The executive  office for the Company and the Association is
      located at 23910 Railroad Ave.,  Plaquemine,  LA 70764,  and its telephone
      number is (225) 687-6337.

                    Market Area

                    The Company's  primary market area consists of Iberville and
      West Baton Rouge parishes in Louisiana.  These  parishes  maintain a large
      commuter  population with residents  commuting to jobs in Baton Rouge. The
      population of Iberville  Parish was  approximately  the same in 1996 as in
      1990,  while the  population  of West  Baton  Rouge  Parish  increased  by
      approximately 4.9% during this period. The unemployment rate for Iberville
      and West Baton Rouge Parishes was 10.84% and 9.51%, respectively, in 1990,
      compared  to 9.48%  for  Louisiana  and 6.24% for the  United  States.  In
      addition,  the per  capita  income  for  Iberville  and West  Baton  Rouge
      Parishes in such year was $11,857 and $11,400,  respectively,  compared to
      $12,345 for Louisiana and $16,738 for the United States.

                    Major  employers in the two parishes are Dow USA,  Iberville
      and West Baton  Rouge  School  Systems,  Novartis  and  Georgia  Gulf.  In
      addition,  The Port of Greater  Baton  Rouge,  located in West Baton Rouge
      Parish,  is a major port which provides export and import shipping.  There
      is also a large  concentration of petro-chemical  complexes and refineries
      that utilize the port's  facilities as well as the  Mississippi  River for
      transportation  of their  products.  Due to this  large  concentration  of
      petro-chemical complexes and refineries,  any downturn in these industries
      could have a significant  impact on the Company's  consolidated  financial
      statements and results of operations.

                    Lending Activities

                    Loan  Portfolio  Composition.  At  December  31,  1998,  the
      Company's  net  loan  portfolio   totaled  $17.2   million,   representing
      approximately 72.1% of the Company's $23.9 million of total assets at that
      date. All of the loans included in the loan portfolio at December 31, 1998
      were loans originated by the Association.  The principal  lending activity
      of the Association is the origination of single-family  residential loans,
      consumer loans,  construction loans and to a lesser extent commercial real
      estate  loans  and  land  loans.  At  December  31,  1998,   single-family
      residential and consumer loans amounted to 67.5% and 13.9%,  respectively,
      of the  Company's  total  loan  portfolio,  while  construction  loans and
      commercial real estate loans represented 3.7% and 4.8%,  respectively,  of
      the total loan portfolio, in each case before net items.



                                       5
<PAGE>
                    Loan Portfolio  Composition.  The following table sets forth
      the  composition  of the Company's  loan  portfolio by type of loan at the
      dates indicated.

<TABLE>
<CAPTION>
                                                                           December 31, 
                                             ------------------------------------------------------------------------------
                                                      1998                      1997                          1996
                                             ----------------------     ----------------------       ---------------------- 

                                              Amount       Percent       Amount        Percent        Amount       Percent
                                             --------       ------      --------       ------        --------       ------    
<S>                                          <C>             <C>        <C>             <C>          <C>             <C>      
Real estate loans
-----------------
      Single-family residential              $ 12,488        67.47%     $ 11,531        67.13%       $ 10,752        67.67%   
      Construction                                692         3.74%          420         2.44%            464         2.92%   
      Commercial real estate                      896         4.84%          943         5.49%            757         4.76%   
      Land                                        238         1.29%          271         1.58%            211         1.33%   
                                             --------       ------      --------       ------        --------       ------  
             Total real estate loans           14,314        77.34%       13,165        76.64%         12,184        76.68%   
                                                                                                                              
                                                                                                                              
Consumer loans                                                                                                                
--------------                                                                                                                
      Home equity and improvement               1,005         5.43%        1,172         6.82%          1,221         7.68%   
      Loans secured by savings accounts           617         3.33%          786         4.58%            670         4.22%   
      Automobile                                1,251         6.76%        1,066         6.21%            814         5.12%   
      Unsecured                                 1,228         6.63%          924         5.38%            924         5.81%   
      Other                                        94         0.51%           65         0.38%             77         0.48%   
                                             --------       ------      --------       ------        --------       ------    
                                                                                                                              
             Total consumer loans               4,195        22.66%        4,013        23.36%          3,706        23.32%   
                                              --------       ------      --------       ------        --------       ------   
                                                                                                                              
             Total loans                       18,509       100.00%       17,178       100.00%         15,890       100.00%   
                                                            ======                     ======                       ======    
Less:                                                                                                                         
      Unearned discounts                          229                        189                          160                 
      Loans in process                            650                        260                          169                 
      Deferred fees and discounts                   9                          7                            5                 
      Allowance for loan losses                   412                        404                          362                 
                                                                                                                              
             Total loans receivable, net     $ 17,209                   $ 16,318                     $ 15,194                 
                                             ========                   ========                     ========                 
                                                                                                
</TABLE>     
                                                                                
                                       6                                        
<PAGE> 
                    Contractual Terms to Final  Maturities.  The following table
      sets forth  certain  information  as of December  31, 1998  regarding  the
      dollar amount of loans maturing in the Company's  portfolio,  based on the
      contractual date of the loan's final maturity, before giving effect to net
      items.  Demand loans and loans having no stated schedule of repayments and
      no stated  maturity are  reported as due in one year or less.  The amounts
      shown below do not reflect  normal  principal  amortization;  rather,  the
      balance of each loan  outstanding  at  December  31,  1998 is shown in the
      appropriate year of the loan's final maturity.

<TABLE>
<CAPTION>
                                             Single                        Commercial
                                             family                           real
                                           residential   Construction        estate           Land          Consumer        Total
                                           -----------   ------------        ------           ----          --------        -----
                                                                            (Dollars in Thousands)
<S>                                         <C>             <C>            <C>              <C>             <C>            <C>     
Amounts due after December 31, 1998 in:
  One year or less ....................     $    18         $   692        $     -          $     1         $ 1,343        $ 2,054 
  After one through two years .........          34               -               -               -             446            480 
  After two through three years .......         508               -               -              11             466            985 
  After three through five years ......         237               -              83              39           1,035          1,394 
  After five through ten years ........       2,020               -               -             109             678          2,807 
  After ten through fifteen years .....       3,010               -             223              78             217          3,528 
  After fifteen years .................       6,661               -             590               -              10          7,261 
                                            -------         -------        --------         -------         -------        ------- 
     Total loans (1) ..................     $12,488         $   692        $    896         $   238         $ 4,195        $18,509 
                                            =======         =======        ========         =======         =======        ======= 
</TABLE>                                   
 (1) Gross of unearned  discount,  loans in process,  deferred loan  origination
fees and the allowance for loan losses.

                    The  following  table sets  forth the  dollar  amount of all
      loans,  before net items,  due after one year from  December  31,  1998 as
      shown in the preceding  table,  which have fixed  interest  rates or which
      have floating or adjustable interest rates.
<TABLE>
<CAPTION>
                                               Due After One Year From
                                                    December 31, 1998
                                                    -----------------
                                                       Floating or
                                              Fixed      Adjustable
                                              Rates         Rates          Total
                                              -----         -----          -----
                                                  (Dollars in Thousands)
<S>                                          <C>           <C>           <C>    
Single-family residential loans ......       $ 2,700       $ 9,770       $12,470
Commercial real estate loans .........          --             896           896
Land loans ...........................           151            86           237
Consumer loans .......................         2,369           483         2,852
                                             -------       -------       -------

  Total loans ........................       $ 5,220       $11,235       $16,455
                                             =======       =======       =======

</TABLE>

                                       7
<PAGE>
                    Scheduled contractual maturities of loans do not necessarily
      reflect the actual term of the Company's loan portfolio.  The average life
      of mortgage  loans is  substantially  less than their average  contractual
      terms  because of loan  prepayments.  The average  life of mortgage  loans
      tends to increase when current  mortgage loan rates  substantially  exceed
      rates on existing mortgage loans and,  conversely,  decrease when rates on
      existing mortgage loans substantially exceed current mortgage loan rates.

                    Origination  of  Loans.   The  lending   activities  of  the
      Association are subject to the written,  non-discriminatory,  underwriting
      standards and lending policies  established by the Association's  Board of
      Directors and management. Loan originations are obtained through a variety
      of sources,  including  referrals from real estate  brokers,  builders and
      existing  customers,  newspaper  and  billboard  advertising,  and walk-in
      customers.  Loan applications are taken by lending personnel, and the loan
      department  supervises the procurement of credit  reports,  appraisals and
      other  documentation   involved  with  a  loan.  Property  valuations  are
      generally  performed by  independent  outside  appraisers  approved by the
      Association's Board of Directors. The Association generally requires title
      insurance  (or an  attorney's  opinion of title) and hazard  insurance  on
      property  securing first mortgage  loans.  Title insurance is not required
      for consumer loans.

                    The  Association's  loan  approval  process is  intended  to
      assess the borrower's ability to repay the loan, the viability of the loan
      and the adequacy of the value of the  property  that will secure the loan.
      The  Association's  lending  policies  allow its President or loan officer
      authority  to  approve  all types of loans  not  exceeding  $30,000.  Loan
      amounts over  $30,000 up to $150,000 may be approved by the  Association's
      President or loan officer and two other members of the board of directors.
      Loans in excess of $150,000 must be approved by the  Association's  entire
      board of directors, excluding the Association's attorney who abstains from
      voting  on  loans  due  to  his   involvement   in  the  majority  of  the
      Association's real estate loan closings.

                    Generally,  the Association originates  substantially all of
      the loans in its portfolio and holds them until maturity.




                                       8
<PAGE>
                    The following table shows total loans  originated and repaid
      during the periods  indicated.  No loans were purchased or sold during the
      periods shown.

<TABLE>
<CAPTION>
                                                              December 31,
                                                              ------------
                                                       1998        1997          1996
                                                     -------      -------      -------
                                                            (Dollars in Thousands)
<S>                                                  <C>          <C>          <C>    
Loan originations
     Single-family residential
       Loans for portfolio .....................     $ 2,484      $ 1,638      $ 1,266
                                                     -------      -------      -------
     Construction ..............................         692          620          465
     Commercial real estate ....................         507          225          250
     Land ......................................          93          110           90
     Consumer ..................................       1,989        1,545        2,146
                                                     -------      -------      -------

         Total loans originated ................       5,765        4,138        4,217
                                                     -------      -------      -------


Reductions
     Loan principal reductions .................      (4,421)      (2,851)      (3,359)
                                                     -------      -------      -------
Increase (decrease) due to other items - net (1)        (453)        (163)        (180)
                                                     -------      -------      -------


Net increase in loan portfolio .................     $   891      $ 1,124      $   678
                                                     =======      =======      =======
</TABLE>

(1)  Other items, net include the effects relating to unearned  discount,  loans
     in process,  deferred  loan  origination  fees and the  allowance  for loan
     losses.


                    Real Estate  Lending  Standards and  Underwriting  Policies.
      Effective  March 19, 1993,  all  financial  institutions  were required to
      adopt and maintain comprehensive written real estate lending policies that
      are  consistent  with  safe and sound  banking  practices.  These  lending
      policies must reflect consideration of the Interagency Guidelines for Real
      Estate Lending Policies adopted by the federal banking agencies, including
      the OTS, in December 1992 ("Guidelines"). The Guidelines set forth uniform
      regulations  prescribing  standards for real estate  lending.  Real estate
      lending is defined as extensions  of credit  secured by liens on interests
      in real estate or made for the purpose of financing the  construction of a
      building or other  improvements  to real estate,  regardless  of whether a
      lien has been taken on the property.


                                       9
<PAGE>
                    An institution's lending policy must address certain lending
      considerations  set  forth  in  the  Guidelines,  including  loan-to-value
      ("LTV") limits, loan administration  procedures,  underwriting  standards,
      portfolio  diversification  standards,  and  documentation,  approval  and
      reporting requirements. The policy must also be appropriate to the size of
      the institution  and the nature and scope of its  operations,  and must be
      reviewed  and  approved by the  institution's  board of directors at least
      annually.  The LTV ratio  framework,  with the LTV  ratio  being the total
      amount of credit to be extended divided by the appraised value or purchase
      price of the  property  at the  time the  credit  is  originated,  must be
      established  for each  category  of real  estate  loans.  If a loan is not
      secured by a first  lien,  the lender must  combine all senior  liens when
      calculating this ratio.

                    Certain  institutions can make real estate loans that do not
      conform  with  the  established  LTV  ratio  limits  up  to  100%  of  the
      institution's total capital.  Within this aggregate limit, total loans for
      all  commercial,  agricultural,  multi-family  and  other  non-one-to-four
      family residential  properties should not exceed 30% of total capital.  An
      institution will come under increased supervisory scrutiny as the total of
      such loans approaches these levels.  Certain loans are exempt from the LTV
      ratios (e.g., those guaranteed by a government agency, loans to facilitate
      the sale of real  estate  owned,  loans  renewed  or  restructured  by the
      original  lender(s) to the same borrower(s)  where there is no advancement
      of funds, etc.).

                    The Association is in compliance with the above standards.

                    Although    Louisiana    laws   and    regulations    permit
      state-chartered  savings  institutions,   such  as  the  Association,   to
      originate and purchase loans secured by real estate located throughout the
      United States, the Association's  present lending is done primarily within
      its primary market area,  which consists of Iberville and West Baton Rouge
      Parishes in Louisiana.  Subject to the Association's loans-to-one borrower
      limitation,  the Association is permitted to invest without  limitation in
      residential  mortgage loans and up to 400% of its capital in loans secured
      by  non-residential  or commercial  real estate.  The Association may also
      invest in secured and unsecured  consumer loans in an amount not exceeding
      35% of the Association's total assets. This 35% limitation may be exceeded
      for certain  types of  consumer  loans,  such as home equity and  property
      improvement loans secured by residential real property.  In addition,  the
      Association  may  invest up to 10% of its  total  assets  in  secured  and
      unsecured  loans  for  commercial,  corporate,  business  or  agricultural
      purposes.  At December 31, 1998, the  Association  was well within each of
      the above lending limits.

                    A savings  institution  generally  may not make loans to one
      borrower and related  entities in an amount  which  exceeds the greater of
      (i) 15% of its unimpaired capital and surplus, although loans in an amount
      equal to an additional  10% of unimpaired  capital and surplus may be made
      to a  borrower  if the loans  are  fully  secured  by  readily  marketable
      securities,  and (ii) $500,000.  At December 31, 1998,  the  Association's
      limit on loans-to-one  borrower was $500,000 and its five largest loans or
      groups of loans-to-one  borrower,  including  related entities amounted to
      $500,000,  $447,000, $327,000,  $250,000, and $249,000,  respectively,  at
      such date. All of the Association's  five largest loans or groups of loans
      were performing in accordance of


                                       10
<PAGE>
      their terms at December 31,  1998.  The  $500,000  borrowing  relationship
      consist of a single loan for the construction of a church.

                    Loans on Existing Residential  Properties.  The primary real
      estate lending  activity of the  Association  is the  origination of loans
      secured by first mortgage liens on single-family  residences.  At December
      31, 1998,  $12.5 million or 67.5% of the Company's  total loan  portfolio,
      before net items, consisted of single-family residential loans.

                    The  loan-to-value  ratio,  maturity and other provisions of
      the loans made by the  Association  generally have reflected the policy of
      making  less  than  the  maximum   loan   permissible   under   applicable
      regulations, in accordance with sound lending practices, market conditions
      and   underwriting   standards   established  by  the   Association.   The
      Association's lending policies on single-family residential mortgage loans
      generally  limit the maximum  loan-to-value  ratio to 80% of the lesser of
      the appraised  value or purchase price of the property,  and generally the
      single-family  residential loans in excess of an 80%  loan-to-value  ratio
      require  private  mortgage  insurance.   Residential  mortgage  loans  are
      amortized on a monthly  basis with  principal  and interest due each month
      and customarily do not include "due-on-sale" clauses.

                    Various  legislative  and regulatory  changes have given the
      Association  the authority to originate and purchase  mortgage loans which
      provide  for  periodic  interest  rate  adjustments   subject  to  certain
      limitations.  The Association has been actively marketing ARMs in order to
      decrease the vulnerability of its operations to changes in interest rates.
      At December 31, 1998,  single-family  residential  ARMs  represented  $9.8
      million or 52.8% of the total loan portfolio, before net items.

                    The Association's  single-family  residential ARMs are fully
      amortizing  loans with  contractual  maturities  of up to 30 years.  These
      loans have interest  rates which are scheduled to adjust  periodically  in
      accordance with a designated index. The Association  currently offers ARMs
      on which the  interest  rate  adjusts  every year based upon the  national
      average  contract  interest  rate for all major  types of  lenders  on the
      purchases of  previously  occupied  homes,  plus a specified  margin.  The
      margin  above the index is generally  .25%.  There is a 2% cap on the rate
      adjustment  per period and a 13% cap on the maximum  interest  rate during
      the life of the loan. The adjustable-rate  loans in the Association's loan
      portfolio are not  convertible  into fixed-rate  loans,  are not assumable
      without the Association's consent, do not contain prepayment penalties and
      do not produce negative amortization.


                                       11
<PAGE>
                    The  Association  qualifies  borrowers  based on the initial
      interest  rate on the ARM rather than the fully  indexed rate. In a rising
      interest rate  environment,  the interest rate on the ARM will increase on
      the next  adjustment  date,  resulting  in an increase  in the  borrower's
      monthly  payment.  To the extent the increased rate adversely  affects the
      borrower's  ability  to repay his loan,  the  Association  is  exposed  to
      increased credit risk. As of December 31, 1998, the Company's non-accruing
      residential loans were $179,000. See "-Asset Quality."

                    The demand for  adjustable-rate  loans in the  Association's
      primary market area has been a function of several factors,  including the
      level of interest  rates and the  difference  between the  interest  rates
      offered by competitors for fixed-rate loans and adjustable-rate loans. Due
      to the generally  lower rates of interest  prevailing  in recent  periods,
      consumer preference for fixed-rate loans has increased.  In mid-1996,  the
      Association  began  offering  15 year,  fixed-rate  residential  loans for
      retention in its  portfolio,  which loans totaled $2.7 million at December
      31, 1998.

                    Construction  Loans. At December 31, 1998,  $692,000 or 3.7%
      of the Association's total loan portfolio,  before net items, consisted of
      two loans for the  construction of  single-family  residences and one loan
      for the  construction  of a  church.  Construction  loans  are  not  being
      actively  marketed  and are  offered  primarily  as a service to  existing
      customers.  The two single-family  construction loans were for $64,000 and
      $128,000 and the church construction loan was for $500,000 at December 31,
      1998,  including  amounts not yet disbursed.  The construction  loans each
      bear  a  fixed  interest  rate  during  the  construction  phase  and  are
      structured to be converted to  adjustable-rate  permanent loans at the end
      of the construction phase. The adjustable-interest  rate is not determined
      until the end of the  construction  phase,  and the  Association  does not
      charge an additional loan  origination fee when the  construction  loan is
      converted to a permanent loan.

                    Construction  lending is generally  considered  to involve a
      higher  degree  of risk of loss  than  long-term  financing  on  improved,
      owner-occupied  real estate because of the  uncertainties of construction,
      including the possibility of costs exceeding the initial estimates and the
      need  to  obtain  a  tenant  or  purchaser  if the  property  will  not be
      owner-occupied.  The Association  generally attempts to mitigate the risks
      associated  with  construction  lending by,  among other  things,  lending
      primarily in its market area, using conservative  underwriting guidelines,
      and closely monitoring the construction process.

                    Commercial Real Estate Loans. The  Association's  commercial
      real estate loan portfolio  primarily  consists of loans secured by retail
      establishments  and two trailer  parks  located  within the  Association's
      primary market area.  Commercial real estate loans amounted to $896,000 or
      4.8% of the total  loan  portfolio  at  December  31,  1998.  The  largest
      commercial  real estate loan at December  31, 1998 was a loan secured by a
      trailer park and amounted to $213,000 at such date. The average balance of
      commercial  real  estate  loans at  December  31,  1998 was  approximately
      $112,000.

                    Nonresidential  real  estate  loans may have  terms up to 30
      years and generally have  adjustable  rates of interest.  The  Association
      uses the same  index  for  commercial  loans as it uses for  single-family
      residential  loans,  except  that  the  margin  

                                       12
<PAGE>
      for commercial  loans is generally  1.25% above the index.  As part of its
      commitment to loan quality,  the Association's  senior management  reviews
      each nonresidential loan prior to approval by the Board of Directors.  All
      loans  are  based on the  appraised  value of the  secured  property,  and
      commercial  real estate loans are  generally not made in amounts in excess
      of 80% of the appraised value of the secured property.  All appraisals are
      performed by an independent  appraiser  designated by the  Association and
      are reviewed by  management.  In  originating  nonresidential  loans,  the
      Association  considers  the  quality  of the  property,  the credit of the
      borrower,  the  historical  and  projected  cash flow of the project,  the
      location of the real estate and the quality of the property management.  A
      total of $225,000 of commercial real estate loans were originated in 1997,
      and $507,000 were originated in 1998.

                    Commercial  real estate  lending is generally  considered to
      involve a higher degree of risk than  single-family  residential  lending.
      Such lending  typically  involves  large loan balances  concentrated  in a
      single  borrower  or groups of related  borrowers  for rental or  business
      properties.  In  addition,  the  payment  experience  on loans  secured by
      income-producing  properties is typically  dependent on the success of the
      operation of the related project and thus is typically affected by adverse
      conditions in the real estate market and in the economy.  The  Association
      generally  attempts to mitigate the risks  associated with commercial real
      estate  lending by, among other  things,  lending  primarily in its market
      area and using low LTV ratios in the underwriting process.

                    Land Loans. As of December 31, 1998, the Association's  land
      loans are secured by vacant lots.  These loans are generally for a maximum
      of seven  years  and are fully  amortizing.  At  December  31,  1998,  the
      Association's  land loans  amounted  to $238,000 or 1.3% of the total loan
      portfolio.  Of such  amount,  $151,000  of the land loans had fixed  rates
      while $86,000 had adjustable  interest  rates.  In 1998,  the  Association
      agreed to  participate  in a $5.5 million loan with seven other  financial
      institutions  to  finance  the  development  of 400  acres  of land in the
      Association's  market area. The  Association has a $385,000 or 7% interest
      in  the  loan,  and  the  funds  will  be  disbursed  as  the  development
      progresses.  As of December 31, 1998,  $155,750 had been  disbursed by the
      Association  on this project.  The land will be developed  into an 18-hole
      golf course and into vacant lots for  single-family  residences.  The loan
      bears an interest  rate of 1% below a specified  prime rate,  and the loan
      will be repaid as the lots are sold.

                    Land development and acquisition  loans involve  significant
      additional  risks  when  compared  with  loans  on  existing   residential
      properties.  These loans  typically  involve large loan balances to single
      borrowers,  and the payment  experience  is  dependent  on the  successful
      development  of the land  and the sale of the  lots.  These  risks  can be
      significantly  impacted by supply and demand  conditions.  The Association
      reviewed a feasibility study and market analyses with respect to the above
      project.  In addition,  the land was already  owned by the  developer  and
      serves as collateral for the loan.

                    Consumer  Loans.   Subject  to  restrictions   contained  in
      applicable federal laws and regulations,  the Association is authorized to
      make  loans for a wide  variety  of  personal  or  consumer  purposes.  At
      December  31,  1998,  $4.2  million or 22.7% of the total  loan  portfolio
      consisted of consumer loans.

                                       13
<PAGE>
                    The  Association  originates  consumer  loans  in  order  to
      provide a full range of financial  services to its  customers  and because
      such loans  generally  have shorter terms and higher  interest  rates than
      residential  mortgage loans. The consumer loans offered by the Association
      include home improvement  loans,  loans secured by deposit accounts in the
      Association,  automobile  loans,  mobile home loans,  unsecured  loans and
      other miscellaneous loans.

                    Home  equity and  improvement  loans are  originated  by the
      Association  for  generally  up to 80% of the  appraised  value,  less the
      amount  of any  existing  prior  liens on the  property.  The  Association
      secures  the loan with a  mortgage  on the  property  (generally  a second
      mortgage) and will  originate the loan even if another  institution  holds
      the first mortgage. The loans have a maximum term of 15 years. At December
      31, 1998, home equity and improvement  loans totalled $1.0 million or 5.4%
      of the total loan portfolio.

                    The Association  offers loans secured by deposit accounts in
      the  Association,  which  loans  amounted to $617,000 or 3.3% of the total
      loan  portfolio at December  31,1998.  Such loans are originated for up to
      90% of the account balance,  with a hold placed on the account restricting
      the  withdrawal of the account  balance.  The interest rate on the loan is
      equal to the  interest  rate paid on the  account  plus 2%,  subject  to a
      minimum interest rate of 7% on the loan.

                    The Association offers automobile loans on both new and used
      vehicles,  with most of the loans secured by used vehicles. The automobile
      loans have fixed rates of  interest  and terms of up to five years for new
      vehicles and four years for used  vehicles.  Automobile  loans amounted to
      $1.3 million or 6.8% of the total loan portfolio at December 31, 1998.

                    The  unsecured  loans  originated  by  the  Association  are
      generally  for a  maximum  of  $5,000  and a  maximum  term of 36  months,
      although the  Association's  policy permits up to $10,000  unsecured loans
      for a term of up to 48 months.  These  loans bear a fixed rate of interest
      and generally  require  monthly  payments of principal  and interest.  The
      amount of unsecured loans at December 31, 1998 was $1.2 million or 6.6% of
      the total loan portfolio.

                    Other consumer loans primarily  consist of mobile home loans
      and  overdrafts and amounted to $94,000 or .5% of the total loan portfolio
      at December 31, 1998.

                    Consumer  loans  generally  have  shorter  terms and  higher
      interest rates than mortgage loans but generally  involve more credit risk
      than mortgage  loans because of the type and nature of collateral  and, in
      certain cases,  the absence of collateral.  In addition,  consumer lending
      collections   are  dependent  on  the  borrower's   continuing   financial
      stability,  and thus are more likely to be adversely affected by job loss,
      divorce,  illness and personal bankruptcy.  In many cases, any repossessed
      collateral  for a  defaulted  consumer  loan will not  provide an adequate
      source of repayment of the  outstanding  loan balance  because of improper
      repair  and  maintenance  of  the  underlying   security.   The  remaining
      deficiency often does not warrant further  substantial  collection efforts
      against the borrower.  The Association  believes that the generally higher
      yields

                                       14
<PAGE>
      can compensate for the increased  credit risk  associated  with such loans
      and that  consumer  loans are  important  to its efforts to increase  rate
      sensitivity,  shorten  the  average  maturity  of its loan  portfolio  and
      provide a full range of services to its customers.

                    Loan  Origination  and Other  Fees.  In addition to interest
      earned  on  loans,  the  Association  receives  loan  origination  fees or
      "points"  for  originating  loans.  Loan  points are a  percentage  of the
      principal  amount of the mortgage  loan and are charged to the borrower in
      conjunction with the origination of the loan.

                    In  accordance  with  SFAS  No.  91,  which  deals  with the
      accounting for non-refundable fees and cost associated with originating or
      acquiring  loans,  the  Association's  loan  origination  fees and certain
      related direct loan  origination  costs are offset,  and the resulting net
      amount is deferred and amortized as interest  income over the  contractual
      life of the related loans as an adjustment to the yield of such loans.  At
      December 31, 1998 the  Association  had $9,000 of loan fees which had been
      deferred and are being  recognized as income over the contractual  life of
      the related loans.

                    Asset Quality

                    Delinquent Loans. The following table sets forth information
      concerning delinquent loans at December 31, 1998, in dollar amounts and as
      a percentage of the Company's total loan portfolio.  The amounts presented
      represent the total outstanding  principal  balances of the related loans,
      rather than the actual payment amounts which are past due. At December 31,
      1998, the Company had no commercial real estate loans,  construction loans
      or land loans which were delinquent 30 or more days.
<TABLE>
<CAPTION>
                                                                   December 31, 1998
                                                                   -----------------
                                           Single-family
                                            Residential                Consumer                   Total
                                        --------------------      --------------------     -------------------
                                        Amount       Percent      Amount       Percent     Amount       Percent
                                        ------       -------      ------       -------     ------       -------
                                                               (Dollars in Thousands)
<S>                                      <C>           <C>        <C>           <C>         <C>           <C>        
Loans Delinquent for:
---------------------
      30-59 days ...................     $  584        3.16%      $  337        1.82%       $  921        4.98%      
      60 - 89 days .................         56        0.30%          31        0.17%           87        0.47%      
      90 days and over .............        147        0.79%          94        0.51%          241        1.30%      
                                         ------        ----       ------        ----        ------        ----       
                                                                                                                     
              Total delinquent loans     $  787        4.25%      $  462        2.50%       $1,249        6.75%      
                                         ======        ====       ======        ====        ======        ====       
</TABLE>      

                                       15
<PAGE>
                    Non-Performing  Assets.  When a  borrower  fails  to  make a
      required loan payment, the Association attempts to cause the default to be
      cured by  contacting  the  borrower.  Late charges are  generally  imposed
      following the  thirtieth day after a payment is due on mortgage  loans and
      after  15  days on  consumer  loans.  In most  cases  defaults  are  cured
      promptly.  If a delinquency  extends  beyond 30 days, the loan and payment
      history is reviewed  and  efforts are made to collect the loan.  While the
      Association  generally  prefers to work with  borrowers  to  resolve  such
      problems,  when the account  becomes 90 days  delinquent  the  Association
      institutes foreclosure or other collection  proceedings,  as necessary, to
      minimize any potential loss.

                    Loans  are  placed  on  non-accrual   status  when,  in  the
      judgement of  management,  the  probability  of  collection of interest is
      deemed to be  insufficient  to  warrant  further  accrual.  When a loan is
      placed on non-accrual  status,  previously  accrued but unpaid interest is
      deducted  from interest  income.  As a matter of policy,  the  Association
      discontinues  the accrual of interest income when the loan becomes 90 days
      past due.  Specific  reserves are established when a consumer loan becomes
      90 days past due.

                    If  foreclosure  is  effected,  the  property  is  sold at a
      sheriff's sale. If the Association is the successful  bidder, the acquired
      real estate  property is then included in the  Association's  "real estate
      owned"  account  until it is sold.  The  Association  is  permitted  under
      applicable  regulations to finance sales of real estate owned by "loans to
      facilitate" which may involve more favorable interest rates and terms than
      generally   would  be  granted   under  the   Association's   underwriting
      guidelines.  At December  31,  1998,  the  Association  had no real estate
      owned.





                                       16
<PAGE>
                    The following table sets forth the amounts and categories of
      the Association's non-performing assets at the dates indicated.

<TABLE>
<CAPTION>
                                                           December 31,
                                                           ------------
                                                    1998        1997       1996
                                                    ----       ----       ----
                                                       (Dollars in Thousands)
<S>                                                  <C>        <C>        <C> 
Nonaccrual loans:
  Single-family residential ...................      $147       $267       $214
  Construction ................................       --         --         --
  Commercial real estate ......................       --         --         --
  Land ........................................       --         --         --
  Consumer ....................................        95         65         56
                                                     ----       ----       ----
    Total non-accrual loans ...................       242        332        270
                                                     ----       ----       ----
Real estate owned .............................       --         --         --
                                                     ----       ----       ----

      Total non-performing assets .............      $242       $332       $270
                                                     ====       ====       ====
Total non-performing loans as a percent
 of total loans ...............................      1.31%      1.93%      1.70%
                                                     ====       ====       ====

Total non-performing assets as a percent
 of total assets ..............................      1.01%      1.48%      1.24%
                                                     ====       ====       ====
</TABLE>
                    The  $242,000 of  non-accruing  loans at  December  31, 1998
      consisted of 15 single-family  residential loans, of which the largest was
      $54,000, and 21 consumer loans.

                    If the $242,000 of  non-accruing  loans at December 31, 1998
      had been current in  accordance  with their terms  during 1998,  the gross
      interest income on such loans would have been $35,494.  A total of $51,475
      of interest income on these  non-accruing  loans was actually  recorded in
      1998.

                    Classified Assets. All loans are reviewed on a regular basis
      under the Association's  asset  classification  policy.  The Association's
      total  classified  assets at  December  31,  1998  (excluding  loss assets
      specifically  reserved  for),  amounted  to  $583,500,  all of  which  was
      classified as substandard.  The largest  classified  asset at December 31,
      1998 consisted of a $113,000  adjustable-rate  single-family dwelling. The
      remaining $470,500 of substandard assets at December 31, 1999 consisted of
      13  residential  mortgage  loans  totaling  $388,500 and 13 consumer loans
      totaling $82,000.

                    Allowance  for  Loan  Losses.  At  December  31,  1998,  the
      Company's  allowance  for loan losses  amounted to $411,000 or 2.2% of the
      total loan portfolio.  The Association's loan portfolio consists primarily
      of  single-family  residential  loans,  consumer  loans  and,  to a lesser
      extent,  commercial real estate loans,  construction loans

                                       17
<PAGE>
      and land loans.  The loan loss  allowance is maintained by management at a
      level  considered  adequate to cover  possible  losses that are  currently
      anticipated based on prior loan loss experience,  known and inherent risks
      in the  portfolio,  adverse  situations  that may  affect  the  borrower's
      ability  to  repay,  the  estimated  value of any  underlying  collateral,
      general  economic  conditions,  and other factors and estimates  which are
      subject to change over time. Although management believes that it uses the
      best information available to make such determinations, future adjustments
      to  allowances  may be  necessary,  and net income could be  significantly
      affected,  if circumstances differ substantially from the assumptions used
      in making the initial determinations.

                    The following table summarizes  changes in the allowance for
      loan losses and other selected statistics for the periods presented:
<TABLE>
<CAPTION>
                                                                   Years Ended December 31,
                                                                   ------------------------
                                                          1998               1997               1996
                                                       --------           --------            --------       
                                                                   (Dollars in Thousands)
<S>                                                    <C>                <C>                 <C>        
Total loans outstanding at end of period .........     $ 18,509           $ 17,178            $ 15,890   
                                                       ========           ========            ========     
  
 Average loans outstanding .......................     $ 16,611           $ 15,735            $ 14,727  
                                                       ========           ========            ========     
   
 Balance at beginning of period ..................     $    404           $    362            $    318     
 Charge offs (1) .................................           13                  2                --     
                                                       --------           --------            --------       
 Recoveries (2) ..................................           --                  2                   5     
   Net charge offs / (recoveries) ................           13                 --                  (5)    
 Provision for loan losses .......................           21                 42                  39   
                                                       --------           --------            --------       
 Balance at end of period ........................     $    412           $    404            $    362     
                                                       ========           ========            ========     
 Allowance for loan losses as a percent of                                                                 
  total loans outstanding ........................         2.23%              2.35%               2.28%  
                                                       ========           ========            ========     
  
 Ratio of net charge-offs (-)recoveries to average                                                         
  loans outstanding ..............................         0.08%              0.00%              -0.03% 
                                                       ========           ========            ========        
</TABLE>
  (1)  Includes consumer loans of $13,000 in 1998 and $2,000 in 1997.
  (2)  Includes  consumer loans of $1,000 in 1997  and $1,000 in 1996, all other
       recoveries  are on mortgage loans.
         
 

                                       18
<PAGE>
                    The following table presents the allocation of the allowance
for loan losses by type of loan at each of the dates indicated.

<TABLE>
<CAPTION>
                                                                                     December 31, 
                                                ------------------------------------------------------------------------------------
                                                          1998                           1997                          1996
                                                ---------------------------    ---------------------------    ----------------------
                                                                    Loan                          Loan                       Loan
                                                                  Category                       Category                   Category
                                                 Amount             as a %      Amount             as a %      Amount       as a %
                                                   of              of Total       of              of Total       of         of Total
                                                Allowance           Loans      Allowance            Loans      Allowance      Loans 
                                                ---------           -----      ---------            -----      ---------      ----- 
                                                                                 (Dollars in Thousands)
<S>                                                <C>              <C>           <C>              <C>             <C>        <C>   
Loan Type
---------
      Single-family residential                    $ 358            67.47%        $ 338            67.13%          $ 294      67.67%
      Construction                                     -             3.74%            -             2.44%              -       2.92%
      Commercial real estate                           -             4.84%            -             5.49%              -       4.76%
      Land                                             -             1.29%            -             1.58%              -       1.33%
      Consumer                                        53            22.66%           66            23.36%             68      23.32%
                                                   -----           ------         -----           ------           -----     ------ 

             Total real estate loans               $ 411           100.00%        $ 404           100.00%          $ 362     100.00%
                                                   =====           ======         =====           ======           =====     ====== 
</TABLE>
                    Mortgage-Backed Securities

                    Mortgage-backed   securities   represent   a   participation
      interest in a pool of single-family or multi-family residential mortgages,
      the principal and interest  payments on which are passed from the mortgage
      originators,  through  intermediaries  (generally U.S. Government agencies
      and   government-sponsored   enterprises)  that  pool  and  repackage  the
      participation  interests in the form of  securities,  to investors such as
      the  Company.  Such  U.S.  Government  agencies  and  government-sponsored
      enterprises,  which  guarantee  the payment of  principal  and interest to
      investors, primarily include the FHLMC, the FNMA and the GNMA.

                    The  FHLMC,  which is a  corporation  chartered  by the U.S.
      Government,   issues  participation  certificates  backed  principally  by
      conventional  mortgage loans.  The FHLMC  guarantees the timely payment of
      interest   and  the  ultimate   return  of   principal  on   participation
      certificates.  The FNMA is a  private  corporation  chartered  by the U.S.
      Congress  with a mandate to  establish  a  secondary  market for  mortgage
      loans. The FNMA guarantees the timely payment of principal and interest on
      FNMA securities.  The GNMA is a government agency within the Department of
      Housing  and  Urban  Development,   which  is  intended  to  help  finance
      government-assisted  housing programs. GNMA securities are backed by loans
      insured by the Federal Housing  Administration  ("FHA"),  or guaranteed by
      the Veterans  Administration  ("VA"),  and the timely payment of principal
      and interest on GNMA  securities  are guaranteed by the GNMA and backed by
      the full faith and credit of the U.S.  Government.  Because the FHLMC, the
      FNMA  and the  GNMA  were  established  to  provide  support  for low- and
      middle-income  housing,  there are limits to the maximum size of the loans
      that  qualify  for these 

                                       19
<PAGE>
      programs.  For example, the FNMA and the FHLMC currently limit their loans
      secured by a  single-family,  owner-occupied  residence  to  $227,000.  To
      accommodate  larger-sized loans, and loans that, for other reasons, do not
      conform to the agency  programs,  a number of  private  institutions  have
      established their own home-loan origination and securitization programs.

                    Of  the  $3.7  million  of  mortgage-backed   securities  at
      December 31, 1998,  $2.1 million was accounted for as held to maturity and
      had an aggregate  market value of $2.1 million at such date. The remaining
      $1.5  million of  mortgage-backed  securities  at  December  31,  1998 are
      accounted  for as available for sale and are thus carried at market value.
      For  additional  information  relating  to the  Company's  mortgage-backed
      securities,  see Note E of Notes to Consolidated  Financial  Statements in
      the  Company's  1998  Annual  Report  to  Stockholders,  which is filed as
      Exhibit 13.0 hereto ("1998 Annual Report").

                    Mortgage-backed  securities  generally  yield  less than the
      loans which underlie such securities  because of their payment  guarantees
      or credit  enhancements  which offer  nominal  credit  risk.  In addition,
      mortgage-backed  securities are more liquid than individual mortgage loans
      and may be used to  collateralize  borrowings or other  obligations of the
      Company. In general,  mortgage-backed pass-through securities are weighted
      at no more  than  20% for  risk-based  capital  purposes,  compared  to an
      assigned  risk  weighting  of 50% to 100% for whole  residential  mortgage
      loans.  As a  result,  these  types of  securities  allow the  Company  to
      optimize regulatory capital to a greater extent than non-securitized whole
      loans.  While  mortgage-backed  securities  carry a reduced credit risk as
      compared to whole loans, such securities remain subject to the risk that a
      fluctuating  interest rate  environment,  along with other factors such as
      the geographic  distribution of the underlying  mortgage loans,  may alter
      the  prepayment  rate  of such  mortgage  loans  and so  affect  both  the
      prepayment speed and value of such securities.


<PAGE>
      The  following   table  sets  forth  the   composition  of  the  Company's
      mortgage-backed securities at each of the dates indicated.
<TABLE>
<CAPTION>
                                                                                December 31,
                                                                                ------------
                                                         1998                      1997                     1996
                                                        -------                   -------                  -------
                                                                         (Dollars in Thousands)
<S>                                                     <C>                       <C>                      <C>    
Mortgage-backed securities held to maturity
  FNMA                                                  $ 1,402                   $ 1,173                  $ 1,226
  FHLMC                                                     601                     1,050                    1,309
  GNMA                                                      119                       163                      200
                                                        -------                   -------                  -------
    Subtotal - held to maturity                           2,122                     2,386                    2,735
                                                        -------                   -------                  -------

Mortgage-backed securities available for sale
  FNMA                                                    1,348                     1,948                    1,427
  GNMA                                                      106                         -                        -
                                                        -------                   -------                  -------
    Subtotal - available for sale                         1,454                     1,948                    1,427
                                                        -------                   -------                  -------

      Total                                             $ 3,576                   $ 4,334                  $ 4,162
                                                        =======                   =======                  =======
</TABLE>

                                       20
<PAGE>
                    Information   regarding  the   contractual   maturities  and
      weighted  average  yield  of  the  Company's  mortgage-backed   securities
      portfolio at December 31, 1998 is presented  below.  Due to  repayments of
      the underlying loans, the actual maturities of mortgage-backed  securities
      generally are substantially less than the scheduled maturities.

                    The  following  table sets forth the purchases and principal
      repayments of the Company's mortgage-backed  securities during the periods
      indicated. There were no sales during the periods shown
<TABLE>
<CAPTION>
                                                                 At or For The Year Ended
                                                                        December 31,
                                                                        ------------
                                                          1998              1997            1996
                                                         -------         -------          -------
                                                                   (Dollars in Thousands)

<S>                                                      <C>             <C>              <C>    
Mortgage-backed securities at
 beginning of period (cost)                              $ 4,329         $ 4,164          $ 3,938
Purchases                                                    559             917            1,031
Repayments                                                 1,284             734              786
Discount accretion / (premium amortization)                  (28)            (18)             (19)
                                                         -------         -------          -------
Mortgage-backed securities at end of period (cost)       $ 3,576         $ 4,329          $ 4,164
                                                         =======         =======          =======
Mortgage-backed securities at end of
 period (fair value)                                     $ 3,570         $ 4,322          $ 4,124
                                                         =======         =======          =======

Weighted average yield at end of period                     5.76%           6.36%            6.31%
                                                         =======         =======          =======
</TABLE>

                                       21
<PAGE>
                    Investment Securities

                    The Association has the authority to invest in various types
      of liquid assets, including United States Treasury obligations, securities
      of  various  federal  agencies  and of state  and  municipal  governments,
      certificates   of  deposit   at   federally-insured   banks  and   savings
      institutions,  certain  bankers'  acceptances  and federal funds,  and the
      Company has broader  investing  authority.  Each purchase of an investment
      security is approved by the Board of Directors.  The Company's  investment
      securities are carried in accordance  with generally  accepted  accounting
      principles  ("GAAP").  All of the  Company's  investment  securities  were
      accounted for as held-to-maturity at December 31, 1998.

                    Investment   securities   (excluding   FHLB  stock)  totaled
      $795,000  or 3.3% of total  assets at December  31,  1998,  consisting  of
      certificate of deposits in other financial  institutions.  At December 31,
      1998 the Company had no other investment securities as compared to $15,000
      of U.S. agency securities at December 31, 1997.  Information regarding the
      maturities of the investment securities is set forth in Note E of notes to
      Consolidated Financials in the 1998 Annual Report.

                    Sources of Funds

                    General.  Deposits are the primary  source of the  Company's
      funds for lending and other investment purposes.  In addition to deposits,
      the Company  derives funds from  principal and interest  payments on loans
      and  mortgage-backed  securities.  Loan repayments are a relatively stable
      source of funds,  while  deposit  inflows and outflows  are  significantly
      influenced  by  general  interest  rates  and  money  market   conditions.
      Borrowings may be used on a short-term  basis to compensate for reductions
      in the availability of funds from other sources.  They may also be used on
      a longer-term basis for general business purposes.

                    Deposits.   The   Association's   deposits   are   attracted
      principally from within the Association's  primary market area through the
      offering  of a broad  selection  of  deposit  instruments,  including  NOW
      accounts,  money market deposit accounts,  regular savings  accounts,  and
      term  certificate  accounts.  Included  among these  deposit  products are
      individual  retirement account  certificates of approximately $2.1 million
      or 10.7% of total  deposits at December 31, 1998.  Deposit  account  terms
      vary, with the principal  differences  being the minimum balance required,
      the time periods the funds must remain on deposit and the interest rate.

                    The  large  variety  of  deposit  accounts  offered  by  the
      Association has increased the Association's ability to retain deposits and
      allowed it to be more  competitive  in  obtaining  new funds,  but has not
      eliminated  the threat of  disintermediation  (the flow of funds away from
      savings  institutions into direct  investment  vehicles such as government
      and corporate  securities).  In addition,  the  Association  is subject to
      short-term  fluctuations in deposit flows.  The  Association's  ability to
      attract and maintain deposits is affected by the rate consciousness of its
      customers  and  their  willingness  to  move  funds  into  higher-yielding
      accounts.  The Association's  cost of funds has been, and will continue to
      be, affected by money market conditions.

                                       22
<PAGE>
                    The following table shows the  distribution  of, and certain
      other  information  relating  to, the  Association's  deposits  by type of
      deposit, as of the dates indicated.
<TABLE>
<CAPTION>
                                                                                  December 31, 
                                           --------------------------------------------------------------------------------------
                                                    1998                             1997                         1996 
                                           -----------------------        --------------------------      -----------------------
                                                        Percent of                        Percent of                   Percent of
                                           Amount         Total           Amount            Total         Amount          Total
                                           --------       ------          --------          ------        --------       ------ 
                                                                           (Dollars in Thousands)
<S>                                        <C>            <C>              <C>              <C>           <C>           <C>  
Certificate accounts
  2.00% - 3.99%                            $      -         0.00%          $     -            0.00%        $    81         0.40%
  4.00% - 5.99%                              12,491        62.77%           12,424           62.04%         11,564        57.03%
  6.00% - 7.99%                               1,735         8.72%            2,213           11.05%          3,547        17.49%
                                           --------       ------          --------          ------        --------       ------ 
    Total certificate accounts               14,226        71.49%           14,637           73.09%         15,192        74.92%
                                           --------       ------          --------          ------        --------       ------ 

Transaction accounts
  Passbook accounts                           3,323        16.70%            3,095           15.45%          2,813        13.87%
  Money market accounts                         153         0.77%              293            1.46%            338         1.67%
  NOW accounts (1)                            2,159        10.85%            1,968            9.83%          1,891         9.33%
                                           --------       ------          --------          ------        --------       ------ 
    Total transaction accounts                5,635        28.32%            5,356           26.75%          5,042        24.86%
                                           --------       ------          --------          ------        --------       ------ 
    Total deposit accounts                   19,861        99.81%           19,993           99.84%         20,234        99.78%
Accrued interest payable                         38         0.19%               33            0.16%             44         0.22%
                                           --------       ------          --------          ------        --------       ------ 
      Total deposits                       $ 19,899       100.00%         $ 20,026          100.00%       $ 20,278       100.00%
                                           ========       ======          ========          ======        ========       ====== 
</TABLE>

   (1)  Includes noninterest-bearing checking accounts.


                                       23
<PAGE>
                    The  following  table  presents the average  balance of each
      type of deposit and the average  rate paid on each type of deposit for the
      periods indicated.
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                            ---------------------------------------------------------------------------
                                                     1998                      1997                        1996
                                            --------------------       --------------------        --------------------
                                                         Average                    Average                     Average
                                            Average        Rate        Average        Rate         Average        Rate
                                            Balance        Paid        Balance        Paid         Balance        Paid
                                                                      (Dollars in Thousands)
<S>                                         <C>            <C>         <C>            <C>          <C>            <C>     
Passbook savings accounts .............     $ 3,434        3.03%       $ 2,982        3.03%        $ 2,859        3.30%   
Demand and NOW accounts (1) ...........       2,312        3.27%         2,027        2.70%          1,911        2.84%   
Money market deposit accounts .........         216        5.68%           309        4.61%            395        5.68%   
                                                                                                                          
Certificates of deposit ...............      14,594        4.84%        14,836        5.06%         14,809        4.98%   
                                            -------                    -------                     ------- 
    Total interest-bearing deposits (2)     $20,556        4.37%       $20,154        4.51%        $19,974        4.55%   
                                            =======                    =======                     ======= 
</TABLE>
        (1)  Includes noninterestbearing checking accounts.

        (2)  Excludes accrued interest payable.

                    The  following  table  sets forth the  savings  flows of the
      Association during the periods indicated.
<TABLE>
<CAPTION>
                                                                        Years Ended D
cember 31,
                                                                        ------------------------
                                                          1998                      1997                      1996
                                                        --------                  --------                    ------ 
                                                                       (Dollars in Thousands)
<S>                                                     <C>                       <C>                         <C>    
Net increase (decrease) before interst credited (1)     $ (1,030)                 $ (1,151)                   $ (179)
Interest credited                                            898                       910                       908
                                                        --------                  --------                    ------ 
  Net increase (decrease) in deposits (2)                 $ (132)                   $ (241)                    $ 729
                                                        ========                  ========                    ====== 

</TABLE>
(1)  The information provided is the net of deposits and withdrawals because the
     gross amount of deposits and withdrawals is not readily available.

(2)  Excludes accrued interest payable on deposits.


                                       24
<PAGE>
                    The Association  attempts to control the flow of deposits by
      pricing its accounts to remain generally  competitive with other financial
      institutions  in its market area, but does not  necessarily  seek to match
      the highest  rates paid by competing  institutions.  The  Association  has
      generally not taken a position of price leadership in its markets,  except
      when there has been an opportunity to market longer-term deposits.

                    The  principal  methods used by the  Association  to attract
      deposits  include the offering of a wide variety of services and accounts,
      competitive   interest  rates  and  a  convenient  office  location.   The
      Association does not advertise for deposits outside of its market area.

                    The  following  table  presents,  by various  interest  rate
      categories,  the amount of  certificates  of deposit at December 31, 1998,
      which mature during the periods indicated.
<TABLE>
<CAPTION>
Certificates of Deposit
-----------------------
As of December 31, 1998:
------------------------
                                             Maturity Date
                                                One Year          Over One to       Over Two to        Over Three
                                                or Less           Two Years         Three Years          Years          Total
                                                -------           ---------         -----------          -----          -----
                                                                               (Dollars in Thousands)
<C>                                             <C>                <C>                  <C>               <C>         <C>     
4.00% - 5.99%                                   $ 8,911            $ 2,227              $ 977             $ 427       $ 12,542
6.00% - 7.99%                                       859                560                 43               222          1,684
                                                -------            -------            -------             -----       --------
  Total                                         $ 9,770            $ 2,787            $ 1,020             $ 649       $ 14,226
                                                =======            =======            =======             =====       ========

<CAPTION>
Certificates of Deposit - $100,000 or more
------------------------------------------
                                                           (Dollars in 
                                                            Thousands)
                                                            ----------
<S>                                                           <C>   
Maturing in quarter ending:
  March 31, 1999                                              $   610
  June 30, 1999                                                   327
  September 30, 1999                                              607
  December 31, 1999                                               200
  After December 31, 1999                                         673
    Total Certificates of
     deposit - $100,000 or more                               -------
 
                                                              $ 2,417
                                                              =======
</TABLE>

                                       25
<PAGE>
                    Borrowings.  The  Association  may obtain  advances from the
      FHLB of Dallas upon the  security of the common stock it owns in that bank
      and certain of its residential mortgage loans,  investment  securities and
      mortgage-backed  securities,  provided certain standards related to credit
      worthiness have been met. See "Regulation  -The Association - Federal Home
      Loan Bank  System."  Such  advances  are made  pursuant to several  credit
      programs, each of which has its own interest rate and range of maturities.
      Such  advances  are  generally   available  to  meet  seasonal  and  other
      withdrawals of deposit accounts and to permit increased lending.

                    As of December 31, 1998,  the  Association  was permitted to
      borrow up to an  aggregate of $11.2  million from the FHLB of Dallas.  The
      Association  had  $495,000 of FHLB  advances  outstanding  at December 31,
      1998.  Pursuant to collateral  agreements  with the FHLB, the December 31,
      1998  advances are secured by a blanket  floating  lien on first  mortgage
      loans. At December 31, 1997, the advances were  collateralized by a pledge
      of certain FNMA  participation  certificates  with  outstanding  principal
      balances net of unamortized purchase premiums and discounts of $651,309.

                    The following table sets forth certain information regarding
      borrowings at or for the dates indicated.
<TABLE>
<CAPTION>
                                                                 At or for the Year Ended
                                                                        December 31,
                                                                        ------------
                                                           1998              1997         1996
                                                                (Dollars in Thousands)
<S>                                                        <C>              <C>           <C>
FHLB advances:
  Average balance outstanding                              $ 293            $ 138         $ -
  Maximum amount outstanding at any
   month-end during the period                             $ 610            $ 695         $ -
  Balance outstanding at end of period                     $ 495            $ 610         $ -
  Average interest rate during the period                   5.80%            5.07%          -
  Weighted average interest rate at end of period           4.61%            5.90%          -
</TABLE>

                                       26
<PAGE>
      Subsidiary

                    At December 31, 1998, the Association  had no  subsidiaries.
      Under Louisiana law, a state-chartered association may invest up to 10% of
      its assets in service organizations or corporations.

      Employees

                    The  Association  had  seven  full-time  employees  and  one
      part-time  employee at December  31,  1998.  None of these  employees  are
      represented by a collective bargaining agent, and the Association believes
      that it enjoys good relations with its personnel.

      Competition

                    The  Association  faces  significant   competition  both  in
      attracting  deposits and in making loans. Its most direct  competition for
      deposits has come historically  from commercial  banks,  credit unions and
      other savings  institutions  located in its primary market area, including
      many  large  financial  institutions  which  have  greater  financial  and
      marketing resources available to them. In addition,  the Association faces
      additional  significant  competition for investors'  funds from short-term
      money  market  mutual  funds  and  issuers  of  corporate  and  government
      securities.  The  Association  does not rely upon any individual  group or
      entity  for a  material  portion  of  its  deposits.  The  ability  of the
      Association  to attract  and  retain  deposits  depends on its  ability to
      generally provide a rate of return,  liquidity and risk comparable to that
      offered by competing investment opportunities.

                    The  Association's  competition  for real estate loans comes
      principally  from mortgage  banking  companies,  commercial  banks,  other
      savings  institutions and credit unions. The Association competes for loan
      originations  primarily  through  the  interest  rates  and  loan  fees it
      charges, and the efficiency and quality of services it provides borrowers.
      Factors  which  affect  competition  include  general  and local  economic
      conditions,  current  interest rate levels and  volatility in the mortgage
      markets.




                                       27
<PAGE>
                                   REGULATION

                    The  following  discussion  of certain laws and  regulations
      which  are  applicable  to the  Company  and the  Association,  as well as
      descriptions  of  laws  and  regulations   contained   elsewhere   herein,
      summarizes the aspects of such laws and regulations which are deemed to be
      material to the Company and the Association. However, the summary does not
      purport to be complete  and is  qualified  in its entirety by reference to
      applicable laws and regulations.

                  The Company

                    General.  The  Company,  as a  registered  savings  and loan
      holding  company  within the  meaning  of the Home  Owners'  Loan Act,  as
      amended ("HOLA"), is subject to OTS regulations, examinations, supervision
      and reporting requirements.  As a subsidiary of a savings and loan holding
      company,  the  Association  is  subject  to  certain  restrictions  in its
      dealings with the Company and affiliates thereof.

                    Activities Restrictions. There are generally no restrictions
      on the  activities of a savings and loan holding  company which holds only
      one subsidiary savings  institution.  However,  if the Director of the OTS
      determines that there is reasonable cause to believe that the continuation
      by a savings and loan holding company of an activity constitutes a serious
      risk to the  financial  safety,  soundness or stability of its  subsidiary
      savings  institution,  the Director may impose such restrictions as deemed
      necessary  to  address  such  risk,  including  limiting  (i)  payment  of
      dividends  by the  savings  institution;  (ii)  transactions  between  the
      savings  institution and its  affiliates;  and (iii) any activities of the
      savings  institution that might create a serious risk that the liabilities
      of the holding  company and its  affiliates  may be imposed on the savings
      institution.  Notwithstanding  the above rules as to permissible  business
      activities of unitary savings and loan holding  companies,  if the savings
      institution  subsidiary  of such a holding  company  fails to meet the QTL
      test, as discussed under "-The Association  Qualified Thrift Lender Test,"
      then such  unitary  holding  company  also  shall  become  subject  to the
      activities  restrictions  applicable to multiple  savings and loan holding
      companies and, unless the savings institution  requalifies as a QTL within
      one  year  thereafter,  shall  register  as,  and  become  subject  to the
      restrictions  applicable to, a bank holding company. See "-The Association
      - Qualified Thrift Lender Test."

                    If the Company  were to acquire  control of another  savings
      institution,  other than through merger or other business combination with
      the Association, the Company would thereupon become a multiple savings and
      loan holding  company.  Except where such  acquisition  is pursuant to the
      authority  to  approve  emergency  thrift   acquisitions  and  where  each
      subsidiary savings institution meets the QTL test, as set forth below, the
      activities  of the  Company  and any of its  subsidiaries  (other than the
      Association or other subsidiary savings  institutions) would thereafter be
      subject to further  restrictions.  Among other things, no multiple savings
      and loan  holding  company or  subsidiary  thereof  which is not a savings
      institution  shall commence or continue for a limited period of time after
      becoming a multiple savings and loan holding company or subsidiary thereof
      any business activity, except upon prior notice to and no objection by the
      OTS, other than: (i)  furnishing or performing  management  services for a
      subsidiary  savings  institution;  (ii) conducting an insurance  agency or
      escrow business;  (iii) holding,  managing, or liquidating assets owned by
      or  acquired  from a  subsidiary 

                                       28
<PAGE>
      savings institution;  (iv) holding or managing properties used or occupied
      by a subsidiary savings institution;  (v) acting as trustee under deeds of
      trust; (vi) those activities  authorized by regulation as of March 5, 1987
      to be engaged in by multiple savings and loan holding companies;  or (vii)
      unless the  Director  of the OTS by  regulation  prohibits  or limits such
      activities  for  savings  and loan  holding  companies,  those  activities
      authorized by the FRB as  permissible  for bank holding  companies.  Those
      activities  described in (vii) above also must be approved by the Director
      of the OTS  prior to  being  engaged  in by a  multiple  savings  and loan
      holding company.

                    Limitations on Transactions  with  Affiliates.  Transactions
      between  savings  institutions  and any affiliate are governed by Sections
      23A and 23B of the Federal Reserve Act and OTS regulations.  Affiliates of
      a savings  institution  include any company or entity which  controls,  is
      controlled by or is under common control with the savings institution.  In
      a  holding  company  context,  the  parent  holding  company  of a savings
      institution  (such as the Company) and any companies  which are controlled
      by such parent holding company are affiliates of the savings  institution.
      Generally,  such  provisions  (i)  limit the  extent to which the  savings
      institution or its subsidiaries may engage in "covered  transactions" with
      any one affiliate to an amount equal to 10% of such institution's  capital
      stock and surplus, and contain an aggregate limit on all such transactions
      with all  affiliates  to an amount equal to 20% of such capital  stock and
      surplus  and  (ii)  require  that  all  such   transactions  be  on  terms
      substantially  the same, or at least as favorable,  to the  institution or
      subsidiary  as  those  provided  to a  non-affiliate.  The  term  "covered
      transaction" includes the making of loans, purchase of assets, issuance of
      a  guarantee   and  other  similar   transactions.   In  addition  to  the
      restrictions  imposed by such provisions,  no savings  institution may (i)
      loan or otherwise  extend credit to an affiliate,  unless the affiliate is
      engaged only in activities permissible for bank holding companies, or (ii)
      purchase  or invest in any  stocks,  bonds,  debentures,  notes or similar
      obligations of any affiliate, except for affiliates which are subsidiaries
      of the saving institution.

                    In addition,  Sections 22(h) and (g) of the Federal  Reserve
      Act place  restrictions  on loans to  executive  officers,  directors  and
      principal  stockholders.  Under  Section  22(h),  loans to a director,  an
      executive  officer  and to a  greater  than 10%  stockholder  of a savings
      institution,  and certain affiliated  interests of either, may not exceed,
      together with all other  outstanding  loans to such person and  affiliated
      interests,   the  savings   institution's  loans  to  one  borrower  limit
      (generally  equal  to 15%  of the  institution's  unimpaired  capital  and
      surplus).  Section 22(h) also requires that loans to directors,  executive
      officers and principal  stockholders  be made on terms  substantially  the
      same as offered  in  comparable  transactions  to other  persons  and also
      requires  prior  board  approval  for  certain  loans.  In  addition,  the
      aggregate  amount of extensions of credit by a savings  institution to all
      insiders cannot exceed the institution's  unimpaired  capital and surplus.
      Furthermore,  Section  22(g) places  additional  restrictions  on loans to
      executive  officers.   At  December  31,  1998,  the  Association  was  in
      compliance with the above restrictions.

                    Restrictions   on   Acquisitions.   Except   under   limited
      circumstances,  savings and loan holding  companies  are  prohibited  from
      acquiring,  without prior approval of the Director of the OTS, (i) control
      of any other savings  institution  or savings and loan

                                       29
<PAGE>
      holding company or substantially  all the assets thereof or (ii) more than
      5% of the  voting  shares  of a savings  institution  or  holding  company
      thereof which is not a subsidiary.  Except with the prior  approval of the
      Director of the OTS, no director or officer of a savings and loan  holding
      company or person owning or  controlling  by proxy or otherwise  more than
      25%  of  such  company's   stock,  may  acquire  control  of  any  savings
      institution,  other than a subsidiary savings institution, or of any other
      savings and loan holding company.

                    The  Director  of the  OTS  may  only  approve  acquisitions
      resulting in the formation of a multiple  savings and loan holding company
      which  controls  savings  institutions  in more  than one state if (i) the
      multiple  savings and loan  holding  company  involved  controls a savings
      institution which operated a home or branch office located in the state of
      the  institution to be acquired as of March 5, 1987;  (ii) the acquirer is
      authorized to acquire control of the savings  institution  pursuant to the
      emergency  acquisition  provisions  of the Federal  Deposit  Insurance Act
      ("FDIA");  or (iii) the statutes of the state in which the  institution to
      be acquired is located  specifically permit institutions to be acquired by
      the  state-chartered  institutions  or savings and loan holding  companies
      located  in the state  where the  acquiring  entity  is  located  (or by a
      holding company that controls such state-chartered savings institutions).

                    Under  the Bank  Holding  Company  Act of  1956,  the FRB is
      authorized to approve an application by a bank holding  company to acquire
      control of a savings institution. In addition, a bank holding company that
      controls a savings  institution  may merge or  consolidate  the assets and
      liabilities  of the  savings  institution  with,  or  transfer  assets and
      liabilities  to,  any  subsidiary  bank  which  is a  member  of the  Bank
      Insurance  Fund  ("BIF")  with the  approval  of the  appropriate  federal
      banking  agency and the FRB. As a result of these  provisions,  there have
      been a number of  acquisitions  of savings  institutions  by bank  holding
      companies in recent years.

                  The Association

                    General. The OFI is the Association's  chartering authority,
      and the OTS is the Association's  primary federal  regulator.  The OTS and
      the   OFI   have    extensive    authority    over   the   operations   of
      Louisiana-chartered  savings  institutions.  As part  of  this  authority,
      savings  institutions  are required to file periodic  reports with the OTS
      and the OFI and are subject to periodic  examinations  by the OTS, the OFI
      and the FDIC. The investment and lending authority of savings institutions
      are prescribed by federal laws and regulations,  and such institutions are
      prohibited  from engaging in any activities not permitted by such laws and
      regulations. Such regulation and supervision is primarily intended for the
      protection of depositors.

                    The OTS' enforcement authority over all savings institutions
      and their holding companies  includes,  among other things, the ability to
      assess civil money penalties,  to issue cease and desist or removal orders
      and to initiate injunctive actions. In general,  these enforcement actions
      may be initiated  for  violations of laws and  regulations  and unsafe and
      unsound  practices.  Other  actions or inactions may provide the basis for
      enforcement  actions,  including misleading or untimely reports filed with
      the OTS.


                                       30
<PAGE>
                    Insurance of Accounts.  The deposits of the  Association are
      insured to the maximum extent permitted by the SAIF, which is administered
      by the  FDIC,  and are  backed by the full  faith  and  credit of the U.S.
      Government. As insurer, the FDIC is authorized to conduct examinations of,
      and to  require  reporting  by,  FDIC-insured  institutions.  It also  may
      prohibit any  FDIC-insured  institution  from engaging in any activity the
      FDIC  determines by  regulation  or order to pose a serious  threat to the
      FDIC.  The FDIC also has the  authority  to initiate  enforcement  actions
      against savings institutions,  after giving the OTS an opportunity to take
      such action.

                    Under current FDIC regulations, institutions are assigned to
      one of three  capital  groups  which are  based  solely on the level of an
      institution's capital--"well capitalized",  "adequately capitalized",  and
      "undercapitalized"--which   are   defined  in  the  same   manner  as  the
      regulations  establishing  the prompt  corrective  action system discussed
      below.  These three  groups are then divided  into three  subgroups  which
      reflect  varying  levels of  supervisory  concern,  from  those  which are
      considered  to  be  healthy  to  those  which  are  considered  to  be  of
      substantial  supervisory  concern.  The matrix so created  results in nine
      assessment risk classifications, with rates ranging prior to September 30,
      1996  from .23% for well  capitalized,  healthy  institutions  to .31% for
      undercapitalized  institutions with substantial  supervisory concerns. The
      insurance  premiums for the Association for 1995 and the first nine months
      of 1996 were .23% (per annum) of insured deposits.

                    The deposits of the Association are currently insured by the
      SAIF. Both the SAIF and the BlF, the federal  deposit  insurance fund that
      covers  commercial  bank  deposits,  are  required  by law to  attain  and
      thereafter maintain a reserve ratio of 1.25% of insured deposits.  The BIF
      achieved a fully funded status first and,  therefore,  as discussed below,
      effective  January  1, 1996 the FDIC  substantially  reduced  the  average
      deposit insurance premium paid by commercial banks.

                    On  November  14,  1995,  the  FDIC  approved  a final  rule
      regarding  deposit  insurance  premiums.  The final rule  reduced  deposit
      insurance  premiums  for BlF  member  institutions  to zero  basis  points
      (subject  to a  $2,000  minimum)  for  institutions  in  the  lowest  risk
      category,  while holding  deposit  insurance  premiums for SAIF members at
      their then current levels (23 basis points for  institutions in the lowest
      risk category). The reduction was effective with respect to the semiannual
      premium assessment beginning January 1, 1996.

                    On September  30, 1996,  President  Clinton  signed into law
      legislation which eliminated the premium differential between SAIF-insured
      institutions  and BIF-insured  institutions by  recapitalizing  the SAIF's
      reserves to the required ratio.  The legislation  required all SAIF member
      institutions  to pay a one-time  special  assessment to  recapitalize  the
      SAIF,  with the  aggregate  amount to be  sufficient  to bring the reserve
      ratio in the  SAIF to 1.25% of  insured  deposits.  The  legislation  also
      provides  for the merger of the BIF and the SAIF,  with such merger  being
      conditioned upon the prior elimination of the thrift charter.

                    Implementing  FDIC  regulations  imposed a one-time  special
      assessment equal to 65.7 basis points for all SAIF-assessable  deposits as
      of March 31, 1995,  which was accrued as an expense on September 30, 1996.
      The one-time special assessment 

                                       31
<PAGE>
      for the Association amounted to $123,000. Net of related tax benefits, the
      one-time  special  assessment  amounted  to  $75,000.  The payment of such
      special   assessment   had  the  effect  of   immediately   reducing   the
      Association's capital by such amount. However, management does not believe
      that this one-time special assessment had a material adverse effect on the
      Association's financial condition.

                    In  the  fourth  quarter  of  1996,  the  FDIC  lowered  the
      assessment  rates  for  SAIF  members  to  reduce  the  disparity  in  the
      assessment rates paid by BIF and SAIF members.  Beginning October 1, 1996,
      effective  SAIF rates  generally  range from zero basis points to 27 basis
      points,  except that during the fourth quarter of 1996, the rates for SAIF
      members ranged from 18 basis points to 27 basis points in order to include
      assessments paid to the Financing Corporations ("FICO"). From 1997 through
      1999,  SAIF members will pay 6.4 basis points to fund the FICO,  while BIF
      member   institutions  will  pay  approximately  1.3  basis  points.   The
      Association's  insurance premiums,  which had amounted to 23 basis points,
      were thus  reduced to 6.4 basis  points  effective  January  1, 1997.  The
      Association paid approximately $12,000 in insurance premiums in 1998.

                    The FDIC may terminate the deposit  insurance of any insured
      depository institution,  including the Association, if it determines after
      a hearing  that the  institution  has  engaged or is engaging in unsafe or
      unsound  practices,  is in an  unsafe or  unsound  condition  to  continue
      operations,  or has violated any applicable law, regulation,  order or any
      condition  imposed  by an  agreement  with the FDIC.  It also may  suspend
      deposit insurance temporarily during the hearing process for the permanent
      termination of insurance,  if the institution has no tangible capital.  If
      insurance of accounts is  terminated,  the accounts at the  institution at
      the time of the termination,  less subsequent withdrawals,  shall continue
      to be insured for a period of six months to two years,  as  determined  by
      the FDIC.  Management  is aware of no existing  circumstances  which would
      result in termination of the Association's deposit insurance.

                    Regulatory Capital  Requirements.  Federally insured savings
      institutions  are  required  to  maintain  minimum  levels  of  regulatory
      capital.  The OTS has  established  capital  standards  applicable  to all
      savings  institutions.  These standards  generally must be as stringent as
      the comparable  capital  requirements  imposed on national banks.  The OTS
      also is  authorized  to  impose  capital  requirements  in excess of these
      standards on individual institutions on a case-by-case basis.

                    Current OTS capital standards  require savings  institutions
      to satisfy three different  capital  requirements.  Under these standards,
      savings  institutions must maintain  "tangible"  capital equal to at least
      1.5% of adjusted  total assets,  "core"  capital equal to at least 3.0% of
      adjusted  total  assets and  "total"  capital (a  combination  of core and
      "supplementary" capital) equal to at least 8.0% of "risk-weighted" assets.
      For purposes of the regulation,  core capital generally consists of common
      stockholders'  equity (including retained  earnings).  Tangible capital is
      given the same  definition as core capital but is reduced by the amount of
      all the  savings  institution's  intangible  assets,  with  only a limited
      exception for purchased  mortgage  servicing rights. At December 31, 1998,
      the Association  had no intangible  assets which are deducted in computing
      its tangible  capital.  Both core and tangible capital are further reduced
      by an amount equal to a savings  institution's debt and equity investments
      in  subsidiaries 

                                       32
<PAGE>
      engaged in  activities  not  permissible  to  national  banks  (other than
      subsidiaries engaged in activities undertaken as agent for customers or in
      mortgage  banking  activities and subsidiary  depository  institutions  or
      their holding  companies).  At December 31, 1998, the  Association  had no
      subsidiaries.

                    In  determining   compliance  with  the  risk-based  capital
      requirement, a savings institution is allowed to include both core capital
      and supplementary  capital in its total capital,  provided that the amount
      of   supplementary   capital   included   does  not  exceed  the   savings
      institution's  core capital.  Supplementary  capital generally consists of
      general   allowances  for  loan  losses  up  to  a  maximum  of  1.25%  of
      risk-weighted  assets,  together with certain other items.  In determining
      the required amount of risk-based capital, total assets, including certain
      off-balance  sheet  items,  are  multiplied  by a risk weight based on the
      risks inherent in the type of assets. The risk weights assigned by the OTS
      for  principal  categories  of assets  are (i) 0% for cash and  securities
      issued by the U.S. Government or unconditionally  backed by the full faith
      and credit of the U.S.  Government;  (ii) 20% for  securities  (other than
      equity  securities)  issued  by  U.S.  Government-sponsored  agencies  and
      mortgage-backed  securities issued by, or fully guaranteed as to principal
      and  interest  by, the FNMA or the FHLMC,  except for those  classes  with
      residual characteristics or stripped  mortgage-related  securities;  (iii)
      50% for prudently underwritten permanent single-family first lien mortgage
      loans not more than 90 days delinquent and having a loan-to-value ratio of
      not more  than  80% at  origination  unless  insured  to such  ratio by an
      insurer approved by the FNMA or the FHLMC,  qualifying  residential bridge
      loans made directly for the construction of single-family residences,  and
      qualifying  multi-family  residential  loans;  and (iv) 100% for all other
      loans and investments,  including  consumer loans,  commercial  loans, and
      single-family  residential real estate loans more than 90 days delinquent,
      and for repossessed assets.

                    In August 1993,  the OTS adopted a final rule  incorporating
      an interest-rate  risk component into the risk-based  capital  regulation.
      Under the rule,  an  institution  with a greater  than  "normal"  level of
      interest  rate risk will be subject to a deduction  of its  interest  rate
      risk  component  from  total  capital  for  purposes  of  calculating  its
      risk-based  capital.  As a result, such an institution will be required to
      maintain additional capital in order to comply with the risk-based capital
      requirement.  An  institution  with a greater than "normal"  interest rate
      risk  is  defined  as an  institution  that  would  suffer  a loss  of net
      portfolio  value  exceeding  2.0% of the estimated  economic  value of its
      assets  in the event of a 200  basis  point  increase  or  decrease  (with
      certain  minor  exceptions)  in interest  rates.  The  interest  rate risk
      component will be  calculated,  on a quarterly  basis,  as one-half of the
      difference between an institution's  measured interest rate risk and 2.0%,
      multiplied by the economic value of its assets.  The rule also  authorizes
      the  Director  of  the  OTS,  or  his  designee,  to  waive  or  defer  an
      institution's  interest rate risk component on a case-by-case  basis.  The
      final rule was originally effective as of January 1, 1994, subject however
      to a two quarter "lag" time between the reporting date of the data used to
      calculate an  institution's  interest rate risk and the effective  date of
      each quarter's interest rate risk component.  However, in October 1994 the
      Director of the OTS indicated  that it would waive the capital  deductions
      for institutions with a greater than "normal" risk until the OTS published
      an appeals  process.  On August 21, 1995, the OTS released Thrift Bulletin
      67 which  established  (i) an  appeals  process  to handle  "requests  for
      adjustments"  to the interest  rate risk  component  and (ii) a process 


                                       33
<PAGE>
      by which  "well-capitalized"  institutions may obtain authorization to use
      their own interest rate risk model to determine  their  interest rate risk
      component. The Director of the OTS indicated,  concurrent with the release
      of  Thrift   Bulletin  67,  that  the  OTS  will  continue  to  delay  the
      implementation of the capital deduction for interest rate risk pending the
      testing of the appeals process set forth in Thrift Bulletin 67.

                    Effective  November  28,  1994,  the OTS revised its interim
      policy  issued in August 1993 under which  savings  institutions  computed
      their regulatory capital in accordance with SFAS No. 115,  "Accounting for
      Certain  Investments in Debt and Equity Securities." Under the revised OTS
      policy,  savings  institutions must value securities available for sale at
      amortized  cost  for  regulatory  capital  purposes.  This  means  that in
      computing  regulatory  capital,  savings  institutions should add back any
      unrealized losses and deduct any unrealized gains, net of income taxes, on
      debt  securities  reported as a separate  component of GAAP capital.  This
      change  in  policy  decreased  the  Association's  regulatory  capital  at
      December 31, 1998 by approximately $293.






                                       34
<PAGE>
                   At December 31, 1998,  the  Association  exceeded all of its
      regulatory  capital  requirements,  with  tangible,  core  and  risk-based
      capital  ratios of 16.5%,  16.5% and 65.3%,  respectively.  The  following
      table  sets  forth  the   Association's   compliance   with  each  of  the
      above-described capital requirements as of December 31, 1998.
<TABLE>
<CAPTION>
                                                         Tangible                      Core                    Risk-based
                                                         Capital                    Capital                   Capital (1)
                                                         -------                    -------                   -----------
                                                                             (Dollars in Thousands)
<S>                                                      <C>                          <C>                         <C>    
Capital under GAAP                                       $ 3,383                      $ 3,383                     $ 3,383
Additional capital items:
  Unrealized loss on securities available for sale,
   net of taxes                                                -                            -                           -
  General valuation allowances (2)                             -                            -                         158
                                                         -------                    -------                   -----------
 
Regulatory Capital                                         3,383                        3,383                       3,541

Minimum required regulatory capital                          359                          955                         998
                                                         -------                    -------                   -----------

Excess regulatory capital                                $ 3,024                      $ 2,428                     $ 2,543
                                                         =======                      =======                     =======

Regulatory capital as a percentage of assets (3)           14.17%                       14.17%                      28.38%

Minimum capital required as a percentage of
 assets                                                     1.50%                        4.00%                       8.00%
Regulatory capital as a percentage in
 excess of requirements                                    12.67%                       10.17%                      20.38%
                                                         =======                      =======                     =======

</TABLE>
(1)  Does not reflect the interest-rate risk component in the minimum risk-based
     capital  requirement,  the  effective  date of which has been  postponed as
     discussed above.

(2)  General valuation allowances are used only in the calculation of risk-based
     capital. Such allowances are limited to 1.25% of risk weighted assets.

(3)  Tangible and core capital are  computed as a percentage  of adjusted  total
     assets of $23.9 million.  Risk-based capital is computed as a percentage of
     adjusted risk-weighted assets of $12.5 million.


                                       35
<PAGE>
                    Any  savings  institution  that  fails  any of  the  capital
      requirements is subject to possible  enforcement actions by the OTS or the
      FDIC. Such actions could include a capital  directive,  a cease and desist
      order,  civil money  penalties,  the  establishment of restrictions on the
      institution's operations, termination of federal deposit insurance and the
      appointment  of a  conservator  or receiver.  The OTS' capital  regulation
      provides that such actions,  through enforcement proceedings or otherwise,
      could require one or more of a variety of corrective actions.

                    Prompt Corrective Action. Under the prompt corrective action
      regulations  of  the  OTS,  an  institution  is  deemed  to be  (i)  "well
      capitalized"  if it has total  risk-based  capital of 10.0% or more, has a
      Tier 1  risk-based  capital  ratio of 6.0% or more,  has a Tier 1 leverage
      capital  ratio of 5.0% or more and is not  subject  to any  order or final
      capital  directive to meet and maintain a specific  capital  level for any
      capital  measure,  (ii)  "adequately   capitalized"  if  it  has  a  total
      risk-based  capital  ratio of 8.0% or more,  a Tier 1  risk-based  capital
      ratio of 4.0% or more and a Tier 1 leverage  capital ratio of 4.0% or more
      (3.0% under  certain  circumstances)  and does not meet the  definition of
      "well capitalized," (iii)  "undercapitalized" if it has a total risk-based
      capital  ratio that is less than 8.0%, a Tier 1 risk-based  capital  ratio
      that is less than 4.0% or a Tier 1  leverage  capital  ratio  that is less
      than  4.0%  (3.0%  under  certain   circumstances),   (iv)  "significantly
      undercapitalized"  if it has a total risk-based capital ratio that is less
      than 6.0%, a Tier 1 risk-based  capital  ratio that is less than 3.0% or a
      Tier 1 leverage  capital ratio that is less than 3.0%, and (v) "critically
      undercapitalized"  if it has a ratio of  tangible  equity to total  assets
      that is equal to or less  than  2.0%.  Under  specified  circumstances,  a
      federal  banking agency may reclassify a well  capitalized  institution as
      adequately   capitalized   and  may  require  an  adequately   capitalized
      institution or an undercapitalized  institution to comply with supervisory
      actions as if it were in the next lower category (except that the FDIC may
      not reclassify a significantly  undercapitalized institution as critically
      undercapitalized).

                    An  institution   generally  must  file  a  written  capital
      restoration plan which meets specified  requirements  with its appropriate
      federal  banking  agency  within 45 days of the date that the  institution
      receives  notice or is deemed to have notice that it is  undercapitalized,
      significantly  undercapitalized or critically undercapitalized.  A federal
      banking  agency  must  provide  the  institution  with  written  notice of
      approval  or  disapproval   within  60  days  after  receiving  a  capital
      restoration  plan,  subject to  extensions by the agency.  An  institution
      which is required to submit a capital  restoration plan must  concurrently
      submit  a   performance   guaranty  by  each  company  that  controls  the
      institution.  In addition,  undercapitalized  institutions  are subject to
      various  regulatory  restrictions,  and the  appropriate  federal  banking
      agency also may take any number of discretionary supervisory actions.

                    At December  31,  1998,  the  Association  was deemed a well
      capitalized  institution for purposes of the above regulations and as such
      is not subject to the above mentioned restrictions.


                                       36
<PAGE>
                    Safety  and  Soundness.  The OTS and other  federal  banking
      agencies have established guidelines for safety and soundness,  addressing
      operational and managerial standards,  as well as compensation matters for
      insured  financial  institutions.   Institutions  failing  to  meet  these
      standards  are required to submit  compliance  plans to their  appropriate
      federal  regulators.  The OTS and the other agencies have also established
      guidelines  regarding  asset  quality and earnings  standards  for insured
      institutions. The Association believes that it is in compliance with these
      guidelines and standards.

                    Liquidity   Requirements.   All  savings   institutions  are
      required to maintain an average  daily balance of liquid assets equal to a
      certain  percentage  of the  sum  of  its  average  daily  balance  of net
      withdrawable  deposit accounts and borrowings payable in one year or less.
      The liquidity  requirement may vary from time to time (between 4% and 10%)
      depending  upon  economic  conditions  and  savings  flows of all  savings
      institutions. At the present time, the required minimum liquid asset ratio
      is 4%. At December 31, 1998, the Association's liquidity ratio was 17.46%.

                    Capital   Distributions.   OTS  regulations  govern  capital
      distributions by savings institutions, which include cash dividends, stock
      redemptions or repurchases,  and other transactions charged to the capital
      account of a savings institution to make capital distributions. Generally,
      through  March 31 1999 a savings  institution  that  before  and after the
      proposed  distribution  meets  or  exceeds  its  fully  phased-in  capital
      requirements (Tier 1 institutions) may make capital  distributions  during
      any  calendar  year  equal to the higher of (i) 100% of net income for the
      calendar  year-to-date  plus 50% of its  "surplus  capital  ratio"  at the
      beginning  of the  calendar  year or (ii) 75% of net income  over the most
      recent four-quarter period. The "surplus capital ratio" is defined to mean
      the  percentage by which the  institution's  tangible,  core or risk-based
      capital   ratio  exceeds  its   tangible,   core  or  risk-based   capital
      requirement.   At  December  31,  1998,  the  Association  was  a  Tier  1
      institution for purposes of this regulation.

                    New  capital  distribution  regulations  take  effect  April
      1,1999.  Under the new  regulations,  a savings  institution  must file an
      application for OTS approval of the capital distribution if either (1) the
      total capital  distributions  for the applicable  calendar year exceed the
      sum of the  institution's  net  income  for  that  year to date  plus  the
      institution's  retained net income for the  preceding  two years,  (2) the
      institution  would not be at least  adequately  capitalized  following the
      distribution,  (3) the distribution would violate any applicable  statute,
      regulation,  agreement or OTS-imposed condition, or (4) the institution is
      not eligible for expedited  treatment of its filing.  If an application is
      not required to be filed, savings institutions which are a subsidiary of a
      holding company (as well as certain other  institutions) must still file a
      notice  with the OTS at  least  30 days  before  the  board  of  directors
      declares a dividend or approves a capital distribution.

                    Loans  to  One   Borrower.   The   permissible   amount   of
      loans-to-one borrower now generally follows the national bank standard for
      all  loans  made by  savings  institutions.  The  national  bank  standard
      generally does not permit  loans-to-one  borrower to exceed the greater of
      $500,000  or 15% of  unimpaired  capital and  surplus.  Loans in an amount
      equal to an additional  l0% of unimpaired  capital and surplus also


                                   37 
<PAGE>
      may be made to a  borrower  if the  loans  are fully  secured  by  readily
      marketable  securities.  For information  about the largest borrowers from
      the Association,  see "Description of Business - Lending Activities - Real
      Estate Lending Standards and Underwriting Policies."

                    Classified  Assets.  Federal  regulations  require that each
      insured  savings  institution  classify its assets on a regular basis.  In
      addition, in connection with examinations of insured institutions, federal
      examiners have authority to identify  problem assets and, if  appropriate,
      classify  them.  There  are  three  classifications  for  problem  assets:
      "substandard,"  "doubtful" and "loss." Substandard assets have one or more
      defined weaknesses and are characterized by the distinct  possibility that
      the insured institution will sustain some loss if the deficiencies are not
      corrected. Doubtful assets have the weaknesses of substandard assets, with
      the  additional  characteristic  that the  weaknesses  make  collection or
      liquidation in full on the basis of currently  existing facts,  conditions
      and values questionable, and there is a high possibility of loss. An asset
      classified loss is considered  uncollectible and of such little value that
      continuance  as an  asset of the  institution  is not  warranted.  Another
      category  designated  "special  mention"  also  must  be  established  and
      maintained for assets which do not currently expose an insured institution
      to a sufficient  degree of risk to warrant  classification as substandard,
      doubtful or loss. Assets classified as substandard or doubtful require the
      institution to establish  general  allowances for loan losses. If an asset
      or portion thereof is classified loss, the insured institution must either
      establish specific allowances for loan losses in the amount of 100% of the
      portion of the asset classified  loss, or charge-off such amount.  General
      loss  allowances  established to cover  possible  losses related to assets
      classified  substandard  or doubtful  may be included  in  determining  an
      institution's  regulatory  capital up to certain  amounts,  while specific
      valuation allowances for loan losses do not qualify as regulatory capital.
      Federal   examiners   may   disagree   with   an   insured   institution's
      classifications and amounts reserved. See "Description of Business - Asset
      Quality - Classified Assets."

                    Community  Reinvestment  Act  and  the  Fair  Lending  Laws.
      Savings   institutions   have  a   responsibility   under  the   Community
      Reinvestment  Act of 1977  ("CRA") and related  regulations  of the OTS to
      help  meet  the  credit  needs of their  communities,  including  low- and
      moderate-income  neighborhoods.  In addition, the Equal Credit Opportunity
      Act and the Fair Housing Act (together,  the "Fair Lending Laws") prohibit
      lenders from  discriminating  in their  lending  practices on the basis of
      characteristics  specified in those statutes.  An institution's failure to
      comply  with  the  provisions  of  CRA  could,  at a  minimum,  result  in
      regulatory restrictions on its activities,  and failure to comply with the
      Fair Lending Laws could result in enforcement  actions by the OTS, as well
      as other federal regulatory agencies and the Department of Justice.

                    Qualified  Thrift Lender Test. All savings  institutions are
      required  to meet a QTL test in order to  avoid  certain  restrictions  on
      their operations. Under Section 2303 of the Economic Growth and Regulatory
      Paperwork Reduction Act of 1996, a savings institution can comply with the
      QTL test by either  qualifying as a domestic building and loan association
      as defined in Section  7701(a) (19) of the Internal  Revenue Code of 1986,
      as amended  ("Code") or meeting the second prong of the QTL test set forth
      in Section 10(m) of the HOLA. A savings institution that does not meet the


                                       38
<PAGE>
      QTL  test  must  either  convert  to a bank  charter  or  comply  with the
      following  restrictions  on its  operations:  (i) the  institution may not
      engage  in any new  activity  or  make  any new  investment,  directly  or
      indirectly,  unless  such  activity or  investment  is  permissible  for a
      national  bank;  (ii) the  branching  powers of the  institution  shall be
      restricted to those of a national bank; (iii) the institution shall not be
      eligible  to obtain  any  advances  from its  FHLB;  and (iv)  payment  of
      dividends  by the  institution  shall be  subject  to the rules  regarding
      payment of  dividends by a national  bank.  Upon the  expiration  of three
      years from the date the savings  institution  ceases to meet the QTL test,
      it must cease any activity and not retain any investment  not  permissible
      for a national bank and immediately  repay any  outstanding  FHLB advances
      (subject to safety and soundness considerations).

                    Currently,  the  prong of the QTL test  that is not based on
      the Code  requires  that 65% of an  institution's  "portfolio  assets" (as
      defined)  consist  of certain  housing  and  consumer-related  assets on a
      monthly  average basis in nine out of very 12 months.  Assets that qualify
      without limit for inclusion as part of the 65%  requirement are loans made
      to purchase, refinance,  construct, improve or repair domestic residential
      housing  and  manufactured  housing;  home equity  loans;  mortgage-backed
      securities  (where  the  mortgages  are  secured by  domestic  residential
      housing or manufactured housing);  stock issued by the FHLB of Dallas; and
      direct or indirect  obligations  of the FDIC.  In addition,  the following
      assets,  among  others,  may be included in meeting the test subject to an
      overall limit of 20% of the savings institution's portfolio assets: 50% of
      residential   mortgage  loans  originated  and  sold  within  90  days  of
      origination;  100% of consumer and  educational  loans  (limited to 10% of
      total  portfolio  assets);  and  stock  issued  by the  FHLMC or the FNMA.
      Portfolio assets consist of total assets minus the sum of (i) goodwill and
      other intangible assets,  (ii) property used by the savings institution to
      conduct  its  business,   and  (iii)  liquid  assets  up  to  20%  of  the
      institution's  total assets.  At December 31, 1998,  the qualified  thrift
      investments of the Association were approximately 101.23% of its portfolio
      assets.

                    Federal Home Loan Bank System.  The  Association is a member
      of the FHLB of Dallas,  which is one of 12 regional FHLBs that administers
      the home  financing  credit  function of savings  institutions.  Each FHLB
      serves as a reserve or central  bank for its members  within its  assigned
      region.  It is funded  primarily  from  proceeds  derived from the sale of
      consolidated  obligations  of the FHLB  System.  It makes loans to members
      (i.e., advances) in accordance with policies and procedures established by
      the Board of Directors of the FHLB.

                    As a member,  the  Association  is required to purchase  and
      maintain  stock in the FHLB of Dallas in an amount equal to at least 1% of
      its aggregate unpaid  residential  mortgage loans, home purchase contracts
      or similar  obligations  at the  beginning  of each year.  At December 31,
      1998, the Association had $170,800 in FHLB stock,  which was in compliance
      with this requirement.

                    The FHLBs are required to provide  funds for the  resolution
      of troubled savings  institutions and to contribute to affordable  housing
      programs through direct loans or interest  subsidies on advances  targeted
      for community  investment and low-and  moderate-income  housing  projects.
      These  contributions  have adversely  affected the level of FHLB dividends
      paid  in  the  past  and  could  continue  to do so in the  future. 

  
                                       39
<PAGE>
      These contributions also could have an adverse effect on the value of FHLB
      stock in the future.

                    Federal  Reserve  System.  The FRB requires  all  depository
      institutions  to maintain  reserves  against  their  transaction  accounts
      (primarily  NOW and Super NOW checking  accounts)  and  non-personal  time
      deposits.  As of  December  31,  1998,  no  reserves  were  required to be
      maintained on the first $4.7 million of transaction accounts,  reserves of
      3% were  required to be  maintained  against the next $47.8 million of net
      transaction  accounts (with such dollar  amounts  subject to adjustment by
      the FRB),  and a reserve of 10% (which is subject to adjustment by the FRB
      to a level  between 8% and 14%) is  required  against  all  remaining  net
      transaction accounts.  Because required reserves must be maintained in the
      form of vault cash or a  noninterest-bearing  account at a Federal Reserve
      Bank, the effect of this reserve requirement is to reduce an institution's
      earning assets.

                    Thrift Charter. Congress has been considering legislation in
      various  forms  that  would  require  savings  institutions,  such  as the
      Association, to convert their charters to national or state bank charters.
      Recent  legislation  required  the  Treasury  Department  to  prepare  for
      Congress a  comprehensive  study on  development  of a common  charter for
      savings  institutions  and  commercial  banks;  and, in the event that the
      thrift charter was eliminated by January 1, 1999, would require the merger
      of the BIF and the SAIF into a single Deposit Insurance Fund on that date.
      The  Association  cannot  determine   whether,   or  in  what  form,  such
      legislation  may  eventually be enacted and there can be no assurance that
      any legislation that is enacted would not adversely affect the Association
      and its parent holding company.

                    Louisiana  Regulation.  As  a  Louisiana-chartered   savings
      association, the Association also is subject to regulation and supervision
      by the OFI. The Association is required to file periodic  reports with and
      is subject to periodic  examinations  at least once every two years by the
      OFI. The lending and investment authority of the Association is prescribed
      by Louisiana laws and regulations,  as well as applicable federal laws and
      regulations,  and the  Association  is  prohibited  from  engaging  in any
      activities not permitted by such law and regulations.

                    The Association is required by Louisiana law and regulations
      to comply with certain reserve and capital  requirements.  At December 31,
      1998, the Association  was in compliance  with all applicable  reserve and
      capital requirements.

                    Louisiana law and regulations  also restrict the lending and
      investment authority of  Louisiana-chartered  savings  institutions.  Such
      laws and  regulations  restrict the amount a  Louisiana-chartered  savings
      association  can  lend to any one  borrower  to an  amount  which,  in the
      aggregate,  does not  exceed  the  lesser of (i) 10% of the  association's
      savings  deposits or (ii) the sum of the  association's  paid-in  capital,
      surplus,  reserves for losses, and undivided profits.  Federal law imposes
      more   restrictive   limitations.   See   "Business-Lending   Activities."
      Notwithstanding the foregoing,  Louisiana and federal law permits any such
      association  to lend to any one borrower an  aggregate  amount of at least
      $500,000.

                                       40
<PAGE>
                    In  addition,   Louisiana   law  restricts  the  ability  of
      Louisiana-chartered savings associations to invest in, among other things,
      (i) commercial real estate loans (including  commercial  construction real
      estate loans) up to 40% of total assets;  (ii) real estate investments for
      other  than the  association's  offices up to 10% of total  assets;  (iii)
      consumer loans,  commercial  paper and corporate debt securities up to 30%
      of total assets;  (iv)  commercial,  corporate,  business or  agricultural
      loans up to 10% of total assets;  and (v) capital stock,  obligations  and
      other  securities  of  service  organizations  up to 10% of total  assets.
      Louisiana law also sets forth maximum loan-to-value ratios with respect to
      various  types  of  loans.  Applicable  federal  regulations  impose  more
      restrictive  limitations  in  certain  instances.   See  "Business-Lending
      Activities-Real Estate Lending Standards and Underwriting Policies."

                    The  investment  authority  of  Louisiana-chartered  savings
      associations is broader in many respects than that of  federally-chartered
      savings   and  loan   associations.   However,   state-chartered   savings
      associations,  such as the  Association,  are  generally  prohibited  from
      acquiring  or  retaining  any  equity   investment,   other  than  certain
      investments in service corporations, of a type or in an amount that is not
      permitted for a federally-chartered savings association.  This prohibition
      applies  to  equity  investments  in real  estate,  investments  in equity
      securities and any other investment or transaction that is in substance an
      equity  investment,  even if the  transaction is nominally a loan or other
      permissible  transaction.  At December 31, 1998,  the  Association  was in
      compliance with such provisions.

                    Furthermore,  a state-chartered  savings association may not
      engage as principal in any activity not permitted for federal associations
      unless  the  FDIC  has  determined   that  such  activity  would  pose  no
      significant  risk  to  the  affected   deposit   insurance  fund  and  the
      Association  is in compliance  with all applicable  capital  requirements.
      When certain  activities are  permissible for a federal  association,  the
      state  association  may engage in the  activity in a higher  amount if the
      FDIC has not determined  that such activity would pose a significant  risk
      of loss to the affected deposit  insurance fund and the Association  meets
      the  fully  phased-in  capital  requirements.  This  increased  investment
      authority  does not apply to  investments  in  nonresidential  real estate
      loans. At December 31, 1998, the Association had no investments which were
      affected by the foregoing limitations.

                    Under   Louisiana   law,   a   Louisiana-chartered   savings
      association  may  establish  or  maintain  a  branch  office  anywhere  in
      Louisiana with prior  regulatory  approval.  In addition,  an out-of-state
      savings  association or holding company may acquire a  Louisiana-chartered
      savings association or holding company if the OFI determines that the laws
      of such other state permit a  Louisiana-chartered  savings  association or
      holding  company to acquire a savings  association  or holding  company in
      such other state.  Any such  acquisition  would  require the  out-of-state
      entity to apply to the OFI and receive OFI approval.


                                       41
<PAGE>
                                    TAXATION

                    Federal Taxation

                    General.  The Company and the Association are subject to the
      generally  applicable  corporate  tax  provisions  of the  Code,  and  the
      Association is subject to certain additional  provisions of the Code which
      apply to thrifts and other types of financial institutions.  The following
      discussion  of federal  taxation is  intended  only to  summarize  certain
      pertinent  federal  income tax  matters  material  to the  taxation of the
      Company and the Association  and is not a comprehensive  discussion of the
      tax rules applicable to the Company and the Association.

                    Year.  The Company and the  Association  file federal income
      tax returns on the basis of a calendar  year ending on December 31, and it
      is expected that separate returns will be filed for 1998 and 1999.

                    Bad Debt Reserves.  In August 1996,  legislation was enacted
      that repealed the reserve  method of accounting  (including the percentage
      of taxable income method) previously used by many savings  institutions to
      calculate their bad debt reserve for federal income tax purposes.  Savings
      institutions with $500 million or less in assets may, however, continue to
      use the experience  method.  As a result,  the Association  must recapture
      that portion of its reserve  which exceeds the amount that could have been
      taken under the experience method for post-1987 tax years. At December 31,
      1998,   the   Association's   post-1987   excess   reserves   amounted  to
      approximately  $43,000. The legislation also requires savings institutions
      to account for bad debts for federal income tax purposes on the same basis
      as commercial  banks for tax years beginning after December 31, 1995. This
      change in  accounting  method and reversal and excess bad debt reserves is
      adequately provided for in the Association's deferred tax liability.

                    At December 31, 1998, the federal income tax reserves of the
      Association  included  $110,577  for which no federal  income tax has been
      provided. Because of these federal income tax reserves and the liquidation
      account   established  for  the  benefit  of  certain  depositors  of  the
      Association in connection  with the conversion of the Association to stock
      form,  the  retained   earnings  of  the  Association  are   substantially
      restricted.

                    Distributions. If the Association were to distribute cash or
      property  to its sole  stockholder,  and the  distribution  was treated as
      being from its accumulated bad debt reserves, the distribution would cause
      the  Association to have  additional  taxable  income.  A distribution  is
      deemed to have been made from  accumulated bad debt reserves to the extent
      that (a) the reserves  exceed the amount that would have been  accumulated
      on the basis of actual  loss  experience,  and (b) the  distribution  is a
      "non-qualified  distribution."  A distribution  with respect to stock is a
      non-qualified  distribution  to the extent  that,  for federal  income tax
      purposes,  (i) it is in  redemption  of shares,  (ii) it is  pursuant to a
      liquidation  of the  institution,  or  (iii)  in  the  case  of a  current
      distribution,  together  with all  other  such  distributions  during  the
      taxable  year,  it  exceeds  the   institution's   current  and  post-1951
      accumulated  earnings and profits. The amount of additional taxable income
      created by a non-qualified  distribution is an amount that when reduced by
      the tax attributable to it is equal to the amount of the distribution.


                                       42
<PAGE>
                    Minimum Tax. The Code imposes an alternative  minimum tax at
      a rate of 20%. The alternative  minimum tax generally applies to a base of
      regular taxable income plus certain tax preferences  ("alternative minimum
      taxable  income" or ("AMTI")  and is payable to the extent such AMTI is in
      excess  of an  exemption  amount.  The Code  provides  that an item of tax
      preference is the excess of the bad debt deduction allowable for a taxable
      year pursuant to the  percentage of taxable  income method over the amount
      allowable under the experience method.  Other items of tax preference that
      constitute  AMTI  include (a)  depreciation  and (b) 75% of the excess (if
      any) of (i) adjusted  current  earnings as defined in the Code,  over (ii)
      AMTI (determined  without regard to this preference and prior to reduction
      by net operating losses).

                    Net Operating Loss Carryovers.  A financial  institution may
      carry back net operating  losses  ("NOLs") to the preceding  three taxable
      years and  forward to the  succeeding  15 taxable  years.  This  provision
      applies to losses  incurred in taxable  years  beginning  after  1986.  At
      December 31, 1998, the  Association had no NOL  carryforwards  for federal
      income tax purposes.

                    Capital  Gains and Corporate  Dividends-Received  Deduction.
      Corporate  net  capital  gains  are taxed at a  maximum  rate of 35%.  The
      corporate  dividends-received  deduction  is 80% in the case of  dividends
      received from corporations with which a corporate  recipient does not file
      a consolidated tax return, and corporations which own less than 20% of the
      stock of a  corporation  distributing  a dividend  may deduct  only 70% of
      dividends received or accrued on their behalf.  However, a corporation may
      deduct 100% of  dividends  from a member of the same  affiliated  group of
      corporations.

                    Other Matters.  Federal  legislation is introduced from time
      to time that would limit the  ability of  individuals  to deduct  interest
      paid on mortgage loans.  Individuals are currently not permitted to deduct
      interest on consumer loans.  Significant increases in tax rates or further
      restrictions  on the  deductibility  of mortgage  interest could adversely
      affect the Association.

                    The  Association's  federal  income tax  returns for the tax
      years ended 1996,  1997 and 1998 are open under the statute of limitations
      and are  subject to review by the IRS.  The  Association's  tax return for
      1994 was audited by the IRS without material adjustment.

       State Taxation

                    The Company is subject to the Louisiana  Corporation  Income
      Tax based on its Louisiana taxable income, as well as franchise taxes. The
      Corporation  Income Tax applies at graduated  rates from 4% upon the first
      $25,000 of Louisiana  taxable income to 8% on all Louisiana taxable income
      in excess of $200,000.  For these  purposes,  "Louisiana  taxable  income"
      means net income which is earned within or derived from sources within the
      State of Louisiana,  after  adjustments  permitted  under  Louisiana  law,
      including  a  federal  income  tax  deduction  and an  allowance  for  net
      operating losses, if any. In addition,  beginning in 1999, the Association
      is subject to the Louisiana  Shares Tax,  which is imposed on the assessed
      value of its stock.  The formula for  deriving  the  assessed  value is to
      calculate 15% of the sum of (a) 20% of the company's capitalized 

                                       43
<PAGE>
      earnings,  plus (b) 80% of the company's taxable stockholders' equity, and
      to  subtract  from that  figure  50% of the  company's  real and  personal
      property assessment. Various items may also be subtracted in calculating a
      company's capitalized earnings.

     Item 2.   Description of Property.

                    At  December  31,  1998,  the  Company  and the  Association
      conducted their business from the Association's main office in Plaquemine,
      Louisiana.  The following  table sets forth the net book value  (including
      furnishings and equipment) and certain other  information  with respect to
      the offices and other properties of the Company at December 31, 1998.



                                              As of December 31, 1998
                                              -----------------------
                                                       Net Book
                                Leased /              Value of
 Description / Address           Owned               Property       Deposits
 ---------------------           -----               --------       --------
                                                      (Dollars in thousands)

Home Office:
23910 Railroad Avenue
Plaquemine, Louisiana           Owned                 $ 128        $ 19,899


Branch Office
None                                -                     -               -


The  estimated  net book value of electronic  data  processing  and other office
equipment  owned by  Iberville  Building  and Loan  Association  was  $26,000 at
December 31, 1998.

     Item 3.   Legal Proceedings.

                    The  Company  and the  Association  are  involved in routine
      legal  proceedings  occurring in the ordinary course of business which, in
      the  aggregate,  are  believed  by  management  to be  immaterial  to  the
      consolidated financial condition and results of operations of the Company.

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

                                         Not applicable.

 


                                  44
<PAGE>
PART II.

     Item 5.   Market for Common Equity and Related Stockholder Matters.

                    The information  required herein, to the extent  applicable,
      is  incorporated  by  reference  on pages 3 and 48 of the  Company's  1998
      Annual Report.

     Item 6.   Management's Discussion and Analysis or Plan of Operation.

                    The information required herein is incorporated by reference
                    from pages 6 to 15 of the 1998 Annual Report.

     Item 7.   Financial Statements.

                    The information required herein is incorporated by reference
                    from pages 16 to 47 of the 1998 Annual Report.


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

                                           Not applicable.


       PART III.


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

                    The information required herein is incorporated by reference
      from pages 3 and 7 of the  definitive  proxy  statement of the Company for
      the Annual Meeting of Stockholders to be held on April 28, 1999, which was
      filed on March 19, 1999 ("Definitive Proxy Statement")

     Item 10.  Executive Compensation.

                    The information required herein is incorporated by reference
      from pages 7 to 10 the Definitive Proxy Statement.

     Item 11.  Security Ownership of Certain Beneficial Owners and Management.

                    The information required herein is incorporated by reference
      from pages 5 to 6 the Definitive Proxy Statement.

     Item 12.  Certain Relationships and Related Transactions.

                    The information required herein is incorporated by reference
      from pages 10 to 12 the Definitive Proxy Statement.


                                       45
<PAGE>
      Item 13. Exhibits, List and Reports on Form 8-K.

                    (a)    Documents Filed as Part of this Report

                    (1) The following  financial  statements are incorporated by
       reference from Item 7 hereof (see Exhibit 13):

                      Independent Auditor's Report.
                      Consolidated  Statements  of  Financial  Condition  as  of
                       December 31, 1998 and 1997.
                      Consolidated  Statements of Operations for the Years Ended
                       December 31, 1998 and 1997.
                      Consolidated Statements of Changes in Stockholders' Equity
                       for the Years ended December 31, 1998 and 1997.
                      Consolidated  Statements of Cash Flows for the Years Ended
                       December. Notes to Consolidated Financial Statements.

                    (2)  All  schedules  for  which  provision  is  made  in the
      applicable   accounting   regulations   of  the  Securities  and  Exchange
      Commission  ("SEC") are omitted because of the absence of conditions under
      which they are required or because the required information is included in
      the consolidated financial statements and related notes thereto.

                    (3) The  following  exhibits  are filed as part of this Form
      l0-KSB, this list includes the Exhibit Index.

                                  Exhibit Index

                    2.1*   Plan of Conversion
                    3.1*   Articles of  Incorporation  of IBL Bancorp,  Inc.
                    3.2*   Bylaws of IBL Bancorp, Inc. 4.1* Stock Certificate of
                           IBL Bancorp, Inc.
                    10.1*  Employment   Agreement   among  IBL  Bancorp,   Inc.,
                           Iberville  Building and Loan Association and G. Lloyd
                           Bouchereau, Jr., dated September 30, 1998
                    10.2*  Employment   Agreement   among  IBL  Bancorp,   Inc.,
                           Iberville  Building and Loan  Asociation and Danny M.
                           Strickland, dated September 30, 1998
                    13.0   1998 Annual Report to Stockholders
                    27.0   Financial Data Schedule

                    (*)  Incorporated  herein by  reference  from the  Company's
      Registration  Statement on Form SB-2 (Registration No. 333-57623) filed by
      the Company with the SEC on June 24, 1998, as subsequently amended.

                    (b)    Reports on Form 8-K

                    The  Company did not file any reports on Form 8-K during the
       fourth quarter of the year ended December 31, 1998.
 


                                       46

<PAGE>
                                   SIGNATURES

                    In accordance  with Section 13 or 15(d) of the Exchange Act,
      the  registrant  caused  this  report to be  signed  on its  behalf by the
      undersigned, thereunto duly authorized.

                                   IBL BANCORP, INC.


                                             By:    /s/G. Lloyd Bouchereau, Jr.
                                                    ---------------------------
                                                    G. Lloyd Bouchereau, Jr.
                                                    President and
                                                    Chief Executive Officer

                    In  accordance  with the Exchange  Act, this report has been
      signed below by the following  persons on behalf of the  registrant and in
      the capacities and on the date indicated.

 Name                                      Title                      Date
 ----                                      -----                      ----

/s/ G. Lloyd Bouchereau, Jr.          President and Chief        March 19, 1999
----------------------------          Executive Officer
 G. Lloyd Bouchereau, Jr.             

/s/ Bobby E. Stanley                  Director                   March 19, 1999
--------------------- 
Bobby E. Stanley

/s/ John L. Delahaye                  Director                   March 19, 1999
-------------------- 
John L. Delahaye

/s/ Gary K. Pruitt                    Director                   March 19, 1999
------------------ 
Gary K. Pruitt

/s/ Edward J. Steinmetz               Director                   March 19, 1999
----------------------- 
Edward J. Steinmetz

/s/ Danny M. Strickland               Director                   March 19, 1999
----------------------- 
Danny M. Strickland