SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K
    FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

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

                     For the fiscal year ended June 30, 1998

            [ ] Transition Report Pursuant to Section 13 or 15 (d) of the
                         Securities Exchange Act of 1934

                          Commission File No.: 0-21491

                            BIG FOOT FINANCIAL CORP.
             (Exact name of registrant as specified in its charter)

                                    ILLINOIS
         (State or other jurisdiction of incorporation or organization)

                                   36-4108480
                      (I.R.S. Employer Identification No.)

                            1190 RFD, LONG GROVE, IL
                    (Address of principal executive offices)
                                   60047-7304
                                   (Zip code)

                                 (847) 634-2100
               (Registrant's telephone number including area code)

           Securities registered pursuant to Section 12(b) of the Act:
                                      NONE.

           Securities registered pursuant to Section 12(g) of the Act:
                               TITLE OF EACH CLASS
                               -------------------
                     COMMON STOCK, $.01 PAR VALUE PER SHARE

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

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

The aggregate market value of the voting and non-voting common equity of the
Registrant by non-affiliates was approximately $38.2 million as of June 30,
1998.

As of September 4, 1998, 2,493,100 shares of the Registrant's common stock were
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Registrant's 1998 Annual Report to Stockholders are incorporated
by reference in Part II.

Portions of the Registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders are incorporated by reference in Part III.

<PAGE>



                            BIG FOOT FINANCIAL CORP.
                           ANNUAL REPORT ON FORM 10-K
                            FOR THE FISCAL YEAR ENDED
                                  JUNE 30, 1998


                                TABLE OF CONTENTS

ITEM                                  PART I                                PAGE

 1       BUSINESS .....................................................        3
 2       PROPERTIES ...................................................       32
 3       LEGAL PROCEEDINGS ............................................       32
 4       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..........       33

                                     PART II

 5       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS .......................................       33
 6       SELECTED FINANCIAL DATA ......................................       34
 7       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS .......................       35
7A       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
            RISK ......................................................       35
 8       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..................       35
 9       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE ..........................       35

                                    PART III

10       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ...........       35
11       EXECUTIVE COMPENSATION .......................................       35
12       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND
            MANAGEMENT ................................................       36
13       CERTAIN RELATIONSHIPS AND RELATED TRANSCTIONS ................       36

                                     PART IV

14        EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
             FORM 8-K..................................................       36




                                       2
<PAGE>


                                     PART I

ITEM  1.      BUSINESS

          General. Big Foot Financial Corp. (the "Company"), an Illinois
corporation, is the holding company for Fairfield Savings Bank, F.S.B. (the
"Bank"), a federally chartered stock savings bank. On December 19, 1996, the
Bank completed its conversion (the "Conversion") from a federally chartered
mutual savings bank to a federally chartered stock savings bank, and the Company
acquired all of the capital stock of the Bank. The Company issued and sold
2,512,750 shares of its common stock, $.01 par value per share (the "Common
Stock"), at a price of $10.00 per share in a subscription offering (the
"Offering") to eligible members of the Bank and to the Company's Employee Stock
Ownership Plan ("ESOP"). The Company's sole business activity consists of the
business of the Bank. The Company also invests in long and short-term investment
grade marketable securities and other liquid investments.

          At June 30, 1998, the Company had total assets of $220.6 million,
which included $115.5 million of loans receivable and $79.8 million of
mortgage-backed securities. At such date, total savings deposits were $123.8
million, borrowings were $53.0 million and stockholders' equity was $38.1
million. The Company's Common Stock is quoted on the National Market System of
the Nasdaq Stock Market under the symbol "BFFC". Unless otherwise disclosed, the
information presented in this Report on Form 10-K represents the activity of the
Bank for the period prior to December 19, 1996 and the activity of Big Foot
Financial Corp. consolidated thereafter. Unless the context otherwise requires,
all references herein to the Bank or the Company include the Company and the
Bank on a consolidated basis.

          In connection with the Conversion, the Bank changed its fiscal
year-end to June 30. The Company's and the Bank's fiscal year 1997 consisted of
the 11-month period beginning August 1, 1996 and ending June 30, 1997. The
Company believes that it is appropriate to compare the results for the 11-month
period ended June 30, 1997 with the twelve month periods ended June 30, 1998 and
July 31, 1996.

          The Bank was originally founded in 1901 as an Illinois state chartered
mutual savings and loan association. On July 1, 1991, the Bank converted to a
federally chartered mutual savings bank. The Bank is subject to extensive
regulation, supervision and examination by the Office of Thrift Supervision (the
"OTS"), its primary regulator, and the Federal Deposit Insurance Corporation
(the "FDIC"), which insures its deposits. The Bank's savings deposits are
insured up to the maximum allowable amount by the Savings Association Insurance
Fund (the "SAIF") of the FDIC.

          The Bank's principal business consists of gathering savings deposits
from the general public within its market area and investing those savings
deposits primarily in one- to four-family residential mortgage loans,
mortgage-backed securities and obligations of the U.S. Government. To a lesser
extent, the Bank originates multifamily residential loans, commercial real
estate loans, land, construction and development loans, consumer loans
(including loans secured by savings deposits) and commercial lines of credit.
The Bank's revenues are derived principally from interest on mortgage loans and
mortgage-backed securities. The Bank's primary sources of funds are savings
deposits, proceeds from principal and interest payments on loans,
mortgage-backed and investment securities and Federal Home Loan Bank ("FHLB")
advances.

          MARKET AREA. The Bank is a community-oriented financial institution
which provides a variety of financial services to meet the needs of the
communities which it serves. The Bank serves three distinct geographic markets:
the Chicago branch at 1601 North Milwaukee Avenue serves the near northwest side
of the City of Chicago; the Norridge branch at 8301 West Lawrence serves
Chicago's near northwestern suburbs;



                                       3
<PAGE>


and the Long Grove branch at Old McHenry Road and Route 83 serves northern Cook
and southern Lake counties. The Bank's customer base may be categorized by
branch location. In the Chicago branch, the customer base is largely comprised
of blue collar workers and young white collar technicians and professionals. The
Chicago market is experiencing new construction and a refurbishing of its
existing aged housing stock and is becoming an active mortgage market as well as
a savings market. The Norridge branch serves a customer base split between blue
and white collar workers where the market is mature. The Norridge market has
modest prospects for growth; however, it provides the Bank with a stable source
of deposits. The Long Grove office is situated in an affluent, high growth,
white collar market. This is a dynamic market which provides the Bank with
significant loan demand and potential for growth opportunities in savings and
lending activities. Substantially all loans originated by the Bank are secured
by real estate located in Cook, DuPage and Lake counties in Illinois.

          COMPETITION. The Bank faces intense and increasing competition both in
making loans and in attracting savings deposits. The Bank's market area has a
high density of financial institutions, many of which have greater financial
resources, name recognition and market presence than the Bank, and all of which
are competitors of the Bank to varying degrees. Particularly intense competition
exists for savings deposits and the origination of all of the loan products
emphasized by the Bank.

          The Bank's competition for loans comes principally from commercial
banks, other savings banks, savings and loan associations, mortgage banking
companies, finance companies and credit unions. The Bank's most direct
competition for savings deposits historically has come from other savings banks,
savings and loan associations, commercial banks and credit unions. In addition,
the Bank faces increasing competition for savings deposits from non-bank
institutions such as brokerage firms, insurance companies, money market mutual
funds, other mutual funds (such as corporate and government securities funds)
and annuities. Trends toward the consolidation of the banking industry and the
lifting of interstate banking and branching restrictions may make it more
difficult for smaller institutions, such as the Bank, to compete effectively
with large national and regional banking institutions.

          While the Bank is subject to competition from other financial
institutions which may have much greater financial and marketing resources, the
Bank believes it benefits by its community bank orientation as well as its
relatively high core deposit base. Management believes that the variety, depth
and stability of the communities in which the Bank is located support the
service and lending activities conducted by the Bank. The relative economic
stability of the Bank's lending area is reflected in the small number of
mortgage delinquencies experienced by the Bank.

          IMPACT OF THE ECONOMY ON OPERATIONS. Declines in the local economy,
national economy or real estate market could adversely affect the financial
condition and results of operations of the Bank, including decreased demand for
loans or increased competition for good loans, increased non-performing loans
and loan losses and resulting additional provisions for loan losses and for
losses on real estate owned.

LENDING ACTIVITIES

          LOAN PORTFOLIO COMPOSITION. The Bank's loan portfolio consists
primarily of conventional first mortgage loans secured by one- to four-family
residences. At June 30, 1998, the Bank had gross loans receivable outstanding of
$116.1 million, of which $113.4 million, or 97.8% of gross loans, were one- to
four-family residential mortgage loans. The remainder consisted of $0.7 million
of multifamily mortgage loans, or 0.6% of gross loans; $0.8 million of
commercial real estate mortgage loans, or 0.7% of gross loans; $118,000 of land,
construction and development loans, or 0.1% of gross loans; $0.8 million of home
equity loans, or 0.7% of gross loans; and $144,000 of other loans, or 0.1% of
gross loans.



                                        4

<PAGE>

          The loans that the Bank may originate are subject to federal and state
laws and regulations. Interest rates charged by the Bank on loans are affected
by the demand for such loans, the supply of money available for lending purposes
and the rates offered by competitors. These factors are in turn affected by,
among other things, economic conditions, monetary policies of the federal
government, including the Board of Governors of the Federal Reserve System (the
"FRB"), and legislative tax policies.

          All of the Bank's lending is subject to its written, nondiscriminatory
underwriting standards and to loan origination procedures prescribed by the
Bank's Board of Directors the majority of which conform to the Federal National
Mortgage Association ("FNMA") standards. Property valuations by a member of the
Bank's appraisal staff or independent appraisers approved by the Board of
Directors are required. Detailed loan applications are obtained to determine the
borrower's ability to repay, and the more significant items on these
applications are verified through the use of credit reports, financial
statements and confirmations. Generally, the Bank will lend against the
appraised value of property up to a maximum loan to value ratio of 95%. Private
mortgage insurance is required on all loans with loan to value ratios greater
than 80%. All loans are approved by the full Board of Directors. Mortgage loans
originated by the Bank generally include due on sale clauses which provide the
Bank with the contractual right to deem the loan immediately due and payable in
the event the borrower transfers ownership of the property without the Bank's
consent. Due on sale clauses are an important means of adjusting the rates of
the Bank's fixed-rate mortgage loan portfolio, and the Bank has generally
exercised its rights under these clauses. It is the Bank's policy to require
title insurance policies certifying or insuring that the Bank has a valid first
lien on the mortgaged real estate. Borrowers must also obtain hazard insurance
policies prior to closing and, where necessary, flood insurance policies. Most
borrowers are required to maintain a noninterest-bearing escrow account or a
pledged passbook savings account with the Bank to cover charges for real estate
taxes, hazard insurance premiums and assessments.

          Under the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), the aggregate amount of loans that the Bank is permitted to
make to any one borrower is generally limited to 15% of unimpaired capital and
surplus (25% if the security for such loan has a "readily ascertainable" value
or 30% for certain residential development loans). At June 30, 1998, based on
the above, the Bank's regulatory loans to one-borrower limit was approximately
$3.9 million. On the same date, the Bank had no borrowers with outstanding
balances in excess of this amount. At June 30, 1998, the two largest dollar
amounts outstanding to one borrower or group of related borrowers were
approximately $449,000 and $359,000. Both of these loans are secured by one- to
four-family properties located in the Bank's market area and, at June 30, 1998,
were performing in accordance with their terms.

          The following table sets forth the composition of the Bank's mortgage
and other loan portfolios in dollar amounts and in percentages at the dates
indicated.



                                        5

<PAGE>

<TABLE>
<CAPTION>

                                        At June 30,                                      At July 31,
                          --------------------------------------- --------------------------------------------------------
                                 1998                 1997               1996               1995               1994
                          ------------------  ------------------- ------------------ ----------------- -------------------
                                     Percent              Percent            Percent          Percent             Percent
                            Amount   of Total    Amount   of Total  Amount   of Total Amount  of Total  Amount    of Total
                          ------------------  --------- ----------------------------- ------- -------- -------- ---------
                                                             (Dollars in thousands)
<S>                        <C>          <C>   <C>          <C>   <C>          <C>    <C>         <C>   <C>          <C>
Mortgage loans:
   One-to four-family      $113,441     97.8% $ 91,133     96.7% $ 76,325     95.6%  $68,080     94.9% $ 66,318     94.6%
   Multifamily (1)              741      0.6       942      1.0       979      1.2     1,035      1.4     1,335      1.9
   Commercial real
     estate                     833      0.7       384      0.4       411      0.5       441      0.6       475      0.7
   Land,construction/
     development                118      0.1       403      0.4       404      0.5       166      0.2       146      0.2
   Home equity                  822      0.7     1,258      1.3     1,421      1.8     1,691      2.4     1,679      2.4
                           --------   ------  --------   ------  --------   ------   -------   ------  --------   ------
    Total mortgage 
    loans                  $115,955     99.9%  $94,120     99.8% $ 79,540     99.6%  $71,413     99.5% $ 69,953     99.8%
                           ========   ======   =======   ======  ========   ======   =======   ======  ========   ======
Other loans
   Home improvement               -        -         -        -         -        -        15        -        15        -
   Commercial credit 
      lines                       -        -         -        -       150      0.2       131      0.2         -        -
   Loans on savings
      deposits                  144      0.1       181      0.2       192      0.2       212      0.3       135      0.2
                           --------   ------  --------   ------  --------   ------   -------   ------  --------   ------
     Total other loans          144      0.1       181      0.2       342      0.4       358      0.5       150      0.2
                           --------   ------  --------   ------  --------   ------   -------   ------  --------   ------
       Loans receivable,
        gross              $116,099    100.0%  $94,301    100.0% $ 79,882    100.0%  $71,771   100.0%  $ 70,103    100.0%
                           ========   ======   =======   ======  ========   ======   =======   ======  ========   ======
Less:
   Loans in process               -                  -                  -                111               892
   Deferred loan fees           327                377                438                510               573
   Allowance for loan           300                300                300                166               166
     losses
   Capitalized                    -                  -                  -                  -                46
     interest reserve
                           --------            -------            -------            -------           -------
   Loans receivable, net   $115,472            $93,624           $ 79,144            $70,984           $68,426
                           ========            =======           ========            =======           =======
</TABLE>

__________________________

(1) Multifamily includes participations in Community Investment Corporation
("CIC") of $389,000 at June 30, 1998, $413,000 at June 30, 1997, $381,000 at
July 31, 1996, and $321,000 at July 31, 1995. CIC is a not-for-profit tax-exempt
corporation whose purpose is to focus the resources and expertise of the
financial community to revitalize certain neighborhoods in Chicago.


          MORTGAGE LOANS. At June 30, 1998, over 97% of the Bank's $116.1
million mortgage loan portfolio consisted of mortgage loans secured by one- to
four-family residential real estate. While the Bank offers adjustable-rate
mortgage products, the Bank's customer base has historically favored fixed-rate
mortgage loans, which are generally priced off the FNMA delivery rate with
adjustments relating to local competition and the availability of funds. At June
30, 1998, approximately 94% of the Bank's mortgage portfolio was comprised of
fixed-rate loans. The balance of the mortgage loan portfolio is comprised of
adjustable rate loans, including approximately $5.6 million of one- to
four-family residential mortgages, the majority of which are tied to the
National Cost of Funds Index and adjust annually to rates from 2.5% to 2.75%
over the Index. These loans carry annual caps and life-of-the-loan ceilings to
protect borrowers against sudden rate volatility. Generally, adjustable rate
mortgage loans pose credit risks somewhat greater than the credit risk inherent
in fixed-rate loans primarily because, as interest rates rise, the underlying
payments of the borrowers rise, increasing the potential for default. It is the
Bank's policy to underwrite its adjustable rate mortgage loans based on the
fully indexed origination rate. The Bank currently has no mortgage loans that
are subject to negative amortization. Management intends to continue to
emphasize fixed rate loans secured by single family owner-occupied units with 15
year terms. The Bank also makes home equity loans. At June 30, 1998, the Bank
had an aggregate balance of $822,000 in home equity loans.

          LAND, CONSTRUCTION AND DEVELOPMENT LOANS. The Bank offers a
residential construction loan program for custom home buyers and builders, who
typically have a longstanding business relationship with the Bank. The Bank has
established additional guidelines and progress payout procedures for these loans
in recognition of the higher degree of risk involved in making such loans. The
Bank's loss experience in construction lending on single family and multifamily
residences has been extremely favorable. See "-Delinquencies and Non-Performing
Assets."


                                       6

<PAGE>

          In addition to financing custom construction of homes, the Bank
finances detached residential subdivision and condominium land acquisition and
development projects. For these loans, the Bank requires feasibility studies and
economic analyses which address a property's proposed gross sale or rental
income, market absorption rate, occupancy estimates and marketing and operating
expenses in order to ascertain the discounted net sales or capitalized rental
value projections. As a general guideline, actual or projected net cash flows
from these types of lending activities should equal or exceed 120% of the debt
service (excluding condominium properties). A builder or developer's experience
in constructing and marketing properties is also evaluated by the Bank. Each
borrower must demonstrate that it has the financial capacity to fund a project's
debt service.

          MULTIFAMILY RESIDENTIAL AND COMMERCIAL REAL ESTATE. Multifamily
residential and commercial real estate and land loans are generally considered
to involve a higher degree of credit risk than one- to four-family residential
mortgage loans. This greater risk is attributable to several factors, including
the higher concentration of principal in a limited number of loans and
borrowers, the effects of general economic conditions on income-producing
properties and the increased difficulty of evaluating and monitoring these types
of loans. Furthermore, the repayment of loans secured by multifamily residential
and commercial real estate is typically dependent upon sufficient cash flow from
the related real estate project to cover operating expenses and debt service. If
the cash flow from the project is reduced (for example, if leases are not
obtained or renewed), the borrower's ability to repay the loan may be impaired.
Circumstances outside the borrower's control may adversely affect income from
the multifamily or commercial property as well as its market value.

          OTHER LOANS. The Bank also makes short term fixed-rate and
adjustable-rate other loans, such as loans secured by savings accounts and
commercial lines of credit. These loans generally have an average life of less
than two years. The shorter terms to maturity and the short term repricing
periods are helpful in managing the Bank's interest rate risk.

          ORIGINATION OF LOANS. Loans are originated by the Bank's staff of
salaried loan officers. Residential loan originations can be attributed to
depositors, retail customers, telephone inquiries, newspaper ads, loan officers,
and referrals from other borrowers, real estate brokers and builders. Loan
applications are taken and processed at each of the Bank's offices.
Historically, the bulk of all loans originated by the Bank have been retained in
the Bank's portfolio.















          The following table sets forth the Bank's loan originations, loan
sales and principal repayments for the periods indicated.


                                       7


<PAGE>

<TABLE>
<CAPTION>
                                                                       For the
                                                   For the year     eleven months   For the year
                                                  ended June 30,    ended June 30,  ended July 31,
                                                       1998             1997            1996
                                                  --------------   --------------   -------------
                                                                    (In thousands)
<S>                                                <C>                 <C>             <C>
LOAN (GROSS):
   At beginning of period                          $  94,301           $ 79,882        $ 71,771
                                                   ------------        --------        --------
MORTGAGE LOANS ORIGINATED:
   One-to four-family                                 38,612             23,088          19,617
   Multifamily                                            34                  -              86
   Commercial real estate                                550                  -               -
   Land, construction and development                      -                  -              38
                                                   ------------        --------        --------
      Total mortgage loans originated                 39,196             23,088          19,741
OTHER LOANS ORIGINATED:
   Other loans                                           249                192             202
                                                   ------------        --------        --------
      Total loans originated                          39,445             23,280          19,943
                                                   ------------        --------        --------
   Additional draws - open-end home equity loans         428                346             549
Principal repayments                                 (17,838)            (9,207)        (12,377)
Loans sold                                              (237)                 -               -
Loans transferred to real estate owned                     -                  -               -
      Charge-off-CIC participation                         -                  -             (4)
                                                   ============        ========        ========
           LOAN BALANCES AT END OF PERIOD          $ 116,099           $ 94,301        $ 79,882
                                                   ============        ========        ========
</TABLE>


          Income From Lending Activities. The Bank realizes interest income and
servicing fee income from its lending activities. For the most part, interest
rates charged by the Bank on loans are determined by local competition, although
they also reflect general interest rates, demand for loans and availability of
funds.

          The Bank charges service fees, late payment and other miscellaneous
service fees. During the 1998 fiscal year and the fiscal years ended June 30,
1997 and July 31, 1996, the Bank earned an aggregate of such fees totaling
$24,000, $23,000 and $29,000, respectively.




                                       8


<PAGE>

          LOAN MATURITY. The following table shows the contractual maturity of
the Bank's loan portfolio at June 30, 1998. Loans are shown as due based on
their contractual terms to maturity rather than when interest rates are next
subject to change. The table does not include prepayments or scheduled principal
amortization.

<TABLE>
<CAPTION>
                                    Mortgage  loans                                            Total loans
                                    ---------------                                            -----------
                                                          Land,
   Due during     One- to                             construction                                     Weighted
    periods        four-       Multi-    Commercial        and         Home      Other                  average
Ending June 30,    Family      family    Real Estate   development    equity     loans       Amount      rate
---------------  ----------  ----------  -----------   -----------  ---------  ----------  ----------  ---------
                                         (Dollars in thousands)
<S>               <C>         <C>         <C>            <C>          <C>       <C>        <C>           <C>
1999              $  168      $   5       $   -          $    -       $ 15      $  25      $   213       8.00%
2000                  92         10           -               -          1         36          139       8.08
2001                 411         34          85             118         90         77          815       8.59
2002 and 2003      1,711         77         103               -        388          6        2,285       8.36
2004 to 2009      13,811         42          45               -        328          -       14,226       7.31
2010 to 2014      24,252        227         151               -          -          -       24,630       7.07
2015 to 2019       5,159        327         449               -          -          -        5,935       8.22
2020  and
following         67,837         19           -               -          -          -       67,856       7.36
                ---------     ------     --------        -------     -------    ------    ---------     ------
Total loans
due, gross      $113,441      $ 741      $  833          $  118       $822      $ 144     $116,099       7.36%
                =========     ======     ========        =======     =======    ======    ========      =======
</TABLE>



          The following table sets forth at June 30, 1998, the dollar amount of
loans due after June 30, 1999, and whether such loans have fixed interest rates
or adjustable interest rates.


                                               Due after June 30, 1999

                                          Fixed      Adjustable      Total
                                      ------------  ------------  ----------
Mortgage loans:                                   (In thousands)
   One- to four-family                 $ 107,613    $  5,642      $ 113,255
   Multifamily                               754           -            754
   Commercial real estate                    552         281            833
   Land, construction and development          -         118            118
   Home equity                                           807            807
                                               -
                                      ------------  ----------   ------------
Total mortgage loans                   $ 108,919    $  6,848     $  115,767
                                      ------------  ----------   ------------
Other loans                                  119           -            119
                                      ============  ==========   ============
   Total loans                         $ 109,038    $  6,848     $  115,886
                                      ============  ==========   ============


DELINQUENCIES AND NON-PERFORMING ASSETS


          DELINQUENCY PROCEDURES. When a borrower fails to make a required
payment on a loan, the Bank attempts to cause the deficiency to be cured by
contacting the borrower. Contacts are made after a payment is more than 15 days
past due, and a late charge is assessed at that time. In most cases,
deficiencies are cured promptly. If the deficiency exceeds 90 days and is not
cured through the Bank's normal collection procedures, the Bank may institute
measures to remedy the default, including commencing a foreclosure action or
accepting from the mortgagor a voluntary deed of the secured property in lieu of
foreclosure. If a foreclosure


                                       9

<PAGE>

action is instituted and the loan is not reinstated, paid in full or refinanced,
the property is sold at a judicial sale. If the Bank acquires the property at
judicial sale or accepts a voluntary deed of the secured property in lieu of
foreclosure, the acquired property is then listed in the Bank's Real Estate
Owned ("REO") account until it is sold. At June 30, 1998, the Bank had no REO.
The Bank is permitted to finance sales from its REO account by "loans to
facilitate," which involve a lower down payment or a longer repayment term or
other more favorable features than generally would be granted under the Bank's
underwriting guidelines. Currently, the Bank has no such "loans to facilitate."

          The following table sets forth information with respect to the Bank's
non-performing assets (which includes loans that are delinquent for 90 days or
more and REO) at the dates indicated. At June 30, 1998, there were no loans
other than those included in the table below with regard to which management had
information about possible credit problems of the borrower that caused
management to seriously doubt the ability of the borrower to comply with present
loan repayment terms.

<TABLE>
<CAPTION>
                                                  At June 30,          At July 31,
                                               --------------- ----------------------------

Non-performing loans:                           1998     1997    1996      1995       1994
--------------------------------------------- -------  ------- -------- ---------  ---------
                                                              (Dollars in thousands)
<S>                                            <C>     <C>       <C>      <C>       <C>
Mortgage loans:
   One- to four-family                         $ 342   $ 199     $ 69     $ 193     $ 511
   Multifamily                                     -       -        -         -         -
   Commercial real estate                          -       -        -         -         -
   Land, construction and development              -       -        -         -         -
   Home equity                                     -       -       49         -         -
Other loans                                        -       -        -         -         -
                                              ------- ------- --------- ---------  ---------
   Total non-performing loans                    342     199      118       193       511
                                              ------- ------- --------- ---------  ---------
Real estate owned                                  -       -        -       168         -
                                              ------- ------- --------- ---------  ---------
   Total non-performing assets                 $ 342   $ 199    $ 118     $ 361     $ 511
                                              ======= ======= ========= =========  =========
Total non-performing loans to total loans      0.30%   0.21%    0.15%      0.27%     0.74%
Total non-performing assets to total assets    0.16%   0.09%    0.06%      0.18%     0.26%
</TABLE>


          A loan is placed on non-accrual status when it becomes 90 days or more
delinquent and when the collection of principal and/or interest becomes
doubtful. At June 30, 1998, the Bank had no single family residential loans that
were non accruing. The Bank had one single family residential loan with an
outstanding balance of $199,000 at June 30, 1997 that was non-accruing. At July
31, 1996, the Bank had no non-accruing loans. For the year ended June 30, 1998,
the eleven months ended June 30, 1997 and the year ended July 31, 1996, the
amount of interest income that would have been recorded on non-accrual loans had
such loans performed in accordance with their terms was $0, $10,000, and $0,
respectively. Interest earned on loans 90 days or more delinquent and still
accruing interest amounted to $25,000, $36,000, and $67,000 for the fiscal year
ended June 30, 1998, the eleven months ended June 30, 1997 and the fiscal year
ended July 31, 1996, respectively.

          The Bank's non-performing assets at June 30, 1998 consisted of three,
one- to four-family residential loans, with an aggregate outstanding principal
balance of $342,000. The Bank's non-performing assets at June 30, 1997,
consisted of one, one-to four-family residential loan, with an aggregate
outstanding principal balance of $199,000. The properties underlying the
non-performing loans are located in the Chicago metropolitan area.


                                       10

<PAGE>

          CLASSIFIED ASSETS. OTS regulations require that each saving
association classify its assets on a regular basis and establish prudent
valuation allowances based on such classifications. In addition, in connection
with examinations of savings associations, OTS examiners have authority to
identify problem assets and, if appropriate, require them to be classified. OTS
regulations provide for three adverse 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 savings
association will sustain some loss if the deficiencies are not corrected.
Doubtful assets have the weaknesses of Substandard assets, with the additional
characteristics that the weaknesses make collection or liquidation in full on
the basis of currently existing facts, conditions and values questionable, and
there is a high probability of loss. An asset classified Loss is considered
uncollectible and of such little value that its continuance as an asset of the
institution is not warranted. The regulations have also created a Special
Mention category, consisting of assets which do not currently expose a savings
association to a sufficient degree of risk to warrant classification, but do
possess credit deficiencies or potential weaknesses deserving management's close
attention. Assets classified as Substandard or Doubtful require the Bank to
establish prudent valuation allowances. If an asset or portion thereof is
classified as Loss, the association 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. If an association does not agree with an
examiner's classification of an asset, it may appeal this determination to the
District Director of the OTS. On the basis of management's review of its loans
at June 30, 1998, the Bank had no loans, which would have been classified by
management as "Substandard" or "Doubtful" and no potential problem loans, which
would have been classified by management as "Special Mention."

          ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is
established through a provision for loan losses based on management's evaluation
of the risks inherent in the Bank's loan portfolio and the general economy. The
allowance for loan losses is maintained at an amount management considers
adequate to cover loan losses which are deemed probable and estimable. The
allowance is based upon a number of factors, including asset classifications,
economic trends, industry experience and trends, industry and geographic
concentrations, estimated collateral values, management's assessment of the
credit risk inherent in the portfolio, historical loan loss experience and the
Bank's underwriting policies. The allowance for loan losses is maintained at an
amount considered adequate to provide for potential losses. Although management
believes it uses the best information available to make determinations with
respect to the allowance for loan losses, future adjustments may be necessary if
economic conditions and the Bank's actual experience differ substantially from
the conditions and experience used in the assumptions upon which the initial
determinations are based. The OTS, in conjunction with the other federal banking
agencies, has adopted an interagency policy statement on the allowance for loan
and lease losses. The policy statement provides guidance for financial
institutions on both the responsibilities of management for the assessment and
establishment of adequate allowances and guidance for banking agency examiners
in determining the adequacy of general valuation guidelines. Generally, the
policy statement recommends that institutions have effective systems and
controls to identify, monitor and address asset quality problems; that
management analyzes all significant factors that affect the collectibility of
the portfolio in a reasonable manner; and that management establishes acceptable
allowance evaluation processes that meet the objectives set forth in the policy
statement.

          While the Bank believes that it has established an adequate allowance
for loan losses, there can be no assurance that regulators, in reviewing the
Bank's loan portfolio as part of a future regulatory examination, will not
request the Bank to materially increase its allowance for loan losses, thereby
negatively affecting the Bank's financial condition and earnings at that time.
Moreover, no assurance can be made that future additions to the allowance will
not be necessary based on changes in economic and real estate market conditions,
further information obtained regarding known problem loans, identification of
additional problem loans and other factors, both within and outside of
management's control. The directors of the Bank and the Company have reviewed
the provision for loan losses and the allowance for loan losses and the
assumptions utilized by management as to their reasonableness and adequacy.
Specific valuation reserves are provided for individual 


                                       11

<PAGE>


loans which are contractually past due (including loans classified Substandard
or Doubtful) when ultimate collection is considered questionable by management
after reviewing the current status of such loans and considering the net
realizable value of the security for the loan.

          The following table analyzes activity in the Bank's allowance for loan
losses during the periods indicated.

<TABLE>
<CAPTION>
                                                           At or for
                                                At or     the eleven
                                               for the      months
                                             year ended      ended
                                              June 30,      June 30,    At or for the year ended July 31,
                                             -----------  -----------  ---------------------------------
Allowance for Loan Losses                       1998         1997        1996       1995         1994
------------------------------------------- ------------  ----------- --------- ----------- ------------
                                                                   (Dollars in thousands)
<S>                                          <C>           <C>         <C>         <C>         <C>
Balance at beginning of year                 $   300       $   300     $  166      $ 166       $ 184
Provision (credit) for loan losses                 -             -        138          -         (18)
Charge-offs:
Mortgage loans:
   One-to four-family                              -             -          -          -           -
   Multifamily                                     -             -         (4)         -           -
   Commercial real estate                          -             -          -          -           -
   Land, construction and development              -             -          -          -           -
   Home equity                                     -             -          -          -           -
Other loans                                        -             -          -          -           -
                                            ---------     ----------- --------- ----------- ------------
      Total charge-offs                            -             -         (4)         -           -
                                            ---------     ----------- --------- ----------- ------------
Recoveries                                         -             -          -          -           -
                                            ---------     ----------- --------- ---------- -------------
Balance at end of year                        $  300       $   300   $     300     $ 166       $ 166
                                            =========     =========== ========= =========== ============
Allowance for loan losses to total loans
   at the end of the period (1)                 0.26%         0.32%      0.38%      0.23%       0.24%
Allowance for loan losses to total
   non-performing loans at end of period       87.72        150.75     254.24      86.01       32.49
Allowance for loan losses to total
   non-performing assets at end of period      87.72        150.75     254.24      45.98       32.49
Net charge-offs to average loans
   outstanding                                     -             -       0.01          -           -
</TABLE>

_____________________________________
(1) Total loans represent loans, net plus the allowance for loan losses.


          The following tables set forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. The allocation of the allowance
to each category is not necessarily indicative of future losses and does not
restrict the use of the allowance to absorb losses in any category.






                                       12


<PAGE>

<TABLE>
<CAPTION>
                                                                        AT JUNE 30,
                                     -----------------------------------------------------------------------------
                                                        1998                                  1997
                                     --------------------------------------  -------------------------------------
                                                               Percent of                             Percent of
                                                              Loans in Each               Percent    Loans in Each
                                      Allowance   Percent of   Category to   Allowance      of        Category to
                                        Amount    Allowance    Gross Loans    Amount     Allowance    Gross Loans
                                     ----------- ----------   -------------  ---------  -----------  -------------
Mortgage loans:                                                    (Dollars in thousands)
<S>                                    <C>           <C>           <C>         <C>          <C>          <C>
   One-to four-family                  $  125        41.7%         97.8%       $105         35.0%        96.7%
   Multifamily                              4         1.3           0.6           5          1.7          1.0
   Commercial real estate                   8         2.7           0.7           4          1.3          0.4
   Land, construction and
     development                            1         0.3           0.1           2          0.7          0.4
   Home equity                              2         0.7           0.7           3          1.0          1.3
Other loans                                 -           -           0.1           -            -          0.2
Unallocated                               160        53.3             -         181         60.3            -
                                     ----------- ----------   -------------  ---------  -----------  -------------
   Total allowance for loan losses     $  300       100.0%        100.0%       $300        100.0%       100.0%
                                     =========== ==========   =============  =========  ===========  =============
</TABLE>




<TABLE>
<CAPTION>
                                                                           AT JULY 31,
                                ---------------------------------------------------------------------------------------------------
                                              1996                          1995                                1994
                                ----------------------------  ---------------------------------  ----------------------------------
                                                   Percent of                        Percent of                          Percent of
                                                   Loans in                           Loans in                            Loans in
                                                     Each                               Each                                Each
                                                   Category                           Category                            Category
                            Allowance  Percent of  to Gross   Allowance   Percent of  to Gross    Allowance   Percent of  to Gross
                             Amount    Allowance     Loans     Amount     Allowance     Loans      Amount     Allowance     Loans 
                            ---------  ---------   ---------  ---------   ---------   ---------   ---------   ---------   ---------
Mortgage loans:                                         (Dollars in thousands)
<S>                          <C>        <C>        <C>          <C>        <C>          <C>         <C>        <C>          <C>
  One-to four-family         $  85       28.3%      95.6%        $79        47.6%        94.9%      $  83       50.0%        94.6%
  Multifamily                    5        1.7        1.2           6         3.6          1.4           6        3.6          1.9
  Commercial real estate         4        1.3        0.5           4         2.4          0.6           5        3.0          0.7
  Land construction and
       development               2        0.7        0.5           2         1.2          0.2           1        0.6          0.2
  Home equity                    4        1.3        1.8           5         3.0          2.4           4        2.4          2.4
Other loans                      -          -        0.4           -           -          0.5           -          -          0.2
Unallocated                    200       66.7          -          70        42.2           -           67       40.4            -
                             --------  --------   ---------   --------   ---------   ----------   ---------   --------   ---------
  Total allowance for loan
   losses                    $ 300      100.0%     100.0%       $166       100.0%       100.0%      $ 166      100.0%       100.0%
                             ========  ========   =========   ========   =========   ==========   ==========  ========    =========
</TABLE>


INVESTMENT ACTIVITIES

          GENERAL. The investment policy of the Bank, which is approved by the
Board of Directors, is based upon its asset/liability management goals and is
designed primarily to provide and maintain adequate liquidity, maintain a
balance of high quality, diversified investments, minimize risks to the Bank and
complement the Bank's lending activities. The investment policy is implemented
by the Chief Financial Officer and the President. The policy designates the
Chief Financial Officer as the investment manager authorized to oversee the
daily operations of the investment portfolio. Historically, the Bank has
maintained liquid assets at levels above the minimum requirements imposed by the
OTS regulations and above levels believed adequate to meet the requirements of
normal operations, including potential deposit outflows. At June 30, 1998, the
Bank's liquidity ratio for regulatory purposes was 60.8%.

          As required by Statement of Financial Accounting Standards ("SFAS")
115, securities are classified into three categories: trading, held-to-maturity
and available-for-sale. Securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and are reported at fair value with unrealized gains and losses included in
trading account activities in the statement of


                                       13


<PAGE>

earnings. At June 30, 1998, the Bank had no securities which were classified as
trading. Securities that the Bank has the positive intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. All
other securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are reported at fair value
with unrealized gains and losses included, on an after tax basis, as a separate
component of retained earnings. At June 30, 1998, $35.6 million of
mortgage-backed securities and other investments were classified as
available-for-sale. At June 30, 1998, mortgage-backed securities
held-to-maturity totaled $46.7 million and had a fair value of $46.6 million.

          MORTGAGE-BACKED SECURITIES. The Bank invests in mortgage-backed
securities and uses such investments to complement its mortgage lending
activities and supplement such activities at times of low mortgage loan demand.

          At June 30, 1998, all securities in the Bank's mortgage-backed
securities portfolio were directly insured or guaranteed by FNMA or the Federal
Home Loan Mortgage Corporation ("FHLMC"), thereby providing the certificate
holder a guarantee of timely payments of interest and scheduled principal
payments, whether or not they are collected. The Bank's mortgage-backed
securities portfolio had a weighted average yield of 6.68% at June 30, 1998.

          Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees or credit
enhancements that reduce credit risk. In addition, mortgage-backed securities
are more liquid than individual mortgage loans and may be used to collateralize
borrowings of the Bank. In general, mortgage-backed securities issued or
guaranteed by the Government National Mortgage Association ("GNMA"), FNMA and
FHLMC and certain AAA rated mortgage-backed pass through securities are weighted
at no more than 20% for risk based regulatory capital purposes, compared to the
50% risk weighting assigned to most non-securitized residential mortgage 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.

          INVESTMENT SECURITIES. Federal savings associations have the authority
to invest in various types of liquid assets, including United States Treasury
obligations, securities of various federal agencies, certain certificates of
deposit of insured banks and savings institutions, certain bankers' acceptances,
repurchase agreements and federal funds. Subject to various restrictions,
federal savings associations may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federal savings association is otherwise authorized to
make directly. The Bank, from time to time, has used investment securities to
supplement loan volume and to provide short- and intermediate-term assets for
asset/liability management purposes. From time to time, the Bank has invested in
high quality investment securities with various terms to maturity. At June 30,
1998, the Company had $2.6 million investment in preferred stocks and mutual
funds. These investments are managed in the Company's available-for-sale
portfolio.

          The following table sets forth activity in the Bank's mortgage-backed
securities and investment portfolio for the periods indicated.


                                       14

<PAGE>


<TABLE>
<CAPTION>
                                                       For the year    For the eleven    For the year
                                                          ended         months ended         ended
                                                         June 30,         June 30,          July 31,
                                                           1998             1997             1996
                                                     --------------   ----------------  ---------------
                                                                      (In thousands)
   Held-to-maturity:
<S>                                                    <C>              <C>                <C>
      Amortized cost at beginning of period            $ 47,376         $ 44,133           $111,283
      Purchases/sales, net                               10,192           10,207                  -
      Transfer (to) from available-for-sale                   -                -            (56,447)
      Principal repayments                              (10,602)         (6,753)            (10,484)
      Premium and discount amortization, net               (237)           (211)               (219)
                                                     --------------- -----------------  ---------------
      Amortized cost at end of period                  $ 46,729          $47,376           $ 44,133
                                                     --------------- -----------------  ---------------

   Available-for-sale:
      Amortized cost at beginning of period            $ 61,376          $59,898           $     -
      Purchases/sales, net                              (7,440)           10,172             10,081
      Transfer (to) from held-to-maturity                    -                 -             56,447
      Principal repayments                             (18,331)           (8,680)            (6,622)
      Premium and discount amortization, net               (55)              (14)                (8)
                                                     --------------- -----------------  ---------------
      Amortized cost at end of period                  $ 35,550         $ 61,376           $ 59,898
                                                     --------------- -----------------  ---------------

         Total mortgage-backed securities and
            investment portfolio                       $ 82,279         $108,752           $104,031
                                                     =============== =================  ===============
</TABLE>


          The following table sets forth certain information regarding the
amortized cost and fair value of the Bank's mortgage-backed securities and
investments at the dates indicated.

<TABLE>
<CAPTION>
                                                    At June 30,                            At July 31,
                                ---------------------------------------------------- -------------------------
                                          1998                      1997                       1996
                                --------------------------  ------------------------ -------------------------
                                 Amortized                   Amortized                Amortized
                                    Cost      Fair Value        Cost     Fair Value     Cost      Fair Value
                                ----------- --------------  ----------- ------------ ----------- ------------
                                                                (In thousands)
Held-to-Maturity:
<S>                              <C>          <C>           <C>          <C>          <C>         <C>
  FNMA                           $ 44,284     $ 44,087      $ 44,136     $ 43,283     $ 39,135    $ 37,195
  FHLMC                             2,445        2,473         3,240        3,252        4,998       4,960
                                ----------- --------------  ----------- ------------ ----------- ------------
     Total held-to-maturity      $ 46,729     $ 46,560      $ 47,376     $ 46,535     $ 44,133    $ 42,155
                                ----------- --------------  ----------- ------------ ----------- ------------
Available-for-sale:
  FNMA                           $ 22,576     $ 22,693      $ 41,173     $ 41,152     $ 37,454    $ 36,596
  FHLMC                            10,369       10,342        19,187       19,067       22,444      21,682
  Mutual funds and  preferred 
   stock                            2,605        2,569         1,016        1,087            -           -
                                ----------- --------------  ----------- ------------ ----------- ------------
   Total available-for-sale      $ 35,550     $ 35,604      $ 61,376     $ 61,306     $ 59,898    $ 58,278
                                ----------- --------------  ----------- ------------ ----------- ------------
    Total mortgage-backed
      securities and investment
      portfolio                  $ 82,279     $ 82,164      $108,752     $107,841     $104,031    $100,433
                                =========== ==============  =========== ============ =========== ============
</TABLE>


          The table below sets forth certain information regarding the amortized
cost, fair value, weighted average yields and stated maturity of the Bank's
mortgage-backed securities and investment portfolio at June 30, 1998. No effect
has been given to prepayments or amortization of loans. There were no
mortgage-backed securities (exclusive of obligations of the U.S. Government and
any federal agencies) issued by any one entity with a total carrying value in
excess of 10% of stockholders' equity at June 30, 1998.


                                       15


<PAGE>

<TABLE>
<CAPTION>
                                                          At June 30, 1998
                                      -------------------------------------------------------------
                                                                                    Weighted
                                           Amortized            Fair                Average
                                              Cost             Value                 Coupon
                                      ----------------- --------------------- ---------------------
Held-to-Maturity:                                           (Dollars in
                                                             thousands)
<S>                                        <C>              <C>                       <C>
No stated maturity date:                   $      -         $      -                   -  %
Due within 1 year                             2,631            2,657                  6.50
Due after 1 year but within 5 years          26,884           26,563                  6.34
Due after 5 years but within 10 years         2,496            2,515                  7.49
Due after 10 years                           14,718           14,825                  7.16
                                      ----------------- --------------------- ---------------------
   Total held-to-maturity                  $ 46,729         $ 46,560                  6.67%
                                      ----------------- --------------------- ---------------------

Available-for-sale:
No stated maturity date                    $  2,105         $  2,059                  8.68%
Due within 1 year                             6,365            6,297                  5.50
Due after 1 year but within 5 years          15,193           15,130                  6.88
Due after 5 years but within 10 years         4,780            4,910                  7.34
Due after 10 years                            7,107            7,208                  7.04
                                      ----------------- --------------------- ---------------------
   Total available-for-sale                $ 35,550         $ 35,604                  6.83%
                                      ----------------- --------------------- ---------------------

Total:
No stated maturity date                    $  2,105         $  2,059                  8.68%
Due within 1 year                             8,996            8,954                  5.79
Due after 1 year but within 5 years          42,077           41,693                  6.54
Due after 5 years but within 10 years         7,276            7,425                  7.39
Due after 10 years                           21,825           22,033                  7.12
                                      ----------------- --------------------- ---------------------
   Total mortgage-backed securities
       and investment portfolio            $ 82,279         $ 82,164                  6.74%
                                      ================= ===================== =====================
</TABLE>


          REAL ESTATE INVESTMENT. The investment in real estate held for sale
and development originally consisted of 158 single family detached home sites
and a 15-acre commercial parcel in a Planned Unit Development named the Trails
of Olympia Fields. However, the Bank has nearly liquidated this investment
through sales. At June 30, 1998, only one five-acre commercial parcel with a
book value of $262,000 remained unsold. The Company acquired this parcel from
the Bank in the second quarter of fiscal 1997.

          The Bank is currently the plaintiff in litigation brought against the
Village of Olympia Field, its trustees, The Home Owners Association of the
Trails of Olympia Fields and individual members of its Home Owners Association
for actions by these defendants that impeded the orderly development of the
Trails of Olympia Fields.

SOURCES OF FUNDS

          GENERAL. Savings deposits are the primary source of the Bank's funds
for use in lending and for other general business purposes. In addition to
savings deposits, the Bank derives funds from loan and security repayments and
prepayments, from advances from the FHLB of Chicago, from other borrowings, net
revenues from operations and to a lesser extent from loan sales. Loan and
mortgage-backed securities amortizations are a relatively stable source of
funds, while savings inflows and outflows and loan and mortgage-backed
securities prepayments are significantly influenced by general interest rates
and money market conditions. Borrowings, primarily from the FHLB of Chicago, may
be used on a short term basis to compensate for reductions in normal sources of
funds at less than projected levels. They may also be used on a longer term
basis to support expanded activities.


                                       16

<PAGE>


          SAVINGS DEPOSITS. The Bank offers several types of savings programs to
attract short term and long term savings deposits, including passbook, various
NOW accounts, money market deposit accounts and a variety of fixed-rate, money
market certificates. Deposit account terms vary according to the minimum balance
required, the time periods the funds must remain on deposit and the interest
rate, among other factors. The Bank's savings deposits are obtained
predominantly from the areas near its office locations. The Bank relies
primarily on customer service and long-standing relationships with customers to
attract and retain these savings deposits; however, market interest rates and
rates offered by competing financial institutions significantly affect the
Bank's ability to attract and retain savings deposits. Certificate accounts in
excess of $100,000 are not actively solicited by the Bank nor does the Bank use
brokers to obtain savings deposits. At June 30, 1998, the Bank had approximately
$123.8 million outstanding in savings deposits.

          The authority to pay competitive rates on insured savings deposits has
allowed the Bank to be more aggressive in obtaining funds and has given it more
flexibility to minimize net deposit outflows. However, competitive interest
rates have also resulted in a more volatile cost of funds.

          The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average interest rates on each
category of savings deposits presented. Management does not believe that the use
of year end balances instead of average monthly balances would result in any
material difference in the information presented.

<TABLE>
<CAPTION>
                                                        At June 30,                                      At July 31,
                              --------------------------------------------------------------  -----------------------------
                                            1998                            1997                            1996
                              ------------------------------- ------------------------------  -----------------------------

                                       Percent of   Weighted            Percent of  Weighted           Percent of  Weighted
                                         Total       Average              Total      Average             Total      Average
                               Amount   Deposits      Rate      Amount   Deposits     Rate     Amount   Deposits     Rate
                             --------- ----------   ---------  --------- --------   --------  --------- --------   --------
                                                                   (Dollars in thousands)
<S>                          <C>        <C>          <C>      <C>        <C>         <C>      <C>        <C>          <C>
Noninterest-bearing NOW
accounts                     $  5,847     4.7%        -  %     $ 4,582     3.7%         -  %  $  4,165     3.0%        -  %
Interest-bearing NOW accounts   7,668     6.2        2.01        7,178     5.9       2.02        7,310     5.3        2.02
Money market demand accounts   11,797     9.5        3.31       12,281    10.0       3.12       13,035     9.5        3.12
Passbook accounts              38,838    31.4        2.50       39,607    32.2       2.50       41,324    30.2        2.50
Certificates of deposit        59,685    48.2        5.37       59,333    48.2       5.34       71,343    52.0        5.48
                             --------- --------   ---------  ---------  --------   --------   --------- ---------   -------
   Total                     $123,835   100.0%       3.81%    $122,981   100.0%      3.81%    $137,177   100.0%       4.01%
                             ========= ========   =========  =========  ========   ========   ========= =========   =======
</TABLE>


                                       17

<PAGE>


          The following table presents the savings deposit activity of the Bank
for the periods indicated.



<TABLE>
<CAPTION>
                                                      For the year   For the eleven      For the year
                                                         ended        months ended          ended
                                                        June 30,        June 30,           July 31,
                                                         1998            1997               1996
                                                     -------------- ----------------  ----------------
                                                                    (Dollars in thousands)
<S>                                                   <C>               <C>             <C>
Deposits                                              $  263,421        $ 266,195       $  266,028
Withdrawals                                             (267,098)        (284,167)        (282,429)
                                                     -------------- -----------------  ----------------
Deposits in excess of (less than) withdrawals           (  3,677)         (17,972)         (16,401)
Interest credited                                          4,531            3,776            5,228
                                                     -------------- -----------------  ----------------
   Total increase (decrease) in savings deposits      $      854        $ (14,196)      $(  11,173)
                                                     ============== =================  ================
</TABLE>


          At June 30, 1998, the Bank had $6.4 million in certificate accounts
with a balance of $100,000 or greater maturing as follows:

                                                                  Weighted
                                                  Amount        Average Rate
                                              ---------------- ---------------
                                                   (Dollars in thousands)
          Maturity Period
          Within three months                     $   1,183          4.92%
          After three but within six months           1,481          5.47
          After six but within 12 months              1,497          5.33
          After 12 months                             2,258          5.56
                                               --------------  ---------------
             Total                                $  6,419           5.37%
                                               ==============  ===============



          The following table sets forth the amount of certificates of deposit
outstanding at the dates indicated and the remaining period to maturity of the
certificates of deposit outstanding at June 30, 1998.

<TABLE>
<CAPTION>
                         Period to Maturity at June 30, 1998                    Total at
                       ----------------------------------------- ----------------------------------------

                                        One to      More than
                        Less than    Three Years     Three to     June 30,      June 30,      July 31,
Interest Rate Range      One Year                   Five Years      1998          1997          1996
---------------------- ------------- ------------- ------------- ------------  ------------  ------------
                                                   (In thousands)
<S>                    <C>           <C>            <C>           <C>          <C>           <C>        
4.00% and below        $       265   $         -    $       -     $      265   $       257   $       968
4.01% to 5.00%               9,868             -            -          9,868         2,014        18,226
5.01% to 6.00%              28,690         18,703         1,166       48,559        54,622        34,515
6.01% to 7.00%                 981             12           -            993         2,440        17,634

7.01% and above                 -              -            -              -             -             -
                       ============= ============= ============= ============  ============  ============
    Total              $    39,804   $     18,715   $     1,166   $   59,685    $   59,333   $    71,343
                       ============= ============= ============= ============  ============  ============
</TABLE>


                                       18

<PAGE>

          BORROWINGS. Although savings deposits are the primary source of funds
for the Bank's lending and investment activities and for its general business
purposes, the Bank has in the past relied upon advances from the FHLB of Chicago
and, to a lesser extent, reverse repurchase agreements, to supplement its supply
of funds and to meet deposit withdrawal requirements. The Bank may obtain
advances from the FHLB of Chicago on the security of the capital stock of the
FHLB of Chicago it owns and certain of its home mortgage loans and/or
mortgage-backed and investment securities provided certain standards related to
creditworthiness have been met. Such advances are made pursuant to several
different credit programs. Each credit program has its own interest rate and
range of maturities, and the FHLB of Chicago prescribes acceptable uses to which
the advances pursuant to each program may be used as well as limitations on the
size of such advances. Depending on the program, such limitations are based
either on a fixed percentage of assets or the Bank's creditworthiness. The FHLB
is required to review its credit limitations and standards at least once every
six months. FHLB advances have from time to time been used to meet the Bank's
liquidity needs. At June 30, 1998, the Bank had $53.0 million in FHLB of Chicago
borrowings and the capability to borrow additional funds upon complying with the
FHLB of Chicago's collateral requirements.

          The Bank has in the past sold securities under agreements to
repurchase, which transactions are treated as financings, and the obligation to
repurchase the securities sold is reflected as a liability in the statements of
financial condition. The dollar amount of securities underlying the agreements
remains in the asset account and are held in safekeeping. There were no
securities sold under agreements to repurchase outstanding at the end of or
during the fiscal years 1998, 1997, and 1996. The Bank may utilize this type of
financing in the future.

          The following table sets forth certain information regarding
borrowings at the dates and for the periods indicated:


<TABLE>
<CAPTION>
                                                                                       At or for
                                                                     For the year     the eleven       For the year
                                                                         ended       months ended         ended
                                                                       June 30,        June 30,         July 31,
                                                                         1998             1997            1996
                                                                     --------------   -------------   --------------
                                                                                  (Dollars in thousands)
FHLB of Chicago advances:
<S>                                                                   <C>              <C>              <C>
  Maximum amount outstanding at any month-end during the period       $  53,000        $  49,600        $  43,000
  Average daily balance outstanding                                      48,530           43,849           37,800
  Balance outstanding at end of period                                   53,000           49,600           39,900
  Weighted average daily interest rate during the period                   6.61%            6.22%            6.68%
  Weighted average interest rate at end of period                          5.59%            6.41%            6.75%
</TABLE>



SUBSIDIARY ACTIVITIES

          As a federally chartered savings bank, the Bank is permitted to invest
an amount equal to 2% of its assets in service corporation subsidiaries with an
additional investment of 1% of assets where such investment serves primarily
community, inner city and community development. In addition to investments in
service corporations, federal institutions are permitted to invest an unlimited
amount in operating subsidiaries engaged solely in activities which a federal
savings bank may engage in directly. The Bank currently does not have any
subsidiary operations.


                                       19


<PAGE>


PERSONNEL

          At June 30, 1998, the Bank employed 47 full time and 16 part time
employees. At June 30, 1998, 50% of the Bank's full time employees had been with
the Bank for more than ten years. The employees are not represented by a
collective bargaining unit, and the Bank considers its relationship with its
employees to be good. The Bank seeks to compensate its personnel at a level
competitive with its savings institution peers in order to retain highly
qualified employees.

YEAR 2000

          The disclosure required for the Year 2000 Problem is incorporated
herein by reference to pages 22 through 24 of the Company's 1998 Annual Report
to Shareholders under the caption "Year 2000" which section is included in
Exhibit 13.1 to this Report.


                           FEDERAL AND STATE TAXATION


FEDERAL TAXATION


          GENERAL. The following is intended only as a discussion of material
federal income tax matters and does not purport to be a comprehensive
description of the federal income tax rules applicable to the Bank or the
Company. The Bank has not been audited by the IRS during the last five years.
For federal income tax purposes, the Company and the Bank will file consolidated
income tax returns. The Company and the Bank report their income on a fiscal
year basis using the accrual method of accounting and are subject to federal
income taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's tax reserve for bad debts, discussed below.

          TAX BAD DEBT RESERVES. The Bank, as a "small bank" (one with assets
having an adjusted tax basis of $500 million or less) is permitted to maintain a
reserve for bad debts with respect to "qualifying loans," which, primarily
consist of loans secured by certain interests in real property, and to make,
within specified formula limits, annual additions to the reserve which are
deductible for purposes of computing the Bank's taxable income. Pursuant to the
Small Business Job Protection Act of 1996, the Bank is now recapturing (taking
into income) over a multi-year period a portion of the balance of its bad debt
reserve as of July 31, 1996.

          DISTRIBUTIONS. To the extent that the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to result
in distributions from the Bank's "base year reserve," i.e., its reserve as of
July 31, 1988, to the extent thereof and then from the Bank's supplemental
reserve for losses on loans, to the extent thereof, and an amount based on the
amount distributed will be included in the Bank's taxable income. The balance of
the Bank's tax bad debt reserve as of July 31, 1988 was $3,685,478. The balance
of the Bank's supplemental reserve for losses was $2,463,159. Non-dividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the Bank's current or accumulated earnings
and profits will not be so included in the Bank's income.

          The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if the Bank makes a
non-dividend distribution to the Company, approximately one and one-half times
the amount of 


                                       20


<PAGE>

such distribution (but not in excess of the amount of such reserves) would be
includable in income for federal income tax purposes, assuming a 34% federal
corporate income tax rate.

          CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax ("AMT") on
alternative minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI
can be offset by net operating loss carryovers. AMTI is also adjusted by
determining the tax treatment of certain items in a manner that negates the
deferral of income resulting from the regular tax treatment of those items.
Thus, the Bank's AMTI is increased by an amount equal to 75% of the amount by
which the Bank's adjusted current earnings exceeds its AMTI (determined without
regard to this adjustment and prior to reduction for net operating losses). The
Bank does not expect to be subject to the AMT. Although the corporate
environmental tax of 0.12% of the excess of AMTI (with certain modifications)
over $2.0 million has expired, under current Administration proposals, such tax
will be retroactively reinstated for taxable years beginning after December 31,
1997 and before January 2009.

          ELIMINATION OF DIVIDENDS; DIVIDENDS RECEIVED DEDUCTION. The Company
may exclude from its income 100% of dividends received from the Bank as a member
of the same affiliated group of corporations. A 70% dividends received deduction
generally applies with respect to dividends received from domestic corporations
that are not members of such affiliated group, except that an 80% dividends
received deduction applies if the Company and the Bank own more than 20% of the
stock of a corporation paying a dividend.

STATE AND LOCAL TAXATION

          The Bank may file a combined Illinois income tax return with the
Company. For Illinois income tax purposes, the Bank is taxed at an effective
rate equal to 7.3% of Illinois Taxable Income. For these purposes, "Illinois
Taxable Income" generally means federal taxable income, subject to certain
adjustments (including the addition of interest income on state and municipal
obligations and the exclusion of interest income on United States Treasury
obligations). The exclusion of income on United States Treasury obligations has
the effect of reducing the Illinois Taxable Income of the Bank. As of June 30,
1998, the Bank has approximately $9.5 million of Illinois' net loss deduction
carry forward that can be utilized to reduce Illinois taxable income.

          As an Illinois holding company, the Company will pay an annual
franchise tax to the State of Illinois.

          The Company will file a combined Illinois income tax return with the
Bank. The Company will be taxed at an effective rate equal to 7.3% of Illinois
taxable income as defined above.


                                   REGULATION


General


          The Bank is subject to extensive regulation, examination, and
supervision by the OTS, as its chartering agency, and the FDIC, as its deposit
insurer. The Bank's deposit accounts are insured up to applicable limits by the
SAIF administered by the FDIC, and the Bank is a member of the FHLB of Chicago.
The Bank must file reports with the OTS and the FDIC concerning its activities
and financial condition, and it must obtain regulatory approvals prior to
entering into certain transactions, such as mergers with, or acquisitions of,
other depository institutions. The OTS and the FDIC conduct periodic
examinations to assess the Bank's compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which a savings association can engage and is
intended primarily for the protection of the insurance fund and depositors. The
Company, as a publicly-held savings association holding company, is also
required to file certain reports with, and otherwise comply with, the rules and


                                       21

<PAGE>


regulations of the OTS and of the Securities and Exchange Commission (the "SEC")
under the federal securities laws.

          The OTS and the FDIC have significant discretion in connection with
their supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Company, the Bank and the operations of both.

          The following discussion is intended to be a summary of the material
statutes and regulations applicable to savings associations and their holding
companies, and it does not purport to be a comprehensive description of all such
statutes and regulations.

REGULATION OF FEDERAL SAVINGS ASSOCIATIONS.

          BUSINESS ACTIVITIES. The Bank derives its lending and investment
powers from the Home Owners' Loan Act, as amended (the "HOLA"), and the
regulations of the OTS thereunder. Under these laws and regulations, the Bank
may invest in mortgage loans secured by residential and commercial real estate,
commercial and consumer loans, certain types of debt securities, and certain
other assets. The Bank may also establish service corporations that may engage
in activities not otherwise permissible for the Bank, including certain real
estate equity investments and securities and insurance brokerage. These
investment powers are subject to various limitations, including (a) a
prohibition against the acquisition of any corporate debt security that is not
rated in one of the four highest rating categories; (b) a limit of 400% of an
association's capital on the aggregate amount of loans secured by
non-residential real estate property; (c) a limit of 20% of an association's
assets on the aggregate amount of commercial loans; with the amount of
commercial loans in excess of 10% of assets being limited to small business
loans; (d) a limit of 35% of an association's assets on the aggregate amount of
consumer loans and acquisitions of certain debt securities; (e) a limit of 5% of
assets on nonconforming loans (loans in excess of the specific limitations of
the HOLA); and (f) a limit of the greater of 5% of assets or an association's
capital on certain construction loans made for the purpose of financing what is
or is expected to become residential property.

          LOANS TO ONE BORROWER. Under the HOLA, savings associations are
generally subject to the same limits on loans to one borrower as are imposed on
national banks. Generally, under these limits, a savings association may not
make a loan or extend credit to a single or related group of borrowers in excess
of 15% of the association's unimpaired capital and surplus. Additional amounts
may be lent, not in excess of 10% of unimpaired capital and surplus, if such
loans or extensions of credit are fully secured by readily marketable
collateral. Such collateral is defined to include certain debt and equity
securities and bullion but generally does not include real estate. At June 30,
1998, the Bank's regulatory limit on loans to one borrower was $3.9 million. At
June 30, 1998, the Bank's largest aggregate amount of loans to one borrower was
$449,000, and the second largest borrower had an aggregate balance of $359,000.
The Bank is in compliance with all applicable limitations on loans to one
borrower.

          QTL TEST. The HOLA requires a savings association to meet a qualified
thrift lender, or "QTL" test. Under the QTL test, a savings association is
required to maintain at least 65% of its "portfolio assets" in certain
"qualified thrift investments" in at least nine months of the most recent
12-month period. "Portfolio assets" means, in general, an association's total
assets less the sum of (a) specified liquid assets up to 20% of total assets,
(b) certain intangibles, including goodwill and credit card and purchased
mortgage servicing rights, and (c) the value of property used to conduct the
association's business. "Qualified thrift investments" includes various types of
loans made for residential and housing purposes, investments related to such
purposes, including certain mortgage-backed and related securities, consumer
loans, small business loans, education loans, and credit card loans. At June 30,
1998, the Bank maintained 99% of its portfolio assets in 


                                       22

<PAGE>


qualified thrift investments. The Bank had also met the QTL test in each of the
prior 12 months and was, therefore, a qualified thrift lender. A savings
association may also satisfy the QTL test by qualifying as a "domestic building
and loan association" as defined in the Internal Revenue Code of 1986.

          A savings association that fails the QTL test must either operate
under certain restrictions on its activities or convert to a bank charter. The
initial restrictions include prohibitions against (a) engaging in any new
activity not permissible for a national bank, (b) paying dividends not
permissible under national bank regulations, (c) obtaining new advances from any
Federal Home Loan Bank and (d) establishing any new branch office in a location
not permissible for a national bank in the association's home state. In
addition, within one year of the date that a savings association ceases to meet
the QTL test, any company controlling the association would have to register
under, and become subject to the requirements of, the Bank Holding Company Act
of 1956, as amended (the "BHC Act"). If the savings association does not
requalify under the QTL test within the three-year period after it failed the
QTL test, it would be required to terminate any activity and to dispose of any
investment not permissible for a national bank and would have to repay as
promptly as possible any outstanding advances from a Federal Home Loan Bank. A
savings association that has failed the QTL test may requalify under the QTL
test and be free of such limitations, but it may do so only once.

          CAPITAL REQUIREMENTS. The OTS regulations require savings associations
to meet three minimum capital standards: a tangible capital ratio requirement of
1.5% of total assets as adjusted under the OTS regulations, a leverage ratio
requirement of 3% of core capital to such adjusted total assets and a risk-based
capital ratio requirement of 8% of total risk-based capital to total
risk-weighted assets. The FDIC and the federal banking regulators have proposed
amendments to their minimum capital regulations to provide that the minimum
leverage capital ratio for a depository institution that has been assigned the
highest composite rating of 1 under the Uniform Financial Institutions Rating
System will be 3% and that the minimum leverage capital ratio for any other
depository institution will be 4%, unless a higher leverage capital ratio is
warranted by the particular circumstances or risk profile of the depository
institution. In determining compliance with the risk-based capital requirement,
a savings association must compute its risk-weighted assets by multiplying its
assets and certain off balance sheet items by risk weights, which range from 0%
for cash and obligations issued by the United States Government or its agencies
to 100% for consumer and commercial loans, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
Tangible capital is defined, generally, as common stockholders' equity
(including retained earnings), certain noncumulative perpetual preferred stock
and related earnings and minority interests in equity accounts of fully
consolidated subsidiaries, less intangibles (other than certain purchased
mortgage servicing rights) and investments in and loans to subsidiaries engaged
in activities not permissible for a national bank. Core capital is defined
similarly to tangible capital, but core capital also includes certain qualifying
supervisory goodwill and certain purchased credit card relationships.
Supplementary capital currently includes cumulative and other perpetual
preferred stock, mandatory convertible securities, subordinated debt and
intermediate preferred stock and the allowance for loan and lease losses. The
allowance for loan and lease losses includable in supplementary capital is
limited to a maximum of 1.25% of risk-weighted assets, and the amount of
supplementary capital that may be included as total capital cannot exceed the
amount of core capital.

          The OTS and the other federal banking regulators adopted, effective
October 1, 1998, an amendment to their risk-based capital guidelines that
permits insured depository institutions to include in supplementary capital up
to 45% of the pretax net unrealized holding gains on certain available-for-sale
equity securities, as such gains are computed under the guidelines. The OTS has
promulgated a regulation that requires a savings association with "above normal"
interest rate risk, when determining compliance with its risk-based capital
requirements, to hold additional capital to account for its "above normal"
interest rate risk. Pending resolution of related regulatory issues, the OTS has
deferred enforcement of this regulation. A savings association's interest rate
risk is measured by the decline in the net portfolio value of its assets (i.e.,
the 


                                       23


<PAGE>

difference between incoming and outgoing discounted cash flows from assets,
liabilities and off balance sheet contracts) resulting from a hypothetical 2%
increase or decrease in market rates of interest, divided by the estimated
economic value of the association's assets, as calculated in accordance with
guidelines set forth by the OTS. At the times when the 3 month Treasury bond
equivalent yield falls below 4%, an association may compute its interest rate
risk on the basis of a decrease equal to one-half of that Treasury rate rather
than on the basis of 2%. A savings association whose measured interest rate risk
exposure exceeds 2% would be considered to have "above normal" risk. The
interest rate risk component is an amount equal to one-half of the difference
between the association's measured interest rate risk and 2%, multiplied by the
estimated economic value of the association's assets. That dollar amount is
deducted from an association's total capital in calculating compliance with its
risk based capital requirement. Any required deduction for interest rate risk
becomes effective on the last day of the third quarter following the reporting
date of the association's financial data on which the interest rate risk was
computed. An institution with assets of less than $300 million and risk-based
capital ratios in excess of 12% is not subject to the interest rate risk
component, unless the OTS determines otherwise. The rule also provides that the
Director of the OTS may waive or defer an institution's interest rate risk
component on a case-by-case basis. The OTS has indefinitely deferred the
implementation of the interest rate risk component in the computation of an
institution's risk-based capital requirements. The OTS continues to monitor the
interest rate risk of individual institutions and retains the right to impose
additional capital requirements on individual institutions.

          At June 30, 1998, the Bank met each of its capital requirements.

          The table below presents the Bank's regulatory capital as compared to
the OTS regulatory capital requirements at June 30, 1998.

<TABLE>
<CAPTION>
                                                          Bank Capital
                                     Bank                  Requirements              Bank Excess
                           ------------------------- ----------------------------------------------------
                             Amount       Percent      Amount       Percent       Amount      Percent
                           ------------ ------------ ------------ ------------ ----------- --------------
                                                       (Dollars In thousands)
<S>                         <C>            <C>         <C>            <C>        <C>           <C>
Tangible capital.......     $  25,888      12.30%      $3,158         1.50%      $22,730       10.80%
Core capital...........        25,888      12.30        6,316         3.00        19,572        9.30
Risk-based capital.....        26,188      31.76        6,597         8.00        19,591       23.76
</TABLE>


          A reconciliation between the Bank's regulatory capital and GAAP
capital at June 30, 1998 is presented below.

<TABLE>
<CAPTION>
                                                   Tangible       Core      Risk-based
                                                    Capital      Capital      Capital
                                                  ------------ ------------ ------------
                                                               (In thousands)

<S>                                                 <C>          <C>          <C>
GAAP capital......................................  $ 25,968     $ 25,968     $ 25,968
Unrealized loss on mortgage-backed securities
  available-for-sale, net of tax..................       (80)         (80)         (80)
Allowance for loan losses.........................         -            -          300
                                                    --------- ------------- ------------
Regulatory capital................................  $ 25,888     $ 25,888     $ 26,188
                                                    --------- ------------- ------------
</TABLE>


                                       24

<PAGE>


          LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations currently impose
limitations upon capital distributions by savings associations, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash out merger and other distributions
charged against capital. At least 30-days written notice must be given to the
OTS of a proposed capital distribution by a savings association, and capital
distributions in excess of specified earnings or by certain institutions are
subject to approval by the OTS. An association that has capital in excess of all
fully phased-in regulatory capital requirements before and after a proposed
capital distribution and that is not otherwise restricted in making capital
distributions, may, after prior notice but without the approval of the OTS, make
capital distributions during a calendar year equal to the greater of (a) 100% of
its net earnings to date during the calendar year plus the amount that would
reduce by its "surplus capital ratio" (the excess capital over its fully
phased-in capital requirements) at the beginning of the calendar year, or (b)
75% of its net earnings for the previous four quarters. Any additional capital
distributions would require prior OTS approval. The OTS has proposed amendments
of its capital distribution regulations to reduce regulatory burdens on savings
associations. If adopted as proposed, certain savings associations will be
permitted to pay capital distributions within the amounts described above for
Tier 1 institutions without notice to, or the approval of, the OTS. However, a
savings association subsidiary of a savings and loan holding company, such as
the Bank, will continue to have to file a notice unless the specific capital
distribution requires an application. In addition, the OTS can prohibit a
proposed capital distribution, otherwise permissible under the regulation, if
the OTS has determined that the association is in need of more than normal
supervision or if it determines that a proposed distribution by an association
would constitute an unsafe or unsound practice. Furthermore, under the OTS
prompt corrective action regulations, the Bank would be prohibited from making
any capital distribution if, after the distribution, the Bank failed to meet its
minimum capital requirements, as described above.

          LIQUIDITY. The Bank is required to maintain an average daily balance
of liquid assets (cash, certain time deposits, bankers' acceptances, specified
United States Government, state or federal agency obligations, shares of certain
mutual funds and certain corporate debt securities and commercial paper) equal
to a monthly average of not less than a specified percentage of its net
withdrawable deposit accounts plus short-term borrowings. This liquidity
requirement may be changed from time to time by the OTS to any amount within the
range of 4% to 10% depending upon economic conditions and the savings flows of
member institutions, and is currently 4%. Monetary penalties may be imposed for
failure to meet these liquidity requirements. The Bank's average liquidity ratio
for the month ended June 30, 1998, was 59.8%, which exceeded the applicable
requirements. The Bank has never been subject to monetary penalties for failure
to meet its liquidity requirements.

          ASSESSMENTS. Savings associations are required by OTS regulation to
pay assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semiannual basis, is computed upon the savings
association's total assets, including consolidated subsidiaries, as reported in
the association's latest quarterly Thrift Financial Report. During July, 1998,
the Bank paid the semiannual assessment of $29,225. The OTS has proposed
amendments to its regulations that are intended to assess savings associations
on a more equitable basis. The proposed regulations would base the assessment
for an individual savings association on three components: the size of the
association, on which the basic assessment would be based; the association's
supervisory condition, which would result in percentage increases for any
savings institution with a composite rating of 3, 4, or 5 in its most recent
safety and soundness examination; and the complexity of the association's
operations, which would result in percentage increases for a savings association
that managed over $1 billion in trust assets, serviced for others loans
aggregating more than $1 billion, or had certain off-balance sheet assets
aggregating more than $1 billion. In order to avoid a disproportionate impact on
the smaller savings institutions, the OTS is proposing to permit the portion of
the assessment based on assets size either under the current regulations or
under the amended regulations.


                                       25

<PAGE>

         BRANCHING.  Subject  to  certain  limitations,  the  HOLA  and  the OTS
regulations  permit  federally  chartered  savings   associations  to  establish
branches in any state of the United  States.  The  authority to  establish  such
branches is available (a) in states that expressly authorize branches of savings
associations  located  in another  state or (b) to an  association  that  either
satisfies  the  "QTL"  test for a  qualified  thrift  lender or  qualifies  as a
"domestic  building and loan  association"  under the  Internal  Revenue Code of
1986, which imposes qualification requirements similar to those for a "qualified
thrift  lender"  under the HOLA.  See "QTL" Test.  The  authority  for a federal
savings association to establish an interstate branch network would facilitate a
geographic diversification of the association's activities. This authority under
the HOLA and the OTS  regulations  preempts any state law purporting to regulate
branching by federal savings associations.

         COMMUNITY  REINVESTMENT.  Under  the  Community  Reinvestment  Act (the
"CRA"),  as  implemented  by  OTS  regulations,  a  savings  association  has  a
continuing  and  affirmative  obligation  consistent  with its  safe  and  sound
operation to help meet the credit needs of its entire  community,  including low
and moderate income  neighborhoods.  The CRA does not establish specific lending
requirements  or  programs  for  financial  institutions  nor  does it  limit an
institution's  discretion  to develop the types of products and services that it
believes are best suited to its particular  community,  consistent with the CRA.
The CRA  requires  the OTS,  in  connection  with its  examination  of a savings
association,  to assess the association's  record of meeting the credit needs of
its community and to take such record into account in its  evaluation of certain
applications by such association. The CRA also requires all institutions to make
public disclosure of their CRA ratings.  The Bank received a "Satisfactory"  CRA
rating in its most recent examination.

          In April 1995, the OTS and the other federal banking agencies adopted
amendments revising their CRA regulations. Among other things, the amended CRA
regulations substitute for the prior process-based assessment factors a new
evaluation system that would rate an institution based on its actual performance
in meeting community needs. In particular, the system will focus on three tests:
(a) a lending test, to evaluate the institution's record of making loans in its
assessment areas; (b) an investment test, to evaluate the institution's record
of investing in community development projects, affordable housing, and programs
benefiting low or moderate income individuals and businesses; and (c) a service
test, to evaluate the institution's delivery of services through its branches,
ATMs and other offices. The amended CRA regulations also clarify how an
institution's CRA performance would be considered in the application process.

          TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with its "affiliates" is limited by the OTS regulations and by
Sections 23A and 23B of the Federal Reserve Act (the "FRA"). In general, an
affiliate of the Bank is any company that controls the Bank or any other company
that is controlled by a company that controls the Bank, excluding the Bank's
subsidiaries other than those that are insured depository institutions.
Currently, a subsidiary of a bank that is not also a depository institution is
not treated as an affiliate of the bank for purposes of Sections 23A and 23B,
but the FRB has proposed treating any subsidiary of a bank that is engaged in
activities not permissible for bank holding companies under the BHCA as an
affiliate for purposes of Sections 23A and 23B. The OTS regulations prohibit a
savings association (a) from lending to any of its affiliates that is engaged in
activities that are not permissible for bank holding companies under Section
4(c) of the BHC Act and (b) from purchasing the securities of any affiliate
other than a subsidiary. Section 23A limits the aggregate amount of transactions
with any individual affiliate to 10% of the capital and surplus of the savings
association and also limits the aggregate amount of transactions with all
affiliates to 20% of the savings association's capital and surplus. Extensions
of credit to affiliates are required to be secured by collateral in an amount
and of a type described in Section 23A, and the purchase of low quality assets
from affiliates is generally prohibited. Section 23B provides that certain
transactions with affiliates, including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the association as those
prevailing at the time for comparable transactions with nonaffiliated companies.
In the absence of comparable transactions, such transactions may only occur
under terms and circumstances, including credit standards, that in good faith
would be offered to or would apply to nonaffiliated companies.


                                       26


<PAGE>


          The Bank's authority to extend credit to its directors, executive
officers, and 10% shareholders, as well as to entities controlled by such
persons, is currently governed by the requirements of Sections 22(g) and 22(h)
of the FRA and Regulation O of the FRB thereunder. Among other things, these
provisions require that extensions of credit to insiders (a) be made on terms
that are substantially the same as, and follow credit underwriting procedures
that are not less stringent than, those prevailing for comparable transactions
with unaffiliated persons and that do not involve more than the normal risk of
repayment or present other unfavorable features and (b) not exceed certain
limitations on the amount of credit extended to such persons, individually and
in the aggregate, which limits are based, in part, on the amount of the
association's capital. In addition, extensions of credit in excess of certain
limits must be approved by the association's board of directors.

          ENFORCEMENT. Under the Federal Deposit Insurance Act (the "FDI Act"),
the OTS has primary enforcement responsibility over savings associations and has
the authority to bring enforcement action against all "institution affiliated
parties," including any controlling stockholder or any stockholder, attorney,
appraiser or accountant who knowingly or recklessly participates in any
violation of applicable law or regulation or breach of fiduciary duty or certain
other wrongful actions that causes or is likely to cause more than a minimal
loss or other significant adverse effect on an insured savings association.
Civil penalties cover a wide range of violations and actions and range from
$5,000 for each day during which violations of law, regulations, orders, and
certain written agreements and conditions continue, up to $1 million per day for
such violations if the person obtained a substantial pecuniary gain as a result
of such violation or knowingly or recklessly caused a substantial loss to the
institution. Criminal penalties for certain financial institution crimes include
fines of up to $1 million and imprisonment for up to 30 years. In addition,
regulators have substantial discretion to take enforcement action against an
institution that fails to comply with its regulatory requirements, particularly
with respect to its capital requirements. Possible enforcement actions range
from the imposition of a capital plan and capital directive to receivership,
conservatorship, or the termination of deposit insurance. Under the FDI Act, the
FDIC has the authority to recommend to the Director of OTS that enforcement
action be taken with respect to a particular savings association. If action is
not taken by the Director of the OTS, the FDIC has authority to take such action
under certain circumstances.

          STANDARDS FOR SAFETY AND SOUNDNESS. Pursuant to the FDI Act, as
amended by FDICIA and the Riegle Community Development and Regulatory
Improvement Act of 1994 (the "Community Development Act"), the OTS and the
federal bank regulatory agencies have adopted, a set of guidelines prescribing
safety and soundness standards pursuant to FDICIA, as amended. The guidelines
establish general standards relating to internal controls and information
systems, internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, asset quality, earnings standards, and
compensation, fees and benefits. In general, the guidelines require, among other
things, appropriate systems and practices to identify and manage the risks and
exposures specified in the guidelines. The guidelines prohibit excessive
compensation as an unsafe and unsound practice and describe compensation as
excessive when the amounts paid are unreasonable or disproportionate to the
services performed by an executive officer, employee, director or principal
stockholder. In addition, the OTS adopted regulations that authorize, but do not
require, the OTS to order an institution that has been given notice by the OTS
that it is not satisfying any of such safety and soundness standards to submit a
compliance plan. If, after being so notified, an institution fails to submit an
acceptable compliance plan or fails in any material respect to implement an
accepted compliance plan, the OTS must issue an order directing action to
correct the deficiency and may issue an order directing other actions of the
types to which an undercapitalized association is subject under the "prompt
corrective action" provisions of FDICIA. If an institution fails to comply with
such an order, the OTS may seek to enforce such order in judicial proceedings
and to impose civil money penalties.

          REAL ESTATE LENDING STANDARDS. The OTS and the other federal banking
agencies adopted regulations to prescribe standards for extensions of credit
that (a) are secured by real estate or (b) are made for the purpose of financing
the construction of improvements on real estate. The OTS regulations require
each


                                       27


<PAGE>

savings association to establish and maintain written internal real estate
lending standards that are consistent with safe and sound banking practices and
appropriate to the size of the association and the nature and scope of its real
estate lending activities. The standards also must be consistent with
accompanying OTS guidelines, which include loan-to-value ratios for the
different types of real estate loans. Associations are also permitted to make a
limited amount of loans that do not conform to the proposed loan-to-value
limitations so long as such exceptions are reviewed and justified appropriately.
The guidelines also list a number of lending situations in which exceptions to
the loan-to-value standards are justified.

          PROMPT CORRECTIVE REGULATORY ACTION. Under the OTS prompt corrective
action regulations, the OTS is required to take certain, and is authorized to
take other, supervisory actions against undercapitalized savings associations.
For this purpose, a savings association would be placed in one of five
categories based on the association's capital. Generally, a savings association
is treated as "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10.0%, its ratio of core capital to risk weighted assets is
at least 6.0%, its ratio of core capital to total assets is at least 5.0%, and
it is not subject to any order or directive by the OTS to meet a specific
capital level. A savings association will be treated as "adequately capitalized"
if its ratio of total capital to risk-weighted assets is at least 8.0%, its
ratio of core capital to risk weighted assets is at least 4.0%, and its ratio of
core capital to total assets is at least 4.0% (3.0% if the association receives
the highest rating on the CAMELS financial institutions rating system). A
savings association that has a total risk based capital of less than 8.0% or a
leverage ratio or a Tier 1 capital ratio that is less than 4.0% (3.0% leverage
ratio if the association receives the highest rating on the CAMELS financial
institutions rating system) is considered to be "undercapitalized." A savings
association that has a total risk based capital of less than 6.0% or a Tier 1
risk based capital ratio or a leverage ratio of less than 3.0% is considered to
be "significantly undercapitalized." A savings association that has a tangible
capital to assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." The elements of an association's capital for purposes of the
prompt corrective action regulations are defined generally as they are under the
regulations for minimum capital requirements.

          The severity of the action authorized or required to be taken under
the prompt corrective action regulations increases as an association's capital
deteriorates within the three undercapitalized categories. All associations are
prohibited from paying dividends or other capital distributions or paying
management fees to any controlling person if, following such distribution, the
association would be undercapitalized. An undercapitalized association is
required to file a capital restoration plan within 45 days of the date the
association receives notice that it is within any of the three undercapitalized
categories. The OTS is required to monitor closely the condition of an
undercapitalized association and to restrict the asset growth, acquisitions,
branching, and new lines of business of such an association. Significantly
undercapitalized associations are subject to restrictions on compensation of
senior executive officers; such an association may not, without OTS consent, pay
any bonus or provide compensation to any senior executive officer at a rate
exceeding the officer's average rate of compensation (excluding bonuses, stock
options and profit-sharing) during the 12 months preceding the month when the
association became undercapitalized. A significantly undercapitalized
association may also be subject, among other things, to forced changes in the
composition of its board of directors or senior management, additional
restrictions on transactions with affiliates, restrictions on acceptance of
deposits from correspondent associations, further restrictions on asset growth,
restrictions on rates paid on deposits, forced termination or reduction of
activities deemed risky, and any further operational restrictions deemed
necessary by the OTS.

          If one or more grounds exist for appointing a conservator or receiver
for an association, the OTS may require the association to issue additional debt
or stock, sell assets, be acquired by a depository association holding company
or combine with another depository association. The OTS and the FDIC have a
broad range of grounds under which they may appoint a receiver or conservator
for an insured depositary association. Under FDICIA, the OTS is required to
appoint a receiver (or with the concurrence of the FDIC, a conservator) for a
critically undercapitalized association within 90 days after the association
becomes critically


                                       28


<PAGE>

undercapitalized or, with the concurrence of the FDIC, to take such other action
that would better achieve the purposes of the prompt corrective action
provisions. Such alternative action can be renewed for successive 90-day
periods. However, if the association continues to be critically undercapitalized
on average during the quarter that begins 270 days after it first became
critically undercapitalized, a receiver must be appointed, unless the OTS makes
certain findings with which the FDIC concurs and the Director of the OTS and the
Chairman of the FDIC certify that the association is viable. In addition, an
association that is critically undercapitalized is subject to more severe
restrictions on its activities, and is prohibited, without prior approval of the
FDIC from, among other things, entering into certain material transactions or
paying interest on new or renewed liabilities at a rate that would significantly
increase the association's weighted average cost of funds.

          When appropriate, the OTS can require corrective action by a savings
association holding company under the "prompt corrective action" provisions of
FDICIA.

          INSURANCE OF DEPOSIT ACCOUNTS. The Bank is a member of the SAIF, and
the Bank pays its deposit insurance assessments to the SAIF. The FDIC also
maintains another insurance fund, the BIF, which primarily insures the deposits
of banks and state chartered savings banks.

          Pursuant to FDICIA, the FDIC established a risk based assessment
system for determining the deposit insurance assessments to be paid by insured
depositary institutions. Under the assessment system, the FDIC assigns an
institution to one of three capital categories based on the institution's
financial information as of the reporting period ending seven months before the
assessment period. The three capital categories consist of (a) well capitalized,
(b) adequately capitalized or (c) undercapitalized. The FDIC also assigns an
institution to one of three supervisory subcategories within each capital group.
The supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary federal
regulator and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned. Under the regulation, there are
nine assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied.
Assessment rates currently range from 0.0% of deposits for an institution in the
highest category (i.e., well-capitalized and financially sound, with no more
than a few minor weaknesses) to 0.27% of deposits for an institution in the
lowest category (i.e., undercapitalized and substantial supervisory concern).
The FDIC is authorized to raise the assessment rates as necessary to maintain
the required reserve ratio of 1.25%. As a result of the Deposit Insurance Funds
Act of 1996 (the "1996 Act"), both the BIF and the SAIF currently satisfy the
reserve ratio requirement. The 1996 Act authorized the FDIC to impose a special
one-time assessment on all institutions with SAIF-assessable deposits in the
amount necessary to recapitalize the SAIF-assessable deposits as of March 31,
1995. For the Bank, the special assessment was $936,000. The impact on
operations, net of related tax effects, reduced reported earnings by $617,000
for the eleven months ended June 30, 1997.

          The 1996 Act also provides that the FDIC cannot assess regular
insurance assessments for an insurance fund unless required to maintain or to
achieve the designated reserve ratio of 1.25%, except on those of its member
institutions that are not classified as "well capitalized" or that have been
found to have "moderately severe" or "unsatisfactory" financial, operational or
compliance weaknesses. The Bank has not been so classified by the FDIC or the
OTS.

          In addition, the 1996 Act expanded the assessment base for the
payments on the bonds (the "FICO bonds") issued in the late 1980s by the
Financing Corporation to recapitalize the now defunct Federal Savings and Loan
Insurance Corporation to include the deposits of both BIF- and SAIF-insured
institutions beginning January 1, 1997. Until December 31, 1999, or such earlier
date on which the last savings association ceases to exist, the rate of
assessment for BIF-assessable deposits will be one-fifth of the rate imposed on
SAIF-assessable deposits. For the semi-annual period beginning on July 1, 1997,
the rates of assessment for the


                                       29


<PAGE>

FICO bonds are 0.0126% for BIF-assessable deposits and 0.0630% for
SAIF-assessable deposits. For the semi-annual period beginning July 1, 1998, the
rates of assessment for the FICO bonds is 0.0122% for BIF-assessable deposits
and 0.0610% for SAIF-assessable deposits.

          The 1996 Act also provides for the merger of the BIF and SAIF on
January 1, 1999, with such merger being conditioned upon the prior elimination
of the thrift charter. The Secretary of the Treasury is required to conduct a
study of relevant factors with respect to the development of a common charter
for all insured depository institutions and abolition of separate charters for
banks and thrifts and to report the Secretary's conclusions and findings to the
Congress. The Secretary of the Treasury has recommended that the separate
charter for thrifts be eliminated only if other legislation is adopted that
permits bank holding companies to engage in certain non-financial activities.
Absent legislation permitting such non-financial activity, the Secretary of the
Treasury recommended retention of the thrift charter. The Secretary of the
Treasury also recommended the merger of the BIF and the SAIF irrespective of
whether the thrift charter is eliminated. However, the current version of bank
modernization legislation, The Financial Services Act of 1998, H.R. 10, which
was passed by the U.S. House of Representatives in May 1998 and was being
considered by the U.S. Senate over the summer of 1998, does not require thrift
institutions to convert to bank charter. H.R. 10 also requires the FDIC's Board
of Governors to report to Congress on various issues regarding the deposit
insurance funds, including such questions as the plans being developed for the
merger of the funds, an estimate of the cost of such merger to be borne by SAIF
members, and any recommendations for legislative action to provide for an
efficient merger of the funds.

          Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.

          FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLB of
Chicago, which is one of the regional Federal Home Loan Banks composing the
Federal Home Loan Bank System. Each Federal Home Loan Bank provides a central
credit facility primarily for its member institutions. The Bank, as a member of
the FHLB of Chicago, is required to acquire and hold shares of capital stock in
the FHLB of Chicago in an amount at least equal to the greater of 1% of the
aggregate principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year or 1/20 of its advances (borrowings)
from the FHLB of Chicago. The Bank was in compliance with this requirement with
an investment in the capital stock of the FHLB of Chicago at June 30, 1998, of
$3.4 million. Any advances from a Federal Home Loan Bank must be secured by
specified types of collateral, and all long term advances may be obtained only
for the purpose of providing funds for residential housing finance.

          The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts and to contribute funds for affordable housing
programs. These requirements could reduce the amount of earnings that the
Federal Home Loan Banks can pay as dividends to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. The Bank earned dividends on the FHLB of Chicago
capital stock in amounts equal to $171,000, $138,000, and $148,000 respectively
during the fiscal year ended June 30, 1998, the eleven months ended June 30,
1997, and the fiscal year ended July 31, 1996. If dividends were reduced, or
interest on future Federal Home Loan Bank advances increased, the Bank's net
interest income would likely also be reduced.

          FEDERAL RESERVE SYSTEM. The Bank is subject to provisions of the FRA
and the FRB's regulations pursuant to which depositary institutions may be
required to maintain non-interest-earning reserves against their deposit
accounts and certain other liabilities. Currently, reserves must be maintained
against transaction accounts (primarily NOW and regular checking accounts). The
FRB regulations generally require that


                                       30


<PAGE>

reserves be maintained in the amount of 3% of the aggregate of transaction
accounts up to $47.8 million. The amount of aggregate transaction accounts in
excess of $47.8 million are currently subject to a reserve ratio of 10%, which
ratio the FRB may adjust between 8% and 12%. The FRB regulations currently
exempt $4.7 million of otherwise reservable balances from the reserve
requirements, which exemption is adjusted by the FRB at the end of each year.
The Bank is in compliance with the foregoing reserve requirements. Because
required reserves must be maintained in the form of either vault cash, a
non-interest bearing account at a Federal Reserve Bank, or a passthrough account
as defined by the FRB, the effect of this reserve requirement is to reduce the
Bank's interest-earning assets. The balances maintained to meet the reserve
requirements imposed by the FRB may be used to satisfy liquidity requirements
imposed by the OTS. Federal Home Loan Bank System members are also authorized to
borrow from the Federal Reserve "discount window," but FRB regulations require
such institutions to exhaust all Federal Home Loan Bank sources before borrowing
from a Federal Reserve Bank.

REGULATION OF SAVINGS ASSOCIATION HOLDING COMPANIES

          The Company, is a non-diversified unitary savings bank holding company
within the meaning of the HOLA, as amended. As such, the Company is subject to
OTS regulations, examinations, supervision and reporting requirements. In
addition, the OTS has enforcement authority over the Company and its non-savings
association subsidiaries, if any. Among other things, this authority permits the
OTS to restrict or prohibit activities that are determined to be a serious risk
to the financial safety, soundness, or stability of a subsidiary savings
institution.

          The HOLA prohibits a savings association holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring another savings
association or holding company thereof, without prior written approval of the
OTS; acquiring or retaining, with certain exceptions, more than 5% of a
non-subsidiary savings association, a non-subsidiary holding company, or a
non-subsidiary company engaged in activities other than those permitted by the
HOLA; or acquiring or retaining control of a depository institution that is not
insured by the FDIC. In evaluating an application by a holding company to
acquire a savings association, the OTS must consider the financial and
managerial resources and future prospects of the company and savings association
involved, the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors.

          As a unitary savings bank holding company, the Company generally is
not restricted under existing laws as to the types of business activities in
which it may engage, provided that the Bank continues to satisfy the QTL test.
Upon any non-supervisory acquisition by the Company of another savings
association or savings bank that meets the QTL test and is deemed to be a
savings association by the OTS and that will be held as a separate subsidiary,
the Company would become a multiple savings association holding company and
would be subject to limitations on the types of business activities in which it
could engage. The HOLA limits the activities of a multiple savings association
holding company and its noninsured association subsidiaries primarily to
activities permissible for bank holding companies under Section 4(c)(8) of the
BHC Act, subject to the prior approval of the OTS, and to other activities
authorized by OTS regulation.

          The OTS is prohibited from approving any acquisition that would result
in a multiple savings association holding company controlling savings
associations in more than one state, subject to two exceptions: an acquisition
of a savings association in another state (a) in a supervisory transaction or
(b) pursuant to authority under the laws of the state of the association to be
acquired that specifically permit such acquisitions. The conditions imposed upon
interstate acquisitions by those states that have enacted authorizing
legislation vary. Some states impose conditions of reciprocity, which have the
effect of requiring that the laws of both the state in which the acquiring
holding company is located (as determined by the location of its subsidiary
savings association) and the state in which the association to be acquired is
located, have each enacted legislation allowing its savings associations to be
acquired by out-of-state holding companies on the


                                       31


<PAGE>


condition that the laws of the other state authorize such transactions on terms
no more restrictive than those imposed on the acquiror by the state of the
target association. Some of these states also impose regional limitations, which
restrict such acquisitions to states within a defined geographic region. Other
states allow full nationwide banking without any condition of reciprocity. Some
states do not authorize interstate acquisitions of savings associations.

          Transactions between the Bank and the Company and its other
subsidiaries are subject to various conditions and limitations. The Bank is
required to give 30-days written notice to the OTS prior to any declaration of
the payment of any dividends or other capital distributions to the Company.

FEDERAL SECURITIES LAW

          The Company's Common Stock is registered with the SEC under Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
The Company is subject to information, proxy solicitation, insider trading
restrictions and other requirements under the Exchange Act.

                           FORWARD LOOKING STATEMENTS

          This Annual Report on Form 10-K contains certain forward looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include: changes in general, economic and market
conditions; the development of an adverse interest rate environment that
adversely affects the interest rate spread or other income anticipated from the
Company's operations and investments; depositor and borrower preferences; and
the factors described under "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000" in Item 7 of the Form 10-K.


ITEM  2.      PROPERTIES

          The Bank conducts its business through its corporate office and two
branch locations, as set forth in the following table.

<TABLE>
<CAPTION>
                                                                          Lease         Net Book
                                        Leased or      Date Leased     Expiration      Value at
                                          Owned        or Acquired        Date       June 30, 1998
                                       -------------  --------------  -------------- --------------
                                                              (In thousands)
 Main Office:
    Old McHenry Road
<S>                                        <C>            <C>              <C>           <C>
    Long Grove, Illinois  60047....        Owned          1980             -----         $3,543

 Branches:
    1601 North Milwaukee Avenue
    Chicago, Illinois  60647.......        Owned          1941             -----            409

    8301 West Lawrence
    Norridge Illinois  60656.......         (1)           1976            4/2006(2)          23
</TABLE>

____________________

(1) Land leased, building owned by the Bank.
(2) The Bank has two five-year renewal options.


                                       32


<PAGE>


ITEM  3. LEGAL PROCEEDINGS

          In the ordinary course of its operations, the Bank is a party to
routine litigation involving claims incidental to the savings bank business.
Management believes that no current litigation, threatened or pending, to which
the Bank or its assets is or may become a party poses a substantial likelihood
of potential loss or exposure which would have a material adverse effect on the
financial position of the Bank.


                                     PART II
 

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
         None.


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

          Big Foot Financial Corp. common stock is traded over the counter and
is listed on the National Market System of the Nasdaq Stock Market under the
symbol "BFFC." At June 30, 1998, there were 2,512,750 shares of Big Foot
Financial Corp. common stock issued and outstanding and there were approximately
485 holders of record. The price range of the common stock from the date the
common stock began trading on December 20, 1996 was as follows:

        THREE MONTHS ENDED             HIGH          LOW
        ------------------             ----          ---

        December 31, 1996*           $13.000      $12.313
        March 31, 1997                14.750       12.688
        June 30, 1997                 16.125       13.875
        September 30, 1997            17.875       16.000
        December 31, 1997             21.500       17.750
        March 31, 1998                23.938       20.125
        June 30, 1998                 21.875       17.313

        __________________________________
        *Period began December 20, 1996


          The stock price information set forth in the table above was provided
by the National Association of Securities Dealers, Inc. High, low, and closing
prices and daily trading volume are reported in most major newspapers.

          The Company has not paid a cash dividend since its incorporation. The
Board of Directors may consider the payment of cash dividends, dependent on the
results of operations and financial condition of the Company, tax
considerations, industry standards, economic conditions, regulatory
restrictions, general business practices, and other factors. The Company's
ability to pay dividends is dependent on the dividend payments it receives from
its subsidiary, Fairfield Savings Bank, F.S.B. which are subject to regulations
and the Bank's continued compliance with all regulatory capital requirements.
See Note 15 of the Notes to the Consolidated Financial Statements for
information regarding limitations of the Bank's ability to pay dividends to the
Company.


                                       33


<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)

<TABLE>
<CAPTION>
                                                 At or for       At or for the
                                                    the          eleven months
                                                year ended           ended
                                                  June 30,          June 30,          At or for the year ended July 31,
                                                   1998              1997            1996(1)      1995(1)       1994(1)
                                               ------------    ----------------  ---------------------------------------
Selected Financial Condition Data:
<S>                                             <C>               <C>               <C>          <C>            <C>
   Total assets                                 $220,604          $ 214,896         $194,624     $200,251       $195,207
   Loans receivable (net)                        115,472             93,624           79,144       70,984        68,426
   Allowance for loan losses                         300                300              300          166           166
   Mortgage-backed securities                     79,764            107,595          102,411      111,283       111,987
   Savings deposits                              123,835            122,981          137,177      148,350       141,830
   Borrowed funds                                 53,000             49,600           39,900       32,300        34,300
   Stockholders' equity                           38,094             36,977           13,579       14,423        13,441

Selected Operating Data:
   Net interest income before provision for
      loan losses                                  6,442              5,346            4,704        5,341          6,129
   Net income                                      1,180                220              226          982          2,110
   Net income excluding special SAIF
      assessment, net of tax                       1,180                837              226          982          2,110

Selected Financial Ratios:
   Bank Capital ratios:
      Tangible                                     12.30%             12.13%            7.35%        7.05%          6.50%
      Core                                         12.30              12.13             7.35         7.05           6.50
      Risk-based                                   31.76              34.03            21.59        21.28          19.63
   Return on average assets                         0.55               0.11             0.11         0.51           1.09
   Return on average assets excluding
     special SAIF assessment, net of tax            0.55               0.41             0.11         0.51           1.09
   Return on average stockholders' equity           3.12               0.82             1.58         6.98          16.93
   Return on average stockholders' equity
     excluding special SAIF assessment,
       net of tax                                   3.12               3.13             1.58         6.98          16.93
   Consolidated equity to assets at end of
     period                                        17.27              17.21             6.98         7.20          6.89
   Noninterest expense to average assets            2.47               2.59             2.36         2.45          2.63
   Noninterest expense to average assets
     excluding special SAIF assessment              2.47               2.13             2.36         2.45          2.63
   Non-performing assets as a percent of
     total assets                                   0.16               0.09             0.06         0.18          0.26
   Allowance for loan losses as a percent
     of total loans                                 0.26               0.32             0.38         0.23          0.24
   Allowance for loan losses as a percent
     of non-performing loans                       87.72             150.75           254.24        86.01         32.49

Per Share Data:
   Basic earnings per share                     $   0.50           $   0.27              N/A          N/A           N/A
   Diluted earnings per share                       0.49               0.27              N/A          N/A           N/A
   Book value                                      15.16              14.72              N/A          N/A           N/A

Stock Quotes:
   High(2)                                      $ 23.938           $ 16.125              N/A          N/A           N/A
   Low(2)                                         16.000             12.313              N/A          N/A           N/A
   At June 30                                     18.000             16.125              N/A          N/A           N/A
</TABLE>

__________________________________________________
(1) Fairfield Savings Bank, F.S.B. only.
(2) Quotes for 1997 include the period from December 20, 1996 to June 30, 1997.


                                       34



<PAGE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

          The information required by this Item is incorporated herein by
reference to pages 5 through 24 of the Company's 1998 Annual Report to
Shareholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations, " which section is included in
Exhibit 13.1 to this Report.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          The information required by this Item is incorporated herein by
reference to pages 7 through 10 of the Company's 1998 Annual Report to
Shareholders under the caption "Quantitative and Qualitative Disclosures About
Market Risk," which section is included in Exhibit 13.1 to this Report.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          The information required by this Item is incorporated herein by
reference to pages 25 through 54 of the Company's 1998 Annual Report to
Shareholders under the captions "Independent Auditor's Report," "Consolidated
Financial Statements" and "Notes to Consolidated Financial Statements," which
sections are included in Exhibit 13.1 to this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

          None.



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The following information included on pages 6 through 8, and page 18
of the Company's Proxy Statement for the 1998 Annual Meeting of Stockholders
(the "Proxy Statement") is incorporated herein by reference: "Election of
Directors," "Information as to Nominees and Continuing Directors," "Nominees for
Election as Director," "Continuing Directors," "Executive Officers," and
"Section 16(a) Beneficial Ownership Reporting Compliance."


ITEM 11. EXECUTIVE COMPENSATION

          The following information included on pages 9 through 18, of the Proxy
Statement is incorporated herein by reference: "Management Salary Compensation
Committee Report on Executive Compensation," "Compensation Committee Interlocks
and Insider Participation," "Performance Graph," "Directors' Compensation,"
"Executive Compensation," "Employment Agreements," and "Benefits."


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

          The following information included on pages 4 through 6, of the Proxy
Statement is incorporated herein by reference: "Security Ownership of Certain
Beneficial Owners and Management-Principal Shareholders of the Company," and
"Security Ownership of Management."


                                       35


<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The following information included on page 18 of the Proxy statement
is incorporated herein by reference: "Compensation of Directors and Executive
Officers - Transactions with Certain Related Persons."


                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

Listed below are all financial statements and exhibits filed as part of this
report:

     a.   Financial Statements, Schedules, and Exhibits
     (1)  The consolidated balance sheets of Big Foot Financial Corp. and
          subsidiary as of June 30, 1998 and June 30, 1997 and the related
          consolidated statements of earnings, stockholders' equity, and cash
          flows for the year ended June 30, 1998, the eleven month period ended
          June 30, 1997 and the year ended July 31, 1996 together with the
          related notes and the independent auditors' report of KPMG Peat
          Marwick LLP, independent certified public accountants.
     (2)  Schedules omitted as they are not applicable.
     (3)  Exhibits


                                       36

<PAGE>






EXHIBIT NO.                                 DESCRIPTION
-----------                                 -----------

     3.1          Article of Incorporation of Big Foot Financial Corp.*

     3.2          Bylaws of  Big Foot Financial Corp.*

     4.3          Specimen of Stock Certificate of Big Foot Financial Corp.*

     10.1(a)      Employee Stock Ownership Plan of Big Foot Financial Corp.*

     10.1(b)      ESOP Trust Agreement dated as of December 19, 1996.**

     10.2         Loan Agreement by and between Big Foot Financial Corp.
                  Employee Stock Ownership Plan Trust and Big Foot Financial
                  Corp. Made and Entered Into as of December 19, 1996, as
                  amended.**

     10.3         Employment Agreement between Big Foot Financial Corp. and
                  George M. Briody.**

     10.4         Form of Employment Agreement between Big Foot Financial
                  Corp. and Executive Officers.**

     10.5         Employment Agreement between Fairfield Savings Bank, F.S.B.
                  and George M. Briody.**

     10.6         Form of Employment Agreement between Fairfield Savings Bank,
                  F.S.B. and Executive Officers.**

     10.7         Form of Employee Retention Agreement between Big Foot
                  Financial Corp., Fairfield Savings Bank, F.S.B. and certain
                  employees.**

     10.8         Lease Agreement of Fairfield Savings Bank, F.S.B. for
                  Norridge Branch Office, dated April 29, 1976.*

     10.9         Amended and Restated Severance Pay Plan of Fairfield Savings
                  Bank, F.S.B., Adopted on September 17, 1996, Effective on
                  December 19, 1996.**

    10.10(a)      Fairfield Savings Bank Profit Sharing and Savings Plan (as
                  amended and restated effective August 1, 1989).*

    10.10(b)      Amendments No.1 (dated September 21, 1993), No. 2 (dated
                  July 19, 1994) and No. 3 (dated November 18, 1996) to the
                  Fairfield Savings Bank Profit Sharing and Savings Plan.**

    10.11(a)      Big Foot Financial Corp. 1997 Stock Option Plan***

    10.11(b)      Amendment No. 1 to the Big Foot Financial Corp. 1997 Stock
                  Option Plan****

    10.12         Big Foot Financial Corp. 1997 Recognition and Retention
                  Plan*****

    13.1          Portions of Big Foot Financial Corp. 1998 Annual Report to
                  shareholders.


                                       37

<PAGE>

    21.1          Subsidiaries of the Registrant*

    23.1          Consent of KPMG Peat Marwick LLP

    27.1          Financial Data Schedule (Submitted only with filing in
                  electronic format).

    99.1          Proxy statement for 1998 Annual Meeting of Stockholders of
                  Big Foot Financial Corp. (previously filed with the
                  Securities and Exchange Commission on September 10, 1998.


*    Incorporated herein by reference to Registration Statement No. 333-12083 on
     Form S-1 of Big Foot Financial Corp. filed with the Securities and Exchange
     Commission on September 16, 1996, as amended.

**   Incorporated herein by reference to the Registrant's Form 10-K for the
     transition period from August 1, 1996 to June 30, 1997, filed with the
     Securities and Exchange Commission on September 29, 1997.

***  Incorporated herein by reference to the Schedule 14A filed with the
     Securities and Exchange Commission on May 22, 1997.

*****Incorporated  herein by  reference  to the  Schedule  14A filed  with the
     Securities and Exchange Commission on November 17, 1997.

b. Reports on Form 8-K - None


                                       38

<PAGE>

SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on September 23, 1998.

   Big Foot Financial Corp.

   By:  /s/ George M. Briody
        --------------------
   George M. Briody
   President

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

<TABLE>
<CAPTION>
             NAME                 TITLE                                             DATE

<S>                               <C>                                         <C>
/s/ George M. Briody              President, Director
-----------------------------     (Principal Executive Officer)               September 23, 1998
George M. Briody


/s/ F. Gregory Opelka             Executive Vice President, Director          September 23, 1998
-----------------------------
F. Gregory Opelka


/s/ Timothy L. McCue              Vice President, Chief Financial Officer     September 23, 1998
-----------------------------
Timothy L. McCue


/s/ Michael J. Cahill             Vice President, Controller                  September 23, 1998
-----------------------------
Michael J. Cahill


/s/ Maurice F. Leahy              Director                                    September 23, 1998
-----------------------------
Maurice F. Leahy


/s/ Eugene W. Pilawski            Director                                    September 23, 1998
-----------------------------
Eugene W. Pilawski


/s/ Joseph J. Nimrod              Director                                    September 23, 1998
-----------------------------
Joseph J. Nimrod


/s/ Walter E. Powers, M.D.        Director                                    September 23, 1998
-----------------------------
Walter E. Powers, M.D.


/s/ William B. O'Connell          Director                                    September 23, 1998
-----------------------------
William B. O'Connell


                                       39
</TABLE>